BEE Exemption Certificate

[Vincent]

I received this email today...

Dear Business Owner
When you apply for a BEE Exemption Certificate please take note that only a member of ABVA can issue this certificate. It came to our attention that numerous companies are marketing this service without themselves being registered with ABVA (Association of BEE Verification Agencies). The only other alternative is a letter from your accountants stating that your turnover is less than R5 million per annum, this however do not give you a scorecard or a score or a procurement recognition level your customers can use to get points on the procurement element of their scorecard.
BEE Rating Solutions (ABVA FULL MEMBERSHIP NO: BVA 049) provides Exemption Certificates at a discounted rate, R490 plus VAT, until 14 December 2007. We also assist companies with QSE scorecards, Generic and Construction Sector scorecards.

To the best of my knowledge this is incorrect. SANAS the accreditation body have not accredited any agencies as yet.

For more info about ABVA and there misrepresentation read econobee

[Dave A]

I had a long discussion with a "BEE verification agency" a few weeks ago. The SANAS delay in awarding accreditation has been a most unexpected and inconvenient challenge for those who have committed themselves to this cash cow being the providor of their financial future.

So it seems they have agreed amongst themselves that in the interim those who have joined ABVA may be deemed as "accredited" and considered to satisfy the requirements of the legislation. That this convenient arrangement would seem unsupported by law seems trivial compared to the importance of getting the income flowing. After all, they need to be able to put bread on the table and BMWs in the garage.

[Vincent]

I had a long discussion with a "BEE verification agency" a few weeks ago. The SANAS delay in awarding accreditation has been a most unexpected and inconvenient challenge for those who have committed themselves to this cash cow being the providor of their financial future.

So it seems they have agreed amongst themselves that in the interim those who have joined ABVA may be deemed as "accredited" and considered to satisfy the requirements of the legislation. That this convenient arrangement would seem unsupported by law seems trivial compared to the importance of getting the income flowing. After all, they need to be able to put bread on the table and BMWs in the garage.

I sent the above email to Keith Levenstein of econobee who has taken ABSA, Empowerdex, and EMEX to the competition board, and according to Keith, "The next step is for the Competition Commission to decide if there is sufficient reason to investigate further and then proceed with a prosecution."

In the meantime, I received a revised email from the same company stating...

BEE EXEMPTION CERTIFICATES
CORRECTION ON PREVIOUS E-MAIL: 5 December 2007
Dear Business Owner
When you apply for a BEE Exemption Certificate please take note that members of ABVA or Verification Agencies that have applied to SANAS for accreditation can issue this certificate. Alternatively a letter from your accountants stating that your turnover is less than R5 million per annum will also give you a procurement recognition level of 65%.

This is still not 100% correct but they are getting there...



So maybe these rating agencies are feeding off our ignorance and charging these ridiculous fees because of it.

[Dave A]

Alternatively a letter from your accountants stating that your turnover is less than R5 million per annum will also give you a procurement recognition level of 65%.

*COUGH* 100%... Right?
110% if ownership is 50.1% or more black.

And these folk are supposed to be proficient, professional BEE assessors?

[IanF]

And now to add to this if your turnover is between R5m and R35m you have to use an "accredited" agency. From business report "Under the new policy, it will no longer be acceptable for businesses with annual turnover of R5 million or more to conduct self-assessment to determine their BEE credentials." link is here
The answer is to keep your turnover below R5m. Just like for employment equity keep your staff numbers low.

[Dave A]

No evidence of any consultation on the change either. From the same report:

Sally O'Shea, who runs a portable toilet hire company in Cape Town, criticised the department for failing to adequately publicise the new rules.

"This document is affecting us, and its implication should have been directly communicated with us," said O'Shea.

"The small business sector is facing enormous cash flow challenges. The [verification costs] could be better used for training and other skills development programmes."

