The Generic Scorecard for the Chartered Accountancy Sector, part 9 – Enterprise and Supplier Development Scorecard, Procurement Spend and Measurement

Preferential Procurement: Procurement spend

The following procurement is measurable within Total Measured Procurement spend:

1. All goods and services procured that comprise the cost of sales of the Measured Entity.
2. All goods and services procured that comprise operational expenditure of the Measured Entity.
3. All capital expenditure incurred by the Measured Entity.
4. Procurement of any goods or services procured from any organs of state and public entities. Procurement of any goods or services from any organ of state and public entity that enjoys a statutory or regulated monopoly in the supply of such goods and services is excluded.
5. All goods and services procured from suppliers that enjoy a monopolistic position.
6. All procurements for a third party or a client, where the cost of that procurement is included as an expense in the Measured Entity’s annual financial statements.
7. Payments made to independent contractors and to labour brokers for services provided by individuals who are not Employees of the Measured Entity (i.e. Outsourced Labour Expenditure).
8. Payments made to any post-retirement funding scheme or to a medical aid and/or similar medical insurer by a Measured Entity for its Employees, excluding any portions of such payments which are a contribution to a capital investment of the employee. The scheme or insurer must issue a certificate dividing payments between the capital investment portion and the balance to establish the amount that is measurable within Total Measured Procurement Spend.
9. Any commissions or similar payments payable by a Measured Entity.
10. All goods and services procured in carrying out B-BBEE initiatives. The Total Measured Procurement Spend does not include the actual contribution portion recognised under Supplier Development, Enterprise Development Contributions and Socio-Economic Development. Still, it does include any expenditure incurred in facilitating such contributions.
11. All goods and services procured or imported from a non-South-African source.
12. All goods and services procured from subsidiaries or holding companies of the Measured Entity. (B-BBEE credentials of the entity supplying goods and/or services must be confirmed by way of a valid BEE certificate.)

The following are the only permissible exclusions from the above Total Measured Procurement Spend:

1. Any amount payable to any person which represents a lawful tax or levy imposed by an organ of the state duly authorised to impose such tax or levy, including rates imposed by a municipality or other local government.
2. Salaries, wages, remunerations and emoluments, as well as any amount payable to an employee as an element of their salary or wage and any emolument or similar payment paid to a director of a Measured Entity.
3. All procurement for a third party or a client that is recorded as an expense in the third party or client’s annual financial statements but is not recorded as such in the Measured Entity’s annual financial statements.
4. Empowerment-related procurement is excluded if it relates to: 4.1 Investments in or loans to an Associated Entity; or
   4.2 Investments, donations or loans qualifying for recognition in terms of Supplier Development, Enterprise Development or Socio-Economic Development Contributions.
5. Imported goods or components for value-added production in South Africa, provided that there is no existing local production of such capital goods and services and importing these goods and services further promotes value-added production within South Africa.
6. Imported goods and services where there is no local source or which have a different brand name than the local goods and services, or have other technical specifications. These exclusions are subject to the Measured Entity having developed and implemented an Enterprise Development and Supplier Development plan for imported goods and services. This plan should include a clear objective, priority interventions, key performance indicators and a concise implementation plan with clearly articulated milestones.
7. Where a global firm allows its local partners no discretion about the purchase of certain goods or services, such costs must be excluded from the Total Measured Procurement Spend where no equivalent local supplier exists.

Preferential Procurement: Measurement

Calculation of B-BBEE procurement spend

A = sum of (B x C)

Where:

A = Calculated total B-BBEE procurement spend for the Measured Entity. It is equal to the sum of the result of the product of B and C for each supplier of the Measured Entity not excluded under the exclusion from Total Measured Procurement Spend

B = The value of procurement falling within Total Measured Procurement Spend and not excluded under the exclusion from Total Measured Procurement Spend from each supplier of the Measured Entity

C = The B-BBEE Procurement Recognition Level of each such supplier of the Measured Entity

Calculation of Preferential Procurement Contributions to B-BBEE

A = B x D
      _       
      C

Where:

A = The calculated Preferential Procurement score for each indicator in the scorecard
B = The total B-BBEE Procurement Spend of the Measured Entity calculated under measurement of B-BBEE Procurement Spend as a percentage of Total Measured Procurement Spend of that Measured Entity
C = Compliance target as specified in Paragraph 12.2.4, Indicator 4.1 and 4.2 (refer to the table published in the previous article)
D = The Weighting points as specified in Paragraph 12.2.3, Indicator 4.1 and 4.2 (refer to the table published in the previous article)

Supplier and Enterprise Development

Through the indicators listed earlier, the objectives of this section of the scorecard are to measure initiatives intended to develop Black owned suppliers and small entities that struggle to take their businesses from survivable and/or a micro level to a level of sustainability and profitability.

The challenges that this section of the Codes seeks to address are:

1. The high failure rate amongst Black owned start-ups due to a lack of access to financing and other business support; and
2. Job creation.

Within the CA sector, there is recognition that for Black people to play a meaningful role in the ownership of the sector, whilst contributing to the growth of the profession, it is important to develop Black Owned Professional Services Firms so that they have skills, resources and access to opportunities that drive their growth and sustainability. To this end, the CA Sector Charter encourages that Enterprise Development Initiatives be targeted to QSEs and EMEs within the CA sector; and recognises that Qualifying Enterprise Development Contributions of the CA Sector also includes capacity building of a monetary and non-monetary nature for Black Owned Firms within the profession and outside the profession.

Bonus points to be awarded to Measured Entities that contribute to the development of Black Owned Professional Services Firms, through joint audits or sub-contracted audits in the listed company sector as a Sector Specific Programme for the CA Sector Scorecards.

The custom of establishing audit firms working with Black Owned Professional Services Firms on joint projects, with working arrangements ranging from joint assignments, which are shared equally between the firms, to subcontracting arrangements where an
established firm subcontracts part of the work to an emerging Black Owned Professional Services Firm, should be extended to the whole sector. At present, arrangements of this nature are prevalent in servicing the public sector and in state-owned entities. They are beneficial in that Black Owned Professional Services Firms are allowed to develop themselves. Established firms are encouraged to extend these arrangements to the private sector, including listed companies, and are incentivised by earning Enterprise Development and bonus points on their scorecards.

The next article will discuss key principles, contributions, monetary and non-monetary contributions, and bonus points.