Paul Janisch

Commenting on the BEE bill by email

Comments on the B-BBEE Amendment Bill can be sent to the following persons:

Lindiwe Madonsela [email protected] or Xolisile Zondo [email protected]

 

Issued: The Department of Trade and Industry
Sidwell Medupe (Departmental Spokesperson)
Tel: (012) 394 1650         (012) 394 1650      
Mobile: 079 492 1774
E-mail: [email protected]

• Government Gazette 34845, Notice 893 of 2011

via www.thedti.gov.za

The gazetted bill has no email addresses on it. If you're planning to submit by email - look no further than this post.

The horse's mouth - rumours about new codes continue.

Minister Rob Davies tells Engineering News that the DTI is elevating the concept of a balanced scorecard from the Codes of Good Conduct to the current Act. 

The DTI states that enterprise development (ED) is one of the significant elements that can contribute towards the broader aims of government to support the growth of small enterprises and job creation. In the light of a new drive towards creating effective black-owned and black-female-owned and -controlled enterprises, the department has elevated ED to also focus on key sectors of the economy.

“With regard to the points system, we have ensured that entities cannot score a certain level without doing some work on ED. Preferential procurement has also been elevated in terms of the points system, with [greater] emphasis being placed on black-owned and female-owned enterprises,” he says.

The Employee Share Option Plan (Esop) will also become part of the scorecard. “When correctly applied, Esops have the potential to drive wealth and capacitate employees, as seen with iron-ore giant Kumba’s model,” he explains

via www.engineeringnews.co.za

Rob hints at what is to come and it's scary, but the real fright will come when the codes that were presented to a bunch of DTI patsies last year (and some not-so patsy people) are published.  This presentation was a strange thing because it was very closed - I'm aware of two verification agencies that asked to attend and were informed that they weren't welcome.  It does appear that the people who were welcome were those who were going to shower both Vuyo Jack and Polo Radebe with praise for their most amazing work.  

Judging from the above quote from Rob we know that business people now have to get actively involved in the ED project otherwise no points.  That's ED (and the horse's mouth) but wait 'til you hear the second hand information.  Contributions now must be recoverable and non-recoverable.

It would appear that the number of points for skills development is increasing but so is the target.  Some say that it is going up to 6% of payroll.  Then you have to report on the training in terms of the economically active population and points are awarded in that fashion.  I would imagine that employment equity is going to be similar.

They are going to do something with QSEs and insist that they adhere to all 7 elements.

However this is second hand information - but it wouldn't surprise me if this is the case.  I think Rob is waiting for the BEE Bill to go a little further down the line and then he's going to throw this at us.

We shiver in antici....................................................................................pation

 

Whether all of an Enterprise Development contribution needs to be consumed within the measurement period

It has been brought to my notice that a certain verification agency in KZN is insisting that an ED contribution must be spent within the period that it is made. I don't agree and have written an opinion on this which you can download here.  For those who don't download, read on below.

Caird Holdings has been requested to publish an opinion as to whether a contribution made for Enterprise Development (ED) purposes needs to be completely consumed within the measurement period in order to fulfil the requirements to be awarded points under code series 600, statement 600 of the DTI's B-BBEE codes of good practice (gazette number 29617).

This opinion takes it as understood that a measured entity may outsource their ED requirements to a third party for fulfilment of their ED obligations. It is also assumed that all other requirements for an ED contribution are adhered to. The issue that this opinion addresses is that of whether the measured entity may attract the full number of points by making the contribution, be it monetary or non-monetary, during the measurement period, but that contribution is not consumed in that same period.

In addressing this question we were drawn to paragraph 3.2 of code series 600 - Recognition of Enterprise Development Contributions. This paragraph states,

3.2.1 Enterprise Development Contributions consist of monetary or non-monetary, recoverable or non-recoverable contributions actually initiated and implemented in favour of beneficiary entities by a Measured Entity

The pertinent phrase here is "actually initiated and implemented". Our reading of this statement is that the contribution must be initiated and at the very least implemented during that period. It does not state that the contribution needs to be consumed during the same period. We believe that the rationale behind this paragraph is to allow beneficiaries to continue benefiting from the contribution on a longer-term basis because this will ultimately contribute to the development, sustainability and financial and operational independence of those beneficiaries.

