*Please note that at the time of preparing this guide virtual site visits and meeting where being allowed by SANAS due to the current Covid 19 situation in the country. Conducting interviews site visits or planning meetings virtually will be done in the same manner as actual on-site visits with the difference as suggested by the name being that the meeting will be over a preferred virtual platform such as MS Teams or similar. The meeting or interview will be recorded for record keeping purposes and will still include the discussion of information as well as scores etc. as per usual. SANAS has been granting extension on the use of virtual site visits and we expect that the situation may change depending on the Covid Lockdown levels in the country, however we will communicate such changes as and when communicated by SANAS.

Once the engagement process is complete (application, 50% deposit and signed Terms and Conditions), we will set up a planning meeting as per our new process, however, apart from discussing the verification requirements and interpretation issues, we would need to agree on deadlines for submissions as these are critical for timeous delivery of the service.  A deadline will be set for submitting the electronic ratings questionnaire, as well as timelines from our side to send through the sample list.  The site visit date can only be confirmed once the physical file containing at least 85% of required supporting documentation and the selected samples have been received. This prevents us from having to schedule additional site visits, at your cost, sampling and resampling. Our sampling methodology will be discussed as well, including what happens in the case of failed samples.

Once the file with the samples has been submitted and perused by the analyst, we will be in the position to confirm the site visit date.  If the information is not sufficient or is incorrect (maybe the time periods are incorrect), the analyst can move out the 1^st site visit until the correct supporting evidence is submitted.

Once the 1^st site visit is confirmed, the identified people for interviews must be available, whether physically or via skype.  If they are not present on the day, the interview can be rescheduled via skype (at additional cost) or proof of absence can be requested – this will be at the discretion of the analyst, depending on the risk they have assessed.

On conclusion of the 1^st site visit, the analyst will provide a list of outstanding information required. This information will be required to be submitted ideally within 5 working days of the 1^st site visit in order to schedule the closing site visit. This can also be agreed at the planning stage.

The analyst shall not accept additional information after the closing site visit has been completed.–

On conclusion of the closing site visit the analyst will provide an indicative score and submit the file for review. This will be the final evidence file that will be submitted for the review process, if any additional information is submitted after the closing site visit, an additional update charge will be incurred, at your cost.

Once the first review is done, there could be review notes sent by the reviewer, either with further requests for information or explanations of the source documents required.  The client will be given a deadline for submission of information to clear the queries raised. Upon receipt of information, the analyst will update the file accordingly and submit for review clearance. Once the review notes have been cleared, a preliminary report will be issued. The issue date of the preliminary report is effectively the day the verification decision was made, and becomes the effective date of the certificate, provided there are no changes to that decision. The client is given five days to review the preliminary report, and if accepted, the certificate will be issued.  The client can request a clarification meeting if they are unclear about the scoring or interpretation used, within those five days as well.  The client also has an option to submit a written appeal to their score at this point if they disagree with any aspect of the scoring, and our appeals process will be dealt with in accordance with the appeals policy in place. 

A client with many subsidiaries may opt to undergo a single consolidation of their various businesses.  This would need to be indicated on the application form, as well as the number of subsidiaries to be consolidated including details on their individual sizes. This will give Empowerdex an opportunity to assess how the various subsidiaries would be sampled, and how long it would take to complete the exercise.  This therefore also affects the quote that will be offered for the verification. The process will be the same as indicated above, except that the multiple site visits will be planned, and a team of analysts assigned to the engagement. Only those entities we have verified as per our sampling methodology can show on the annexure to the certificate. Only once the individual subsidiaries have been signed off and approved, will the consolidated rating be calculated. Please note that should an entity have a separate certificate and yet be included in the consolidated certificate, the entity cannot utilise the consolidated certificate for BEE purposes as that would be a form of fronting. 

Under ownership, it is important to have sufficient evidence to demonstrate black economic interest, black voting rights, as well as assess the level of net value the black participants can claim.  Because most companies have unique ownership structures, the analyst is able to identify, the exact information we would need based on your structure.  As an indication, the typical information requested would include: Share registers / share certificates / shareholders agreement/ Sale of share agreements / Preference share agreements / Memorandum of Incorporation and all other related agreements that affect ownership. These agreements will indicate if there are any restrictions placed on the black participants in terms of their ability to vote or receive economic benefit according to their percentage shareholding. 

