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Broad-based black economic empowerment for organs of state and public entities

Knowing that Eskom just received their Level-4 BEE status, one can only wonder how easy (or difficult) that process was given their track record of electricity supply to South Africa. If their record-keeping was of a similarly poor standard it must have taken many weeks to work complete the process. Any state and public entity must undergo a similar process for BEE verification as with any large corporation.

The Codes of Good Practice (the Codes) in paragraph 3.1.1 of Statement 000, recognises all organs of state and public entities as measured entities, which means that they are required to implement the B-BBEE Codes and be measured against such compliance.

The measurement of organs of state and public entities is carried in line with Statement 004 (also known as the specialised scorecard). The specialised scorecard is found under the amended generic codes or specific sector code where applicable and only requires organs of state and public entities to comply with the management control, skills development, enterprise and supplier development, and socio-economic development elements.

Following engagements with a number of organs of state and public entities, the B-BBEE Commission observed that many of these entities struggle with record keeping for B-BBEE purposes and that has a negative impact on the outcomes of their verification process.

The B-BBEE Commission issued a guide to assist organs of state and public entities as to the nature of the information to be kept under each element of the specialised scorecard.

Statement 004 or Specialised Scorecard

Statement 004 classifies entities into three categories, that is exempted micro-enterprise (EME), qualifying small enterprise (QSE), and generic enterprise, based on the total annual revenue (where applicable) or allocated budget or gross receipts or discretionary spend.

An EME (R10 million and less) qualifies for automatic level 4 B-BBEE Status. However, where it has 51% of black people as its beneficiaries, it will be enhanced to level 2 B-BBEE status. If it has 75% of black people as beneficiaries, the entity will be enhanced to level 1 B-BBEE Status. Specialised EMEs are only required to obtain a B-BBEE sworn affidavit for specialised EMEs.

A QSE (between R10 million and R50 Million) has to be subjected to a verification process and be measured by an accredited verification agency or professional (http://www.sanas.co.za) to obtain a B-BBEE certificate. But if it has 51% of black people as beneficiaries, it will automatically be enhanced to level 2 B-BBEE status, and where it has 75% of black people as beneficiaries, it will automatically receive level 1 B-BBEE status. Specialised QSEs with automatic levels 1 and 2 B-BBEE status are only required to obtain a sworn affidavit for specialised QSEs.

A Generic Enterprise (R50 million and above) is required to be verified by an accredited verification agency or professional (http://www.sanas.co.za) to obtain a B-BBEE certificate.

A B-BBEE Verification Process

B-BBEE verification means the process and activities conducted by a verification professional or agency to assess, verify and validate that the score awarded to a measured entity (organ of state and public entity) is a result of individual scorecard elements supplied by a measured entity, and to evaluate B-BBEE initiatives in order to provide an indicative B-BBEE score and certification based on the principles of B-BBEE as per the Codes.

A verification process is important in assuring parties that rely on the score achieved by the measured entity and reflected on their B-BBEE verification certificate (refers to the B-BBEE verification certificate issued by the verification professional or agency which reflects the overall B-BBEE Status of a measured entity and scoring allocated for each scorecard element verified in respect of the measured entity) that the information on which the certificate was issued is acceptable, has been independently verified, and is free from misstatements.

The role of a verification professional or agency is to assess, verify and validate both disclosed and undisclosed B-BBEE-related information of the measured entity. The verification, thereof, should be based on the principles contained in the B-BBEE Act and relevant Codes, by applying the verification methodologies outlined in the Framework for accreditation and verification by all verification agencies (also known as the verification manual) as well as the Accreditation of B-BBEE Verification Agencies document (also referred to as the R47-03) issued by the South African National Accreditation System(SANAS. It is important to note that the role of a verification professional or agency is not to express an opinion on the interpretation of any B-BBEE matter, as the legislation (B-BBEE Act) assigns the role of the B-BBEE Commission.

What is required to claim B-BBEE Points?

Every B-BBEE claim must be accompanied by relevant evidence in order for the organ of state or public entity to recognise points during a B-BBEE verification process. If evidence cannot be produced, the organ of the state or public entity will not score any points and can be at risk of receiving a non-compliant status or being discounted on its overall B-BBEE status.

For each element, the organ of the state or public entity at a minimum will need to produce a host of evidence for verification purposes.

The only element of the scorecard that is not measured is ownership (for obvious reasons). The remainder is subject to full verification.

Management Control
Skills Development
Enterprise and Supplier Development
Socio-Economic Development

Using Management Control as one example, below is the list of typical documentary evidence to be verified:

 List of board members/equivalent structure where applicable
 Organogram showing management levels and all occupational levels signed by HR
 Latest COR 39 issued by the Companies and Intellectual Property Commission (CIPC, where applicable)
 Consent to act as directors (all executive and non-executive directors) or CM37 issued by CIPC
 Certified copies of identity documents (ID) of sampled directors and managers
 EEA1 forms for all black directors and managers
 Contract of employment or appointment letters for all black executives and managers
 Payslips for all executive directors, and all managers
 Minutes of meetings of the board and executive committee signed by all attending members
 Copy of EEA2 and EEA4 to Department of Labour and Employment, as well as confirmation in respect of EEA2 from the department
 Payroll report printed from the company payroll system
 An annual report indicating full name, race, gender, position, occupational level, ID number, nationality, salary costs breakdown, and start date
 Employees with disabilities
o Completed EEA1
o Copy of IDs
o Medical certificate confirming that an employee is a person with a disability

Most of the organs of state and public entities are not able to recognise points due to lack or limited record keeping. Therefore, all organs of state and public entities are required to ensure that information required for a B-BBEE verification process is collected on a month-to-month basis or quarterly, whichever is suitable.

Commencement of the Verification Process

Regulation 12 (2) of the B-BBEE Regulations has stated that spheres of government, organs of state, and public entities must file the audited annual financial statements and an annual report compiled in terms of section 13G(1), with the B-BBEE Commission, within thirty (30) days of the approval of such audited financial statements and annual report. NOTE: approval is done by the Executive Officer.

Most organs of state and public entities fail to meet the aforementioned reporting timeline. All spheres of government, organs of state, and public entities are required to ensure that they start the verification process by May of each year using Management Accounts, to ensure that the verification professional or agency is provided with the approved audited financial statements to adjust the report accordingly and issue the entity with the final B-BBEE certificate.

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