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Disclaimer: we don’t like this method of earning points, but it is used by at least one verification agency who tells us this method is condoned by SANAS. The dti, the gatekeeper of the codes pretty much refuse to investigate any alleged transgression of the codes, or take action, so we feel duty bound to inform you how to earn 8 extra points.
This scheme will only work for companies that are 100% white owned. If you are partially or totally black owned, then you are being discriminated against.
1) Sell one share in your business to a black person. It does not matter how many shares you have in issue – 100, 1000, million, 10 million. The more shares in issue the lower the value of the one single share. For this example let us assume you have one million shares in issue.
2) Make sure the black person pays for his single share. If your business is worth R500 million rand, and you have one million shares in issue, then he owes you R500.
3) Appoint the right agency to verify you.
4) This agency will award you very few points for voting rights and economic interest. This is because you would only have 1 millionth of your business in black hands. However this agency will award you full points for the indicator Net Value,ie 7 points, and an extra 1 point for ownership fulfillment, ie 8 points because that single share has been fully paid for.
5) How it works: The indicator “net value” awards points based on a percentage of the debt still owing on the shares. It is a complex calculation that takes into account the length of time that the debt, ie the amount owing on the shares, has been outstanding. It also is supposed to take into account the percentage of shares that are in black hands. The target for economic interest is 25%, and the codes clearly state that the maximum points to be earned may not exceed the ratio of shares owned/25%. If 25% of shares are in black hands then the ratio is 100% of the 7 available points. If only 2.5% of shares are in black hands, then this is 10% of the target, and the maximum points to be earned cannot be more than 10% of 7 points i e 0.7. This agency, that is fully accredited by SANAS, and who states that SANAS has audited their management system choose to ignore this maximum calculation. They state that the maximum points calculation can be dispensed with, and if 100% of the shares owned by black people have been paid for – even if only one share out of one million – then the ratio is 100% of the 7 available points. They will then award 7 points.
6) They go further: Another indicator is “Ownership Fulfillment”, which is worth 1 point. This point is awarded only if Net Value has earned the full 7 points and the shares are fully paid for. In this instance, since the agency has awarded 7 points and the shares, actually one share, has been fully paid for, another points for Ownership Fulfillment will be awarded.
8 points for selling one share worth R500! This is almost one B-BBEE level.
The above is not a purely academic argument. This agency has awarded our client 8 extra points. Our client, and ourselves are extremely upset that the methodology has not been conducted in accordance with the codes, but the agency sticks to its policies and refuses to change policy and re-calculate the scorecard and re-issue a certificate. Our client wants as many points as possible, but not where they know the agency has made a mistake. Until the agency corrects this they do not want to issue their certificate.
We would hope that the dti and SANAS will take action against this errant agency. Of course, if SANAS and the dti do not react, then it will imply that the agency is indeed correct, and this is a fantastic loophole in the codes to enable any (white owned) businesses to earn a further 8 points.
Two items caught my eye.
One was about the transport sector code. See here.
The point made in the article is that the transport sector code is not seeing any benefits passed onto the people who were intended to benefit. The report quoted Mr Sam Monareng as saying that the sector code was gazetted in 2009. The report quoted him as saying “Stakeholders were then given a grace period of one year from August 2009, with the five-year time frame effectively commencing from August 2010”. This of course is not entirely true.
The transport charter applies from the date of gazetting, i.e 2009, and nowhere do the codes give any of the sector councils the right to give a grace period. A grace period must be gazetted as part of the codes. In any event the spokesman does clearly indicate that as from August 2010 the sector codes applied.
The report talks about the the usual problems of BEE – the slow pace of transformation.
The sector code came out in 2009, the transport dept does not even know that they do not have discretion to give a grace period, but did so anyway. Now there is a wonder as to why the slow pace of transformation. Even worse is many companies in the transport sector, even after August 2010 did not follow the transport sector codes. We have seen certificates dated way after August 2010, from companies in the transport industry that still use the generic codes. This is wrong and should invalidate their B-BBEE certificate. We naturally report all such instances to the dti, where we identify them. The dti reacts slowly or not at all. In some cases, they have asked the verification agency to withdraw the certificate, but they have no database to store withdrawn certificates, so their efforts are weak at best.
To repeat: Why do people wonder why the pace of B-BBEE implementation is so slow.
The second item was the initiative of the dti that is slow paced is the report that the dti has now launched a B-BBEE Management Development Program to be offered by Universities. We applaud the move to better quality BEE knowledge. However, as usual with the dti, the one arm does not seem to know what is happening with the other. We have tried for a week to get details of the courses, when they start, how long they are, and most importantly when the first batch of graduates will complete the course. This is important because SANAS and IRBA cannot accredit or approve any new agency or auditor until they have completed the prescribed higher education courses. It may well entail yet another delay in implementing the codes.
