VERIFICATION OF AND REPORTING ON BROAD-BASED BLACK ECONOMIC EMPOWERMENT IN TERMS OF THE CODES OF GOOD PRACTICE

GUIDE FOR VERIFICATION AGENCIES

30 NOVEMBER 2007

Department of Trade and Industry

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Copyright Policy

All rights reserved. Permission is granted to make copies of this work provided that such copies, in whichever format, are for the purpose of verification agencies discharging their professional duties, for use in academic classrooms or for personal use and provided such copies are not sold for income and provided further that each copy bears the following credit line: “Copyright © by the Department of Trade and Industry. All rights reserved. Used by permission.” Otherwise, written permission from the Department of Trade and Industry is required to reproduce, store or transmit this document except as permitted by law.

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Authority of the guide

This Guide should be used by Verification Agencies when performing a B-BBEE verification engagement. An approved Verification Agency who does not apply the guidance in this guide should be prepared to justify how the scores awarded in accordance with the Codes of Good Practice on B-BBEE, as reflected in the measured entity’s Scorecard Elements and B-BBEE Status, have been verified.

Application of the guide

The Guide consists of an Introduction and 10 Appendices as well as an example of the Verification Certificates to be issued and specific guidance in respect of each Element of the Codes.

The Introduction to the Guide sets out the Verification Agency’s responsibilities and principles to be applied regarding ethical requirements (including independence), quality control, client acceptance and retention, planning and performing the verification engagement and reporting on the measured entity’s B-BBEE scorecard. Examples of Verification Certificates for the Generic Scorecard which is also used for Qualifying Small Enterprises (QSEs), and those for Exempt Micro Enterprises (EMEs) are included in Appendix 1.

Each of the remaining Appendices are divided into two sections: The first section sets out the minimum verification

procedures for each Element of the Codes that has to be met, and is based on the key measurement principles and calculations of the scorecard for each Element of the Codes (Requirements).

The second section sets out explanatory material and examples of procedures that may be performed to meet the Requirements (Application material) and are thus cross-referenced to the Requirements.

At the end of each appendix reference is made to requirements applicable to QSEs and an example of the calculations is included..

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CONTENTS

Scope of this guidance..................................................................................3Effective Date................................................................................................3Objective.......................................................................................................3Definitions.....................................................................................................3Ethical Requirements....................................................................................3Quality Control..............................................................................................3Client and engagement acceptance and continuance...................................3Agreeing on the Terms of the Engagement...................................................3Planning and Performing the Verification Engagement.................................3Criteria to be used for Verification Engagement............................................3Professional Scepticism.................................................................................3Materiality and Verification Engagement Risk...............................................3Sampling.......................................................................................................3Using the Work of an Expert..........................................................................3Evidence........................................................................................................3Representations by the Responsible Party....................................................3Timing of Verification....................................................................................3Considering Subsequent Events....................................................................3Fronting.........................................................................................................3Documentation..............................................................................................3Reporting Requirements................................................................................3Other Reporting Responsibilities...................................................................3Withdrawing from the Engagement...............................................................3Appendix 1....................................................................................................3Example Certificate 1....................................................................................3Example Certificate 2....................................................................................3Example Certificate 3....................................................................................3Minimum ProceduresAppendix 2:...................................................................................................3Guidance to Broad Based Black Economic Empowerment (B-BBEE) Codes of Good Practice 100: Ownership......................................................................3Appendix 3:...................................................................................................3

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Guidance to Broad Based Black Economic Empowerment (B-BBEE) Codes of Good Practice 200: Management Control......................................................3Appendix 4:...................................................................................................3Guidance to Broad Based Black Economic Empowerment (B-BBEE) Codes of Good Practice 300: Employment Equity........................................................3Appendix 5:...................................................................................................3Guidance to Broad Based Black Economic Empowerment (B-BBEE) Codes of Good Practice 400: Skills Development.........................................................3Appendix 6:...................................................................................................3Guidance for the Verification of Contributions to Preferential Procurement Measured in Terms of Statements 500 Broad Based Black Economic Empowerment Codes of Good Practice.........................................................3Appendix 7:...................................................................................................3Guidance for the Verification of Contributions to Enterprise Development Measured in Terms of Codes 600 of the Broad Based Black Economic Empowerment Codes of Good Practice.........................................................3Appendix 8....................................................................................................3Guidance for the Verification of Contributions to Socio-economic Development Measured in Terms of Codes 700 of the Broad Based Black Economic Empowerment Codes of Good Practice.........................................3

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Scope of this guidance1. This guidance deals with the Verification Agency’s responsibilities to

provide assurance on a measured entity’s Scorecard Elements in accordance with the Codes of Good Practice (the “Codes”) on Broad Based-Black Economic Empowerment (“B-BBEE”)1.

2. The table below sets out the basis for determining which criteria are applicable to the measured entity and are to be applied by a Verification Agency when providing assurance on the Scorecard Elements and B-BBEE Status:

The following Criteria can be used in verification engagements: Generic Scorecard QSE Scorecard Sector Codes Scorecard The criteria applicable to Exempted Micro Enterprises

Effective Date3. This guidance is effective for B-BBEE verification certificates issued on

or after 9 February 2008. Objective4. The objective of this guidance is to:

a. Set out the fundamental ethical principles underpinning the responsibilities of Verification Agencies (“Verification Agencies”) when performing verification engagements to report on the B-BBEE Scorecard elements and overall B-BBEE status of a measured entity;

b. Set out the responsibilities of the Verification Agency in respect of quality control, client acceptance and continuance, planning, performing the verification engagement and reporting on the scorecard;

c. Set out the requirements based on the key measurement principles and calculations for each element of the Code;

d. Provide explanatory material and procedures which may be performed in providing assurance on whether the requirements of the Code had been met; and

e. Establish documentation requirements for the engagement. Definitions5. For the purposes of the Guide the following terms have the meanings

attributed below:

B-BBEE Verification Engagement:

A B-BBEE Verification Engagement is an engagement performed to verify the score awarded to a measured entity in respect of the individual scorecard elements

1 Issued in Notice 112 of 2007

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based on the B-BBEE Codes of Good Practice and the overall rating (B-BBEE Status) awarded. A verification engagement reduces the risk of misstatement for individual scorecard elements to an acceptably low level in the circumstances of the engagement, as the basis for a positive form of expression of the Verification Agency’s conclusion. An acceptably low level of risk is achieved if a reasonable person with sufficient knowledge of the Codes will be able to arrive at the similar conclusion based on the same set of information.

B-BBEE Codes: The Codes of Good Practice on Broad-Based Black Economic Empowerment gazetted on 9 February 2007 as part of the Broad-Based Black Economic Empowerment Act, Act No. 53 of 2003 and any amendments thereto.

Control risk: The risk that a misstatement that could occur in an assertion from which the elements of the scorecard of the measured entity are derived and B-BBEE Status determined, and that could be material, individually or when aggregated with other misstatements, will not be prevented or detected and corrected on a timely basis by the measured entity’s internal control.

Detection risk: The risk that the Verification Agency’s procedures will not detect a misstatement that exists in an assertion from which the elements of the scorecard of the measured entity are derived and B-BBEE Status determined and that could be material, individually or when aggregated with other misstatements.

Inherent risk The susceptibility of an assertion from which the elements of the scorecard of the measured entity are derived and B-BBEE Status determined to misstatement that could be material assuming that there were no related internal controls.

Intended User: The person, persons or class of persons within, or external to the measured entity, for whom the Verification Agency prepares the Verification Certificate on the Scorecard elements and B-BBEE status report (e.g. the directors or person with a similar status in other types of entities). The responsible party may be one of the intended users, but not the only one.

Materiality: Information is material if its omission or misstatement could influence the determination of the individual scorecard elements or the overall rating and B-BBEE status. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. Thus, materiality provides a threshold or cut off point rather than being a primary qualitative characteristic which information must have if

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it is to be useful.

Professional scepticism:

An attitude that includes a questioning mind and a critical assessment of evidence supporting the B-BBEE Scorecard Elements and B-BBEE Status.

Responsible Party:

The person (or persons) in the measured entity responsible for the collation and preparation of the B-BBEE information to be verified.

Sampling: The application of verification procedures to less than 100% of items within an account balance or class of transactions such that all sampling units have a chance of selection. This will enable the Verification Agency to obtain and evaluate evidence about some characteristic of the items selected in order to form, or assist in forming, a conclusion concerning the population from which the sample is drawn.

Sampling can use either a statistical or non-statistical approach. The “population” in a B-BBEE Engagement will relate to the underlying information for each scorecard element being verified and may comprise financial or non-financial information.

Sufficient appropriate evidence:

Evidence is all of the information used by the Verification Agency in determining the scores allocated to individual B-BBEE Scorecard Elements and B-BBEE Status for the measured entity. Evidence includes the information contained in the accounting records underlying the financial statements and other information relating to the measured entity’s B-BBEE Scorecard Elements obtained through inquiry, inspection of records or documents or written confirmations, recalculation and analytical procedures.

Sufficiency is the measure of the quantity of evidence. The quantity of evidence required is affected by the risk of misstatement (the greater the risk of misstatement the more evidence is likely to be required) and also by the quality of such evidence (the higher the quality, the less evidence may be required).

Appropriateness is the measure of the quality of evidence in respect of its relevance and reliability in providing support for or detecting misstatements in the account balance or class of transactions affecting individual scorecard elements. The reliability of evidence is influenced by its source and its nature and is dependent on the individual circumstances under which it is obtained.

Verification Engagement Risk:

The risk that the Verification Agency expresses an inappropriate conclusion in determining the scores of one or more scorecard elements being materially

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misstated. Verification engagement risk is a function of the risk of material misstatement or simply, the “risk of material misstatement” that is the risk that the scorecard elements are materially misstated prior to verification and the risk that the Verification Agency will not detect such misstatement (“detection risk”). The risk of material misstatement has two components: inherent risk and control risk (as defined above).

Verification Certificate:

B-BBEE Verification Certificate issued by the approved Verification Agency which reflects the overall B-BBEE Status and B-BBEE status of each Scorecard Element verified in respect of the measured entity (refer Appendix 1).

Verification Report:

Report issued by the Verification Agency which provides the detailed score of each element reflected in the Verification Certificate and B-BBEE Status awarded to the measured entity.

Ethical Requirements6. The Verification Agency shall establish policies and procedures

designed to provide it with reasonable assurance that the Verification Agency and its personnel comply with relevant ethical and legal requirements.

