Black Economic Empowerment (BEE) verification is an independent and in-depth assurance process that seeks to verify the “Broad-Based BEE” (B-BBEE) status of companies, closed corporations and other economic entities. A measured entity (client) will have demonstrated through formal verification that it is in compliance with the B-BBEE Act and the B-BBEE Codes of Good Practice. The term “black people” in the context of B-BBEE refers to “African, Coloured, Chinese and Indian” people.

It is called “Broad-Based” B-BBEE because it measures the participation of black people or the benefits accruing to black people over a broad-base of criteria or “elements” of an organization. There are the following elements on the B-BBEE general Scorecard (some sector codes provides for more elements):

• Ownership (measures the interest black people have in the ownership of the business)
• Management Control (measures the participation of black people in the strategic management structures of the business as well as the employement levels referred to as Senior, Middle and Junior Management)
• Skills Development (measures the contributions the business makes to the development of its black employees’ skills)
• Preferential Procurement (measures the extent to which the business procures from other B-BBEE compliant entities)
• Supplier Development (measures the contributions the business makes to the development of black owned small and medium sized businesses that are “Empowering Suppliers”)
• Enterprise Development (measures the contributions the business makes to the development of black owned small and medium sized businesses)
  Socio Economic Development (measures the contributions the business makes towards facilitating access to the economy for black people in general)

The Codes categorize businesses into three types depending on their size:

• Exempt Micro Enterprises (EME’s) are businesses with an annual turnover of below R10 mil. They are exempt from having to comply with the B-BBEE scorecard and merely needs to prove that their annual turnover is below the required turnover threshold. They are afforded an automatic Level 4 B-BBEE status. If they can also prove that they are “51% Black Owned” they get awarded an automatic Level 2 B-BBEE status. If they can prove they are “100% Black Owned” they get awarded an automatic Level 1 B-BBEE status.
• Qualifying Small Enterprises (QSE’s) are businesses with an annual turnover of between R10mil and R50 mil. They have to comply with the QSE scorecard which is similar to the generic scorecard but less onerouse with respect to targets and weightings. If a QSE can prove that it is “51% Black Owned” it is awarded an automatic Level 2 B-BBEE status and need not comply with any of the other elements of the scorecard. If a QSE can prove that it is “100% Black Owned” it is awarded an automatic Level 1 B-BBEE status and need not comply with any of the other elements of the scorecard.
• Large Enterprises are business with an annual turnover in excess of R50 mil per annum. They have to be measured on all the elements of the generic scorecard.

Please note that the thresholds for EME’s, QSE’s and Large Enterprises entities measureable in terms of the general codes sometimes differ from those thresholds prescribed in terms of a sector code. An EME in terms of the generel codes may therefore not be an EME anymore when measured in terms of the Tourism Sector Code.

These elements are represented on a scorecard and most elements contain sub-categories. Each element has a weighting attached to it and these weightings add up to 100 (excluding bonus points). Depending on the score a business achieves, it is allocated a particular B-BBEE status level. This B-BBEE status level in turn, translates into a B-BBEE Recognition Level (see the table below for the corresponding B-BBEE scores, -Levels and -Recognition Levels).

The Recognition level attached to the B-BBEE Status level shows how much recognition a client of your business can obtain, on its preferential procurement scorecard, for procuring goods or services from you.

The BEE Codes of Good Practice were introduced in 2007 and issued by the Dti in terms of Section 9(1) of the B-BBEE Act 53 of 2003. The Codes provide the requirements and criteria upon which a, entity can be measured for B-BBEE compliance. Following a review the Dti published the Amended Generic Codes in October 2013, with a 12 month transition period. This transition period was later extended to 30 April 2015.

A further amendment to the Codes was published by the Dtic in May 2019 where some of the content of the Code was amended, being the sections dealing with the general principles (Statement 000), the Skills Development element (Statement 300), Enterprise and Supplier Development elements (Statement 400) as well as the definitions (Schedule 1). These amendments became effective 1 December 2019 and Sector Codes are expected to align over time with these new amendments. The table below shows the difference between the original B-BBEE Codes and the Amended Generic Codes, per Status Level. It also shows the procurement recognition (how much your customers can claim on their B-BBEE Scorecard as a result of procuring from your company).

As all the Sector Codes have not yet been aligned with the Amended Codes, the EME turnover thresholds applicable to those sectors that are not aligned remain unchanged. The Amended Tourism Sector Code and Amended Media, Advertisement and Communications Sector Code contains different thresholds than that of the general Codes.

