Navigating complex BEE requirements to ensure compliance can be a tricky process for many businesses. Since the implementation of BEE in 2003, there have been many high-profile cases of companies found to have faked their BEE credentials and many who have failed their verification audits for other reasons. The unfortunate reality is that faked credentials is not a victimless crime. Any company awarded a government tender through the use of fake credentials is taking business away from another that has worked hard to achieve transformation through compliance.
The Government has been particularly verbal in highlighting the need for BEE compliance. At last year’s State of the Nation Address, President Cyril Ramaphosa stated that, “We [South Africa] will improve our capacity to support black professionals, deal decisively with companies that resist transformation and use competition policy to open markets up to new black entrants.” Thus, all organs of state, public entities and any private enterprise that undertakes business with a public entity must implement the BEE codes.
Finding the Right Supplier For Your Business Needs
According to LFP Group CEO, Louis Pulzone, as the demand for BEE suppliers grows, the market becomes more saturated with suppliers offering all sorts of prices and offers. “The industry is attractive – particularly in our current economy. We’ve heard of a lot of devastating cases where clients look to low priced suppliers who cannot deliver on their promises due to a lack of infrastructure and resources. This ultimately leads to failed BEE verification audits and projects that never get off the ground”.
When sourcing a BEE supplier or skills development training provider, ensure that they meet the various pieces of legislation. This ensures a defensible service offering and ultimately, the desired BEE scorecard result.
Louis says that there are a few key things to keep in mind:
- Ask your supplier for provide you with factual proof of compliance – they are obligated to share this with you.
- Ensure that your training provider complies with the Basic Conditions of Employment Act and Unemployment Insurance Act when it comes to caring for your learners.
- Suppliers must act in accordance with the provisions of the Employment Equity Act when providing learnerships to disabled learners, all learners must be covered by COIDA and UIF provisions must be made.
The size of your business determines the required levels of BEE compliance. “The Codes provide for three levels of compliance based on the size of your business”:
- Exempted Micro Enterprises (EMEs), which are businesses with an annual turnover of less than R10 million.
- Qualifying Small Enterprises (QSEs), which are businesses with an annual turnover of between R10 to R50 million.
- Medium to large enterprises (M&Ls), which are businesses with an annual turnover of more than R50 million.
BEE Shortcuts Lead to a Dead-End
Whilst some companies create fraudulent compliance certificates in order to avoid having to comply with the BEE codes, others simply altered the dates on their out-of-date legitimate BEE certificates to avoid the costs involved in having to renew a certificate. In one case, a billion Rand corporation reported their annual turnover to be less than R5 million in order to secure BEE exemption. Fraudulent practices like these have caused experts to estimate that ‘up to 5%’ of all BEE certificates are invalid.
The penalties for a business being found not BEE compliant are hefty. These penalties, enshrined in the Employment Equity Act, can be anywhere between R1.5 million and up to 10% of an employer’s annual turnover, depending on the nature and frequency of the non-compliance. Ultimately, if a business fails their annual BEE Compliance Audit due to substandard BEE suppliers, the large financial investment made in order to ensure compliance is lost.
Louis Pulzone is CEO of the LFP Group. Driven by Leadership, Focus, Passion and Integrity, the LFP Group is South Africa’s leading provider of BEE aligned turnkey Skills Development training.