7. Prior to acceptance of a B-BBEE Verification Engagement, the Verification Agency shall identify threats to independence and evaluate the significance of those threats. If the threats are other than clearly insignificant, the Verification Agency shall identify and apply safeguards to eliminate the threats or reduce them to an acceptable level, to ensure that independence of mind and independence in appearance are not compromised.

8. Where it is not possible to reduce the independence threat to an acceptable level the Verification Agency shall refuse to accept or continue the B-BBEE Verification Engagement.

9. When the approved Verification Agency or its directors or top management are also members of another professional body, those directors or top management shall comply with that professional body’s ethical requirements, in so far as they may affect such a verification engagement. Such ethical requirements are often contained in a Code of Professional Conduct.

Quality Control10. The Verification Agency shall establish and implement quality control

procedures that are appropriate to the Verification Agency and individual B-BBEE verification engagements undertaken.

11. Elements of quality control that are relevant to individual verification engagements include leadership responsibilities for quality within the firm and on the verification engagement, compliance with ethical requirements, acceptance and continuance of client relationships and

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specific verification engagements, human resources, assignment of engagement teams, engagement performance, and monitoring.2

12. The quality control procedures shall be documented and communicated to the Verification Agency’s personnel and policies and procedures shall be designed to provide reasonable assurance that the Verification Agency and its personnel comply with relevant ethical requirements.

13. The Verification Agency shall document evidence of compliance with the quality control procedures.

Client and engagement acceptance and continuance14. The Verification Agency shall establish policies and procedures for the

acceptance and continuance of client relationships and specific B-BBEE verification engagements designed to provide it with reasonable assurance that it will only undertake or continue relationships or engagements where it:

a. Has considered the integrity of the client and does not have information that it would lead it to conclude that the client lacks integrity;

b. Is competent to perform the B-BBEE verification engagement;c. Has the capabilities, time and resources to do so; andd. Complies with ethical requirements, including the management of

any conflicts of interest that may impair the Verification Agency’s independence. The Verification Agency shall accept a verification engagement only if, on the basis of a preliminary knowledge of the engagement circumstances, nothing comes to the attention of the Verification Agency to indicate that the requirements of this Guide will not be satisfied.

15. The Verification Agency shall also identify those verification engagement characteristics of the measured entity, such as:

a. The type of B-BBEE Scorecard Elements applicable to the measured entity, i.e. Generic Scorecard, QSE Scorecard, Sector Scorecards, and Exemption certificates;

b. The nature and complexity of the measured entity requiring special skills and competencies of the staff assigned to the verification engagement;

c. Any limitation on access to relevant B-BBEE information at the measured entity that may result in a situation where the Verification Agency is unable to verify the individual scores allocated to the elements; and

d. Whether the Verification Agency has access to adequate resources to perform the verification engagement, failing which it shall decline to accept or to continue the verification engagement.

2 For Registered Auditors performing Verification Engagements, these requirements are set out in International Standard on Quality Control (ISQC) 1, Quality Control for Firms that perform audits and reviews of historical financial information and other assurance and related services engagements, and International Standard on Auditing (ISA ) 220, Quality Control for Audits of Historical Financial Information.

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16. The Verification Agency team shall implement quality control procedures that are applicable to the acceptance and continuance of the verification engagement.

17. The Verification Agency shall not accept a verification engagement unless the preliminary knowledge of the engagement circumstances indicates that the verification of the measured entity’s B-BBEE status is appropriate.

18. The Verification Agency shall accept (or continue where applicable) a verification engagement only if the Verification Agency is satisfied that those persons who are to perform the engagement collectively possess the necessary professional competencies.

19. A Verification Agency may be requested to perform verification engagements for measured entities of varying complexities. Some measured entities may require specialised skills and knowledge beyond those ordinarily possessed by verification agencies own personnel. In such circumstances, the Verification Agency shall determine whether there is a need to obtain the services of an expert.

20. The Verification Agency shall establish policies and procedures where it is necessary to outsource certain of the verification work, but at all times obtains sufficient appropriate evidence that such work is adequate for the purposes of the verification engagement and takes full responsibility for such work performed.

Agreeing on the Terms of the Engagement21. The Verification Agency shall agree on the terms of the B-BBEE

verification engagement with the measured entity. To avoid misunderstandings, the terms agreed are recorded and set out in a written engagement letter incorporating any other standard contract terms and conditions that the Verification Agency ordinarily applies to its engagements.

22. Engagement terms generally include rights of access to all relevant information at the measured entity and facilitate access to outside third parties for purposes of obtaining relevant evidence for purposes of the verification engagement, as well as billing arrangements.

23. The engagement letter may include a clause to limit the liability of the Verification Agency to any claim by the measured entity only, arising from negligence alleged in the performance of the verification engagement, since the verified Scorecard and B-BBEE Status reported may be distributed to other unknown third parties who were not a party to the verification engagement and who have no contractual relationship with the Verification Agency. For any such claim to succeed the measured entity will have to demonstrate that losses incurred were as a consequence of the negligence of the Verification Agency in the performance of the B-BBEE verification engagement.

24. Acknowledgement of the terms and conditions of engagement by the client signatory provides evidence of the relationship with the Verification Agency, and also establishes a basis for a common understanding of the respective responsibilities of each party.

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Planning and Performing the Verification Engagement25. The Verification Agency shall document a plan for the verification

engagement so that it will be performed effectively. The engagement plan involves developing an overall strategy for the scope, emphasis, timing and conduct of the engagement, the nature, timing and extent of evidence gathering procedures to be performed and the reasons for selecting them. Adequate planning helps to devote appropriate attention to important areas of the engagement, identify potential problems on a timely basis and properly organise and manage the engagement in order for it to be performed in an effective and efficient manner.

26. Adequate planning also assists the Verification Agency to properly assign work to engagement team members, and facilitates their direction and supervision and the review of their work. Further, it assists, where applicable, the coordination of work done by other Verification Agencies and experts. The nature and extent of planning activities will vary with the engagement circumstances, for example, the size and complexity of the measured entity and the Verification Agency’s previous experience with B-BBEE Verification engagements for the measured entity. Examples of the main matters to be considered include:

a. The terms of the engagement;b. The characteristics of the measured entity, its environment, the

complexity of the industry and any other identified criteria;c. The engagement process; d. The possible sources of evidence, and the availability and

accessibility of the evidence;e. An understanding of the measured entity and its environment,

including the risks that the measured entity information supporting individual Elements of the Scorecard may be materially misstated;

f. Identification of intended users and their needs, and consideration of materiality and the components of verification engagement risk; and

g. Personnel and expertise requirements, including the nature and extent of involvement by any experts.

27. The Verification Agency shall ascertain the classification of the measured entity to determine which Codes of Good Practice for B-BBEE apply to the verification engagement. Such classification may be one of the following:

a. An Exempted Small and Micro-Enterprise;b. A Qualifying Small Enterprise to which the QSE Scorecard applies;c. Enterprises to which the Generic Scorecard applies; d. Enterprises to which the Sector Codes apply; ande. Start up enterprises which will be treated as EMEs for transactions

under or equal to R 5 million. 28. In order to determine if the measured entity is classified correctly the

Verification Agency shall obtain the audited financial statements and agree the amount recognised as revenue to the thresholds set by the

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Codes. If the measured entity has not been audited, the Verification Agency shall perform the procedures in paragraph 32.

29. The Verification Agency shall obtain an understanding of the measured entity and other engagement circumstances, sufficient to identify and assess the risks of the measured entity information being materially misstated, and sufficient to design and perform further evidence-gathering procedures.

30. Obtaining an understanding of the measured entity and other engagement circumstances is an essential part of planning and performing a verification engagement. That understanding provides the Verification Agency with a background for exercising professional judgment throughout the engagement, for example when:

a. Considering the characteristics of the measured entity, including size and complexity;

b. Assessing the suitability of sampling criteria and techniques;c. Identifying where special consideration and further investigation

may be necessary, for example factors indicative of fraud, fronting and the need for specialised skills or the work of an expert;

d. Establishing and evaluating the continued appropriateness of quantitative materiality levels (where appropriate), and considering qualitative materiality factors;

e. Developing expectations for use when performing analytical procedures;

f. Designing and performing further evidence-gathering procedures to reduce the risk of misstatement to an acceptably low level; and

g. Evaluating evidence, including the reasonableness of the responsible party’s oral and written representations.

31. Planning is not a discrete phase, but rather a continual and iterative process throughout the engagement. As a result of unexpected events, changes in conditions, or the evidence obtained from the results of evidence-gathering procedures, the Verification Agency may need to revise the overall strategy and engagement plan, and thereby the resulting planned nature, timing and extent of further procedures.

32. When the measured entity is not audited the Verification Agency shall perform some or all of the following procedures as a minimum to verify the accuracy, completeness, occurrence and cut-off of revenue as shown in the financial statements:

a. Extract a schedule of monthly revenue and compare with prior years and budgets.

b. Calculate and analyse the gross profit percentage and obtain explanations from management for unusual fluctuations from previous years or from budgets.

c. Obtain a list of numerical sales invoices and inspect the list for missing numbers.

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d. Follow missing numbers through to the physical invoice per invoice book and investigate the reason for omissions (or valid cancellation of the invoice).

e. Agree the total sales as per the general ledger with the totals as per the sales journal.

f. Agree the sales income for the year per the general ledger with the total sales income per the trial balance and the financial statements.

g. Select sales income transactions from invoices and: Confirm that prices are obtained from price lists or are

authorised by management. Confirm that calculations and additions on the invoice are

correct. Confirm that the invoices were posted to the correct general

ledger and control accounts. Re-perform the castings and calculations of the sales journal (or

in respect of cash sales, the sales column in the cash book and general ledger accounts).

Agree the postings from the sales journal (or in respect of cash sales from the cashbook) to the general ledger account.

Select invoices before and after year end and confirm that the revenue is accounted for in the correct accounting period.

Inspect the monthly revenue declared on the VAT 201 returns to determine the reasonableness of the amount of revenue.

Inspect the measured entity’s income tax return to determine the amount of revenue declared.

Obtain management representation that the amount declared is accurate and complete.

h. In case of start up enterprises, obtain registration documents and review them to ensure that the entity has been in operation for less than 12 months.

Criteria to be used for Verification Engagement33. The Verification Agency shall use the following as the criteria to

evaluate the measured entity:a. Broad-based Black Economic Empowerment.b. Generic and QSE scorecards of the Codes of Good Practice on Broad-

based Black Economic Empowerment.c. Criteria for Exempted Micro Enterprises of the Codes of Good

Practice on B-BBEE.d. Sector Codes gazetted in terms of section 9 of the B-BBEE Act.e. Broad-Based Black Economic Empowerment Act – The Codes of Good

Practice – Interpretative Guide June 2007.f. Any other applicable guidelines issued by the Department of Trade

and Industry.