EMEs or QSEs that are at least 51% Black Owned using the flow through principle. The definition of Supplier Development Contributions speaks of contributions made to “value-adding suppliers to the Measured Entity” and it can therefore be concluded that Supplier Development beneficiaries also needs to be a supplier to the Measured Entity. Under the Amended Generic Codes, Generic Entities can now also qualify as a Supplier Development beneficiary provided that they are at least 51% Black Owned using the flow through principle, but this recognition is given on condition that (a) when the Generic entity received assistance from the Measured Entity for the first time, they were an EME or QSE and (b) that the recognition will only be allowed for a period of 5 years from when they first received assistance from the Measured Entity

The Dtic have extended automatic recognition for Empowering Supplier status to all entities in South Africa until further notice. Any Measured Entity is therefore automatically recognized as an Empowering Supplier. Empowering Supplier status is not at all dependent on Value-Adding Supplier status, as the two concepts have completely different definitions. Value Adding Supplier is defined only in the old codes as “… an entity registered as a vendor under the Value Added Tax Act of 1991, whose NPBT summed with its total labour cost exceeds 25% of the value of its total revenue. Empowering Supplier is a concept of the Amended Generic Codes, and is described as a B-BBEE compliant entity which is a good citizen South African entity, compliant with all regulatory requirements of the country and a Generic should meet 3, while a QSE should meet at least 1, of the criteria set out in the codes. There are 5 possible criteria that could be met (4 of which are contained in the Amended Codes gazette no. 36928, and a fifth criterion was added by gazette no. 38765 on 6 May 2015)

Should the majority of the staff of the Measured Entity be situated in a particular province, the EAP statistic for that province should be considered, following the precedent set by the findings of Solidarity vs Department of Correctional Services and 3 others (C368/2012 & C968/2012), ; in other cases (for example where the dominant province cannot be determined) the overall demographic representation of black people as defined in the Regulations of the Employment Equity Act and the Commission of Employment Equity Report would suggest that the National demographic should be applied.

The 40% sub-minimums needed to avoid discounting of the final recognition level apply to the following elements as follows:

Ownership: 40% of the net value calculation; the Measured Entity needs to score at least 3.20 points under the Net Value indicator.

Skills Development: 40% of the total weighting points available for scoring, excluding bonus points; the Measured Entity needs to score at least 8 points (without bonus points) for Skills Development

Enterprise and Supplier Development: the 40% of total weighting points applies to each of the sub-categories, namely: Preferential Procurement, Supplier Development and Enterprise Development; the Measured Entity needs to score at least 10 points for Preferential Procurement, 4 points for Supplier Development and 2 points for Enterprise Development (excluding any bonus points) to avoid discounting.

To facilitate broad-based black economic empowerment by:

(a) Promoting economic transformation to enable meaningful participation of black people in the economy

(b) Achieving a substantial change in the racial composition of ownership and management structures and skilled occupations in new and existing companies

(c) Increase the extent to which communities, workers and other collective enterprises own and manage enterprises and increase their access to the economy, infrastructure and skills training

(d) Promote investment programmes that lead to broad-based and meaningful participation of black people in the economy to achieve sustainable development and general prosperity

(e) Empower rural and local communities by enabling access to the economy, land, infrastructure, ownership and skills; and

(f) Promote access to finance for black economic empowerment

The term “Black People” is defined in Schedule 1 of the Amended Generic Codes meaning, African, Coloureds and Indians, who are citizens of South Africa by:

(a) Birth or decent; or

(b) Became citizens by naturalization either:

(i) Before 27 April 1994; or

(ii) On or after 27 April 1994 and who would have been entitled to acquire citizenship by naturalization before that date

In the 2008 case between the Chinese Association of South Africa v the Minister of Labour, Dti and the Minister of Justice and Constitutional Development (Case No. 59251/2007), the court held that South African Chinese people fall within the ambit of the definition of “Black People”.

Yes, all Organs of State and public entities are measurable under the Codes

A Black Owned company (also known as a 51% Black Owned” company) is a company where:

(a.) Black People must have at least 51% of the exercisable voting rights; and

(b.) Black People hold at least 51% of the economic interest; and

(c.) Has earned the full points for the Net Value indicator on the ownership scorecard

A B-BBEE score is the total number of points scored or earned for each of the elements on the B-BBEE scorecard. The overall score will result in the Measured Entity being allocated a certain B-BBEE Status level depending on the total number of points earned. The higher the number of points, the lower the B-BBEE Status level

A transaction, arrangement, act or conduct that undermines or frustrates the achievement of the B-BBEE objectives or the implementation of any of the provisions of the Act, such as, (but not limited to) practices in connection with a B-BBEE initiative where:

(a) Black people are employed but are discouraged or inhibited from substantially participating in the core activities of the business