• Black new entrants would require an affidavit, signed by the fiduciaries of the entity in question, confirming the status of the participants of that entity.
• Outstanding Debt Confirmation needs to be independent, except where there is vendor financing, in which case the confirmation must be signed by both parties, annually. An independent company valuation will also be required in order to calculate Net Value.
• If the black participants are black owned EMEs or QSE’s, the affidavit will not be sufficient evidence for black ownership purposes. They would need to provide their proof of black ownership, including being available for interviews.
• If the black participants hold shares through a Trust, whether it be an ESOP, BBOS or an ordinary trust, not only must they demonstrate compliance with Annexure 100(B, C & D) of Statement 100, but we would require interviews with sampled Trustees as well as Beneficiaries. Copies of AGM’s and financial statements must be available for verification to avoid limiting participation to 40% of the scorecard. We have developed a sampling methodology for selection of beneficiaries, depending on how many beneficiaries there are.  Please note that if the beneficiaries are not aware of their benefits, we will be unable to recognise the Trust, amongst other reasons.  Please also note that the independence of the Trustees is also as important, and in this case, the King Codes on Corporate Governance would be a good place to start to ensure that your trust is compliant when it comes to the independence of Trustees. The main point under trusts is that the Trust should be able to demonstrate that it is an independent shareholder in the Measured Entity and operating on the mandate of the stated beneficiaries or beneficiary groups.
• In the case of family trusts where the beneficiaries are minors the voting rights will be recognised based on the trustees of the trust as the minors do not actively exercise voting rights
• Private Equity firms holding equity in the Measured Entity will need to be verified separately if they are claiming to qualify as Black Owned Private Equity Firms as per Statement 100. We will also require a certificate from the DTI should the Measured Entity have an approved EEIP programme they wish to recognise for ownership purposes.
• In the case of listed entities, the normal verification process will apply, based on the share register as of verification date, or financial year end. On average, most listed entities would supply information as of the financial year end, as this can be compared easily with the audited financials of the same period.  
• Where there is black participation based on identified entities in the share register, but there is no specific BEE Transaction concluded, instead the shares are bought on the open market, we will request these entities’ BEE certificates. Where there is a BEE Transaction announced, it will be assessed as per the normal process. 
• Listed entities have an option to either include or exclude South African Mandated Investments. If they opt for the exclusion, we would request the identified Mandated Investments and these will be verified as qualifying, and the percentage limit assessed.  If they opt to include Mandated Investments, a Competent Person’s report will be requested stating the methodology used and percentages assessed, and whether the report percentages have been adjusted for foreign operation. Please be reminded the Standard Valuation method for foreign operations needs to be consistent over the years to avoid inconsistent results.
• If the Measured Entity is seeking recognition based on a Sale of Assets, please note that we will request an independent valuation of the original transactions value with the expert opining on the fairness of those values. This is a requirement of the amended codes.  The codes do not specify the frequency of this opining, and we are comfortable to request this every third year, unless there is further direction from the DTIC regarding the frequency. 
• Continuing Recognition will continue to be assessed on the same basis as before, no new processes have been introduced. The only issue would be on recognition in the final year of the validity of the recognition.  Our approach is that if we do a verification in June, and the recognition expired in May of the same year, we cannot recognise it.  If it expires in August, we can recognise it for the next two months, and we would need to update the certificate in August to reflect that it has expired. 

There are many more intricacies regarding ownership verifications, and your particular structure and the particular requirements will be discussed in detail at the preliminary site visit.

Board

The board of directors will be evidenced by the Cor39 of the entity.  Please ensure that this document is the latest from CIPC at the time of verification (valid within 3 months of the 1^st site visit date).  If Empowerdex needs to pull the latest records via Windeed, the associated costs will be levied on your account. The directors voting rights will be calculated based on what the MOI indicates.

