Archive for category Verification
27th January 2010 and Fronting
Posted by Keith in Accreditation, BBBEE Knowledge, Fronting, Verification on August 16th, 2010
1st February was a landmark day in the history of B-BBEE in South Africa. It was from that date onwards that only certificates issued by accredited verification agencies, or those in possession of a valid pre-assessment letter, would be valid.
Prior to that date other certificates, even if issued by a non-accredited agency or self ratings or BEE consultant swould be acceptable.
It is therefore quite interesting to see how many certificates were produced by consultants in the final three days before the deadline. We have seen more certificates dated 27th,28th,29th January than any other date! (30th January was a Saturday explaining why the 27th and 28th January were such popular dates). When I see a certificate dated 27th or 28th January, I examine it in a little more detail. This is not to say it should be rejected, but I am sceptical over the volume of certificates produced over that time. I look especially for certificates that do not use decimals in their calculations, or those where all the points have been earned for any one element. The mix of how points were earned is another indicator of fronting. For example if a company has earned all 23 points on ownership, but gets less than 2 points for management control, there is sufficient reason to want to double check the data. The codes do say that the measured entity must hold suitable evidence or documentation to prove their score. If they do not have the proof, then the entire scorecard must be rejected.
We do have a letter from the dti confirming that certificates produced prior to 1st February 2010 remain valid. If your verification agency does not accept certificates produced by non-accredited agencies prior to 1st February 2010, email us and request a copy of that letter.
Fronting is misrepresentation of one’s BEE position and is considered fraud. We have come across an interesting situation recently. In this case, they did not choose the 27th January date for their BEE Certificate, but used 30th November 2010 as the date on their certificate! Back-dating a scorecard is one thing, but forward-dating it is a recipe for getting caught out! A bit more research showed that they used the identical certificate last year with a date of 30th November 2009l. The certificate purported to be from EMEX (a very reputable verification agency), and was obviously forged. Investigations are continuing, and it is currently impossible to state who is at fault here, but there is no doubt that this certificate is not valid, and does not give the true BEE situation of the company.
Valid certificates – 2
Posted by Keith in Accreditation, Interpretations, Verification on August 13th, 2010
The scenario: An agency has applied to SANAS but not yet received it pre-assessment letter. The agency produced a certificate for their client on 1st June 2010.
Is it valid?
Points to consider:
1) The minister’s notices states that a valid certificate is one that is produced by an accredited agency or one that has a valid pre-assessment letter. The term “valid pre-assessment letter” is crucial. SANAS performs a pre-assessment visit to the agency and if it achieves minimum standards with its management system, SANAS will issue a pre-assessment letter. A pre-assessment letter is not the same letter that SANAS may send as an acknowledgment or acceptance that the agency has applied to be a verification agency.
2) The agency began its work with its client before its pre-asessment letter was issued, and to date, August has still not received its pre-assessment letter. It may have had reason to believe that it would receive its pre-assessment letter during the verification process.
Is the certificate they issued valid? Following the strict guidelines of the minister’s notice the answer is NO. At the exact date if issue of the certificate, it had no valid pre-assessment letter.
If the agency obtains its pre-assessment letter later this year, the inclination is to accept the certificate because the agency has subsequently received its pre-assessment letter. However all pre-assessment letters carry an inception or start date as well as an expiry date. Had there been a gap of a couple of days before receiving its pre-assessment letter, we could have believed in the interests of substance of form that the certificate is valid.
Conclusion: In our opinion the certificate is not valid.
Valid certificates – 1
Posted by Keith in Accreditation, Interpretations, Verification on August 13th, 2010
The scenario: An agency has applied to SANAS and received its pre-assessment letter. The letter expired in June 2010. The agency produced a certificate for their client in July 2010, after the certificate has expired.
Is it valid?
Points to consider:
1) The minister’s notices states that a valid certificate is one that is produced by an accredited agency or one that has a valid pre-assessment letter. The term “valid pre-assessment letter” is crucial. SANAS issues pre-assessment letters that all carry an expiry date. In the case of the above scenario the agency’s pre-assessment letter had expired.
2) The agency began its work with its client while its pre-assessment letter was valid. The work took longer than expected and they could only sign the certificate after their letter expired.
3) The agency had good reason to believe that it would receive full accreditation around about the same time that its pre-assessment letter expired.
Is the certificate they issued valid? Following the strict guidelines of the minister’s notice the answer is NO. At the exact date if issue of the certificate, it was not accredited and had no valid pre-assessment letter. If the agency obtains its accredited later this year, the inclination is to accept the certificate because the agency has subsequently become accredited. This would be similar to a person who decides to operate on a patient, and later on become a surgeon. It did not give him the right to operate at the time. Similarly driving a vehicle without a license because in the future you will get the license will still earn a fine.