But trade and industry spokesperson Vukani Mde dismissed concerns that the costs would be a burden on small businesses. Mde said firms with a turnover of more than R5 million should be able to afford to pay rating agencies.

"Fronting is a big problem when it comes to effective implementation of BEE," Mde said. "This charter is meant to help regulate the industry."

The BEE verification agencies must be delighted with their much bigger market.

[Yvonne]

Received from a client:

Request BEE rating, and would like to find out if your company is a value added suppler meaning, your enterprise net profit before tax plus total labour costs exceeds 2% of value of its Total Revenue?

Is this a reasonable request for B.E.E. compliance?

Yvonne

[Dave A]

A new one to me.

I'm trying to figure out the value of what might be learnt from the question, though. Let's guess for a moment that the goal is to identify fronting companies....

Actually, in a few cases I know of, that question would reveal it (if it was ever given an honest answer). They generally have absolutely no costs because it's set up as a shell that conduits the work to the "real" providor.

But all you need is to have the fronting company skim 2.1% towards profit, or pad some wage/salary costs into the shell company.

Depending on how they are structured, JV's might also get flagged by this question.

[Dave A]

Reading back on some earlier posts in this thread:

And now to add to this if your turnover is between R5m and R35m you have to use an "accredited" agency.
...
The answer is to keep your turnover below R5m. Just like for employment equity keep your staff numbers low.

I'm getting a fair number of calls from verification agencies saying that I need to get assessed and certified as an Exempt Enterprise by a verification agency - the quoted rate for certification is averaging about R850.00.

I've pointed out that a letter from my auditor confirming turnover below R5million has proved acceptable so far - they seem sceptical that my "luck" is going to continue much longer.

Easy money - the pillaging continues

[Dave A]

Received from a client:

Request BEE rating, and would like to find out if your company is a value added suppler meaning, your enterprise net profit before tax plus total labour costs exceeds 2% of value of its Total Revenue?

Is this a reasonable request for B.E.E. compliance?

Yvonne - One of the questions off the bee.dti website is this:

Is your enterprise a value-adding supplier in terms of the dti Codes of Good Practice?

And the help screen on that particular question has this:

In order to assess if your enterprise is a value-adding supplier, follow the formula below:

C = A/B

If C > 25%, then you are a value-adding supplier

Where
A = Net profit + Labour costs
B = Annual turnover

So it seems the question needs to be asked and answered, but your client seems to have messed up on the formula.

It also seems pretty clear that the goal of the question is to identify and prevent fronting, which is a good thing in my opinion.

[Yvonne]

Dave
Would you have any idea if the figure for "labor costs" would be total payroll inclusive of Owners income?
The owners of SME's are generally fully employed in their businesses, and the S.A.R.S. defines them as employees for taxation.

As our turnover is under R5 million and we have an exemption I presume this is not of concern right now, but I am just curious if I have perhaps given incorrect information, at 2% no problem, but at 25% if it was "labor" only, our figure would be less than 25%.

Yvonne

[Dave A]

Dave
Would you have any idea if the figure for "labor costs" would be total payroll inclusive of Owners income?

If by "owners income" you mean the salary of a member, director or working shareholder in a cc/company, then yes.

The sole proprietor situation would be slightly different. There you don't draw a salary - you have drawings from profits. In that situation declaring drawings as part of payroll and then adding the profits as required for the formula would be double counting. So there the payroll total would exclude the drawings of the sole proprietor, but the effect is offset by the profit part of the formula.

[jaq316]

R850! Its a ripoff!

the quoted rate for certification is averaging about R850.00.

You must be kidding. I got my EME certificate from ecert.co.za. Only R99! And, what is more... They seem to have an ABVA registered agency issuing their certificates.

[Dave A]

Or you can get your EME certificate for free at the DTI's BEE website

[jaq316]

That is true, but it is only an auditors letter.
Most of my clients requires an EME certificate issued by an ABVA registered agency. The auditors letter simply won't do.