For Executive directors we would require contracts, latest payslips, latest certified ID copies and board minutes to show participation for all, over and above the updated Cor39 list.  Black directors will be sampled for interviews. Payroll test will be performed on Executive Directors as well as assessment of their participation in an executive capacity.

For executive management, we would require proof of attendance to Management Committee meetings.  Payroll testing (requests for contracts, latest payslips, and latest certified ID copies) will be performed on Executive Management as well as interviews with sampled black managers.  Please ensure that all contracts have all the pages present and are signed by both the employee and employer.

Employment Equity

If undertaking a consolidated scorecard for a number of subsidiaries, we would need proof of submission of the Employment Equity Reports for all listed subsidiaries.  Where some or all are consolidated, the client must demonstrate that all employees are accounted for in the reports.

We require the following under the sample for EE:

• Employment contract – please ensure that they are complete with no missing pages and signed by the employee and employer,
• Certified clear ID copy,
• Latest Payslip, and
• Additional if disabled:
  1. Completed EEA1
  2. Doctor’s note confirming disability and nature as per the EEA1.

Selected samples will be interviewed. Please note that not submitting any one of the above may lead to a pass rate being applied.

A payroll test will be conducted, based on the download from the last month’s payroll run.  Any discrepancies within management levels will require an explanation, which will be assessed by the Technical Signatory (TS).  These explanations may be accepted or rejected by the TS.

Submission of ATRs and WSPs are prerequisites for scoring under SD.  We would require proof of submission and more importantly, proof of approval. We also require proof of implementation of priority / scare skills in the reports - for the measured entity, as well as other subsidiaries should this be a consolidated scorecard being assessed.  We require proof of your immediate last submission only, regardless of your financial year.  For example, if the verification is done in February 2020, we require your April 2019.  If it’s done in May 2020, we require the April 2020 submission.  Because of how close the dates are, and the fact that the approvals usually come later, the April 2019 approvals will be accepted. We also require EMP201’s to assess the leviable payroll and confirm payment of SDL.  Please include your SARS statement showing the payments for the period under review together with your EMP201s. If this is a consolidation of a number of entities, we would require all EMP201. It is important to note response from the DTIC regarding the SDL payment holidays: The definition of leviable amounts speaks to total amount of remuneration paid and does not get impacted by the payment holiday granted. Your target thus remains the actual remuneration to your employees, whether or not SDL was paid over to SARS or not. 

Categories B, C and D

The risk areas in Skills Development include the classification of courses, especially B, C and D, as well as category E learning.  Please ensure that the learning matrix has been referred to before allocating the category as pass rates will be applied on courses that are incorrectly categorised. For category E we require the proof of NQF level attained, or credits awarded for unit standards or continued professional development points awarded. If unsure, rather allocate to G. 

For bursaries, we often have problems with proof of payments to institutions that include the beneficiary’s name and or student numbers, which makes it difficult to assess if the proof of payment is indeed for the claimed beneficiary.  If you suspect this may be a problem with your systems, please engage your finance team to agree on a solution to provide comfort that the amounts paid are for the claimed black beneficiaries. 

Learnerships

With regards to learnerships, we require the tri-party agreement amongst the learner, the employer and the SETA, with proof of registration with the SETA.  Please ensure that the learner fills in the application form correctly, especially where they need to indicate if they were previously unemployed.  

Absorption

For absorption, please refer to the new definition that requires permanent employment as opposed to fixed term contracts. This applies to learners absorbed within the Measured Entity, and absorbed by the industry.  It is also important to note that the target and therefore denominator for absorption is 5% of total employee headcount of the measured entity; and that the numerator is only those learners absorbed during the period under review. 

Trainee Tracking Tool

The codes do not have a definition of what this is, however it was initially thought that companies would need the tracking tool to find their learners who have been absorbed by the industry as opposed to their own company.  However, SANAS has indicated that there must be a tracking tool internal to track learner progress, however there hasn’t been guidance on what it should look like to qualify.  Our suggestion would be that your tool should include the following detail:

1. Name of learner,
2. Start Date of the programme,
3. End date of programme,
4. Department or entity they have been absorbed into, and
5. Date of absorption.