Our view is confirmed by Vuyo Jack and Kyle Harris in their book "Broad-based BEE: the complete guide". Jack and Harris write on page 327

Section (3.2.1) includes the words "actually initiated and implemented", which is further addressed in the statement by confirming that initiatives may not be included in the measurement unless the expenditure has already been incurred. Future commitments may not be included in the measurement. Funds set aside for initiatives not yet implemented are also not measurable as part of the contribution.

We concur with this opinion and would like to add that the measured entity will not be permitted to use the outstanding amounts that have not been consumed within the measurement period as future enterprise development contributions.

It is therefore our considered opinion that measured entity will have fulfilled their ED obligations by initiating the contribution and that there is no requirement under gazette number 29617 that the contribution has to be consumed within the measurement period.

Robin Woolley - A summary of the Broad-Based Black Economic Empowerment Amendment Bill 2011

All in all the revisions to the Act are a welcome strengthing to the process of implementing B-BBEE in the country, and I believe if quickly implemented can only improve the current state of affairs.

via www.transcend.co.za

Bullshit Robin. These regulations are designed to over-regulate an industry that copes very well on its own. They are certainly not welcome, the only definite thing about them is that they are poorly drafted and vague.

A reader comments on the reader who wrote on the BEE bill and the original reader has more to say

The debate continues. This is a response to the first reader's comments from yesterday.

I seem to recall, but may be mistaken, that the PFMA is an instrument of the Constitution – it is one of those pieces of national legislation that was required to be enacted by mandate included in the constitution – this implies that an effort to trump it without amending it may present some interesting jurisprudential challenges. Nice thing about this current government, they seem committed to developing our constitutional jurisprudence, even if they are doing so passively without insight. Suggest you discuss this with your mate, the constitutional lawyer.

The guy to speak to is Pierre de Vos. It's hard to get him to respond to BEE issues – I don't think they loom large in his outlook.

As regards 'black listing', there is a provision of the Bill of Rights that guarantees fair administrative process. A piece of national legislation, similarly mandated by the Constitution, was enacted to give effect to this right, namely the Promotion of Administrative Justices Act (PAJA). Where national legislation or regulation in a particular area fails to provide a fair administrative process (right to due process, audi alteram, appeals etc), it has an override process, and even where such legislation/regulation does prescribe an administrative process, rights of reviews and appeal to the ordinary courts are prescribed under PAJA. This was the legislation used by Mittal and Kumba to take ICT and the DMR out recently. I wish my friends at the DTI much luck – with their cavalier attitude, they are going to need it. (It's a pity they'll never know who you are to count you as a friend – I suspect that other than Zungrabber, they have very few friends)

I suppose the better question to ask is why they are so hectic about blacklisting when companies and directors of companies with proven criminal violations prejudicial to the interests of the state continue to render services to that state.

The same reader from yesterday had more time to reflect on their post and sent me this

What if a director misrepresents in terms of the proposed section 20(1)(a) and the enterprise gets a lesser score. In other words, had the director not misrepresent, the score would have been higher. The proposed Bill is very unclear in this regard – it says only in (b) "in order to secure a particular B-BBEE status or any benefit associated with the compliance with this Act." What if the BEE status is less than reality? Does the director still go to jail? It reminds me of the Income Tax Act, and maybe the DTI can learn from the IT Act. Section 104 of the IT Act specifies that the offence is to evade tax. The BEE Bill should state that the offence is to increase i's BEE score above reality.

I think the words "in order to secure a particular B-BBEE status or any benefit associated with the compliance with this Act" have this covered. It seems ludicrous that a benefit could be given to a person for a BEE score lower than another bidder.

A reader writes on the BEE bill

There is a lot wrong with this bill. If you would like your comments aired please send them to me and I'll post them up on the blog. As with almost all comments or emails I receive I can assure that your details will not be disclosed. Comments are due by the 7^th of Feb this year.

This reader has provided us with a very valuable insight into aspects of the bill that us non-accountants or lawyers would miss, notably constitutional and PFMA (accounting) aspects. My comments are italicised.

Section 23: Basically states that the BEE Act will prevail / be stronger than the PFMA. (and a variety of other acts like the PPPFA, EE Act and most likely the Companies' Act)

23 Interpretation of this Act

1)     If any conflict relating to the matters dealt with in this Act arises between this Act and the provisions of any other law save the Constitution and/or any Act expressly amending this Act, the provisions of this Act will prevail.

