The Gamble of a Special Power of Attorney

An audit or verification takes place when an organisation contracts an

independent inspection of the evidence, whether it be for financial or

B-BBEE purposes. The process tests, then reports on, the validity of

evidence. In doing this, those responsible for the independent audit or

verification are held accountable for the published results. Transparency

in an audit or verification is paramount. As with a financial audit, those

responsible for verifying B-BBEE evidence must be aware of false

reporting implications, otherwise known as Fronting Practices, in the

B-BBEE scheme of things.

Therefore, an organisation must equip those implementing a B-BBEE

Strategy to complete the task from start to finish. For example, as in

other professional fields, Human Resources or those operating in the

financial sector are qualified and versed in applying law applicable

to their professions. Therefore, irrespective of the persons’ field of

expertise, legislation guides compliance in most cases.

Unlike most pieces of legislation, B-BBEE compliance is optional;

however, law guides organisations that choose to embark on a B-BBEE

journey. Thus, organisations should consider the rules of engagement

when embarking on and implementing a B-BBEE Strategy. However,

many organisations neglect to recognise the risk associated with an

unqualified team driving their B-BBEE Strategy. The lack of overall

knowledge about B-BBEE legislation necessary to drive a successful

B-BBEE Strategy results in an over-reliance on B-BBEE Consultants.

Furthermore, without dedicated resources, vital elements that feed into

an organisation’s evidence for a B-BBEE Verification, are undertaken by

people not qualified to do so. For example, employees feeding into an

organisation’s B-BBEE Strategy from the Human Resources or Finance

Departments frequently undertake the task outside their normal job

function. Although these departments are a natural fit for implementing

a B-BBEE Strategy, the legislation does not form part of the curriculum

for either Human Resources or Finance degrees.

Considering the enormity of the financial investment made to drive

a B-BBEE Strategy, in-house expertise should be non-negotiable.

Nonetheless, the complexity of and continued amendments to B-BBEE

legislation, and a lack of confidence to drive a B-BBEE Strategy

effectively, result in an over-reliance on B-BBEE Consultants. Many

organisations do not realise that there is no regulatory body that

oversees a B-BBEE Consultant’s conduct, qualifies them or holds them

accountable for their performance (see page 10).

Subsequently, the amendments in the R47-03 document attempt

to separate those leading a B-BBEE Verification for an organisation,

verifying evidence, from those who consult. Thus this puts the onus on

organisations to take ultimate responsibility for their B-BBEE Verification

The amendments that oblige an organisation to interact directly with

its B-BBEE Rating Agency without third-party interception appear in

section 10.2.4 of the R47-03. The most consequential amendment is

that organisations must pay a B-BBEE Rating Agency directly and not

through any third party. Both amendments support accurate and reliable

results, encouraging no conflict of interest by any party.

As a result of the amendments to the R47-03 and the lack of in house B-BBEE knowledge, many organisations find themselves in a

predicament. They are not prepared to take a B-BBEE Verification from

start to finish independently. As a result, many organisations are granting

a Special Power of Attorney (PoA) to their B-BBEE Consultant to lead

their B-BBEE Verification. However, in doing this, some organisations

are not taking into account the risks involved. Likewise, B-BBEE

Consultants act with a Special PoA without considering the risk to

themselves.

What does a Special PoA allow?

A PoA generically is a legal document that allows a person, known as

a grantee, to act on a grantor’s behalf legally. For the purposes of this

article, the reference to a ‘Grantor’ will hereon mean ‘an organisation’

and ‘Grantee’ a third party. A third party for B-BBEE purposes may

refer to an organisation’s B-BBEE Consultant. South African law

provides for two types of PoA:

> A General PoA; and

> A Special PoA.

Entering into a Special PoA is legally binding, attaching implications

for all parties involved. Thus, all parties must be fully aware of the

repercussions of entering into a Special PoA for a B-BBEE Verification.

Organisations must make an informed, independent decision before

granting a Special PoA, instead of looking at it as a document to make

the B-BBEE Verification process easier. Essentially, an organisation must

abide by decisions made by a third party when granting a Special PoA.

Notably, a B-BBEE Rating Agency must be aware that a Special PoA is

not embedded in the R47-03 requirement, but is legally accepted.

Entering into a Special PoA agreement

A mere letter does not trigger a Special PoA, as it is a legally binding

document that must conform with the following requirements:

> Clearly describe and identify all parties;

> Extend the power to areas where a third party may act;

> All parties must sign;

The Special PoA must be signed by two witnesses. However, such

witnesses may not derive any benefit from the PoA.

What does a Special PoA mean during a

B-BBEE Verification?

A legally enforceable Special PoA can only exist between the

third party and the organisation. A Special PoA will remain valid

until an organisation revokes it or when the mandate is complete.

An organisation’s B-BBEE Rating Agency must be aware of the

requirements and nature of a PoA to ensure that they do not just

accept mere letters where an organisation simply permits a third

party to facilitate its B-BBEE process.

Therefore, when an organisation procures a B-BBEE Rating

Agency’s services, it is the third party and not the organisation that

takes control of the B-BBEE Verification; but the contract remains

between the B-BBEE Rating Agency and the organisation.

Who must be aware of a Special PoA to

facilitate a B-BBEE Verification?

Upon an organisation opting to go the Special PoA route, its

mandated representative must present a copy of the Special PoA to

the B-BBEE Rating Agency.

Once that has happened, the B-BBEE Rating Agency may interact

with the organisation and the third party. The nature of the powers

at the outset of the B-BBEE Verification must be clear.

Who is accountable for an offence when a

Special PoA for B-BBEE purposes is in place?

