HEED THE

WARNING

Don’t allow your Skills Development spend to become low hanging fruit.

By: Pearl Dippenaar.

Pearl Dippenaar is the YES Programme Manager at the BEE Chamber. Her journey

with YES began in 2019. Working in the field has provided her with extensive

knowledge about the YES Initiative, including implementing learnerships. The core to

her holistic service is providing due diligence on training providers on behalf of BEE

Chamber members and ensuring the smooth running of their YES Programme.

Don’t allow your Skills Development spend to become low hanging fruit.

Skills Development as a Priority Element is critical to an organisation’s scorecard. This element aims to upskill

Beneficiaries, then provide an employment opportunity whereby the scorecard rewards organisations with

Bonus Points for Absorption by design. Whether they spend the target of 6% of the leviable amount or less, it

is an investment for most organisations. Hence the money paid out to service providers in this space, for those

unethically operating, is considered low hanging fruit.

Since the introduction of the Generic Codes of Good Practice in 2007, unethical service providers

operating in the Skills Development space have been circling. It goes without saying that working

within the Skills Development space, one sees the very best and worst in a transforming

South Africa. Taking the latter into account, this article intends to warn organisations of the

risks involved when dealing with unethical Skills Development service providers. Those

operating ethically in the field will appreciate having the modus operandi revealed of

charlatans in this space. Using a scenario, we aim to illustrate how unethical service

providers operate, as we delve into the transformation journey of ABC Traders,

a Large Enterprise with 1,000 employees. They have a Status Level 6 with an

associated 60% Preferential Procurement Recognition.

ABC Traders’ Current Situation

Investment in ABC Traders’ B-BBEE Strategy includes expanding

its operation. In 2019 and 2020, ABC Traders had difficulty gaining

and retaining business due to their unfavourable B-BBEE Status

Level. Following an executive decision, the ABC Traders Executive

Team set a goal to achieve a Status Level 3 at ABC Traders’ next

B-BBEE Verification.

They employ a Transformation Manager to oversee and implement

its B-BBEE Strategy. To prepare the Transformation Manager

immediately:

> Appoints B-BBEE Consultants and legal advisers to overhaul

their Ownership Structure.

> Engages with the Human Resources Department to develop a

workable plan to ensure equitable representation within ABC

Traders.

> Re-looks how Beneficiaries are identified and how their

Enterprise & Supplier Development Strategy is implemented.

> Retains the services of a Skills Development service provider to

roll out their strategy.

> Invests in initiatives that create income-generating opportunities

for their Socio-Economic Development Beneficiaries.

The Transformation Manager is hastily ticking all the to-do boxes, but

is falling short in Skills Development. It is one month after ABC Traders’

financial-year end. Before employing the Transformation Manager, ABC

Traders was lax in its B-BBEE roll-out, specifically in Skills Development.

At this stage, ABC Traders had not registered Learners, although they

had allocated the spend necessary to implement it. Furthermore, a

successful Skills Development roll-out and Absorption strategy would

secure its plan to expand its internal operation.

Phase 1 – Engagement

Bear in mind that ABC Traders did not make any payments for Skills

Development in their last financial year. However, to take the process

forward, the Transformation Manager makes an appointment with

three Skills Development Service Providers. Two of the three advise

that they can only assist ABC Traders in its next financial year, as it

did not register Learners in the year ending 2021. However, the third

service provider, XYZ Skills, advised that non-registration and payment

within ABC Traders’ financial period were merely semantics. They

would simply backdate the registration and proof of payment so that

ABC Traders could claim their skills spend to align with its financial

year. Without red flags registering, the Transformation Manager

signs a contract with XYZ Skills and immediately pays over the

R21,000.00 for each of the five Learners, totalling R120,750 that

includes 15% VAT.

Before engaging with XYZ Skills, the Transformation Manager

did not:

> Ascertain whether XYZ Skills would outsource the services

to a third party;

> Conduct a reference check;

> Ascertain SETA registrations;

> Establish the method that would confirm the payment of

salaries on the agreed date;

> Ascertain how they source their learners; and

> Determine if they receive or pay commissions based on

ABC Traders’ Skills Development roll-out.

The Transformation Manager did not do due diligence out of

desperation to meet the mandate. Essentially a decision was made

to contract and make a subsequent payment of R120,750.00

based on XYZ Skills’ willingness to backdate the registration and

accept payment for ABC Traders’ Learners. Hence, the skills

spend could be claimed at its following B-BBEE Verification.

