Outsourced BEE compliance services pinpoint supplier development requirements for increased Procurement Score.

“With the Codes of Good Practice on Broad-Based Black Economic Empowerment (the Codes) approved and about to be gazetted, the BEE verification industry is moving towards much stricter regulation. Already there has been a substantial reduction in the number of businesses offering verification services now published in the Association of BEE Verification Agencies’ website (www.abva.co.za).”

Robert Thorburn of NERA tells Smart Procurement that this will result in the introduction of new service offerings that impact how suppliers are being managed.
“A verification agency may not verify the BEE status of one of its consultation clients for a period of 24 months after the consultation engagement concluded.” “Generally speaking, this is a disincentive for verification agencies to offer consultation services.”

Consultation innovations –and outsourced BEE compliance

On the other hand several large organisations are outsourcing their Corporate Social Investment (CSI) and Enterprise Development scorecard requirements, with a number of consultancies offering services in this regard.
Generally these services are focused on streamlining corporate systems, gaining maximum value from expenditure and aligning expenditure with Broad-Based Black Economic Empowerment (B-BBEE) targets. This last point holds specifically for Enterprise Development, which under the revised Codes counts for 15% of a business’s score, while CSI has been reduced to only 5%.

Outsourcing CSI and Enterprise Development – how much money reaches black beneficiaries?
“Typically an organisation ends up spending the majority of, or even its entire, CSI and Enterprise Development budget with one service provider, who manages the funds on the client’s behalf,” Thorburn says.
With the outsourcing of CSI spend, which is by no means a new concept, the predominant B-BBEE question becomes: how much money eventually reaches the intended black beneficiaries? This is critical since verification agencies will have to analyse the flow of benefits in order to do their calculations and award points. Not only will the flow of money have to be traceable, but the exact details of the beneficiaries will have to be known. That the money/benefit actually reached them, will also have to be proven.

The issue of recording all activities becomes even more important if Enterprise Development spend is outsourced, because procurement from your own Enterprise Development beneficiaries will earn the procuring party bonus points. Again, these points will only be earned if the expenditure, the status of the beneficiary and the flow of benefits, can be verified. It is therefore of the utmost importance that the consultants used must have in-depth knowledge of both the Codes and the requirements of verification agencies.

New verification / sustainability services limits exposure to unstable supplier and pinpoints areas / opportunities for supplier development.
It is however, not only consultants that have introduced new services to address developing client needs, with verification agencies also diversifying their value offerings. Working from this position, NERA (National Empowerment Rating Agency) introduced its supplier sustainability evaluation service in January. The key outcomes of gauging supplier sustainability are to limit exposure to unstable suppliers, identify potential external weak points in continuity of supply and to assess supplier quality systems. Because this service is intended to assess the strengths and weaknesses of a business on the basis of 47 indicators, it can be applied to more than just general sustainability studies. Furthermore, since a grading system is used, year on year comparisons are possible.

This allows for improvements, or negative impacts, to be traced. The NERA sustainability evaluation system therefore lends itself to a large number of application. One particularly interesting one being the assessment of Enterprise Development beneficiaries.
“Not only can the BEE status of the beneficiary be verified, but its sustainability across 47 indicators can be assessed, with weak points identified. “

This in turn will allow the party making the Enterprise Development donation, to pinpoint exactly where the expenditure is needed so as to have the maximum positive impact. The need for maximising the positive impact arises from a requirement in the Codes, which states that Enterprise Development contributions should impact positively on the sustainability of beneficiaries. If this is not the case, the contribution will have to be left out of calculation. However, given the separation between verification and consultation, this service is usually rendered in conjunction with an external consultant.

Sustainability of non-Profit Organisations
Following on from this service offering, NERA is introducing sustainability assessments on Non-Profit Organisations (NPO), as well as BEE beneficiary status verification for NPO’s. This service is aimed at addressing two key needs amongst NPO’s operating in South Africa. Firstly NPO’s need to establish whether or not spend with them will count towards the donor’s BEE score. To determine eligibility in this regard, the percentage of eventual beneficiaries of the contribution who are black, will have to be determined. The target is a minimum of 75% black representation. Since this deals with the actual beneficiaries and not the make up of the NPO itself, the verification will focus on the flow of benefit to the eventual beneficiaries.

The second focus area is sustainability assessments on NPO’s, with the resulting certificate and report aimed at addressing the concerns of both national and international donors. Key issues considered include legal compliance, safeguarding of donated funds against abuse and the portion of donations that actually flows through to beneficiaries instead of being absorbed by the NPO’s own costs.

For more information please contact the author, Robert Thorburn on 082 877 1841 or e-mail: robert@nerasa.co.za

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