INDEPENDENT VERIFICATION IS THE NEW BUZZ WORD.

In other words present all your evidence in hard or soft copy for verification to the Verification Analyst, the Verification Analyst will then check and clear and then the technical signatory has the final say over the evidence presented to them for the issuing or may require additional info for the decision to be made before issuing. It is much like a SARS financial Audit. The new R47-03 contains an amended definition of “Consulting Services”, which, includes Scenario Planning and Gap Analysis. B-BBEE Rating Agencies are not allowed to provide any consulting services to a Measured Entity for which they provide B-BBEE Verification Services. This ruling is in place to ensure that the risk of conflict of interest is totally eradicated and further guarantees impartiality. As a further deterrent for the risk of conflict of interest to occur, members of these agencies, may not be related to parties or any entities that are subjected to the verification process or any other related party, which may have a vested interest in the outcome of the B-BBEE verification. Verification companies may no longer have associated shareholdings in other companies i.e. Skills service providers or consultancies.


IMPARTIALITY

Impartiality is the actual and perceived presence of objectivity. Objectivity means that conflicts of interest do not exist or are resolved so as not to influence adversely the subsequent activities of the BEE Verification Agency. Synonyms that are useful in conveying the element of impartiality are: objectivity, independence, freedom from conflicts of interest, freedom from bias, lack of prejudice, neutrality, fairness, open-mindedness, even-handedness, detachment, and balance. Being impartial, and being perceived to be impartial, is necessary for a BEE Verification Agency to be able to deliver a verification that provides confidence. It is recognized that the source of revenue for a BEE Verification Agency is the client paying for its service and that this is a potential threat to impartiality. In order to obtain and maintain confidence, a BEE Verification Agency has to be able to demonstrate that its decisions are based on objective evidence and that its decisions have not been improperly influenced by other interests or by other parties.


Threats to impartiality include:

  • Self-interest threats – threats that arise from a person or enterprise acting in their own interest, for example financial self-interest.

  • Self-review threats – threats that arise from a person or enterprise reviewing the work done by themselves, for example evaluating the BEE compliance of a Measured Entity to whom the BEE Verification Agency provided consultancy.

  • Familiarity (or trust) threats – threats that arise from a person or body being too familiar with or trusting towards another person instead of seeking evaluation evidence on which to base the verification conclusion R47-03-02.

  • Intimidation threats – threats that arise from a person or enterprise having a perception of being coerced openly or secretively, such as a threat to be replaced or reported to a supervisor.

  • Clause 10.1.1 which states “B-BBEE Rating Agencies shall be seen as being both factually and perceptually independent from their measured entities, related parties and themselves and shall avoid any circumstances that give rise to or may potentially give rise to a conflict of interests between the various parties.” For example, the issue of Commission and Referral Fees being paid between B-BBEE Rating Agencies and Third Parties in which this may potentially give rise to a conflict of interests between the various parties which will lead to the Impartiality of B-BBEE Rating Agencies being compromised and may lead to incorrect B-BBEE Verification Decisions.(SANAS Opinion) We find this ridiculous and cannot see how or where this decision came from.

  • Clause 10.2.4 which states “the B-BBEE Rating Agency shall have a legally enforceable agreement between the agency and the measured entity and ensure that all payments are made directly from the Measured Entity to the B-BBEE Rating Agency for the provision of verification services” (This is from the start until the end of the entire Verification Process as per the R47-03-03). “The B-BBEE Rating Agency shall ensure that all dealings are directly with the Measured Entity and not a third party.” B-BBEE Rating Agencies are governed by the R47-03-03 and will ensure that all dealings are with the Measured Entity and not third parties (in order to ensure that the B-BBEE Rating Agency’s Accreditation is not compromised) which include B-BBEE Consultants. It must be noted that the R47-03-03 is only applicable to SANAS Accredited B-BBEE Rating Agencies and not B-BBEE Consultants. However, where there is a Legal Power of Attorney presented to the B-BBEE Rating Agency and a Legal relationship between the Principal (Measured Entity) and Agent (Third Party) that describes powers exists, this will be allowable. A mere letter to that effect will not suffice as this document needs to be legally binding and the Principal needs to be aware of all repercussions that may occur from decisions made by the Agent. B-BBEE Rating Agencies need to be aware that the concept of Power of Attorney is not specifically related to B-BBEE Verification services and not embedded under the R47-03-03 as a requirement but legally accepted in many areas. The legally enforceable agreement can only exist between the B-BBEE Rating Agency and the Measured Entity for B-BBEE Verification Services and no other party. All payments for the provision of B-BBEE verification services are made directly from the Measured Entity to the B-BBEE Rating Agency only. It should also be noted that Measured Entities need to be held accountable for their own B-BBEE credentials and need to be included in all dealings in relation to B-BBEE Verification services to ensure that information presented to a B-BBEE Rating Agency for B-BBEE Verification is accurate and reliable,( SANAS Opinion). SANAS therefor will allow your consultant to assist with your onsite if legally appointed to do so.