The minister has approved IRBA as a B-BBEE Regulatory body. This means that auditors can now be accredited by their own body, IRBA (Independent Regulatory Body for Auditors) to verify BEE certificates. They will be known as “Approved Registered Auditors. Previously only SANAS was able to accredit agencies. This should result in more organisations being able to verify, hopefully a higher quality of work, and most importantly consistency of verification.
The notice comes into effect on 1st October 2011.
1) As we had suggested in our submission in February, EMEs are specifically excluded, allowing an accountant or auditor or financial officer to continue to sign EME statements.
2) All agencies must follow the Verification Manual and the gazette specifies that this includes sector codes – an issue we have been complaining about for months.
3) Certificates must show the weightings in points of each element verified. (Some agencies only use levels, e.g ownership level 7. The gazetted requires them to show points earned.).
4) Verification Agencies seeking accreditation with SANAS or Approved Registered Auditors seeking approval must complete the B-BBEE Management Development Program, launched recently by the dti and dept of higher education. This implies that no more agencies may be accredited or auditors approved until they have completed the program, which could entail a delay of another year!
5) Prospective verification agencies may no longer use a pre-assessment letter issued to them by SANAS. They previously could use their pre-assessment letter to perform verification. From 1st October 2011 those agencies will only be allowed to issued valid certificates once they have their full accreditation.
We welcomed the introduction of other regulatory bodies when the minister issued his draft gazette. At the time his proposal was to begin accrediting those bodies from 21st April 2011, so this is 6 months late. We continue to support the proposals, but wonder why the minister did not take the time to clear up other issues surrounding B-BBEE certificates and interpretations.
We did recommend that the minister ensure more consistent verification, and the requirement that all prospective agencies must complete a B-BBEE training course is a step in the right direction.
Due to the minister’s requirement that no more agencies and be accredited or auditors regulated until they have completed the B-BBEE Management Development Program short course, there will be a delay in further agencies coming on-line. Applications opened for the course on 1st September. According to Unisa, the first course starts this Friday, but lasts a year. The first batch of Unisa graduates will complete their studies by October 2012.
The following individuals have been elected to serve on the ABVA Board for the 2010/2012 term of office.
1. Brigitte Brun, AQRate KZN (Pty) Ltd
2. Chris van Wyk, AQRate (Pty) Ltd
3. Dumisani Mpafa, Black Economic Empowerment Verification Agency t/a BEEVER Agency cc
4. Kate Moloto, Moloto BEE Verifications cc
5. Loyiso Majija, EmpowerLogic (Pty) Ltd
6. Tony Balshaw, Grant Thornton East London
7. Wade van Rooyen, IQuad Verification Services (Pty) Ltd
With a new board comes new responsibility, let us hope that these new board members put the interests of True Empowerment and transformation first and not lobby for more business by offering interpretations that benefits verification at the cost of transformation.
This no doubt adds a bit of controversy in that one major flaw with BEE is fronting. To some extent it goes without saying the issues being described are purely based on the outdated discredited Narrow Based system because it is less likely to have a company “front” on the Broad Based BEE scorecard and almost impossible for that to occur for Ownership because the company would earn no points.
In essence we have to sort out a problem – fronting. Their solution is regulation. The regulation is based on the Broad Based BEE scorecard and the fronting occurs on the narrow based scorecard. Which means it is more difficult to create an “ethical” scorecard and quite easy to front!
The EconoBEE Solution: The Broad Based BEE scorecard is brilliant – so use it. Instead of announcing a problem like fronting change the PPPFA which is causing this problem to properly integrate the BBBEE act.
Simply in my opinion, fronting is as a consequence of outdated government policies and all effort should be placed on correcting the cause and not treating the symptom.
PRESIDENT ZUMA CONVENES THIRD MEETING OF BEE ADVISORY COUNCIL
The Black Economic Empowerment Advisory Council held its third meeting at the Union Buildings in Pretoria today (20 May 2010).
The Council, which was established in December 2009 in terms of the Broad-Based Black Economic Empowerment Act, is chaired by President Jacob Zuma. It held its inaugural meeting on 4 February 2010.
In his opening remarks, President Zuma said much progress had been made in advancing black economic empowerment, but not enough. He said the Council would need to advise government on how to ensure it happens faster and benefits broader society.
President Zuma said the Council would need to answer the question: “In the South African context, where many people were excluded for centuries, how do we level the playing field?”
“This Council needs to look at what needs to happen in the economy,” he said.
Minister of Trade and Industry Rob Davies said that many elements of the BBBEE Framework had been put in place, including sector charters, codes of good practice, and verification processes: “We find ourselves at a moment when we need to assess the impact of that work.”
“There is a great deal of work that needs to be done to make empowerment a contributor to development and economic growth,” he said.
One of the challenges that the Council would need to advise on was the abuse of the empowerment process through practices like fronting. It would also need to look at the alignment of government’s preferential procurement policy with black economic empowerment. The Council also identified weaknesses in verification and accreditation procedures.