2)     Any person who is measuring B-BBEE compliance in terms of this Act must do so in a manner in which substance takes precedence over legal form. (Surely this is problematic, it gives the Act the right to ignore binding contracts and other types of legal arrangements – this should not be part of the act, because it gives the Act too much power to negate almost any arrangement at will).

The PFMA (Finance) states in section 3 (3): "In the event of any inconsistency between this Act and any other legislation, this Act prevails."

This clash is infinitely worse than that (the ignorance goes even further).

Bill (DTI): Section 21: "all spheres of government, public entities, and organs of state must report on their compliance with B-BBEE in their audited annual financial statements..."

PFMA Section 89:

"Functions of Board.—(1) The Accounting Standards Board (ASB) must—

1. set standards of generally recognised accounting practice as required by section 216 (1) (a) of the Constitution, for the annual financial statements of—
   1. departments;
   2. public entities;
   3. constitutional institutions;
   4. municipalities and boards, commissions, companies, corporations, funds or other entities under the ownership control of a municipality; and
   5. Parliament and the provincial legislatures;

      (Id est every entity that is legally bound by the PPPFA and BEE Act)

(b) prepare and publish directives and guidelines concerning the standards set in terms of paragraph (a);

(c) recommend to the Minister effective dates of implementation of these standards for the different categories of institutions to which these standards apply; and

(d) perform any other function incidental to advancing financial reporting in the public sector.

(2) In setting standards the Board must take into account all relevant factors, including—

1. best accounting practices, both locally and internationally; and
2. the capacity of the relevant institutions to comply with the standards.

(3) The Board may set different standards for different categories of institutions to which these standards apply.

(4) The standards set by the Board must promote transparency in and effective management of revenue, expenditure, assets and liabilities of the institutions to which these standards apply."

The way I read this is that the DTI has now usurped the function of standard setting, and they are telling departments, public entities, constitutional institutions and other government departments/entities what to put on their financials. So everyone at the ASB can pack their bags and leave because the DTI is competent enough and has enough time on their hands to dictate what should be on the financials.

I reckon that's right – you should read the various charters that have been gazetted by both Mpahlwa and Davies and you'll realise that neither of them either read the documents or understand the basics of our constitution (and I am being VERY polite here).

The annual report includes financials, but it is wider (King III and the world-wide trend of integrated reporting).  The ASB is working with the IPSASB on standards of integrated reporting.  The integrated report is not part of the financials, it may form part of the annual report.

I get the feeling that the BEE Bill was drafted by someone who has no clue what financial statements are and has no clue about SA legislation.

(Couldn't agree with you more).

Now, get this:

Constitution of the Republic of South Africa 1996

Chapter 3 - Co-operative Government

41. Principles of co-operative government and intergovernmental relations

1)    All spheres of government and all organs of state within each sphere must :

1. preserve the peace, national unity and the indivisibility of the Republic;
2. secure the well-being of the people of the Republic;
3. provide effective, transparent, accountable and coherent government for the Republic as a whole;
4. be loyal to the Constitution, the Republic and its people;
5. respect the constitutional status, institutions, powers and functions of government in the other spheres;
6. not assume any power or function except those conferred on them in terms of the Constitution;
7. exercise their powers and perform their functions in a manner that does not encroach on the geographical, functional or institutional integrity of government in another sphere; and
8. co-operate with one another in mutual trust and good faith by :
   1. fostering friendly relations;
   2. assisting and supporting one another;
   3. informing one another of, and consulting one another on, matters of common interest;
   4. co-ordinating their actions and legislation with one another;
   5. adhering to agreed procedures; and
   6. avoiding legal proceedings against one another.

Am I missing something or is the DTI just doing whatever the hell the want? Constitution? What constitution? (I think this might be the Constitution that the ANC refers to which is very different to the one they agreed to in 1994. The one that Zoomer uses to justify his existence – and the one that the courts seem not to be that interested in).

What about fronting

Furthermore, on the fronting, penalties and "black listing".... Scenario: Company A is found "guilty" of fronting.  How?  Civil – balance of probabilities? Criminal – beyond reasonable doubt? Based on evidence? High court ruling? Or is it going to be like a credit bureau listing – the poor company who gets listed one-sidedly must just sit with the beans...  Furthermore, let's say the company did front.  It was management who was responsible for Company A's fronting practices.  The directors.  They could get nice bonuses because of the business obtained from the fronting practises.  Now the proposed BEE Bill states that the company gets listed and cannot do business with government ever!  The poor black shareholders can now just throw their share certificates down the toilet because of something the directors did.  Justice is served.