Third parties granted with a Special PoA must be aware of the

responsibility and risk they are undertaking when acting on behalf

of an organisation. The consequence of any misrepresentation of

information or evidence resulting in Fronting Practices will legally

implicate a third party as if they were the party who committed the

offence.

The B-BBEE Act (The Act) indicates that an offence occurs when a

person knowingly:

> misrepresents or attempts to misrepresent the B-BBEE status

of an organisation;

> provides false information or misrepresents information to a

B-BBEE verification professional to secure a partial B-BBEE

status or any benefit associated with compliance to The Act;

> provides false information or misrepresents information relevant

to assessing the B-BBEE status of an organisation; or

> engages in a Fronting Practice.

A B-BBEE verification professional, procurement officer, an

official of an organ of state or public entity who becomes aware

of the committing, or attempt to commit, any offence referred

to in subsection (1) and fails to report it to an appropriate law

enforcement agency, is guilty of an offence.

The following consequences apply to a person convicted of

contravening The Act:

> Violating subsection (1) exposes that person to a fine or

imprisonment for a period not exceeding ten years, or both. If

the convicted person is not a natural person, a fine not

exceeding 10% of its annual turnover could be

imposed; or

> Contravention of subsection (2) or section 13N could lead to a

fine or imprisonment for a period not exceeding 12 months,

or both.

To determine the value of a fine relating to an offence in

subsection (1), the court will consider the value of the transaction

relating to the offence. A court, after convicting a person in terms of

subsection (3), must report such to:

> The B-BBEE Verification Regulator - currently SANAS - if that

person is an accredited B-BBEE verification professional;

> The B-BBEE Commission; or

> The council relevant to an organisation outside the B-BBEE

space which regulates the sector in which an organisation

operates.

Despite anything to the contrary, a magistrates court has jurisdiction

to impose any penalty provided for in The Act.

Responsibility and accountability apply to people or a person who:

1 Had actual knowledge of that matter; or

2 Were in a position in which the people/person reasonably ought

to have:

> had actual knowledge;

> investigated the matter to the extent that would have

provided the person with actual knowledge; or

> taken other measures which, if taken, would reasonably be

expected to have provided the person with actual

knowledge of the matter.

What are the risks to an organisation when

instituting a Special PoA?

It can be challenging to hold a third party accountable for wrongful

conduct as a Special PoA is governed by a contract and not a

court. A third party may:

> Have a vested interest in a specific B-BBEE Verification

Outcome

> Provide false information, exclude relevant evidence

required, or amend details or evidence without the

organisation’s knowledge

> Lack the necessary skills and expertise to successfully

oversee the B-BBEE Verification, impacting

the outcome.

What risk factors does a Special PoA hold

for a third party?

If an organisation commits, or has previously participated in,

Fronting Practices, the third party will be deemed a ‘knowing

person’. Consequently, any party investigating a matter will

include a third party in any subsequent investigations. A guilty

conviction would include the third party in the penalty phase.

What costs are attached to a Special PoA

and roll-out of duties?

There would be legal costs for drafting a valid and enforceable

Special PoA. If the third party is conducting work over and

above their regular duties, it may incur additional costs for the

organisation’s account. Third parties, therefore, will ask for a

fee to carry out the mandate contained in the Special PoA.

What is the process if a B-BBEE Rating

Agency witnesses a third party not acting in

an organisation’s best interest?

Although an organisation grants a Special PoA, a B-BBEE

Rating Agency must continue to interact directly with the

organisation and report on their progress, especially if the

third party is not acting in an organisation’s best interest.

If a B-BBEE Rating Agency becomes aware of the committing

of, or any attempt to commit, any offence, it must report it to

the B-BBEE Commission immediately.

Even with a Special PoA in place, an organisation remains

ultimately accountable for its B-BBEE Credentials. It must

ensure that it involves itself in every aspect of their B-BBEE

Verification.

In conclusion, organisations deciding to appoint a third party

utilising a Special PoA must do proper due diligence. More

so, organisations must equip those feeding into their B-BBEE

Strategy to carry out their functions diligently and with

appropriate cognisance of the B-BBEE requirements. If opting

to use a third party for a B-BBEE Verification, it is imperative

that the person is fully versed, vetted and in good standing.

Such a person must demonstrate the ability and knowledge

to address every aspect of a B-BBEE Verification, such as

the Code on which an organisation is measured regarding all

aspects of the scorecard, the interpretations, calculations and

linked pieces of legislation

The BEE Chamber, through consultation with Cliffe Dekker Hofmeyr Inc, created the following template as a reference

point for granting a Special PoA.

SPECIAL POWER OF ATTORNEY TEMPLATE

I, the undersigned,

NAME & SURNAME: _____________________________________________

IDENTITY NUMBER: _____________________________________________

COMPANY NAME: _____________________________________________

COMPANY REGISTRATION NUMBER: _____________________________________________

Do hereby nominate and appoint (Consultant Company Name), represented by (Consultant Company Representative

Name – ID Number) with a Special Power of Attorney, to be my lawful Agent in my name, to:

1 Manage the B-BBEE Verification process on my behalf;

2 Engage with the B-BBEE Rating Agency on matters pertaining to the B-BBEE Verification of (Measured Entity

Name) on my behalf;

3 Make decisions and provide B-BBEE Verification documentation to the B-BBEE Rating Agency for B-BBEE

Verification purposes only on my behalf; and

4 The duration of the Special Power of Attorney will commence from date of signature until a B-BBEE Verification

Certificate is received by (Measured Entity Name).

SIGNED AT _______________ ON THIS THE ______________ DAY OF __________________

SIGNATURE (BEHALF OF ORGANISATION) _________________________________________

SIGNATURE (BEHALF OF CONSULTANT) ___________________________________________

WITNESSES

NAME __________________________ SIGNATURE __________________________________

NAME __________________________ SIGNATURE _________________________________