These headings are available on the ratings questionnaire should you need to refer to it. 

General

We would continue to require the same type of information to prove absorption, like latest payslips, contract of employment, and interviews on selected samples, over and above the proof that they were on a learnership, which typically includes proof of registration with the SETA. A sample or learners will be interviewed, as well as bursary holders. The externally absorbed learner can provide an affidavit confirming the details as required.

Total Measured Procurement Spend (TMPS)

When determining TMPS, the audited financials of the measured entity (ME) would be utilised, using the inclusions and exclusions as per the relevant code.  Where the ME is being measured on a consolidated basis, we would need confirmation of the entities included in the financials presented – which is normally stated in the pack.  If not stated, we would need confirmation from the auditors / reviewers of the pack.  If the consolidation includes other subsidiaries audited separately, their combined financial information will be assessed, minus inter-company spending. 

TMPS is aimed at calculating procurement incurred within the financial period under review. In the calculation of the Cost of Sales figures, the amount for stock or inventory that has been used in the financial period is reflected and not the amount for stock that was purchased in the financial period. Therefore, the opening and closing stock adjustment is now included in the calculation of TMPS to better reflect the purchases for that period. The sampled suppliers will continue as per usual. 

Ledgers

Please also note the sampling of the ledgers to determine proof of purchased amounts for the sampled suppliers for the period under review.  Where the ledgers have cut-off dates indicated, then a random selection of any three invoices will be done, including the first invoice, the last invoice and the largest invoices as per the GL accounts. Before submitting your procurement list, please ensure that the claimed amounts are consistent with your ledger dates.  That is, payment-based vs the accrual basis – the difference in the two can result in samples failing as they are outside the period of assessment. 

Import exclusions

Where the Measured Entity is claiming exclusion of imports, we would require an Import Substitution Plan as per the codes – if it is claimed under 6.5.2- including clear objectives of the plan, priority interventions, key performance indicators, and implementation plan.  In subsequent years, we would require progress on implementation, showing active implementation.  We would require proof of importing including the relevant customs documents to tie up with the claimed amounts.  If the reason for importing is as per 6.1 – i.e., capital goods for value added production, or not available in SA, justification on why they qualify would be required, including proof of value adding, and proof of no local production. 

B-BBEE Affidavits

Regarding affidavits as proof of BEE Status, please ensure that the deponent indicates their designation, that the registration number and VAT number is indicated on the affidavit, and that the rest of the affidavit is filled in correctly.  Please ensure that the affidavit is signed by the Commissioner of Oaths and the deponent, and that it is dated correctly (i.e., must be commissioned on the same date as signed by the deponent).  Regarding the VAT number, the DTIC has released an updated Affidavit that now requires the VAT number to be filled in.  In most cases, the VAT numbers instead of the registration number are printed on the invoice from the supplier, and it becomes difficult to prove that the invoicing entity is the same as the entity who signed the affidavit – with only a name to work with, hence the amendment. 

Transport sector suppliers

When dealing with EME’s and QSE, please check which services are being offered to your entity and ensure that you have the right proof of BEE status.  For companies that operate in the transport sector, such as courier companies, freight (although they are not likely to be small), or offer any transportation services (including providing transport for staff), the EME/QSE needs to provide a BEE Certificate, and not an EME/QSE affidavit.  This is necessary since the Transport Sector Code has not been aligned with the Amended Codes, and the BEE Commissioner has released a Note to the effect that these EMEs/QSE would need to approach their nearest rating agency and get an EME Certificate; or obtain an Accounting Officer’s confirmation letter; or undertake a QSE rating based on the Transport Sector Code.  Please remember that under the transport sector code, EME’s have a turnover of less than R5mil, and QSE’s are between R5 mil and R35mil.  Anything above the aforementioned revenue thresholds, would mean that the generic Transport Codes apply. 

Construction Sector Code EMEs

Please note that only the following EME’s can supply a B-BBEE affidavit – using the correct template:

• BEPs with a turnover below R1.8m, and
• Contractors with a turnover, below R3million.