(b) Economic benefits that are received as a result of the B-BBEE Status of a business don’t flow to black people in the ration specified in the relevant legal documentation

(c) Concluding a legal relationship with a black person for the purpose of that business achieving a certain level of B-BBEE compliance without granting that black person the economic benefits that would reasonably be expected to be associated with the status or position held by that black person

(d) Concluding an agreement with another business in order to achieve or enhance the B-BBEE status in circumstances where:

(i) There is a significant limitation (implicit or explicit) on the identity of suppliers, service providers, clients or customers

(ii) The maintenance of business operations is reasonably considered to be improbable, having regard to the resources available

(iii) The terms and conditions were not negotiated at arm’s length and on a fair and equitable basis.

Only a Commissioner appointed in terms of the Justices of the Peace and Commissioners of Oaths Act 16 of 1963 can commission an affidavit. If you are a commissioner, you cannot commission your own affidavit. A commissioner cannot administer an oath or affirmation relating to a matter in which he/she has an interest. The commissioner therefore needs to be an independent person.

The Protection of Personal Information (or “POPI”) Act (also referred to as POPIA) came into effect 1 July 2021 and is mandatory for all registered businesses in South Africa. Yes, AQRate is POPI compliant. 

A SANAS-Accredited B-BBEE Rating Agency’s procedures require the client to provide personal information of their employees, such as IDs, employment contracts, payslips, disability status, etc. in order to verify the B-BBEE compliance of the client (Measured Entity). Without actually gaining access and reviewing these documents, the RA cannot express an opinion on the compliance of the Measured Entity, and further, without compiling a record (verification file) for the client, could be in contravention of the accreditation requirements stipulated by SANAS in R47 and the DTIC Verification Manual.

The B-BBEE Regulations of 2016 applies to:

(a) All spheres of government, public entities and organs of state. They must report on their compliance with B-BBEE in their audited annual financial statements and annual reports required under the Public Finance Management Act, 1999 (Act No. 1 of 1999) within thirty (30) days post approval of such annual report and financial statements in a prescribed Form B-BBEE 1.

(b) All public companies listed on the JSE. They must in a prescribed Form B-BBEE 1 provide the B-BBEE Commissioner with a report on their compliance with B-BBEE within 30 days’ post approval of annual reports and financial statements or ninety (90) days after end of the financial year of the listed entity, irrespective of whether it is primary or secondary listing.

(c) All SETA’s contemplated in the Skills Development Act, 1998 (Act No. 97 of 1998). They must report on skills development spending and programmes to the B-BBEE Commission 30 days’ post approval of annual reports and financial statements or 90 days after end of the financial year of the Sectoral Educating Training Authorities in a prescribed Form B-BBEE 2.

Means a recently formed or incorporated Entity that has been in operation for less than 1 year. A start-up enterprise does not include any newly constituted enterprise which merely a continuation of a pre-existing business.

These entities are covered by the Codes and are regarded as specialised enterprises (do not have ownership). Their B-BBEE compliance is measured in terms of Statement 004, Gazette No. 38766). Specialised EMEs are given an automatic level 4. If it has 51% black beneficiaries (as it is not capable of having ownership) it will automatically be level 2, and 75% black beneficiaries will obtain a level 1. EMEs only have to obtain a sworn affidavit. Specialised QSEs have to be verified by an accredited Rating Agency to obtain a B-BBEE certificate. But if it has 51% of black beneficiaries it will automatically be level 2 and 75% black beneficiaries, a level 1 and also only needs to obtain a sworn affidavit. Large specialised entities have to be verified by either a Rating Agency.

The determining factor with a sector code is the scope of application of the Sector Code and/or revenue. Where a company derives more than 50% of its revenue from a sector for which there is a Sector Code, then such entity will be measured according to the scorecard for that Sector Code.

The priority elements for Generic (Large) entities are:

1. Ownership (a min of 40% of the points for the Net Value indicator on the scorecard needs to be earned to avoid being discounted)

2. Skills Development (a min of 40% of the total points excl. bonus points needs to be earned to avoid being discounted); and

3. Enterprise and Supplier Development (a min of 40% of the points for Procurement, Supplier Development & Enterprise Development excl. bonus points needs to be earned to avoid being discounted)

The priority elements for QSE’s are:

1. Ownership element; AND either

2. Skills Development; OR

3. Enterprise and Supplier Development.

An EME does not need to comply with the priority elements (note however, that this is different for some of the Sector Codes, such as, the Amended Construction Sector Codes, for instance).

For not meeting the sub-minimum requirements for any or all of the priority element, a Measured Entity can only be discounted by 1 Level.