Even if the final accreditation is a formality, as the agency believes, that fact is as at today the agency has not been accredited – 3 months after signing the certificate.
SANAS has a rule that they do not reissue pre-assessment certificates, unlike licensing authorities that allow one to take a learners license multiple times. If this is blatantly unfair, then it is a matter for the agency and SANAS, and still does not give anyone the right to issue valid certificates.
Conclusion: In our opinion the certificate is not valid.
Scorecard vs Verified certificate
Posted by Keith in Accreditation, BBBEE Knowledge, Verification on July 9th, 2010
This is one of the most confusing aspects of BEE.
What is the difference between a scorecard and a BEE certificate”? A BEE scorecard is a calculation of how many points you have earned. A verified certificate is confirmation that the points you have earned have been verified.
Your customer wants a verified BEE s certificate from you.
How does one go about getting the verified certificate?
In summary
1) Obtain a BEE scorecard reflecting points earned
2) Call in a verification agency to verify that the points you have earned are correctly stated and accurately calculated.
In detail:
1) Obtain a BEE scorecard reflecting points earned.
This is where we come in as a BEE consultant. We help you to build up that scorecard – we don’t “give” you points. We know what is able to earn points, and based no the data we are able to collect from you, we will assist you in calculating your scorecard. We also will assist in desiging strategies to be able to earn more points in the future. The process of building up your scorecard is not an instant fix. It can take months, or even years to be able to build up a really good scorecard
2) Call in a verification agency to verify that the points you have earned are correctly stated and accurately calculated.
Once you have a scorecard, and are satisfied with the estimate of points earned, you can call in a verification agency to verify the accuracy of the data. If you have used our services we can be 100% certain that the points we have calculated will be accurate and will be verified by the agency. The process of verification involved collection and supply to the verification agency all the data that will be used as evidence to substantiate the scorecard obtained. This can take as little as a week – if you have the documentation available. The actual verification takes about a day – depending on the size of your company and the volume of data to be verified. Thereafter the verification agency will issue a certificate showing the score and level achieved. This certificate is valid for a year from date of issue.
Next year the process should be repeated, but as with everything new it will be easier the second time around.
B-BBEE Verification Capacity is still lacking
Posted by Keith in Accreditation, Verification on July 7th, 2010
A client has asked for verification. The earliest their appointed SANAS accredited verification agency can perform the verification is 18th August – 6 weeks from now. Let it be said that the chosen verification agency is a well known and very competent agency, but there is obviously a lack of capacity in the industry.
So far, SANAS has accredited 40 agencies. We believe that for BEE to succeed there should be as many agencies as there are accountants or auditors – running into the thousands.
ABVA in Disarray
Posted by Keith in Accreditation, BBBEE Knowledge, Interpretations, Verification on March 2nd, 2010
The split we expected in ABVA is beginning to show. EMEX has resigned from ABVA because they say they “cannot be part of a voluntary association that follows interpretations which were not gazetted by the DTI.”
We know of other agencies that are as concerned about ABVA acting as judge and jury.
Even the dti is annoyed with ABVA. Nomonde Mesatywa, chief director of BEE says “We have been engaging with them and have told them that they cannot introduce new principles and cannot pronounce on policy issues,”.
I too was interviewed for the press article and also criticized ABVA for making rules. In my interview I brought up the successful challenge that we instituted against ABVA at the Competition Commission in 2007.
Subsequently ABVA has issued a press release once again denying the turmoil in its organization. They make the following point:
On the issue of acceptance of member’s certificates, ABVA never recommended that only its member’s certificates should be accepted in the market place, but has always referred to the legal interpretation of all the legislation which governs BEE implementation, the Codes of Good Practice, the SANAS R47 and the Verification Methodology. The legal position embodied in these documents show that only agencies that have made application to SANAS before the 1st February 2010 could be regarded as a “verification agency” for purposes of the minister’s notices issued during the course of 2009. This was ABVA’s position whether or not a particular verification agency was a member of it or not.
Before my complaint to the Competition Commission in 2007 I obtained a letter from ABVA which stated:
“ABVA requires that when their members are considering certificates for calculation of procurement points in a verification only certificates from Verification Agencies that have submitted to SANAS for accreditation will be considered valid. In order to validate if a Verification Agency has submitted to SANAS one would need to consult with the Full Member listing on the ABVA website or request from the Verification Agency directly their proof of submission letter from SANAS.”