Phase 2 – following the payment

After receiving the money, XYZ Skills advised the Transformation

Manager to relax and that they would provide ABC Traders with

evidence that the registration and payment for the Learners

would be backdated to align with ABC Traders’ financial year.

XYZ Skills then agreed to source the Learners and register

them with the necessary SETA. Once the initial stage was

complete, XYZ Skills said they would send confirmation of the

registration with Superior Learning, the chosen service provider.

Furthermore, XYZ Skills confirmed that they would send

evidence for the payment of salaries to the Learners. With so

much on the Transformation Manager’s plate and confidence in

XYZ Skills’ ability, another tick was added to the transformation

to-do list.

The Transformation Manager should not have accepted the word

of XYZ Skills. Processes should have been in place whereby the

Transformation Manager would receive regular progress reports

supporting all milestones achieved by XYZ Skills.

Phase 3 – The red flags appear

About three months later, the Transformation Manager receives

a call from one of ABC Traders’ Learners stating that they had

not received their salary. In addition, the learning institution

chosen by XYZ Skills, Superior Learning, advised the Learner

that they could not return the following week due to non payment for services rendered. In addition, XYZ Skills informed

the Learner that the Skills Development service provider was

changing to the Level-up Institution from the following week.

Horrified, the Transformation Manager realises that there was

no communication from XYZ Skills about who the Learners

were and how and when they would receive remuneration or

registration status.

The Transformation Manager should have had a list of Learners

and identity numbers, so there would be confirmation that the

Learner was just that when the call came through. Further, the

Transformation Manager should know what institution the Learners

were attending and should have done a site visit to confirm that the

facilities met the needs of the ABC Traders Learners.

Phase 4 – follow the money

Over two weeks, the Transformation Manager could not reach

XYZ Skills via email or telephonically. The Transformation Manager

contacted the relevant SETA to confirm the registration of Learners.

The result was that the SETA did receive the applications. However,

they had not been processed.

The next step was to contact Superior Learning to ascertain

the status of the Learners. Superior Learning advised that five

Learners were registered three months prior. They had agreed

with XYZ Skills that they would receive payments monthly.

Unfortunately, XYZ Skills made no payment to the SETAs or

towards the training and stipends due to the Learners, which

meant they could not financially sustain them. Subsequently,

Superior Learning halted the Learners’ registration initially

submitted to the SETA by XYZ Skills.

The Transformation Manager contacted Level-up who confirmed

that five Learners were registered two weeks prior, and they had

a contractual agreement with XYZ Skills to pay them monthly.

Level-up confirmed that they had received no payment.

As ABC Traders made no Learner registrations or payments,

it could not claim its Skills Development spend. Another

challenge is that two institutions have provided services without

receiving payment. Furthermore, there is no way to confirm

who the Learners are and their salary payments status. ABC

Traders’ Skills Development Strategy is at risk of collapsing.

Phase 5 – Paying a Premium

Following due diligence, to save ABC Traders’ Skills Development

investment, as XYZ Skills is still on the missing list, the

Transformation Manager engages the services of Superior

Learning directly, thus paying out another R120,750.00.

Superior Learning undertakes the challenge. It had to re-recruit

Learners and engage with the SETA to apply for an extension.

Superior Learning then provides evidence that the Learners were

registered and received their salaries.

Of concern is that XYZ Skills remains on the missing list.

To resuscitate the Skills Development Strategy, ABC Traders

had to engage with Superior Learning to take over the

mandate. ABC Traders had not even received the basic logs

that would have confirmed its engagement with the Learners.

The premium paid by ABC Traders extends beyond the cost

and time to resuscitate its strategy.

Phase 6 – The outcome

ABC Traders could not claim any Skills Development spend at their

next B-BBEE Verification for the 2019 financial year. Consequently, the

Discounting Principle was triggered, which means they lost a Status

Level. However, following a successful roll-out with Superior Learning,

ABC Traders could claim R120,750.00 for the financial year ending

2020.

Unfortunately, ABC Traders’ B-BBEE Rating Agency did not recognise

the R120,750.00 paid to XYZ Skills for Skills Development services;

thus, the amount was registered as a loss in its financial statements.

The Transformation Manager eventually delivered on the Skills

Development mandate, albeit a year later and achieved Bonus

Points for Absorption. However, ABC Traders could not recover

the money paid to XYZ Skills.

The outcome was that XYZ Skills, upon receiving the funds,

had gone the route of ghosting ABC Traders whilst continuing

to solicit new business. Adding insult to injury, XYZ Skills

provides ABC Traders as a reference when sourcing new low

hanging fruit. XYZ Skills remains operational.

