The Department of Trade and Industry (dti) says it will soon make a pronouncement on the appointment of an industry regulator for the broad-based black economic empowerment (BEE) verification industry.
Installing a regulator is expected to curtail some forms of BEE fronting by verification agencies, which have slipped through loopholes in the Broad-based BEE Act of 2003 and codes of good practice of 2007.
At the weekend departmental spokesman Sidwell Medupe said the dti “will soon make a pronouncement on this matter” without giving details.
This comes after the Association of BEE Verification Agencies (ABVA) last week said it wanted the legislation of broad-based BEE changed and an industry regulator appointed.
Chris van Wyk, the chairman of the ABVA, said technical errors introduced by the dti into the act and codes were largely responsible for verification agencies assisting their clients with fronting.
Medupe said: “The dti would like to state categorically that the above-mentioned statement is factually incorrect. In fact our minister has previously alluded to the fact that the verification industry is partly responsible for this scourge.”
Van Wyk said the legislation contained about 102 drafting errors, from bad wording to items that should not be defined.
He said pieces of law that the dti introduced later contradicted existing BEE law. The dti is the custodian of BEE processes and is undertaking a review of the act and the industry says it is waiting with bated breath.
ABVA has developed its own best practice notes but these are not legally recognised.
Van Wyk said some of the errors included a calculation that gave companies points for taking a short time to pay black suppliers once they had been invoiced. The government’s rationale was that shorter payment periods kept small businesses liquid and encouraged enterprise development.
But Van Wyk said the dti was advocating an “ad hoc interpretation”, which contradicted the codes and meant companies could claim 100 percent recognition on the capital amount of the invoice for cash on delivery payment.
He said by simply paying one big black supplier, companies could claim their entire enterprise development contributions rather than using several suppliers, as the codes actually intended.
He said verification agencies were also interpreting economically active population targets under the employment equity category inconsistently because of a lack of definition.
Medupe said the dti had received more than 110 reported cases and of these, about 62 were confirmed to be closely and directly related to circumvention of the Broad-based BEE Act and codes, or fronting.
Kate Moloto, ABVA deputy chairwoman, said clients in addition to verification agencies were guilty of abusing the act.
Lerato Ratsoma, the managing director of Empowerdex, one of the largest BEE rating agencies said: “As verification agencies our hands are tied. We can only apply what is in front of us and clients know where the loopholes are.” - Asha Speckman