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g. Any other legislation or regulation, as provided for in the Codes including but not limited to:

Employment Equity Act 55 of 1998 Skills Development Act 97 of 1998 Skills Development Levies Act 9 of 1999 Skills Development Amendment Act 31 of 2003

Professional Scepticism34. The Verification Agency shall plan and perform an engagement with an

attitude of professional scepticism recognising that circumstances may exist that cause the measured entity information to be materially misstated. An attitude of professional scepticism means the Verification Agency makes a critical assessment, with a questioning mind, of the validity of evidence obtained and is alert to evidence that contradicts or brings into question the reliability of documents or representations by the responsible party.

35. Exercising professional scepticism during the verification engagement requires the investigation of and reasonable questioning of documentation presented and management’s representations to assess the effect of potential misstatements on scores awarded to individual Scorecard Elements. This includes comparing the documents and representations presented by the measured entity to ensure that there are no inconsistencies in the various pieces of evidence and that such inconsistencies are properly addressed.

Materiality and Verification Engagement Risk36. The Verification Agency shall consider materiality and the risk of

misstatement when planning and performing a verification engagement.

37. The Verification Agency shall consider materiality when determining the nature, timing and extent of evidence-gathering procedures and shall base the materiality on the measured entity’s underlying information which determines the individual scores for each Scorecard Element.

38. Materiality is considered in the context of quantitative and qualitative factors affecting the Scorecard Elements.

a. Materiality is considered qualitatively in respect of: Ownership – voting rights and economic benefits to black

shareholders; Management – board participation and those appointed in

top management; and Employment equity in respect of black persons appointed to

senior, middle and junior management positions.b. Materiality is considered quantitatively in the context of the

underlying information expressed in rand values (to which monetary sampling approaches may be applied) for:

Skills development spend;

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Preferential procurement in respect of Procurement Suppliers who claim to be Black Owned and thereafter B-BBEE Procurement Spend relative to total measured procurement spend for the period;

Enterprise Development Qualifying Contributions; and Socio Economic Development Qualifying Contributions.

Sampling 39. There are two main sampling approaches that may be used in B-BBEE

verification engagements:a. Attribute sampling andb. Monetary unit sampling (MUS)

40. When designing verification procedures, the Verification Agency shall determine appropriate means for selecting items for testing so as to gather sufficient appropriate evidence to meet the objectives of the verification procedures.

41. Verification procedures are concerned with amounts and include substantive tests of details and analytical reviews of classes of transactions and account balances. The purpose of verification procedures is to obtain evidence to detect material misstatements.

42. It may not be appropriate to select a sample for each Scorecard Element, for example, during the verification of complex shareholding structures, sampling would not be appropriate and the Verification Agency obtains an understanding of the whole structure.

43. When designing a sample, the Verification Agency shall consider the objectives of the verification procedure and the attributes of the population from which the sample will be drawn.

44. In determining the sample size, the Verification Agency shall consider whether risk of misstatement is reduced to an acceptably low level in their opinion using their professional judgement.

45. The Verification Agency shall select items for the sample with the expectation that all sampling units in the population have a chance of selection.

46. The Verification Agency shall perform verification procedures appropriate to the particular B-BBEE Code Element Objective for each item selected.

47. The Verification Agency shall consider the sample results, the nature and cause of any errors identified, and their possible effect on the particular B-BBEE Code Scorecard Element and on other areas of the verification engagement.

48. For tests of detail, where a MUS sample has been selected, the Verification Agency may project monetary errors found in the sample to the population, and shall consider the effect of the projected error on the

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particular B-BBEE Code Scorecard Element and on other areas of the verification engagement.

Using the Work of an Expert49. Certain Scorecard Elements of the measured entity may involve

complex structures and valuation methods requiring specialised knowledge and skills, for example:Ownership Element: B-BBEE structured deals may involve a series of complex contracts involving multiple share holders via trusts and Employee Share Schemes which involve an interpretation of contract terms to determine voting rights and economic interests of the black shareholders. A Verification Agency may seek legal or accounting advice in order to determine the weighting points and score to be awarded.

50. In these situations, the Verification Agency may decide to use the work of persons from other professional disciplines, referred to as experts, who have the required knowledge and skills. The Verification Agency shall determine whether the scope, purpose and extent of the work performed by any expert which the Verification Agency plans to use provides sufficient appropriate evidence to support the relevant Scorecard Element.

51. When the work of an expert is used in the collection and evaluation of evidence, the Verification Agency and the expert shall, collectively, possess adequate skill and knowledge regarding the measured entity and the criteria for the Verification Agency to determine that sufficient appropriate evidence has been obtained.

52. This guide does not provide guidance with respect to using the work of an expert for engagements where there is joint responsibility and reporting by a Verification Agency and one or more experts. However, the expert must also be bound by the terms and conditions of the engagement.

53. Due care is a professional quality required of all individuals, including experts, involved in a verification engagement. Persons involved in B-BBEE verification engagements will have different responsibilities assigned to them. The extent of proficiency required in performing those engagements will vary with the nature of their responsibilities. While experts do not require the same proficiency as the Verification Agency in performing all aspects of the engagement, the Verification Agency shall determine that the experts have a sufficient understanding of the specific Element of the Code to enable them to relate the work assigned to them to the engagement objective.

54. The Verification Agency shall adopt quality control procedures that address the responsibility of each person performing the verification engagement, including the work of any experts, to ensure compliance with this guide in the context of their responsibilities.

55. The Verification Agency shall be involved in the engagement and understand the work for which an expert is used, to an extent that is sufficient to enable the Verification Agency to accept responsibility for the conclusion on the measured entity’s information. The Verification Agency

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shall consider the extent to which it is reasonable to use the work of an expert in forming the Verification Agency’s conclusion.

56. The Verification Agency is not expected to possess the same specialised knowledge and skills as the expert. The Verification Agency shall , however, have sufficient skill and knowledge to:

a. Define the objectives of the assigned work and how this work relates to the objective of the engagement;

b. Consider the reasonableness of the assumptions, methods and source data used by the expert; and

c. Consider the reasonableness of the expert’s findings in relation to the engagement circumstances and the Verification Agency’s conclusion regarding the specific scorecard element.

57. The Verification Agency shall obtain sufficient appropriate evidence that the expert’s work is adequate for the purposes of the verification engagement.

58. In assessing the sufficiency and appropriateness of the evidence provided by the expert, the Verification Agency shall evaluate:

a. The professional competence, including experience, and objectivity of the expert;

b. The reasonableness of the assumptions, methods and source data used by the expert; and

c. The reasonableness and significance of the expert’s findings in relation to the circumstances of the engagement and the Verification Agency’s conclusion.

Evidence59. The Verification Agency shall obtain sufficient appropriate evidence on

which to base the Scores awarded to the Scorecard Elements. The Verification Agency shall consider the relationship between the cost of obtaining evidence and the usefulness of the information obtained. However, the matter of difficulty or expense involved is not in itself a valid basis for omitting an evidence-gathering procedure for which there is no alternative.

60. The Verification Agency shall use professional judgment and shall exercise professional scepticism in evaluating the quantity and quality of evidence, and thus its sufficiency and appropriateness to support the Score awarded for the relevant Scorecard Element.

61. A verification engagement rarely involves the authentication of documentation, nor is the Verification Agency trained as, or expected to be an expert in, such authentication. However, the Verification Agency shall consider the reliability of the information to be used as evidence, for example, photocopies, facsimiles, filmed, digitized or other electronic documents, including consideration of controls over their preparation and maintenance where relevant.

62. Sufficient appropriate evidence in a verification engagement is obtained as part of an iterative, systematic engagement process involving:

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a. Obtaining an understanding of the measured entity and other engagement circumstances which, depending on the measured entity, includes obtaining an understanding of internal control;

b. Based on that understanding, assessing the risks that the measured entity information may be materially misstated;

c. Responding to assessed risks, including developing overall responses, and determining the nature, timing and extent of further procedures;

d. Performing further procedures clearly linked to the identified risks, using a combination of inspection, observation, confirmation, recalculation, re-performance, analytical procedures and inquiry. Such further procedures, include obtaining corroborating information from sources independent of the measured entity, and depending on the nature of the measured entity, tests of the operating effectiveness of controls; and

e. Evaluating the sufficiency and appropriateness of evidence.63. Verification engagements provide reasonable and not absolute

assurance. Reducing assurance engagement risk to zero is very rarely attainable or cost beneficial as a result of factors such as the following:

a. The use of selective testing;b. The inherent limitations of internal control;c. The fact that much of the evidence available to the Verification

Agency is persuasive rather than conclusive;d. The use of judgment in gathering and evaluating evidence and

forming conclusions based on that evidence; ande. In some cases, the characteristics of the measured entity.

64. The procedures for gathering sufficient appropriate evidence will vary with the circumstances of the engagement, in particular, the measured entity, and the needs of the intended users and the engaging party, including relevant time and cost constraints.

65. When the Verification Agency becomes aware of a matter that leads the Verification Agency to question whether a material modification should be made to the measured entity’s scorecard, the Verification Agency pursues the matter by performing other procedures sufficient to determine the appropriate score to be awarded.

Representations by the Responsible Party66. The Verification Agency shall obtain representations from the

responsible party, as appropriate. Written confirmation of oral representations reduces the possibility of misunderstandings between the Verification Agency and the responsible party. In particular, the Verification Agency requests from the responsible party a written representation that evaluates or measures the measured entity against the identified criteria, whether or not it is to be made available as an assertion to the intended users.

67. During a verification engagement, the responsible party may make representations to the Verification Agency, either unsolicited or in response to specific inquiries. When such representations relate to

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matters that are material to the measured entity’s evaluation or measurement, the Verification Agency shall:

a. Evaluate their reasonableness and consistency with other evidence obtained, including other representations;

b. Consider whether those making the representations can be expected to be well informed on the particular matters; and

c. Obtain corroborative evidence where considered necessary. Evidence which is not corroborated cannot be used to reduce the risk of a verification engagement, e.g. B-BBEE status of suppliers that is only based on the suppliers’ claim either written or verbal but not supported by any assessment or documentation cannot be used when assessing preferential procurement.