We along with Consultants and Verification Agencies have been asking for the DTI and SANAS to issue a revised verification manual (the last one that was gazetted was in 2008 under the Old Codes.) Hence the confusion and ambiguity in the absence of the revised manual.


At Compliance Hub we have always treated the verification process as independent and impartial and never got involved in the decision-making process of the Technical Signatory, after all we are not a Verification Agency and do not issue BEE Certificates. The R47-03 is clearly defines these responsibilities.


The R47-03 further defines the roll of a Consultancy: ‘consultancy’ means the provision of any service that assists a Measured Entity to implement a BEE Strategy or any element of a BEE Strategy. This includes implementation in ownership, management control, employment equity, skills development, preferential procurement, enterprise development and corporate social investment. With reference to avoidance of conflicts of interest, the service would be considered as consultancy if the company had provided specific solutions and assisted the Measured Entity to implement the proposed solutions.


Examples of consultancy include, but are not limited to, the following:

coaching or facilitating the BEE process on behalf of the Measured Entity towards the development and implementation of activities leading to BEE compliance.

  1. preparing or producing manuals, handbooks, or procedures.

  2. participating in the decision-making process regarding the management system.

  3. giving specific advice on the development and implementation of the management system for eventual verification.


THE ROLE OF BEE VERIFICATION AGENCIES

Assess, verify, and validate BEE information for decision-making BEE Verification Agencies should assess, verify, and validate both disclosed and undisclosed BEE-related information on measured entities. The verification thereof should be based on the principles contained in the Broad-Based BEE Codes of Good Practice, as well as the relevant gazetted industry charters, published and accepted as a Sector Code of Good Practice on Broad-Based BEE (Section 9 of the Act).


Evaluate BEE transactions and scenarios

BEE Verification Agencies shall evaluate the BEE transactions/scenarios to determine the effective creation and/or enhancement of economic wealth for black people.

  • The evaluation shall be based on all the relevant components of broad-based BEE and shall ensure that the transactions/scenarios reflect the aims of these components in the empowerment of black people.

  • This may include giving an indicative BEE score based on the scenarios presented by a Measured Entity.

  • The Measured Entity, not the BEE Verification Agency, is responsible for conforming with the requirements for BEE Verification.

  • The BEE Verification Agency is responsible for carrying out a factual, thorough evaluation of a Measured Entity’s BEE status and, based on the result, for granting a BEE score.

Legal and contractual matters

Legal responsibility- The BEE Verification Agency shall be a legal enterprise, or a defined part of a legal enterprise, so that it can be held legally responsible for all its activities.


Ownership

BEE Verification Agencies, their directors and shareholders may not hold an equity share in the Measured Entity to be rated or have any voting rights in the Measured Entity. When evaluating the type of financial interest, consideration shall be given to the fact that financial interests range from those where the individual has no control over the investment vehicle to those where the individual does indeed have some control over the financial interests or is able to influence investment decisions. The provisions of this statement do not exclude the holding of a minority interest or listed share/s where the total shareholding does not constitute a substantial shareholding when compared with the total number of shares issued by the Measured Entity. The materiality of such a financial interest needs to be evaluated to ensure that the independence of the BEE Verification Agency is not impaired.


Responsibility for BEE Verification decisions

The BEE Verification Agency shall retain authority and shall be responsible for its decisions relating to the BEE verification.

Verification

Verifications shall be done according to a Verification Plan:

  • The verifications shall take place at the site(s) of the Measured Entity. The purpose of the evaluation is to measure the BBBEE progress or status.

  • The verification team shall conduct the evaluation to gather evidence to verify the Measured Entity’s in terms of BBBEE.

  • The verification team shall rate a sufficient number of examples of the activities of the Measured Entity in relation to the BBBEE criteria to arrive at a sound appraisal of the Measured Entity’s BBBEE status.

  • As part of the verification process, the verification team shall interview a sufficient number of the staff, including top management and operational personnel of the Measured Entity, to provide assurance that the information gathered is sound.

  • The verification team shall analyze all the information and verification evidence gathered to determine the BBEE status of the Measured Entity.

  • The BEE Verification Agency shall ensure that a detailed, written Verification Report is promptly provided to the verified Measured Entity.

  • Ownership of the Verification Report shall be retained by the BEE Verification Agency.

Article by Hilton Johnson

CEO – Compliance Hub

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