They also state: “The article also makes mention of a complaint against ABVA to the Competition Commission yet fails to mention that this complaint was dismissed.” This is untrue. The complaint was not dismissed. It was not referred to the tribunal due to a commitment made by ABVA not to condone actions by its members that are contrary to the codes. ABVA are now not only ignoring their commitment, but denying that they ever gave that commitment to the Competition Commission.
ABVA, EconoBEE – Response
Posted by Gavin in Accreditation, General, True Empowerment, Verification on March 1st, 2010
Published 1st March
Response to Business Report Article ABVA has sent an immediate response to the Editor of Business Report in regards to the inaccurate article running in Business Report Monday March 1st.
To the Editor:
ABVA would like the right of reply to the article in Business Report of Monday March 1st, BEE Verification Industry in Turmoil.” The article contains many factual errors and unsubstantiated claims and has a sensationalist tone not often found in the Business Report.
While ABVA Chairperson Andile Tlhoaele was quoted in the article, many other inaccurate claims were made in the article that ABVA did not have the opportunity to respond to.
The so-called BEE verification leaders quoted seem to only include a representative from Emex who makes wildly inaccurate claims about ABVA and a BEE consultant who has opposed the accreditation process from the beginning. It is also important to note that the agency that has resigned its membership from ABVA is one that, at the time of resignation as ABVA member, was in the process of a disciplinary procedure due to complaints from other ABVA members against them, for illegally copying the content of other agencies’ certificates and then distributing it in the market as their own.
The generalizations made about the verification industry based on these two very personal views are therefore shaky at best and should not have been the basis for such an inflammatory article.
In regards to the main and inaccurate claim that ABVA is manipulating the industry or interpreting codes, ABVA has had many meetings with the dti in this regard. As stated by the Dti and agreed by ABVA, ABVA does not set policy and never has or ever intends to pronounce on policy.
ABVA however, does have a role to ensure that a consistent application of the codes is practiced in the market place. This is why draft practice notes, pertaining to the legal interpretation of the Codes and related legislation, were issued for comment to members. These draft practice notes have nothing to do with policy, but are an attempt at bringing a level of consistency to the application and legal interpretation of BEE.
Government would not put themselves at legal risk by interpreting legislation. In January 2009, Dti withdrew the “Interpretive Guide” (published in 2007). This is the same document which your article also refers to. If anything, this action on the part of the Dti at the very least supports our contention that they do not see their role as the legal interpreters of the legislation.
It is important to note that ABVA has not issued a single practice note to thus far and that the document circulated to members contained draft practice notes for their comment. The draft practice notes currently represent the compilation of external and internal legal opinion on certain key interpretational matters. Policy issues are not addressed in the document. The circulation of these draft practice notes follows a mandate given to the ABVA board from ABVA members at the last AGM of ABVA in May 2009 and is not a unilateral action by the chairperson of ABVA.
It also required no amendment to ABVA’s constitution as is alleged by EMEX. ABVA’s technical committee has received several comments (even from non-members) following the circulation of the draft practice notes. All of these comments are currently being evaluated before circulation of any final practice notes. It is important to note that EMEX did not make use of the opportunity to comment on the draft practice notes or to express their dismay with the process while they were a member. Their actions rather seem to reflect those of a disgruntled ex-member for the disciplinary procedures instituted against it.
One can question why one particular BEE Verification Agency does not wish to apply a consistent approach to the implementation of the Codes, especially when any final practice note will be the result of legal opinion and an inclusive and consultative approach with members and non-members. ABVA strongly condemns actions that enable every Verification Agency to do as they please in the market place, leading to varying interpretations that allow for the giving away of points on the scorecard and diminishing the intentions of BEE. The vast majority of members responded very positively to the circulation of the draft practice notes.
The only amendment to the constitution of ABVA occurred at the May 2009 AGM of ABVA and related to the widening of ABVA’s membership base to include the corporate sector and BEE consultants. The very purpose of this move by ABVA was to obtain a more representative input into legal / interpretational matters. This change to the constitution had nothing to do with creating policy as claimed in the article and everything with being transparent and responsible following the mandate given to us by our members to issue practice notes to ensure consistency and standardization with interpretation.
On the issue of acceptance of member’s certificates, ABVA never recommended that only its member’s certificates should be accepted in the market place, but has always referred to the legal interpretation of all the legislation which governs BEE implementation, the Codes of Good Practice, the SANAS R47 and the Verification Methodology. The legal position embodied in these documents show that only agencies that have made application to SANAS before the 1st February 2010 could be regarded as a “verification agency” for purposes of the minister’s notices issued during the course of 2009. This was ABVA’s position whether or not a particular verification agency was a member of it or not.