68. Representations by the responsible party cannot replace other evidence the Verification Agency could reasonably expect to be available. When the Verification Agency is unable to obtain sufficient appropriate evidence regarding a matter that has, or may have, a material effect on the evaluation or measurement of the measured entity, when such evidence would ordinarily be available, the measured entity shall score a zero, even if a representation from the responsible party has been received on the matter. The Verification Agency shall consider the possibility that fronting may have occurred under such circumstances.

Timing of Verification69. It is encouraged that the measured entity shall be measured on

audited figures as at the financial year-end. A verification certificate and report obtained by the measured entity on figures as at verification date is valid for 12 months. If a measured entity wishes to obtain a verification certificate and report for a period other than at its financial year-end, the certificate and report would still be valid for 12 months, but it shall be stated in the verification report that the rating is based on un-audited figures. Under such circumstances the Verification Agency performs additional procedures as necessary to verify the existence, occurrence, completeness, accuracy, cut off, rights and obligations of the information provided by the measured entity.

Considering Subsequent Events70. The Verification Agency shall consider the effect on the measured

entity and on the verification report of events up to the date of measurement. Any events subsequent to the measurement date and prior to issuing the verification certificate shall be referred to in the report but shall not affect the current B-BBEE score and verification certificate.

Fronting71. The Verification Agency assesses the risk of fronting by the measured

entity and shall include the following minimum procedures when identified:a. Obtaining the ownership structure of the measured entity and

understanding the relationship between the measured entity and the holding company, affiliates and subsidiaries and related parties.

20

b. Obtaining an organisational structure of the measured entity and the job descriptions of each position in the structure.

c. Inspecting documentation which set out the responsibilities of the directors/management to determine who is actually participating in the core activities of the measured entity.

d. Confirming that the responsibilities, accountabilities and reward of black directors/management do not differ from the non black directors/management on the same level.

e. Obtaining and reviewing the minutes of the meetings of the board of directors and management and confirming who is responsible for making strategic decisions.

f. Inquiring of directors or management what their role within the measured entity is.

g. Inspecting personnel records and the above minutes for suspicious appointments and resignations of directors/management.

h. Inspecting personnel records to determine significant differences in remuneration packages of black directors/management compared to the non black directors/management on the same level.

Documentation72. The Verification Agency shall document matters that are significant in

providing evidence that supports the verification result, and that the engagement was performed in accordance with this guide.

73. Documentation shall include a record of the Verification Agency’s reasoning on all significant matters that require the exercise of judgment, and related conclusions. The existence of difficult questions of principle or judgment requires the documentation to include the relevant facts that were known by the Verification Agency at the time the conclusion was reached.

74. It is neither necessary nor practical to document every matter the Verification Agency considers. In applying professional judgment to assessing the extent of documentation to be prepared and retained, the Verification Agency shall consider what is necessary to provide an understanding of the work performed and the basis of the principal decisions taken (but not the detailed aspects of the engagement) to another Verification Agency which has no previous experience with the engagement where this does not conflict with the confidentiality requirements of the Verification Agency. The second Verification Agency may only be able to obtain an understanding of detailed aspects of the engagement by discussing them with the first Verification Agency who prepared the documentation.

Reporting Requirements75. The Verification Agency shall evaluate the conclusions drawn from the

evidence obtained as a basis for determining the scores awarded to the individual Scorecard Elements reflected in the Verification Certificate. In reaching its conclusion, the Verification Agency shall consider whether sufficient appropriate evidence has been obtained to reduce the risk of material misstatement in the scores awarded to the individual Scorecard Elements.

21

76. The Verification Certificate shall be in writing and shall reflect the scores awarded to the individual Scorecard Elements and the Overall Rating or B-BBEE status of the measured entity.

77. The Verification Agency shall also provide a schedule attached to the certificate to the Measured Entity to illustrate how the scores awarded were determined. (Refer to the schedules attached on pages 23 to 28)

78. Those Verification Agencies accredited by SANAS are required to include the SANAS logo on the Verification Certificates issued by them.

79. The following example certificates are included in Appendix 1: Example 1 - The standard Verification Certificate for the 7 elements of

the scorecard. (The scores allocated for the specific elements selected by a QSE for verification would simply be reflected for those elements of the Verification Certificate.)

Example 2 - The standard Verification Certificate for EMEs qualifying as level 3 contributors.

Example 3 - The standard Verification Certificate for EMEs qualifying as level 4 contributors.

80. As the Verification Certificate may be made publicly available by the measured entity for example, when engaging with third parties seeking confirmation of the B-BBEE status of the entity, or in tenders submitted by the measured entity. It is advisable that the Verification Agency keeps a record of all Verification Certificates issued by it.

Other Reporting Responsibilities81. The Verification Agency may be requested by the Measured Entity to

verify specific elements of the B-BBEE Codes in terms of contracts between the Measured Entity and a third party. In these circumstances the Verification Agency shall follow the requirements of this guide bearing in mind the additional requirements included in the contract between the Measured Entity and the third party. For example the reporting requirements for these engagements might differ from the reporting requirements included in this guide.

82. The Verification Agency shall consider other reporting responsibilities, including the appropriateness of communicating relevant matters that came to the attention of the Verification Agency during the verification engagement, in a report to the management of the Measured Entity.

Withdrawing from the Engagement83. After the engagement is accepted by the measured entity and the

Verification Agency concludes that the scorecard rating of the measured entity is materially misstated, the Verification Agency shall require the measured entity to rectify the scorecard. If the measured entity refuses to do so the Verification Agency allocates a zero to the scorecard item. The Verification Agency may not withdraw from the engagement without notifying DTI of the reasons for withdrawal.

Minimum Procedures84. The minimum procedures for each element of the B-BBEE Codes of

Good Practice that has to be performed are attached in Appendices 2 to 8:

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23

Appendix 1Example Certificate 1

Insert Verification Agency Name and Logo

Broad Based Black Economic Empowerment V er ification Cer tifi cate #

Certificate No: XXX/Cl#/Date

Insert Measured Entity name

Registration no: xxxxxxxxxxxx

VAT no: xxxxxxxxxxxx

Head Office, Location: xxxxxxxxxxxx

Verification Standard Applied: Scorecard Applied:

Element Score Ownership Xx Management Control Xx Employment Equity Xx Skills Development Xx Preferential Procurement Xx Enterprise Development Xx Socio-Economic Development Xx Overall Score XXX

Broad based BEE status level : A Level x Contributor to BEE BEE procurement recognition level : xx% Black Ownership : xx% Black Women Ownership : xx% Value Adding Supplier (Yes/No) : XXX

Date of issue :

Expiry Date :

Authorized Signatory

CODE SERIES 100 : MEASUREMENT OF THE OWNERSHIP ELEMENT OF B-BBEEWeighting percentage

Category Ownership indicator Weighting points

Compliance target

Score

20

2.1 Voting rights:

2.1.1 Exercisable Voting Rights in the Enterprise in the hands of black people 3 25%+1%

2.1.2 Exercisable Voting Rights in the Enterprise in the hands of black women 2 10%

2.2 Economic Interest:

2.2.1 Economic Interest of black people in the Enterprise 4 25%

2.2.2 Economic Interest of black women in the Enterprise 2 10%

2.2.3 Economic Interest of the following black natural people in the Enterprise: 1 2.5%

2.2.3.1 black designated groups;

2.2.3.2 black Participants in Employee Ownership Schemes;

2.2.3.3 black beneficiaries of Broad based Ownership Schemes; or

2.2.3.4 black Participants in Co-operatives

2.3 Realisation points:

2.3.1 Ownership fulfilment 1 Refer to paragraph 10.1

2.3.2 Net Value 7 Refer to Annexe C paragraph 4

2.4 Bonus points:

2.4.1 Involvement in the ownership of the Enterprise of black new entrants; 2 10%

2.4.2 Involvement in the ownership of the Enterprise of black Participants: 1 10%

24

2.4.2.1 in Employee Ownership Schemes;2.4.2.2 of Broad-Based Ownership Schemes; or2.4.2.3 Co-operatives.

CODE SERIES 200: MEASUREMENT OF THE MANAGEMENT CONTROL ELEMENT OF B-BBEEWeighting percentage

Category Management Control indicator Weighting points

Compliance Target

Score

10

2.1 Board participation:

2.1.1 Exercisable Voting Rights of black Board members who are black adjusted using the Adjusted Recognition for Gender

3 50%

2.1.2 Black Executive Directors adjusted using the Adjusted Recognition for Gender

2 50%

2.2 Top Management:

2.2.1 Black Senior Top Management adjusted using the Adjusted Recognition for Gender

3 40%

2.2.2 Black Other Top Management adjusted using the Adjusted Recognition for Gender

2 40%

2.3 Bonus points:

Black Independent Non-Executive Board Members 1 40%

25

CODE SERIES 300: MEASUREMENT OF THE EMPLOYMENT EQUITY ELEMENT OF B-BBEEWeighting percentage

Measurement Category & Criteria Weighting points

Compliance targets Score

Years 0 - 5 Years 6 -10

15

2.1.1 Black Disabled Employees as a percentage of all employees 2 2% 3%

2.1.2 Black employees in Senior Management as a percentage of all such employees using the adjusted recognition for gender

5 43% 60%

2.1.3 Black employees in Middle Management as a percentage of all such employees using the adjusted recognition for gender

4 63% 75%

2.1.4 Black employees in Junior Management as a percentage of all such employees using the adjusted recognition for gender

4 68% 80%

2.1.5 Bonus point for meeting or exceeding the EAP targets in each category under 2.1.1 to 2.1.4

3

26

CODE SERIES 400: MEASUREMENT OF THE SKILLS DEVELOPMENT ELEMENT OF B-BBEE

Weighting points Skills Development Element Weighting points

Compliance Target

Score

15

2.1.1 Skills Development Expenditure on any program specified in the Learning Programmes Matrix:

2.1.1.1 Skills Development Expenditure on Learning Programmes specified in the Learning

Programmes Matrix for black employees for black employees as a percentage of Leviable Amount

6 3% -

2.1.1.2 Skills Development Expenditure on Learning Programmes specified in the Learning

Programmes Matrix for black employees with disabilities as a percentage of Leviable Amount using the Adjusted Recognition for Gender

3 0.3% -

2.1.2 Learnerships

2.1.2.1 Number of black employees participating in Learnerships or Category B, C and D Programmes as a percentage of total employees using the Adjusted Recognition for Gender

6 5% -

27

CODE SERIES 500: MEASUREMENT OF THE PREFERENTIAL PROCUREMENT ELEMENT OF B-BBEEWeighting points Category Skills Development Element Weighting

pointsCompliance Target

Score

20

Preferential

Procurement

2.1.1 B-BEE Procurement Spend from all Suppliers based on the B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend

12 50% 70%

2.1.2 B-BEE Procurement Spend from Qualifying Small Enterprises or Exempted Micro-Enterprises based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend

