Government entities are now required to report on compliance in their audited annual financial statements, following amended B-BBEE legislation.
A large part of the public sector, however, does not understand the amended codes of good practice nor the verification process. Most government entities have never had a verification conducted and are therefore unprepared to align their processes and policies with the B-BBEE requirements.
Penalties for failure to report on B-BBEE status in annual reports remain unclear. What is patently obvious, however, is government’s intention to apply the B-BBEE legislation to itself.
Under the requirements of the amended Broad-Based Black Economic Empowerment (B-BBEE) Act of 2013, the public sector is now required to report on its B-BBEE compliance in its annual reports.
The entire sector — including government departments, municipalities and state-owned entities — now has to be measured against the Amended Codes of Good Practice (2013), under the specialised scorecard. This scorecard does not measure ownership, but allocates the points to the following elements: management control, skills development, enterprise & supplier development and socio economic development. Unfortunately, many in the public sector are unaware of this new requirement.
What has changed?
This requirement, which extends to universities and JSE-listed public companies as well, was gazetted in January 2014.
According to the Act (Reporting 13G):
(1) All spheres of government, public entities and organs of state must report on their compliance with broad-based black economic empowerment in their audited annual financial statements and annual reports required under the Public Finance Management Act, 1999 (Act No. 1 of 1999).
(2) All public companies listed on the Johannesburg Stock Exchange must provide to the Commission, in such manner as may be prescribed, a report on their compliance with broad-based black economic empowerment.
(3) All Sectoral Education and Training Authorities contemplated in the Skills Development Act, 1998 (Act No. 97 of 1998), must report on skills development spending and programmes to the Commission.
What happens next?
It is therefore clear that government means to apply the BBBEE legislation to itself. Most government entities, however, are not geared up to align with the requirements.
It is possible that the Broad-Based Black Economic Empowerment Advisory Council (B-BBEEAC) will establish a sub-committee to assist them, or help to establish communication between them and the individual sectors under which they fall. Grant Thornton Verification Services is keeping a close eye on developments to help its public sector clients.
While the general scorecard for specialised enterprises has been gazetted under the amended codes, government entities which fall under a specific sector need to apply the relevant scorecard. For example, Transnet is a government entity, but falls under a transport sector specialised scorecard, rather than the general amended scorecard’s specialised enterprise targets. To date, none of these amended sector scorecards have been gazetted and these entities will only know which scorecard is applicable after 15 November, when the dti will either repeal or extend existing sector scorecards.
By publication date of this newsletter (November 20, 2015), the sector scorecards for property, forestry, marketing advertising and communication (MAC) and AgriBEE have been gazetted for comment, aligned to the new, amended BBBEE scorecard. The tourism sector scorecard has been finally approved and is effective for all tourism entities being measured with a financial period ending after 12 November 2015.