The article also makes mention of a complaint against ABVA to the Competition Commission yet fails to mention that this complaint was dismissed. BEE consultants such as Levenstein have been opposed to the accreditation of BEE verification agencies from the outset, however this accreditation process is the ONLY way to ensure a credible and consistent industry.
The article’s claim that the verification industry is in turmoil could not be further from the truth. Thanks to the assistance of organisations such as ABVA, there are now accredited agencies and a host of agencies who will soon be accredited that can take BEE verification to the next level.
ABVA is proud of its achievements working with government and business so as to ensure credible and consistent application of the BEE codes.
Kind Regards,
Andile Tlhoaele
===================
Email sent 1st March in reply.
Dear Andile,
I would sincerely suggest you check your facts BEFORE you issue them to the press.
I’m attaching(http://www.econobee.co.za/downloads/general-bee-documents/competition-commission-ruling/download.html), for the umpteenth time to ABVA, the response from the Competition Commission – which Business Report also has in its possession. The relevant exact wording is as follows:
“The Competition Commission will not refer this complaint to the Competition Tribunal”.
It goes further to give it reasons for the non-referral – please read page 2 and page 3 carefully including:
“ABVA has undertaken to raise awareness among its members regarding the concerns raised in the complaint to ensure that if the practice exists among its member it is not condoned.”
This was an undertaking that ABVA gave to the Competition commission ON CONDITION that they would not refer the matter to the Tribunal. We both know that ABVA never followed up on that undertaking, but I was satisfied with the decision taken by the Competition Commission, on the basis that they had obtained a legal undertaking from ABVA and they clearly defined what certificate is acceptable or not. (see point 1 at the bottom of page 2).
It is therefore absolutely untrue to say that the “complaint was dismissed”. It was thoroughly investigated and not referred because the Competition Commission was given an undertaking by ABVA.
ABVA has in the past recommended that certificates only be accepted if produced by a member of ABVA that has applied to SANAS for accreditation. This is patently incorrect, which is why the dti are pretty irritated with ABVA for continuing to make the rules.
At no stage have I personally attacked any person, so do take offense to your untrue assertion that “I have been opposed to the accreditation process from the outset”. I have been opposed to any person or organization choosing not to follow the B-BBEE Codes of Good Practice. I have always and continue to support the process as defined by the government, the dti, and the minister. I was the first person to inform my clients and readers of my newsletter that they would eventually have to use an accredited agency because the minister decided so.
Your untrue and potentially defamatory statement and and my response will appear in my newsletter tomorrow unless you retract them before my newsletter is published. I have more than 100 000 readers.
There are other issues with your response on which I don’t have time to comment, but I do think you will incur the further wrath of the dti by stating “that they do not see their role as the legal interpreters of the legislation.” I would actually rather not see ABVA, me, the dti and SANAS fighting each other as it does not further the good cause of transformation.
–
Regards
Keith Levenstein
CEO
Econoserv SA cc/EconoBEE
================
Email received 2nd March
Hi Kevin (sic),
The condition was never communicated to ABVA.
Many thanks,
Andile Tlhoaéle
================
Email sent 2nd March
Dear Andile,
Theo Lombard was the chairman of ABVA at the time. He was contacted by the Competition Commission over my comment. The board must have given that commitment. Someone at ABVA must have received the final determination from the Competition Commission. In any event ignorance of the law is no excuse, and the Competition Commission’s decisions are legally binding.
Bear in mind that:
* The decision was communicated to the PR company that ABVA hired when they issued a press article on the subject in 2007.
* It must have been available to the board when they determined that “the complaint was dismissed”. How could the board react to the ruling if they never received it?
* It has been on our website since the day we received it.
* I sent it to Wade van Rooyen recently.
* How did you personally reach that conclusion yesterday without reading the document?
* I therefore repeat – your public statement yesterday rebuking the Business Report for inaccurate reporting is in itself incorrect.
Furthermore ABVA has an obligation even today to uphold its commitment given to the Competition Commission in 2007.
Business Report has been unfairly attacked by you. They did not make factual and unsubstantiated claims as per the above. I suggest an apology to them is in order.
Regards
Keith Levenstein
CEO
Econoserv SA cc/EconoBEE
Codes of good practice Interpretations
Posted by Keith in BBBEE Knowledge, Interpretations, Scorecard points, Verification on February 17th, 2010
To earn points on enterprise development (and socio economic development) you would need to spend a percentage of your net profit after tax on those activities. The codes describe it as follows:
“Average annual value of all enterprise development contributions and sector specific programmes made by the measured entity as a percentage of the target”
Average implies averaging the annual spend. so if you spent R300 in 2007, R500 in 2008 and R250 this year, your total spend is R1050, and average annual spend is R350.