3 10% 15%

2.1.3 B-BBEE Procurement Spend from any of the following Supplier as a percentage of Total Measured Procurement Spend:

2.1.3.1 Supplier that are 50% black owned (3 out of 5 points; or

2.1.3.2 Suppliers that are 30% black women owned(2 out of 5 points)

5 15% 20%

28

CODE SERIES 600: MEASUREMENT OF THE ENTERPRISE DEVELOPMENT ELEMENT OF B-BBEE

Weighting point

Category Enterprise Development Weighting points

Compliance Target

Score

15 Average annual value of all Enterprise Development Contributions and Sector Specific Programmes made by the Measured Entity as a percentage of the target

15 3% of NPAT

CODE SERIES 700: MEASUREMENT OF THE SOCIAL DEVELOPMENT AND SECTOR SPECIFIC ELEMENT OF B-BBEEWeighting points

Criteria Weighting points

Compliance Target

Score

5

Average annual value of all Qualifying Contributions made by the Measured Entity measured from the commencement of this statement or the Inception Date to the date of measurement as a percentage of the target

12

1% of NPAT

Or

0.125% of turnover

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Insert Auditor or Accounting Officer Name & Firm Logo

Broad-Based Black Economic EmpowermentExempt Micro-Enterprise Verification Certificate

For A Level Four Contributor3

Certificate No: EME L4 / XXX / Date

<Insert Exempt Micro-Enterprise Entity Name>

Type of entity Company / Close Corporation / Partnership / Trust / Sole Trader

Registration No.

Address

The above mentioned <Auditing Firm/Accounting Officer> is the <Auditor / Accounting Officer> of the above mentioned <Company /Close Corporation/other entity> appointed from <insert date>.

We completed our audit of the financial statements for the period ended <insert period> on which we expressed an <unqualified / modified> opinion on <insert date>. / We have performed the agreed upon procedures set out in Appendix A4 for the period ended <insert period> in determining the turnover/income levels and have not performed an audit of the financial statements.5

The audited/unaudited financial statements of <insert Company / Close Corporation/ Entity Name>5 for the period ended <insert period> reflected an annual turnover/income less than or equal to R 5 million.

Although the abovementioned is the current level of turnover/income and is closely related to the economic indicators, it may be more or less in future. Consequently, this Certificate does not serve as a guarantee that the income reflected will continue at the same levels.

The entity is a Value-Adding Enterprise as defined in the Codes of Good Practice on Broad Based Black Economic Empowerment. (If applicable)

The entity is a start up enterprise and this Certificate is only valid for contracts with a single value of less than or equal to R 5 million. Should the contract value be higher than R 5 million please contact the auditor/accounting officer. (If applicable)

Auditor’s/Accounting Officer’s Signature

Name of Individual Registered Auditor/Accounting Officer

Professional designation (if applicable)

Registered Auditor (if applicable)

Address

Date of Issue:

Expiry Date6:

3 This certificate is issued in terms of Government Gazette Vol. 500 No. 29617 dated 9 February 2007.4 Agreed upon procedures not included5 Delete whichever is Not Applicable6 This Certificate is valid for one year from date of issue

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Example Certificate 2

Insert Auditor or Accounting Officer Name & Firm Logo

Broad-Based Black Economic EmpowermentExempt Micro-Enterprise Verification Certificate

For A Level Three Contributor7

Certificate No: EME L3 / XXX / Date

<Insert Exempt Micro-Enterprise Entity Name>

Type of entity Company / Close Corporation / Partnership / Trust / Sole Trader

Registration No.

Address

The above mentioned <Auditing Firm/Accounting Officer> is the <Auditor / Accounting Officer> of the above mentioned <Company /Close Corporation / Other entity> appointed from <insert date>.

We completed our audit of the financial statements for the period ended <insert period> on which we expressed an <unqualified / modified> opinion on <insert date>. / We have performed the agreed upon procedures set out in Appendix A8 for the period ended < insert period> in determining the turnover/income levels and have not performed an audit of the financial statements.9

The audited/unaudited9 financial statements of <insert Company / Close Corporation/ Entity Name> for the period ended <insert period> reflected an annual turnover/income less than or equal to R 5 million.Although the abovementioned is the current level of turnover/income and is closely related to the economic indicators, turnover/income may be more or less in future. Consequently, this Certificate does not serve as a guarantee that the income reflected will continue at the same levels.

The beneficial owners (shareholders / members / partners / sole trader) were identified as 50% black owned or 50% black woman owned. (Appendix B10 sets out the agreed upon procedures performed to determine the ownership percentages held by black persons.)

The entity is a Value-Adding Enterprise as defined in the Codes of Good Practice on Broad Based Black Economic Empowerment. (If applicable)

The entity is a start up enterprise and this Certificate is only valid for contracts with a single value of less than or equal to R 5 million. Should the contract value be higher than R 5 million please contact the auditor/accounting officer. (If applicable)

Auditor’s/Accounting Officer’s SignatureName of Individual Registered Auditor/Accounting OfficerProfessional designation (if applicable)Registered Auditor (if applicable)Address

Date of Issue:Expiry Date:

7 This certificate is issued in terms of Government Gazette Vol. 500 No. 29617 dated 9 February 2007.8 Agreed upon procedures not included.9 Delete whichever is Not Applicable.10 Agreed upon procedures not included.

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Example Certificate 3

Guidance to Broad Based Black Economic Empowerment (B-BBEE) Codes of Good Practice 100: Ownership

Introduction

Scope of this section1. This section deals with the Verification Agency’s responsibility relating to

the verification of a measured entity’s Ownership element of the B-BBEE Codes of Good Practice.

High Level RisksThe most significant risk that verification agencies face in verifying the ownership score is the overstatement of black beneficial ownership. This beneficial ownership includes both the economic interest and exercisable voting rights of black people in the measured entity.

Effective Date

2. This guidance is effective for B-BBEE verification certificates issued on or after 9 February 2008.

3. The objectives of the Verification Agency are to obtain sufficient appropriate evidence about whether:

(a) The enterprise has complied, in all material respects, with the key measurement principles for calculating the Ownership element of the B-BBEE Codes of Good Practice; and

(b) The calculation for measuring the various types of enterprises, various types of equity instruments (including members interests in Closed Corporations and partnership interests), voting rights and economic interest and realisation points and bonus points of the B-BBEE Codes of Good Practice (Code 100) is correct;

RequirementsThe Verification Agency shall:1. Determine if the measured entity meets the criteria under the

Ownership element of B-BBEE. (Ref: Para. A1)2. Obtain sufficient appropriate evidence to determine that the

calculation of net equity value is accurate.3. Obtain sufficient, appropriate evidence to determine whether voting

rights and economic interest in respect of shares carrying preferred rights are properly allocated and classified. (Ref: Para. A3)

4. Obtain sufficient , appropriate evidence to determine whether the calculation of Designated Group is not misstated by the measured entity (Ref: Para A1)

5. Obtain sufficient appropriate evidence to determine that ownership in the hands of black people in relation to complex structures, sale of assets and equity equivalents are dealt with appropriately.

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Appendix 2:

6. Obtain sufficient, appropriate evidence to determine whether ownership points attributable to any option or related instrument are properly allocated and classified. (Ref: Para A4)

7. Determine the existence and accuracy of Mandated Investments (example/clarification needed). (Ref: Para. A4 and A5)

8. Obtain sufficient evidence to determine that the calculation of Equity Interest excludes foreign operations. (Ref: Para A2)

9. Determine the accuracy and completeness of the scorecard. (Ref: Para. A2 and A3)

Application materialA1. When determining the level of ownership by the designated

group, the Verification Agency can rely on the following evidence:1) For beneficiaries that are listed as black:

a) Trace beneficiaries to sufficient and appropriate evidence that the natural people who are beneficiaries qualify as black people in terms of the Codes of Good Practice (see general minimum requirements above)

b) For all trusts, employee ownership schemes and broad based ownership schemes :i) review trust deed to ensure that the stated benefit will

always be flowing to black people based on either a fixed percentage or according to a formula; and

ii) ensure that the trust or scheme meets the rules and additional criteria set for the Broad Based Scheme in terms of the Codes.

2) For people who are unemployed, select a sample to trace the individual proof of unemployment in the form of Affidavits

3) For youth, select a sample to trace that the individual is between the age of 18 and 35 in line with the B-BBEE Act.

4) For people with disability, select a sample to trace the individual proof of disability status (e.g. valid disability certificate, evidence of registration to receive a Disability grant from the Department of Social Services)

5) For black people living in rural or underdeveloped areas, select a sample to trace the individual proof of residence in such areas (e.g. letter from the tribal chief, proof of postal address).

6) For black new entrants, obtain proof in the form of Affidavits from the individuals who are identified as black new entrants to confirm that they have not been involved in B-BBEE deals with a cumulative value in excess of R20 million.

7) For black participants who have lost or sold their shares, obtain proof of:a) acquisition date and the date when the shares were lost or sold;

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b) the percentage of shares held by the participant prior to the sale or loss of shares;

c) the net value percentage undertaken for the equity instruments sold or lost by the black participant on the date of the sale or loss; and

d) the most recent B-BBEE Recognition level of the measured entity.

A2. A Verification Agency must use the following process to determine the exclusion of Foreign Operations of Multinational Businesses and South African Multinationals.

(a) Obtain segmental report or confirmations of management account on the value of foreign operations

(b) Where necessary, obtain an independent valuation of South African and foreign operations of the entity

(c) Recalculate foreign operation exclusions(d) Express foreign operation as a percentage of the entire operation of

the entity; deduct the foreign operation percentage from the denominator of all ownership calculations. (e.g. if the foreign operation represent 20 percent of the entire entity, the applicable ownership base used to calculate the ownership score is reduced from 100 percent to 80 percent) (Ref Para 8 of the requirements)

A3. For Equity Instrument with preferred rights:(a) Enquire whether the measured entity has any equity instruments with

preferred rights; if so ascertain and document the details thereof.(b) For equity instruments identified, inspect the relevant shareholder

agreements to ascertain the voting rights and the residual income attributable to those instruments.

(c) All instruments with preferred rights should be added onto the ordinary share capital for the calculation of voting rights, economic interest and net value. There are no blanket inclusions or exclusions of equity instruments with preferred rights under ownership.