Yes. In a chain of ownership where black people have at least 51% black ownership using the normal Flow-Through Principle, then the Modified Flow-Through principle can be applied to that entity, where the 51% black ownership in that entity may be treated as if it was 100%. The Modified Flow Through principle cannot be applied at Measured Entity level and can only be used once in the entire ownership structure to which a Measured Entity belongs (i.e. if there are two chains of ownership both having ≥ 51% Black Ownership then it can only be applied in one of those chains). Note that the Amended Generic Codes expressly disallows the use of the Modified Flow Through principle when it comes to the enhanced recognition for EME’s and QSE’s. The enhancement to a Level 1 or 2 for EME’s and QSE’s is measured using the normal flow through principle. The Modified Flow Through principle therefore cannot be used to obtain the enhancement of EME’s and QSE’s to a Level 1 or 2.

The continued consequences is allowed for the same number of years the black shareholder held his/her shares provided the shares were held for at least minimum period of 3 years, and the ownership transaction was legitimate, value was created in the hands of black people, and the entity improved its B-BBEE status level from date of entry to exit of the black shareholder

The EAP targets only applies to entities being measured on the Generic scorecard. If your business has offices/branches countrywide, the National EAP targets will apply. If the main business operations are situated in one province, then the EAP targets for that particular province will apply, unless the majority of staff are situated in another province. For Management Control, use the province where the majority of staff are situated. If no province is dominant, use the National EAP target. For Skills Development, if training occurred primarily in one province, use this province or use the same location used for Management Control. If it is not clear which province to apply, use the National EAP targets.

This will include everyone who is on the current payroll of the Measured Entity (as at Date of Measurement)

Executive Management’ is defined in the Amended Generic Codes in paragraph 3.4.1, Statement 200 “Executive Management positions include the following: Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and other Executive Managers that serve on the Board of Directors”

It applies to the total score (i.e. 8 points minimum excluding the bonus points). You cannot achieve the sub-minimum of 8 points using any of the bonus points

Yes, the Amended Generic Codes have broadened the definition of Skills Development to include individuals who are either not employed or employed elsewhere, as well as for their own staff. As long as the expense was incurred by the Measured Entity and falls within the Skills Development Learning Programme Matrix, it can be included under this indicator.

Any Skills Development Expenditure that would fit into the Skills Development Learning Programme Matrix which is spent on black people can count.

No, combined

Yes, the 25% limitation is based on the total value of Skills Development Expenditure. The definition of Skills Development Expenditure is race neutral. It merely states that it comprises the money that the Measured Entity spends on Skills Development.

Yes, however, if the cost of employing a SDF, training manager, accommodation, catering or travelling relate to a bursary for black students at a Higher Education Institution, then it will not be subject to the 15% limitation.

Yes, as long as the learner was not absorbed in the previous verification and then recognised as unemployed in the next. Once the learner is absorbed, he/she will count as an employed learner. A learner can therefore only be absorbed once.

No, the EAP targets do not apply as the reference to paragraph 2.1.3 has now expressly been removed from the EAP demographic breakdown as per paragraph 2.2, Statement 300.

As per the email from SANAS dated 31 July 2020, AQRate has applied the following:

For single Measurement Period:

(a) Use NPAT unless ME had a loss or the Net Profit margin was less than a quarter of the industry norm

(b) Use the Net Profit margin from the first year (within the last 5 years) where the ME profit margin was at least a quarter of the industry norm and apply that margin to Revenue (or Turnover) for the Measurement Period

(c) If the ME has not achieved a NPAT margin of more than a quarter of the industry margin over the last 5 years then apply a quarter of the industry margin to the Revenue (or Turnover) for the Measurement Period

For cumulative (“multiple Measurement Periods”):

(a) Use the average NPAT over the period used (up to 5 years) unless the average margin is less than a quarter of the industry norm

(b) Use the margin from the first year (within the last 5 years) where the ME profit margin was at least a quarter of the industry norm and apply that margin to Revenue (or Turnover) for the Measurement Period

(c) If the ME has not achieved a NPAT margin more than a quarter of the industry margin over the last 5 years, then apply a quarter of the industry margin to the average Revenue (or Turnover) for the Measurement Periods

No, the 1.2 multiplier was replaced with the 1.2 multiplier for procurement spend on 51% Black Owned entities (irrespective of whether they are a Generic, QSE or EME) but what is important is that the 1.2 multiplier will not apply if the Modified Flow through principle was used to obtain the 51% Black Ownership status.

No, as long as the Supplier Development beneficiary supplies the Measured Entity with goods or services. the actual Rand value or percentage is irrelevant.