Staff Writer
If done incorrectly, B-BBEE verification can have a major impact on the empowerment status of the organisation and it may either end up with a lower status than expected or face Fronting Practice charges, warns the BEE Chamber.
A technical specialist at the BEE Chamber, Mariëtte van Wyk, has a solid understanding of both the Codes and The B-BBEE Act. She says there are two main risk areas to focus on when preparing for a B-BBEE Audit. “A B-BBEE Verification is the validation of the proof of the claim that your company is making pertaining to the level of transformation in your company. If you do not have a good B-BBEE rating, your clients will not be scoring as high on their procurement element scorecard, and subsequently, they might decide to replace you with an alternative supplier. This is one of the reasons why it’s important to look at your Verification and Fronting Practice risks.”
These two risk areas are important to focus on when preparing for a B-BBEE Verification, and when they are a priority throughout the year, an organisation will benefit.
Verification risk
A Verification risk for Rating Agencies relates to the Measured Entity misstating their B-BBEE score and the misstatement not being identified during a B-BBEE Verification. The Verification Manual defines a Verification Risk as ‘The risk that the Verification Agency could arrive at an inappropriate conclusion in determining the scores based on one or more scorecard elements being materially misstated. This is the risk that the scorecard elements are materially misstated prior to verification and the risk that the Verification Agency will not detect such misstatement.’
“A Verification Risk for a Measured Entity is different in that it is the risk that the expected outcome of a verification differs from the final B-BBEE Certificate and Report issued by a Rating Agency as a result of not being able to sufficiently and appropriately substantiate initiatives claimed when submitting a claim sheet to the Rating Agency.”
An example would be internal training was claimed but there is no document that substantiates the number of hours spent on training, who the trainer was, or the topic of training. “Although all parties involved in the training can confirm what took place, none are able to provide concrete proof of the factors considered in costing internal training. In such an instance a training register/ logbook would have sufficed as evidence of who was involved, and the time spent.”
Another example could be that evidence submitted for Verification confirms that an employee was taking part in a learnership programme during the measurement period. Based on evidence submitted the Rating Agency accepted the claim. Whilst conducting interviews with the employee, the B-BBEE Rating Agency finds out that, even though the employee attended some classes, the training programmes were stopped due to the employee’s high workload and not having time available for assessments or creating portfolios.
“In this example the company would have paid for the learnership upfront, meaning the costs were incurred, and they would have received a learnership agreement signed by the relevant parties as proof of enrolment. What they did not consider is that the learner dropped off the programme and therefore does not adhere to the definition of a Certified Learning Programme. After conducting the interview, the Rating Agency would disallow the claim made by the Measured Entity and points would be lost for the learner.”
Fronting Practice risk
A Fronting Practice is linked to the misstatement of information or a claim. The result of such a misstatement leads to an incorrect score being claimed. The most common example of a Fronting Practice is linked to the Preferential Procurement element and Sworn Affidavits for certain suppliers.
An incomplete or incorrectly completed Sworn Affidavit makes the document invalid. If the invalid Sworn Affidavit is being used as evidence of a Suppliers B-BBEE status, it is considered a misstatement of a claim.
“It is vital that the team responsible for the collection of Supplier’s B-BBEE Statuses are fully briefed on what a valid B-BBEE Certificate/ Sworn Affidavit looks like as well as which sectors have different requirements or templates relating to Sworn Affidavits. B-BBEE Rating agencies are obliged by the B-BBEE Act to report suspected fronting to the B-BBEE Commission for further investigation.”
Another example would be incorrectly classifying individuals as Black. When classifying an individual as Black, the definition of Black per the B-BBEE Act needs to be kept in mind. South African citizenship does not automatically result in a person being Black for B-BBEE purposes.
As per the B-BBEE Act, the Definition of “Black People” is as follows:
“black people” is a generic term which means Africans, Coloureds and Indians–
(a) who are citizens of the Republic of South Africa by birth or descent; or
(b) who became citizens of the Republic of South Africa by naturalisation-
(i) before 27 April 1994; or
(ii) on or after 27 April 1994 and who would have been entitled to acquire citizenship by naturalisation prior to that date
“Ensuring that individuals responsible for gathering evidence and submitting claims to your B-BBEE Rating Agency is competent to identify the various risks, is key in mitigating the B-BBEE Verification risks described above. And in instances where competent resources are not available, it is best to outsource the verification preparation function to a team of consultants,” concludes Van Wyk.
The BEE Chamber is a group of specialised B-BBEE consultants and advisors offering support to build its clients’ B-BBEE practices to a level of excellence by using the tools of continuous support and engagement.
‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’.