(d) Where an instrument illustrates debt characteristics (i.e. where the returns are expressed as an interest rate similar to what the entity would be able to obtain in the open market), the equity instruments with the preferred rights will be regarded as debt rather than equity until such time as the debt portion is repaid. This affects the net value calculation (Ref Para 7 of the requirements).

A4. Options and Share Warrants (Ref Para 8 of the Codes)(a) Enquire whether the measured entity has any Options or Share

Warrants, if so ascertain and document the details thereof. (b) Where the voting rights or economic interest have been irrevocably

transferred (i.e. when the rights have been exercised), such rights will be included in voting rights and economic interest calculations for Ownership.

(c) Inspect evidence that the option or share warrants irrevocably transfer the rights to economic interest (e.g. vendor having an option to acquire the B-BBEE shareholders stake at low or no value over time). Such

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limitation of economic interest must be included in the calculation of ownership score.

(d) The Verification Agency must also recalculate the value of the option, share warrant or derivative instruments as at the date of measurement and add or deduct the value from the Net Economic Interest of the entity’s ownership scorecard.

A5. Before the Verification Agency continues with procedures to verify occurrence, accuracy, classification and completeness of the entity’s score, confirm:

a. Whether there is any ownership held directly by organs of state or public entities and excludes these from the verification process;

b. Whether there are any third party rights attached the equity held by black people;

c. The effect of the above mentioned third party rights on the equity held by black people; and

d. If the equity held by black people has the characteristics of a debt.A6. When determining the accuracy of the scorecard the Verification

Agency may perform the following procedures:a. Voting Rights

i. Trace the exercisable voting rights in the hands of black people to the share certificates.

ii. Trace the exercisable voting rights in the hands of black men and women to a shareholders agreement or similar document if the entity is not a company.

iii. Inspect the shareholders’ agreements to identify clauses that can restrict voting rights.

iv. Inspect shareholders’ agreements to identify clauses regarding the rights of shareholders to appoint directors and any restriction on the voting rights of these directors.

v. Complex group structures may require the verification of the funding arrangements by looking at other entities like the B-BBEE partners audited annual financial statements or obtaining confirmation and supporting evidence of funding arrangements.

vi. Interview a sample of the black shareholders to determine if they understand their voting rights and whether they have exercised such voting rights independently.

vii. Where the equity is held by a trust (or employee ownership scheme or broad based ownership scheme), interview the trustees (or equivalent representative of scheme) to ensure that they understand their fiduciary duties and the related exercisable voting rights in the measured entity. Review the election procedures in the first year of existence.

viii. Inspect the minutes of the latest shareholders’ meeting (or annual general meeting where applicable) to identify the trust’s participation

b. Economic Interest

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i. Inspect the shareholders’ agreements to identify any clauses that restrict economic interest (especially where it is disproportionate to shareholding).

ii. In the case of the equity held by black people having the characteristics of a debt, inspect other supporting documents e.g. financing agreement, loan agreement to determine the repayment terms.

iii. In the case where the acquisition of the shares by black people was through funding by a third party, determine the repayment terms as well as proof of how much of the loan has been repaid at the time of the verification.

iv. Inspect the shareholders’ agreements to identify any options (call vs. put options).

v. Enquire from the client the existence of any additional contracts that carry economic interest or options. Consider to obtain written management statement to confirm this.

vi. Inspect the Shareholders’ Agreements (and Financing Agreements where applicable) for exit clauses which can impact on economic interest for black shareholders.

vii. Obtain confirmation and review evidence of the impact of all transaction documents on the economic interests of the black shareholders. Transaction documents could include, but is not limited to sales of share agreements, , funding agreements, preference share agreement, cession, pledge and option agreement (to determine any possible impact of any of these on the economic interest of the black shareholders). Confirm that the transaction value, date of transaction, terms and conditions of transaction, funding of purchase consideration and conditions precedent have been met

viii. Inspect all transaction documents to ensure that the beneficiaries are entitled to economic interest that is proportionate to their shareholding.

ix. In the case of dividend payments, obtain the relevant documents to evidence that such dividend payment was indeed paid to the black shareholders

c. Realisation points (there may be a risk of understatement of value of business)

i. Obtain or perform the valuation in accordance with standard valuation methodology. (Refer to A11 (e) for examples of Standard Valuation Methodologies).

ii. Inspect the valuation for reasonability, which may include evaluating the following:

1. professional competence of the evaluator2. objectivity of the evaluator3. source data used4. assumptions and method used

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5. result of the evaluator in terms of the Verification Agency’s knowledge of the business

iii. Document all steps taken to assess the reasonability of the valuation.

iv. Obtain written confirmation of outstanding liability from borrower.

v. Recalculate net economic interest and compare to score provided by client.

vi. Confirm ownership fulfilment by awarding the one point based on whether the recalculation on v. above yields a result that is greater than 7 and that there are no restrictions on the B-BBEE shares (i.e. that they are not pledged, ceded or in any other way hypothecated).

d. Flow Through Principle i. Inspect the organogram to determine the percentages and levels

applicable to the black shareholding of the measured entity; andii. Apply the flow-through or modified flow through principle to

calculate the economic interest and exercisable voting rights of black people based on organogram

e. B-BBEE Facilitators i. Inspect the Government Gazette for notice of the public entity

being identified as a B-BBEE facilitator; andii. Inspect the B-BBEE facilitator (e.g. the NEF, IDC, DBSA etc.)

status and ensure that it is being applied correctly in the calculation.

f. Recalculate the Compliance formula for Voting Rights, Economic Interest, Deemed Net Value, Net Value and Recognition of Ownership after Sale or Loss of Shares by Black Participants.

A7. Black women involvement in ownership (Only for Qualified Small Enterprises)

a. When determining the validity of involvement of ownership by black women in the measured entity the Verification Agency should determine the voting rights and economic interest as in A6 above.

b. Confirm that a maximum of 10% of shareholding by black women can be considered when calculating this indicator.

A8. Mandated Investmentsa. When determining that the validity of the mandated investment is

included in the ownership calculation the Verification Agent may consider obtaining confirmation or competent persons report for all recognized mandated investments.

b. When determining the completeness of the mandated investment for exclusion of Mandated Investments the Verification Agent may consider the following:

i. Obtaining confirmation of all Mandated Investments.

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ii. Inspect share register for all mandated investments held by Collective Investment Schemes, for example Pension Funds, Unit Trusts.

iii. Recalculating ownership excluded through mandated investments and ensuring that the ownership does not exceed 40%

A9. Continuing Benefit as a result of loss or sale of shares by a black participant

a. When determining the validity of the continuing benefit the Verification Agent may consider the following:

i. Reviewing transaction agreements to confirm that the holding period exceeds 3 years;

ii. Recording the number of years that the transaction is in effect;iii. Enquiring from the black participant as to the circumstances of

exit (sale or loss of share)iv. If the shares are lost, reviewing the agreement to ensure that

recognition does not exceed the holding periodv. Recalculating continuing benefits and confirming that it is less

than 40 percentA10. Broad Based Ownership Schemes and employee ownership

schemes:a. When determining the completeness of the broad-based schemes the

Verification Agent may consider the following:i. Recalculating the ownership by Broad Based Schemes to ensure

that is less than 40%.ii. If the shareholding of Broad Based Schemes is more than 40%

but the scheme does not meet the additional criteria for Broad based schemes and Employee Ownership schemes as stated in the codes, confirm that this effect is included in the calculation of voting rights and economic interest held by the scheme to ensure that no more than 40% of the ownership is recognized.

iii. Reviewing the Audited annual Financial Statements of the Management Company or the Trust itself and ensuring that the total expenses do not exceed 15% of the total value received in that year by the Broad Based Scheme.

iv. Reviewing the Trust Deed or constitution of any B-BBEE scheme to ensure that the rules defining the distribution of economic interest are in line with the commercial rationale and that more than 85% of the economic interest is being allocated to Black people.

v. Reviewing the Trust Deed or constitution of any B-BBEE scheme to ensure that the beneficiaries or class of beneficiaries are clearly named and that there is no discretion by the Trustees or executive of the Broad Based Scheme to change it.

vi. Reviewing the latest Trust Deed to ensure that at least 50% of the trustees are black and that 25% of the trustees are black women and that the Chairperson is independent. Consider

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obtaining annual confirmation from the Registrar of Deeds in the province of registration.

vii. Reviewing the trust deed to ensure that upon winding up of the trust all accumulated economic interest will be transferred to the beneficiaries of the scheme or an entity with similar objectives.

viii. If the scheme holds more than 40% of the shareholding being claimed confirm that the scheme meets the additional criteria set up for schemes in the Codes

ix. Review the minutes of board meetings and ensure that the scheme is represented on the board and plays an active role as a shareholder.

b. When determining the completeness of the scorecard information the Verification Agent may consider comparing employees who hold fiduciary roles in broad based schemes, trusts or employee ownership schemes to the employee records supplied by the measured entity

A11. Equity Equivalentsa. Obtain and review the certificate of exemption issued by the DTI to the

multinational.b. Ensure that the certificate is valid by confirming its authenticity directly

with the DTIc. Review the business plan submitted as part of the application and

approval process to the DTI. In particular ensure that the stated milestones have been achieved or exceeded. If they have not been met confirm that this has been communicated to the DTI and that the DTI is satisfied to continue with granting an exemption.

d. Verify through recalculation and review of supporting evidence the total cumulative contributions made since the date the exemption was granted.

e. Obtain or perform the valuation in accordance with the standard valuation methodology as set out in the Codes. Standard Valuation Methodologies include but are not limited to the following examples.

i. Discounted Cash Flow (used where reasonable forecasts are available)

1. inspecting the valuation for reasonability, which may include evaluating the following:

a. professional competence of the evaluatorb. objectivity of the evaluatorc. source data usedd. assumptions (ensure that the forecasts are

reasonable with regards to industry norms and historical performance) and method used

e. result of the evaluator in terms of the Verification Agency’s knowledge of the business

2. Document all steps taken to assess reasonability of the valuation.

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ii. Price earnings multiple (used when the business is profitable and is applied to sustainable earnings)

1. Inspecting the valuation for reasonability, which may include evaluating the following:

a. professional competence of the evaluatorb. objectivity of the evaluatorc. source data usedd. assumptions (ensure that the PE multiple used is

reasonable relative to the equivalent of a listed company or sector average) and method used

e. result of the evaluator in terms of the Verification Agency’s knowledge of the business

2. Document all steps taken to assess the reasonability of the valuation.

iii. Net asset value of the business (used when the business is in a capital intensive sector or the business is making a loss)

1. Inspecting the valuation for reasonability, which may include evaluating the following:

a. professional competence of the evaluator;b. objectivity of the evaluator;c. source data used;d. assumptions (ensure that the fair value of assets

used is reasonable relative to the age and depreciation of the assets) and method used;

e. confirmation that all the liabilities are taken into account and any replacement assets are factored into the calculation;

f. result of the evaluator in terms of the Verification Agency’s knowledge of the business.