Members of the Council emphasised the need to ensure that economic empowerment was indeed broad-based, and said that this consideration should be at the centre of the interventions that the Council would propose to government.
The meeting adopted the Council’s Constitution which outlines, among other things, the powers, functions and administration of the Council.
The meeting established four sub-committees to address a number of key issues that are central to the work of the Council. These are:
1. Ownership and structuring of BBBEE deals
2. Enterprise Development, Access to Finance and Procurement
3. Human Resource Development
4. Legislation, Charters, Compliance and Enforcement
In the course of developing recommendations to the council, the sub-committees may co-opt experts and commission research as required.
The sub-committees will report to the next meeting of the Council, which is due to be held in September 2010.
20 May 2010
Did you ever stop and think why something that lasted only 40 years is going to take more than double that time to remedy the wrongs that were caused. The major problem resulting from the apartheid era is that so many South Africans lack a basic education. Back in high school and even primary school, if I struggled with some homework, I had qualified educators and more importantly I had my parents at home to help me. It wasn’t too much more than correcting the wrong word in an essay or making me double check the answer to a quadratic equation. The point is that I had someone who had gone through the process and knew a little bit more than I did. Thousands of black individuals were denied the right to a quality education if an education at all. These people now have children and even though their children are allowed to go to school, if they have any problems, they won’t be able to go to their parents for help because the parents simply don’t know the work. This seemingly insignificant idea results in the child getting a reduced education. The child may graduate; say for example as just passing. Just a pass will be greater than what the parents received. When that child grows up he/she will have children and that child will be able to ask the parent for help and may be able to graduate with a D symbol. That child grows up and eventually has children and will help that child and the child will receive a C symbol. The child that gained a C average will have children that will be able to finally get above 70%. This is now 4 generations which equates to nearly 100 years. To correct the wrongs of the previously over advantaged is going to take an extremely long time.
The DTI has gazetted the accountants BEE charter. This charter has been issued as a section 9 (5).
A short comments period will be allowed and thereafter it may be gazetted as a section 9.
More info to follow shortly.
An article in the Business Report discusses how Charles Pillai has slammed the lack of transformation in the financial services sector.
He is of course correct in saying that “while certain opportunities in the financial services sector might have been created for political elites through black economic empowerment (BEE) transactions, not much had changed for the ordinary citizens.”
He lays the blame squarely at the hands of the industry and states “the financial services industry remained largely in the hands of white males, and he was disappointed by this state of affairs.”
Agaion he is correct in his observation but where he is completely wrong and should take much of the blame itself is in ONLY blaming the industry.
Let’s give a bit of background first: The measurement of B-BBEE compliance is via the B-BBEE codes of good practice. There is no other objective form of measurement. The codes cover all areas of interest and would include his criticism of the state of affairs.
Now the financial sector has been very slow in adopting the B-BBEE codes, whch is quite possibly the reason for the lack of transformation. They have spoken for years about the “Financial Sector Charter” (FSC), and tried to use that as a substitute for the B-BBEE codes of good practice. The FCS has never been gazetted and to all intents and purposes does not exist other than as a discussion document.
Some financial institutions have chosen to follow the codes, e.g Nedbank, while Standard Bank and ABSA have never published a valid B-BBEE scorecard (Correction, ABSA has a scorecard based on the codes of good practice – level 4). At no stage has the Financial Services Board (FSB) ever publicly condemned them or any other financial services provider, refused to renew their licenses, or even publicly asked them to produce the correct scorecard. In effect the financial industy has been declared exempt from B-BBEE by the FSB.
Now the reason why Charles Pillai is as much to blame. As the ombud for the industry he should have demanded that the FSB follow the law (section 10 of the B-BBEE act) makes it obligatory to take into account the BEE status of all organisations to which they may award a license). They have never done so. I repeat here that the ONLY measurement of the BEE status is a scorecard prpared in terms of the B-BBEE Codes of Good Practice. Whatever other methods the FSB ever used may be admirable, but not sufficient.
In terms of the law, the only way that the FSB could ensure that they did not act contrary to the constitution is to accecpt that all financial services companies have indeed a BEE status of zero. This would of course satisfy the requirements of the act. However section 10 of the B-BBEE act says that in addition they must “as far as is reasonably possible apply any relevant code of good practice in determinign qualification criteriafor the issuing of license, concessions or other authorisations in terms of any law”.
It is obvious that the FSB does not bother to do this, especially with the banks. It is further obvious that Charles Pillai also did not bother. I understand that he has never criticised or condemned nor fined any financial services company for never submitting thie BEE status. Worse, neither he nor the FSB have displayed their own BEE status publicly.
Charles Pillai, rightfully criticises the industry – what has he ever done in any of his rulings or discussions with the FSB to rectify the situation?