The nightmare of Skills Development Service Providers does not

end with the scenario outlined in this article. Other typical low

hanging fruit includes, but is not limited to:

> Learners who complete a Management NQF 3 only to

discover that the said Learnership was registered as a

Business Administration NQF 3 with another SETA.

> The registration of identical Learners over two consecutive

Measurement Periods.

> Registering the identical Learners with two organisations

represented by different SETAs, pocketing one portion of the

money received.

> Not paying the full salary over to the Learner, then retaining

some funds. There is a deficit between the payslip and the

money paid to the Learner.

> Paying stipends to Learners without any tuition.

Both the scenario and the examples provided illustrate that an

organisation’s Skills Development spend is low hanging fruit for

charlatans operating in the Skills Development space. When

choosing a service provider, due diligence will ensure that an

organisation does not have to resuscitate a Skills Development

Strategy. Core to due diligence is knowing the following:

What is a Skills Development training provider?

It is an organisation that provides occupational learning as per

Section 1 of the Skills Development Act 37 of 2008.

What is an Employment and Skills

Development Agency?

“An Employment and Skills Development Agency (ESDA) is an

organisation or company that, through written agreement with

an employer, employs learners and manages the placement

of the learners with host employers for on-the-job training and

assessment and approved training institutions for off-the-job

training to complete a regulated training program, a learnership or

apprenticeship,” – Skills Development Act.

What is a learnership and what does it

comprise?

The Skills Development Act and Regulations guiding Learnerships

require:

> A structured learning component that includes both practical

and work experience;

> A specified nature and duration of intervention that it leads to

a qualification registered by the South African Qualifications

Authority and relates to an occupation; and

> Registration with the Director-General in the prescribed

manner.

How does an organisation mitigate the risk of

Fronting Practice?

It is conduct that undermines or frustrates achieving the

objectives in the B-BBEE Act. Before engaging with a Skills

Development service provider, an organisation must

> Assess core and critical skills from the primary SETA.

Accessing the incorrect SETA may result in a B-BBEE

Rating Agency not allowing Skills Development spend

as a claim.

> Form a Skills, B-BBEE or Steering Committee to assess

core and critical skills.

> Be aware of the specific skills required.

> Obtain an NQF report from an organisation’s primary

SETA’s website.

Due diligence before contracting a Skills Development service

provider would include establishing the following:

> How long have they been in business?

> Did they previously trade under another company name?

> What are the geographical areas they operate in?

> Do they have references that support a solid track record?

> What is the average drop-out rate of Learners?

> Do they rely on third-party intervention?

> Are the Learners’ salaries or wages in line with the national

minimum wage requirements?

> Can they furnish evidence that they are an accredited Skills

Development service provider?

> Do they adhere to the standards of the body of their

accreditation?

> Can they provide a financial viability report from their auditors?

> Do they agree to a site visit to confirm that the facilities

will adequately accommodate Learners from both an

infrastructural and geographical perspective?

> Can they confirm that they have the in-house capacity to

meet the contract requirements?

> Do they have a good relationship with the primary SETA

aligned with the sector an organisation represents?

Due Diligence Red Flag areas

> Unrealistic Absorption guaranteed;

> A willingness to circumvent the requirements of the

Skills Development Scorecard;

> Can only operate with the support of third-party

service providers;

> Outsourcing of services;

> Inability to provide accreditation evidence in

the company name under which they operate.

What are the risks when engaging with

unscrupulous Skills Development training

providers?

An unscrupulous training provider will only reveal itself once

the contract has been signed. Even though an organisation

might have the best intentions, there are dire consequences for

incorrectly implementing Skills Development, namely:

> No recognition of the Skills Development Scorecard;

> Investigation into Fronting Practices;

> The rejection of future mandatory grant applications from

the relevant SETA;

> Having to repay Skills Development spend to resuscitate

a Skills Intervention and the loss of claimable tax as per

section 12H of the Income Tax Act;

> The rejection of a Work Skills Plan by the relevant SETA;

> A fine; and

> Reputational damage.

Using a reputable Skills Development service provider can

be the difference between a Skills Development spend being

allowed or disallowed at a B-BBEE Verification. The reason is

that an organisation can only make a Skills Development claim

after completing the Learnership Programme.

Although running a Learnership programme can be tedious,

contracting a service provider who provides an ethical and

meaningful skills intervention goes far beyond the points of an

organisation’s Skills Development Scorecard.