2. Document all steps taken to assess reasonability of the valuation.

A12. Recalculate the Compliance formula as follows:

Year 1

Company A enters into a 25% B-BBEE transaction

Value of Company A in year 1 = R100

B-BBEE recognition level per scorecard of company A = 0

Value of B-BBEE transaction = R25

B-BBEE shareholder loan = R25

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End of year 3

B-BBEE shareholder exits investment in measured entity

Value of Company A= R150

B-BBEE recognition level per scorecard = 100%

Value of 25% B-BBEE shareholding = R37.50

Outstanding loan amount = R15

Determination of Ownership points on the scorecard of the measured entity:

• The first test would be whether the black shareholder has remained with the measured entity for a minimum period of 3 years.

• Net value in the hands of black people = (R37.5-R15)/R150= 15%

The following formula is used:

A = B x C x D

B = Percentage rights of ownership for each of the indicators in the ownership scorecard that were attributable to the black shareholder immediately before his/her sale or loss;

C = The Net Value percentage of the equity interest

=20 points x (100 points x 15%)

=3 points

Effectively the Measured Entity would be able to obtain 3 points on its ownership scorecard. For the purposes of this calculation the B-BBEE recognition level will be determined out of 80 total scorecard points as opposed to 100 scorecard points.

The codes do not limit the period over which such points can be obtained as the points are determined by various factors. It is

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envisaged that the current value of the Measured Entity will increase over time which will gradually decrease the number of points that a Measured Entity can continue scoring.

“Deemed Net Value” is the value of the part of the business that the black shareholder owns, less any outstanding financial obligations (including the capitalized/accumulated interest) that financed the purchase of his/her share of the business, as a percentage of the current value of the company.

Illustration

The following formula is used:

A = (B-C)/D

B = Value of the shares held in the hands of black people

C = Carrying value of any outstanding debts by the black participant in relation to the shareholding including the interest thereon

D = the value of the Measured entity

Where:

B = R25

C = R10

D = R100

Therefore A = (R25-R20)/R100

= R5/R100

= 5%

“Net Value” points on the scorecard are determined on a graduation factor based on a loan repayment period ending in the tenth year of the effective date of the codes or the date from which an ownership transaction was entered into (defined as the commencement date), whichever comes later.

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The following formula used is:

A = B x (1/25% x C) x7 points

B = Deemed value as calculated above

C = is the time based graduation factor of economic interest being unencumbered in the hands of black people as outlined below:

• 10% of the target of 25% for the first year after the commencement date.

• 20% of the target of 25% for the second year after the commencement date.

• 40% of the target of 25% from the first day of the third year after the commencement date to the last day of the fourth year after the commencement date.

• 60% of the target of 25% from the first day of the fifth year after the commencement date to the last day of the sixth year after the commencement date.

• 80% of the target of 25% from the first day of the seventh year after the commencement date to the last day of the eighth year after the commencement date.

• 100% the target of 25% from the first day of the ninth year after the commencement date to the last day of the tenth year after the commencement date.

Illustration

Loan given in year 0 = R25

Loan amount to be repaid:

Year 1 = 10% x R25= R2.50

Year 2 = 20% x R25 = R5

Years 3 & 4 = 40% xR25 = R10

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Years 5 & 6 = 60% x R25 = R15

Years 7 & 8 = 80% x R25 = R20

Years 9 & 10 = 100% x R25 = R25

Using the example above, a measured entity will score ownership points in the following manner assuming the loan outstanding remains constant over the years:

Year 1

A = 5% X (1/ (25% x 10%)) x 7

= 14 points

The codes however state that should a company score more points than allocated in the scorecard it will be limited to the maximum available points.

Therefore in the first year the company would be able to claim a maximum of the full 7 points available for this element of the ownership scorecard.

Year 2

A = 5% X (1/(25% x 20%)) x 7

= 7 points

The company would still be able to retain the full 7 points scored on the ownership scorecard

Years 3 & 4

A = 5% X (1/ (25% x 40%)) x 7

= 3.5 points

As the company has not met the target of having paid up to 40% (R10) of its outstanding loan it would only be able to claim half (3.5) of the points on the ownership scorecard. It is also important to note that this rule would apply during any point within the 3 to 4 year period.

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Considerations Specific to Qualifying Small Enterprises

A13. The Verification Agency should comply with all the requirements applicable to the Generic Scorecard excluding the following: Exercisable voting rights and economic interest in black woman Economic interest in:

o Black designated groups, o Black participants in employee ownership schemes,o Black beneficiaries of broad based ownership schemeso Black participants in co-operatives

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Guidance to Broad Based Black Economic Empowerment (B-BBEE) Codes of Good Practice 200: Management Control

IntroductionScope of this section

1. This section deals with the Verification Agency’s responsibility to verify the measured entity’s Management Control element of the B-BBEE Codes of Good Practice.

Effective Date

2. This guidance is effective for B-BBEE verification certificates issued on or after 9 February 2008.

Objective

3. The objectives are to obtain sufficient appropriate evidence about whether:

a) The measured entity has complied, in all material respects, with the key measurement principles for calculating the Management Control element of the B-BBEE Codes of Good Practice; and

b) The calculation for measuring the Management Control scorecard does not contain material misstatements.

Requirements

4. The Verification Agency shall:

a) Determine that the measured entity did not allocate a higher number of points than the weighting points as per the Management Control scorecard.

b) Obtain the EEA2 and EEA4 forms submitted to the Department of Labour by the measured entity in compliance with the Employment Equity Act or prepared in accordance with point 3.3 of Code 300 (when the measured entity does not fall within the scope of the Employment Equity Act).

c) Obtain sufficient, appropriate evidence to determine whether the allocation and classification of:

i) race

ii) gender

iii) level of management; and

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Appendix 3:

iv) board appointment

are not materially misstated by the measured entity. (Ref: Para. A1)

d) Determine the accuracy and completeness of the scorecard. (Ref: Para. A2 – A3)

Application material

A1. When determining whether the measured entity allocated and classified employees to management accurately in terms of race, gender and level of management the Verification Agency may:

a) Determine whether the measured entity distinguishes between Top Management and Senior Management levels. In the case where a measured entity’s management consists of Senior Management only, the weighting points for Top Management will be adjusted to 6 points for Senior Top Management and 4 points for Other Top Management with a compliance target of 60% respectively.

b) When the above is applicable, determine that the measured entity only scored points for senior management under Code 200 or 300 and not both, to avoid double counting.

c) Determine whether the measured entity distinguishes between Senior Top and Other Top Management levels. In the case of a measured entity that does not distinguish between these two management levels, the management levels will be collapsed into one level and the weighting points will be adjusted to 5 points while the target remains at 40%.

d) Agree a sample of directors and managers as classified in the information received from the measured entity to an ID document or certified copy thereof.

e) Obtain the CM27 (Contents of register of directors, auditors and officers) and CM29 (Consent to act as director or officer and other directorship) forms of the measured entity from the Company and Intellectual Property Registry Office (CIPRO) and agree the directors to the forms.

f) Agree management to the EEA2 and EEA4 forms or the information prepared by the measured entity in terms of point 3.3 of Code 300.

g) Physically verify the existence of Black Top Management and Black Executive and Non-Executive Directors in line with the EEA2 and EEA4 form or the information prepared by the measured entity in terms of point 3.3 of Code 300.

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h) Interview a sample of directors and discuss their roles and responsibilities on the board to determine if they are executive or non executive.

i) Agree the level of management and board participation to the employee records, appointment records or information received from the Department of Labour to determine if a director is executive or non executive.

j) Determine the responsibilities of directors and management by inspecting the following:

Overall packages of black directors/management compared to equivalent non black directors/management;

Performance evaluations of directors/management; or Voting rights held by black board members and any restrictions that

might be specific to the black directors and not necessarily to their non black counterparts.

A2. When determining the accuracy of the scorecard the Verification Agency may:

(a) Agree the total number of people on the board of directors and the number of black people and black women on the board including non-executive people (for the bonus point calculation) to the information received from the measured entity.

(b) Agree the total number of people at Top management level and the number of black people and black women at Top management level to the EEA2 form or information prepared by the measured entity in terms of point 3.3 of Code 300.

(c) Recalculate the percentage of black people and black women for each indicator of the Management Control Scorecard (items 2.1.1; 2.1.2; 2.2.1 and 2.2.2).

(d) Agree the compliance targets and weighting points used by the measured entity in the formulae to the management control scorecard.

(e) Recalculate the Adjusted Recognition for Gender for each indicator of the Management Control Scorecard (items 2.1.1; 2.1.2; 2.2.1 and 2.2.2)as follows:

A = B/2 + CA = the adjusted recognition for gender figureB = the number black employees divided by the total population

of employeesC = the number of black women divided by the total population

of all employees. The percentage of black women cannot be more than 50%

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(f) Recalculate the Compliance formula as follows:

A = B/C x DA = the score per scorecard items 2.1.1; 2.1.2; 2.2.1 and 2.2.2B = the adjusted recognition for gender percentage calculated aboveC = the compliance target per scorecard items 2.1.1; 2.1.2; 2.2.1 and 2.2.2D = the weighting points per scorecard items 2.1.1; 2.1.2; 2.2.1 and 2.2.2

(g) Example Calculations:

Example 1

Total Board Members with exercisable voting rights = 50Total Black Board Members with exercisable voting rights = 10Total Black Women Board Members with exercisable voting rights = 4

Step 1: Calculate the Adjusted Recognition for Gender

Formula: A= (B/2)+CB = 10/50 *100 = 20% (black people)C = 4/50*100 = 8% (black women)Therefore A = (20%/2)+8% = 18%

A is then used as B in Step 2 below.