All other EME’s and QSE’s will require a verification certificate.

Under this section, please note that the claimed beneficiary would need to be on your supplier list for the year under assessment, otherwise they become Enterprise Development. If contributing to a group scheme, we would still need to find your suppliers represented in the group scheme for the entity to be able to claim their proportionate spending. A Supplier Development agreement signed by both parties is essential, over and above proof of initiatives and proof of qualifying as a beneficiary. We do require proof of payment for any initiatives to be on file, and depending on the risk assessment, we may request an interview with the beneficiary. Also note that a supplier development beneficiary may no longer be the same beneficiary used under enterprise development as this has been clarified in the recent code amendments.

The same requirements as above will apply, except that this beneficiary cannot form part of your supply chain.  If contributing to a group scheme, please ensure that there is verifiable proof of contribution, whether that is included in the management fees agreement, ED agreement, or direct invoicing by the Head Office.

• When claiming job creation at the enterprise, we would need confirmation from the beneficiary that the job created was as a result of the interventions received from the ME. Therefore, the job should have been be created AFTER the intervention.  We would require latest payslip, contract, ID copy of the new employee.  If the employee has since left the employ of the beneficiary, the job no longer exists.  Unless replaced with another employee.
• When claiming graduation from ED to SD beneficiary, we would need to assess the original ED agreement, the new agreement under SD, and proof of inclusion in the supply chain.
• If you are contributing to a general ED fund, where a number of companies contribute, the Fund would need to provide information to show how the funds paid into the fund were utilised for qualifying ED beneficiaries. The Fund can be verified by a verification agency, or provide auditable details for us to be able to trace the benefit. 
• ED beneficiary may not be a supplier to the Measured Entity when the ED initiative is implemented. 

Net Profit After Tax (NPAT)

The Net Profit After tax is used as the denominator for calculating contributions to ED, SD and SED. 

Positive NPAT

Using the audited financials, the NPAT margin will be compared to a ¼ of the industry norm as per the Stats SA quarterly report. For example, if your 2020 NP margin is 5.5%, and your industry margin is 8%, then the quarter will be 2%.  At 5.5%, your margin is higher, therefore your 2020 NPAT figure will be used in the calculation.

If the NPAT margin is less than ¼ of the industry norm, the target now becomes turnover based, calculated as the Indicative Profit Margin (NPAT/Turnover).

The NPAT-margin to be used must be the most recent NPAT (not older than 5 years) which is at least ¼ of the industry norm. For example, say 2019 NPAT margin was 2.50% which is above 1/4 of the industry norm of 2% you would use the 2019 NPAT margin against your 2020 Turnover figure.  Your new NPAT target would thus be your 2020 Turnover x 2.5% (most recent NPAT margin which is at least ¼ of industry norm).

Should your margin in all of the previous 5 years as well as current year be below the industry norm or a negative then one would apply a quarter of the industry norm at the time to your current year revenue in order to get your indicative NPAT figure for use in the current verification. For example, all previous years has a negative NPAT or one that is lower than a ¼ of the industry norm, then take a quarter of the industry norm, 2% (If industry norm is set at 8%) x Current Revenue = Indicative NPAT.

The important point to note when it comes to SED is that the initiatives need to contribute towards sustainable access to the economy for the black beneficiaries.  The Codes have indicated some initiatives that do qualify, however if not on the list, the Measured Entity would need to show how the intervention improves sustainable access to the economy.  This then implies that employees’ benefits do not apply as they already are in the mainstream of the economy.  It has also been confirmed with the DTIC and the BEE Commissioner’s office that contributions to the Solidarity are not claimable for B-BBEE purposes as the fund was established to respond to the Covid 19 pandemic and not for B-BBEE purposes.

The verification manual requires that if contributions are made to an organisation that qualifies, the Head of the organisation can attest what percentage of the beneficiary base is black as defined.  Alternatively, a third party can also attest to the percentage of black beneficiaries. A beneficiary affidavit can be requested, if the beneficiary does not have an independent third-party report or beneficiary certificate on its beneficiary base.