Measuring suppliers on ownership can result in no verified BEE points at all!
Increasingly companies, even those that have not had their BEE positions verified, are instituting systems to track their BEE procurement spend. The reasons for this being pretty obvious, procurement accounts for 20 points (out of 100) of a company’s BEE score. There is however a disconnect between the data procurement departments are preparing and what will be required by verification agencies.
“Unfortunately, the mere presence of a system to track BEE spending, also referred to as preferential procurement spending, does not guarantee any scoring,” says Robert Thorburn of Exceed Verification.
“Often these systems only record one piece of data such as what the supplier’s black ownership position is.” “This is out of touch with the broad-based scoring system.” he says.
“This disconnect between the data recorded by a company (client) and the data needed by a BEE Verification Agency to determine the client’s BEE status, may even result in a score of 0 out of 20 being awarded for procurement. ”
“All the more worrying is that procurement organisations put a significant amount of time and money into setting up and maintaining such systems.” Ensuring a return on this investment should therefore be a priority.
Thorburn argues that “To match the data gathered with the data required, a couple of basic questions should be answered.
1. What level of BEE scoring for suppliers is acceptable?
2. How should these scores be calculated,
3. How should they be recorded and
4. How will the procurement results be verified by Verification Agencies.
1. What level of BEE scoring for suppliers is acceptable?
The answer to the first question is a simple 30 out of 100, any score below this point is classified as non-compliant and procurement from non-compliant suppliers will not count towards your BEE score.
When it come to calculating a score though, things become significantly more difficult. The broad-based scoring system considers seven elements and requires extensive and accurate data to be considered. Doing this in-house could therefore be a significant financial and logistical burden.
Fortunately, according to the codes of good practice, this task will be fulfilled by Verification Agencies, who will have the legal authority to issue BEE verification certificates, with the business obtaining a certificate footing the bill.
In other words, a large part of the cost will shift from the procurement department to the supplier. Unfortunately no Verification Agencies have as yet been accredited by government, with the accreditation process only starting later in the year. This means that procurement departments will either have to accept certificates issued by unaccredited agencies, perform its own supplier ratings (calculations) or both.
One bit of relief though, is the transitional period. During this period, currently set at 12 months starting later this year, companies may calculate their BEE positions using only management and ownership and leaving out the other five elements of the broad-based system. After this score is determined it is multiplied by a factor of 1.92 to yield the final result. Since ownership and management jointly account for 30 points of the broad-based scoring system, this moves up to 57.6 as a maximum. Calculating a supplier’s score in this manner may be an effective interim measure, but should not be seen as a permanent or exclusive option, as first prize would still be to get verification certificates from your suppliers. The simple reason being that a supplier who has had its BEE status verified could potentially present a score of much higher than 57.6.
3. How should BEE scores be recorded?
It is general practice to record scores electronically, allowing for a supplier’s BEE score to be referenced in the same manner as invoices or other pertinent details. These systems also allow for scores to be changed, should a supplier’s status change, while also enabling preferential procurement performance to be calculated at any point. The procurement department should therefore be able to present the specifics of each purchase, such as amount, supplier name, invoice number and nature of the expenditure, along with the supplier’s BEE status. Care should also be taken not to use outdated data, since Verification Certificates will only be valid for 12 months.
A national empowerment directory
“A further bit of good news as far as the administrative burden is concerned is that the Department of Trade and Industry will set up and maintain a national empowerment directory. The directory will list the verified BEE status of all verified suppliers. The need to send out long questionnaires and perform calculations will therefore come to an end, with only the need to record preferential procurement spend remaining, ” says Thorburn.
4. How do verification agencies approach procurement?
Verification Agencies literally need to verify the data presented to them. For the procurement element this means that a Verification Agency will have to be able to confirm not only the company’s spend for the year, but also its spend with specific suppliers as well as the BEE status of those suppliers. If the procurement department determines supplier scores internally, the system by which this is done will also be scrutinised. A Verification Agency should therefore be able to follow procurement spending through from financial statements down to original source documents, such as invoices and supplier questionnaires.
To ensure a smooth verification, as well as a return on the time and money invested, procurement departments should check their systems against the actions listed above. Before a verification starts it would be a good idea to find out in what format the verification agency requires your information to be presented. Usually, though not always, this would be Excel.
Expecting to get it right the first time round is of course not totally realistic. A year on year improvement should however by a minimum target. To achieve this target proper insight into the preceding year’s Verification results is of critical importance, which is where a management report comes into play. Any verification agency worth its salt should provide clients with a management report detailing all aspects of the Verification results, including why certain points were awarded and others not. The value of such information for effecting improvements before the next verification, is clear.
In the final analysis it is a good idea to gain some insight into what will and what will not be accepted by the Agency appointed to, or which you’re thinking of appointing to, verify your company’s BEE status. Although Verification Agencies may not provide BEE consultation and verification services to the same client, they are free to answer any questions relating to BEE information which is in the public domain or which is not being created specifically for the client’s use. In other words, asking a Verification Agency if a certain piece of information is sufficient for calculation under the broad-based scoring system is fine, but asking for guidance on how to improve your own BEE status is not.
The author of this Article: Robert Thorburn of Exceed Verification can be contacted on: 082 877 1841