A key principle (para 3.1.2) is that “qualifying enterprise development contributions of any measured entity are recognisable cumulatively:
- from the commencement date of this statement, or an earlier date chosen by the measured entity (the inception date), until the date of measurement.
Our interpretation is that the “commencement date of this statement” is 9th February 2007 – i.e. the date that the codes were released.
We also see the generic target of 3% of net profit after tax as being the average net profit after tax from that date.
So if your net profit after tax from
9th Feb 2007 to 8th Feb 2008 was R10000
and from
9th Feb 2008 to 8th Feb 2009 was R12000
and from
9th Feb 2009 to 8th Feb 2010 was R15000
then your total or cumulative NPAT over the three years is R37000, and the average NPAT is R12333.33
Note: The codes do discuss issues where you do not make a profit (indicative profit), but this is not discussed here as it is not relevant to the specific point being made in this article.
What does seem clear is that your spend needs to be looked at from 2007 (9th February) onwards.
There are issues around this:
What is a company did not start its ED activities in 2007, or did not even get a scorecard for 2007?
What about a QSE that did not choose ED as an element in 2007 or 2008 or 2009. Must it go back 4 years to start earning points?
However, the dti, and some verification agencies do not look at it this way. The dti, according to some verification agencies has told them that a measured entity can choose the starting date for ED contributions, even if they are after the inception date of the codes, e.g 2009. This is a huge benefit to an company just starting our on their BEE journey. They do not need to “make up” the shortfall of having to spend money in 2007,2008,2009. At the same time it sounds quite unfair to companies that did spend the money in the earlier years, in that with hindsight it was not necessary to have spent that money (unless of course they did get a valid scorecard during those years).
Is this right?
No, not according to the codes! The codes are clear that the inception date is the commencement date of the statement or before, but not after, ie. 9th February 2007, and the dti does not have the discretion to arbitrarily change the codes. The minister certainly does have the right to make decisions, by gazetting changes to the codes, which has has not done in this instance. Reports are that the dti will be issuing yet another interpretative guide in January 2010. (This article is written on 17th February) and nothing has been issued so far.
Commentary
What we find very disturbing is that the dti makes decisions, and in some cases clarifications, but does not publicize them or issue them as an official statement. We have noticed for a while now that some verification agencies were using the current year for calculating ED points. Yet, nowhere does the dti document their decision, neither does SANAS issue any updates as to how to do the calculations. We also find it very disturbing that the dti seems to be circumventing the codes in this instance.
Strategy
If a company that did not ED until now is lucky enough to choose a verification agency that “knows” the dti’s new ruling, then they will benefit, otherwise they may lose up to a 75% of their ED points – 11.25 points! This is two levels.
Article in Business Report
Posted by Keith in Accreditation, Charters, Verification on February 1st, 2010
I’m quoted in today’s Business Report. (http://www.busrep.co.za/index.php?fSectionId=552&fArticleId=5333926).
The articles discusses the problems of a small number of verification agencies that have to verify potentially 500 000 companies.
It also raises the issue of how a company in a gazetted sector code can obtain a valid certificate since there are no agencies accredited to verify those sector codes.
We have asked the same question of both SANAS and the dti.
Their answer is below: (Hint don’t look below – they didn’t bother to respond).
The big question – extension or no extension
Posted by Keith in Accreditation, BBBEE Knowledge, Charters, Verification on January 29th, 2010
Today is the last working day that “non-accredited” verification agencies are entitled to verify BEE certificates.
According to the minister’s last notice in July 2009, from end of January only accredited agencies or those in possession of a valid pre-assessment letter will be able to issue valid certificates. Prior to this “non-accredited” agencies were entitled to issue verified certificates.
There are currently 27 accredited agencies and 8 agencies in possession of a pre-assessment letter. Of those 8, 5 have letters expiring in February.
This small group is expected to perform verification of the entire population of companies that want a verified certificate. It takes an individual analyst at least a day, and sometimes a lot longer to perform verification.
At the same time no agency is entitled to verify scorecards of companies in the tourism, construction, forestry and transport industries because they have their own sector code, and no agencies have been accredited by SANAS for those sector codes.
What does this mean? The agencies will never be able to handle the expected load, or else the expected load will be far less (resulting in lower compliance). Half the economy will be unable to even get a verified certificate due to no agencies being accredited to do the job.
In July 2009 the minister issued a notice extending the period to end January 2010.
Is he going to give another extension? Will he this time choose to define what constitutes a “non-accredited agency”?
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