May Day Mayhem for BEE

The amended BEE codes come into effect on May 1. EconoBEE give their tips…

Unless the minister issues another notice again delaying the Amended Codes the following will apply:

1) The final Amended Codes have only been issued for generic companies, EMEs and certain black-owned QSEs.

2) Sector codes have not been issued and still apply until repealed or amended. The minister is obliged to follow specific procedures: Publish a sector code as a draft, give at least 60 days commentary period, consult widely and then issue it as a final code. Until that happens, the sector codes remains in issue.

3) Companies in sectors which have their own codes will continue to be rated on the existing sector codes, even after 30th April. Auditors and SANAS agencies (with the correct sector code extension of scope) are fully entitled to issue certificates indefinitely – until they are repealed or amended.

4) If a business does not fall into a sector code and is generic (ieturnover more than R50m) it must use the Amended Codes for any certificate issued after 30th April 2015. You cannot use the old codes even if your verification was performed in early April, but the actual certificate was issued after 1st May.

We fully expect to see the odd “rotten egg” amongst auditors and agencies being prepared to bend the rules and pre-date certificates to April even if their verification is performed in June, July or August. This will be illegal. The B-BBEE Act states that fronting will put the CEO or MD of the measured entity in jail for up to 10 years.

5) QSE Codes have not been fully finalised. If the business has a turnover of less than R35m and is not 51% black owned or more, the current QSE codes apply until 30th April. Thereafter they apply until the Amended QSE codes are issued. The dti has issued no comment and this can happen at any time.

We often get asked – Who can issue a valid Amended Codes certificate after 1st May 2015?

1) The minister’s notice of 23 September 2011 states that only IRBA-appoved or SANAS-accredited agencies may issue certificates. It also states that the Verification Manual shall be applied when issuing certificates. Unfortunately the Verification Manual is one of the documents that has still not been issued by the dti. If it were issued then IRBA auditors would legally be allowed to issue Amended Codes certificates.

By implication, since it has not been issued, no one can issue validAmended Codes certificates after 30th April 2015. As far as we are concerned the Verification Manual was a useless document – a re-hash of the codes without adding valuable interpretations. In terms of key principle 2.1 of the codes, “Substance takes precedence over legal form”. We suggest that auditors are entitled to ignore this oversight and can therefore start issuing Amended Codes certificates. We, of course, do not talk on behalf of IRBA, but they are also not keen to issue notices or directives.

2) SANAS has to issue all agencies an extension of scope before they can issue certificates based on the Amended Codes. Unfortunately, we cannot tell SANAS to issue the extension of scope to all agencies, even though an extension of scope is also a pretty useless document to agencies. SANAS was established by theAccreditation Act so they have to take their own decisions. Unless SANAS issues the extension of scope, or allows agencies to dispense with it, no SANAS accredited agency may issue Amended Codes certificates.

One of the reasons the IRBA is reluctant to allow verification using the Amended Codes is that the codes still contain many errors and ambiguity. We are therefore going to issue our own interpretation, and suggest that unless the appropriate authority issues a notice to the contrary, we suggest this may be used as a guide:

1) Empowering supplier: This is a crucial definition to the codes, but contains too many errors of logic, finance, even grammatical errors, to be applied. Rumours were that the minister would issue a notice clarifying this, but to date it has not happened. From now on ignore any issues relating to Empowering Supplier.
2) Demographics: The employment equity aspect of management control requires senior, middle and junior management to be measured via national demographics, as does skills development, ie using percentages of African, Coloured and Indian people in various job or training categories. The calculation supplied by the codes is seriously flawed – whoever wrote the codes did not understand algebra. Until the dti issues a logical calculation ignore national demographics as per the CEE Report and use the definition of “Black” as per the B-BBEE Act as Amended.

Our rationale for our interpretations:

The key principles of the codes state:

2.1 The fundamental principle for measuring B-BBEE compliance is that substance takes precedence over legal form.

2.2 In interpreting the provisions of the Codes any reasonable interpretation consistent with the objectives of the B-BBEE Act, as amended, and the B-BBEE Strategy must take precedence.