In June this year the Broad-Based Black Economic Empowerment (B-BBEE) Regulations were gazetted (Gazette Number 40053) and these regulations have made it compulsory for certain entities to report their BEE status to the BEE Commission.
Unfortunately, this piece of legislation seems to have slipped through the cracks without many companies noticing. But, it is bound to get companies into trouble, if they fail to comply.
The BEE Commissioner was appointed under section 13(B) of the BEE Act, to (amongst other roles) conduct the following:
- monitoring and dealing with complaints and fronting;
- maintaining a registry of major BEE transactions; and
- monitoring compliance from organs of state, public entities and private sector enterprises
This new requirement for certain entities to report their BEE status to the BEE Commission is in line with point (3) above in terms of the monitoring of compliance from various organisations.
The BEE regulations are the first to require and document specific reporting duties. The regulations make it clear that a verified BEE certificate issued by a SANAS-accredited verification agency is now a legal requirement for some.
Generally, a BEE certificate is not a legal requirement unless a measured entity is applying for certain licenses, such as fishing or liquor licences, or if the entity is applying for certain Department of Trade and Industry (DTI) incentives. Up to now BEE compliance for other companies was not a legislative requirement, because it was seen as purely a requirement for business.
But, this seems to have changed.
So, if you are required to report to the commission, failure to do so would constitute an offence in terms of the B-BBEE ACT.
Who has to report?
The reporting duties outlined in the BEE regulations relate to three categories of company.
- Any sphere of government, public entity or organs of state. Spheres of government, public entities or organs of state are required to file their Annual Financial Statements (AFS) and their BEE report in prescribed Form B-BBEE 1 within 30 days of the approval of the audited statements and annual report.
- Public companies listed on the Johannesburg Stock Exchange (JSE). Public companies listed on the JSE must submit a compliance report annually, using Form. B-BBEE 1, within 90 days of the end of the financial year of the public entity which is listed on the JSE. If the company has included this report in their AFS and annual report, this may be submitted to the commission within 30 days of the approval of the AFS and annual report.
- Sectorial Training Authorities (SETAs). SETAs must submit Form B-BBEE 2, detailing compliance around skills spend and other criteria, within 90 days of the end of the financial year. If the SETA has included this report in their AFS and annual report, this may be submitted to the commission within 30 days of the approval of the AFS and annual report.
The information provided in Forms B-BBEE1 and B-BBEE 2 must be based on verified information, reflecting compliance on each element specified in the report. Reports can be submitted to email@example.com and copies of the relevant gazette and reports can be found here [ 2610 kb ].
What happens next?
The commissioner is required to confirm receipt within five (5) days. She is then required to review and respond in writing within 90 days, and highlight any area of improvement required in the report submitted.
If an entity fails to comply with the reporting requirements, the commissioner will issue Form B-BBEE 3, detailing the issues identified and allowing the entity 30 days to submit a corrected report. Further steps may follow if any offences are identified.
The timeframe for submission of the relevant reports to the commission means that a verification needs to be planned well in advance, in order to ensure the verified certificate is available in time for completion and submission of the required reports. It is important to remember that the spend elements of the BEE scorecard are verified based on contributions measured during a 12 month financial period. If the financials are not finalised in time, the verification will be delayed, which could impact on the ability of a company to report within the required timeframe.
It seems clear that that the report submitted must be related to the AFS which are submitted to the commission at the same time. This is contrary to the practice of some entities, which sometimes run more than a year behind, in terms of financial periods being rated for verification.
There is a question as to whether an auditor would be required to report regarding a failure to comply, as a material breach of a director’s fiduciary duty in terms of meeting the provisions of the B-BBEE Act applicable to a JSE-listed entity.
The Grant Thornton Verification Services team are currently working with the Audit and Assurance team in order to seek clarification on this issue.
In the meantime, it is more important than ever to ensure that you have your BEE verification date secured and that you don’t miss the reporting deadline.
No doubt there will be additional pressure on verification agencies next year, with the IRBA regulated agencies exiting the market from 31st December 2016, leaving a temporary capacity gap.
As a SANAS accredited verification agency, Grant Thornton Verification Services will be bolstering its teams to meet the demand for our clients.
To discuss your B-BBEE Reporting Requirements according to this new regulation, or for further information, please contact us.