I'm glad you raised this point. It is well documented (by me and a few journalists) that the BEE Council is a joke and run by political appointees (again I am holding my tongue here), perhaps this is why they are going to pay this council now so that they can send them on a world-wide fact-finding mission and lug their spouses, girlfriends etc along with them. They'll stay in the best hotels and fly in chartered aircraft and be paid for the privilege. It's fucking disgusting.

On this last point (fucking disgusting), Peter Sullivan's article in Moneyweb today hits out hard at the Zumocracy

Be careful mon President, be very careful: you and your princes are pissing off ordinary people.

Your bloated nephew's indifference to poverty and starvation among his employees is becoming a symbol of degenerate living, his senseless justification that he keeps his businesses separate rivalling Marie Antoinette's infamous cake suggestion. Staggering corruption by your cronies upsets poor people just as much as it upsets the rich, possibly more. You desperately need to show some leadership. Your 100th birthday speech asked for contributions to the debate, here's mine:

Cut ministerial perks, move Parliament, live in an appropriate manner, not in lavish luxury which shows scorn for the poor.

I remain optimistic for our country, but warning bells are beginning to go off, and it would be dreadful if they signalled the first falls of the guillotine.

Two oh one two

Or twenty twelve as we South Africans would say.  Happy new year - I certainly hope that it's a good one for everyone.  It's taken a while to get find my feet this year but I am now officially open for business.

We were dumped with a surprise at the end of last year when EMEX announced that they were closed.   Their website carries the very simple

Emex Trust is closed. 

Which is then followed by an explanation which says that they are sad and they've gone.  You can click on the link for now but I doubt whether the site will be up much longer.  This is sad but it does seem to send a message that you really don't want to mess with SANAS at all.  So that then leaves 68 agencies to pick up the flak (Leila that page needs updating).  And IRBA does not seem to be any closer to accrediting anyone.

What's in store for this year then?

1. That dodgy BEE Bill is going to go through even though it is such a dubious piece of writing.
2. With number one comes the BEE Council being paid ridiculous amounts of money to perpetuate their incompetence.
3. We are going to see a little more corporate dissent.  I think the private sector has no real problem with transformation but I think this year will be the first year where they will start questioning why they should remain the government's whipping boy for its own inadequacies.  I'll help where ever I can
4. Namibia will finally adopt some sort of BEE policy, I just hope it's not NEEEF
5. Perhaps (and only perhaps) the verification agencies will start demonstrating a little bit of professionalism and practice efficient account management.  I've never come across an industry with such a bad reputation for customer service.
6. Udge will be the king.  Wait a minute - he is the king.  You can expect more publications to quote him liberally - but those of us in the know will remain mildly amused by the nonsense.
7. Some new codes might be coming our way (like the current ones don't work).
8. On that note - it seems as though from February the new targets kick in for EE, skills and procurement.  What we don't know is where we start measuring from.  Whatever you do, please don't ask the DTI.
9. ABACUS will still be in business even though they know that I know that they shouldn't be.
10. The FSC will go through, for the big four have willed it.
11. The DTI will (tick the correct box - multiple choices are acceptable)

• Answer their phone
• Actually do something about a fronting allegation
• Understand that they really should be the last voice when it comes to BEE interpretation
• Actually do something about the aforementioned fact
• Get competent

Don't forget to comment freely on the blog and if you want an opinion on something send me an email and I'll write about it.

BEE ain’t broke - FM article

Please excuse the indulgence so early in the new year.  I wrote this about six months ago for the FM but the article may be a little more relevant now that that disastrous BEE Bill has been published for comment. It's on the shelves right now.

If you are the average BEE commentator then you'll know I'm talking about you.

On my mind - BEE ain’t broke

Paul Janisch

Thursday, 12 Jan 2012

The average BEE commentator’s starting point is to criticise the slow uptake of BEE and to suggest greater state intervention to enforce compliance across the board. The first observation is flawed, rendering the suggested remedy unnecessary.

via www.fm.co.za