Step 2: Calculate the score for the indicator

Formula: A = B/C*DB = 18% (Adjusted Recognition for Gender)C = 50% (target)D = 3 (weighting)A = 1.08

Example 2Total Executive Directors = 50Total Black People Executive Directors = 10Total Black Women Executives = 4

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Step 1: Calculate the Adjusted Recognition for Gender

Formula: A= (B/2)+CB = 10/50 *100 = 20% (black people)C = 4/50*100 = 8% (black women)Therefore A = (20%/2)+8% = 18%

A is then used as B in Step 2 below.Step 2: Calculate the score for the indicator

Formula: A = B/C*DB = 18% (Adjusted Recognition for Gender)C = 50% (target)D = 2 (weighting)A = 0.72

Example 3

Total Senior Top Management = 10Total Black People Senior Top Management = 5Total Black Women Senior Top Management = 2

Step 1: Calculate the Adjusted Recognition for Gender

Formula: A= (B/2)+CB = 5/10 *100 = 50% (black people)C = 2/10*100 = 20% (black women)Therefore A = (50%/2)+20% = 45%

A is then used as B in Step 2 below.Step 2: Calculate the score for the indicator

Formula: A = B/C*DB = 45% (Adjusted Recognition for Gender)C = 40% (target)D = 3 (weighting) A = 3.375 limited to 3

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Example 4

Total Other Top Management = 20Total Other Black People Top Management = 10Total Other Black Women Top Management = 5

Step 1: Calculate the Adjusted Recognition for Gender

Formula: A= (B/2)+CB = 10/20 *100 = 50% (black people)C = 5/20*100 = 25% (black women)Therefore A = (50%/2)+25% = 50%

A is then used as B in Step 2 below.Step 2: Calculate the score for the indicator

Formula: A = B/C*DB = 50% (Adjusted Recognition for Gender)C = 40% (target)D = 2 (weighting) A = 2.5 limited to 2

Example 5

Total Independent Non-Executive Board Members = 10Total Black People Independent Non-Executive Board Members = 5

Calculate the score for the indicator (Recognition for gender is not applicable)

Formula: A = B/C*DB = 50% (5/10*100)C = 40% (target)D = 1 (weighting) A = 1.25 limited to 1

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A3. When determining a score for Management Control, the Verification Agency should perform the following verification steps/ procedures:

Considerations Specific to Qualifying Small Enterprises

A4. The Verification Agency should comply with all the requirements applicable to the Generic Scorecard, but recalculate the formulae as follows:

Total Top Management = 10Total Black People representation at Top Management = 5Total Black Women representation at Top Management = 2

Black representation at top management level:5/10 = 50%50%/50.1%*25 = 24.95

Bonus points for black women representation at management level: 2/10 = 20%20%/25%*2 = 1.6

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1. Obtain the returns prepared in accordance

with the Employment Equity Act.

4. Re-calculate the Score for Management

Control

3. Determine the correct allocation of race,

gender and level of management

2. Obtain the Company documents from the Company and Intellectual Property Registry Office

Guidance to Broad Based Black Economic Empowerment (B-BBEE) Codes of Good Practice 300: Employment Equity

IntroductionScope of this section

1. This section deals with the Verification Agency’s responsibility to verify the measured entity’s Employment Equity element of the B-BBEE Codes of Good Practice.

Effective Date

2. This guidance is effective for B-BBEE verification certificates issued on or after 9 February 2008.

Objective

3. The objectives are to obtain sufficient appropriate evidence about whether:

(a) The enterprise has complied, in all material respects, with the key measurement principles for calculating the Employment Equity element of the B-BBEE Codes of Good Practice; and

(b) The calculation for measuring the Employment Equity scorecard does not contain material misstatements.

Requirements

4. The Verification Agency shall:

a) Determine whether the measured entity achieved a sub-minimum of 40% for each Measurement Category (points 2.1.1 to 2.1.4) of the compliance targets for both of the five year periods in order to allocate points to the Employment Equity element of B-BBEE. (Ref: Para. A1).

b) Determine that the measured entity did not allocate a higher number of points than the weighting points as per the Employment Equity scorecard.

c) Obtain the EEA2 and EEA4 forms submitted to the Department of Labour by the measured entity in compliance with the Employment Equity Act or prepared in accordance with point 3.3 of Code 300 (when the measured entity does not fall within the scope of the Employment Equity Act).

d) Obtain the completed EEA1 forms signed by the employee and documents from the relevant physician to substantiate the nature of

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Appendix 4:

disability for each employee that has been listed by the measured entity as disabled

e) obtain sufficient, appropriate evidence to determine whether the allocation and classification of:

i) race

ii) gender

iii) level of management, and

iv) disabilities

are not materially misstated by the measured entity. (Ref: Para. A2)

f) Determine the accuracy and completeness of the scorecard. (Ref: Para. A3 and A6)

Application material

A1. Before the Verification Agency continues with procedures to verify occurrence, accuracy, classification and completeness of the measured entity’s score the Verification Agency calculates 40% for each Measurement Category of the Compliance Targets for both of the five year periods. If the measured entity fails to achieve the sub-minimum for any one of the Measurement Categories, then no score may be allocated for the Employment Equity scorecard.

A2. When determining whether the measured entity allocated and classified employees to the management levels accurately in terms of race, gender, level of management and disabilities the Verification Agency may:a) Determine whether the measured entity distinguishes between

Middle Management and Junior Management levels. In the case where a measured entity’s management only distinguishes between Senior Management and Junior Management, the weighting points for Middle Management will collapse into Junior Management and the weighting points will be adjusted to 8 points for Senior Management and 6 points for Junior Management with a compliance target remaining unchanged.

b) Agree the total number of management and people with disabilities to the EEA1, EEA2 and EEA4 forms as submitted by the measured entity to the Department of Labour

c) Obtain a sample of employee files and agree the correct allocation of management to the EEA forms. The employee file should as a minimum contain the employee’s identity document, job description, employee band and letter of appointment and letter of promotion where applicable and any other relevant information.

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d) Agree a sample of management as classified in the employee records to the EEA2 and EEA4 forms or information received from the Department of Labour to an identity document or certified copy thereof.

e) Physically verify the existence of management from the employee records or the EEA2 and EEA4 forms.

f) Determine the correct allocation of the disability status to the employees who have been listed by the measured entity as disabled by comparing the employees to the EEA2 forms as well as the relevant EEA1 form i.e. Declaration by Employee and accompanying supporting documentation issued by the relevant doctor for each employee with disability.

A3. When determining the accuracy of the scorecard the Verification Agency may :a) Agree the number of total employees, black people and black

female employees at the different management levels to the employee records or the EEA1, EEA2 and EEA4 forms submitted by the measured entity to the Department of Labour.

b) Recalculate the percentage of black people at each management level as per the measured entity’s calculation.

c) Recalculate the Adjusted Recognition for Gender formula:

A = B/2 + C

A = the adjusted recognition for gender figure

B = the number of black employees divided by the total population of employees per scorecard items 2.1.1 to 2.1.4

C = the number of black women divided by the total population of all employees. The percentage of black women cannot be more than 50%

d) Recalculate the Compliance formula:

A = B/C x DA = the score per scorecard items 2.1.1 to 2.1.4B = the adjusted recognition for gender percentage calculated

aboveC = the compliance target per scorecard items 2.1.1 to 2.1.4D = the weighting points per scorecard items 2.1.1 to 2.1.4

e) Agree the compliance targets and weighting points used in the formulae to the employment equity scorecard points 2.1.1 to 2.1.5.

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f) Determine if the measured entity qualifies for the bonus points by comparing each Measurement Category level with the measured Economically Active Population (EAP) figures released by Statistics SA. The EAP must be obtained from Statistics SA at the date when the verification is performed, as the figure may change.

g) Example Calculations:Refer to Requirement 4(a). The third column under compliance target year 0 – 5 and year 6 - 10 will be compared with the scorecard (including gender recognition) of the measured entity to determine if the measured entity may allocate points to the scorecard:

Category Compliance target yr 0 - 5

Compliance target yr 6 - 10

Disabled employees

40% x

2% = 0.8% 40% x 3% = 1.2%

Senior management

40% x

43% =

17.2% 40% x 60% = 24%

Middle management

40% x

63% =

25.2% 40% x 75% = 30%

Junior management

40% x

68% =

27.2% 40% x 80% = 32%

Example 1Total Employees = 5000Total Black Disabled Employees = 100Total Black Women with Disabilities = 50Step 1: Calculate the Adjusted Recognition for Gender

Formula: A= (B/2)+CB = 100/5000 *100 = 2% (black people)C = 50/5000*100 = 1% (black women)Therefore A = (2%/2)+1% = 2%A is then used as B in the Step 2 below.

Step 2: Calculate the score for the indicator

Formula: A = B/C*DB = 2% (Adjusted Recognition for Gender)C = 2% (target)D = 2(weighting) A = 2

Example 2

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Total Senior Management = 50Total Black Senior Management = 10Total Black Women Senior Management = 4Step 1: Calculate the Adjusted Recognition for Gender

Formula: A= (B/2)+CB = 10/50 *100 = 20% (black people)C = 4/50*100 = 8% (black women)Therefore A = (20%/2)+8% = 18%A is then used as B in the Step 2 below.

Step 2: Calculate the score for the indicator

Formula: A = B/C*DB = 18% (Adjusted Recognition for Gender)C = 43% (target)D = 5(weighting)A = 2.09

Example 3Total Middle Management = 50Total Black Middle Management = 15Total Black Women Middle Management = 8Step 1: Calculate the Adjusted Recognition for Gender

Formula: A= (B/2)+CB = 15/50 *100 = 30% (black people)C = 8/50*100 = 16% (black women)Therefore A = (30%/2)+16% = 31%A is then used as B in the Step 2 below.

Step 2: Calculate the score for the indicator

Formula: A = B/C*DB = 31% (Adjusted Recognition for Gender)C = 63% (target)D = 4(weighting)A = 1.97

Example 4

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Total Junior Management = 20Total Black Junior Management = 10Total Black Women Junior Management = 5Step 1: Calculate the Adjusted Recognition for Gender

Formula: A= (B/2)+CB = 10/20 *100 = 50% (black people)C = 5/20*100 = 25% (black women)Therefore A = (50%/2)+25% = 50%A is then used as B in the Step 2 below.

Step 2: Calculate the score for the indicator

Formula: A = B/C*DB = 50% (Adjusted Recognition for Gender)C = 68% (target)D = 4(weighting)A = 2.94

A4. In the case of measured entities that do not distinguish between Top and Senior Management levels and when the measured entity chose to measure Senior Management under the Management Control element, inspect that no score is allocated for senior management indicator in the Employment Equity element.

A5. When determining the completeness of the scorecard information the Verification Agency may:(a) Agree employee records to the EEA2 and EEA4 forms submitted to

the Department of Labour (where applicable).(b) During physical verification of employees, agree the employee to

the employee records.A6. When determining a score for Employment Equity, the

Verification Agency should perform the following verification steps/ procedures:

Considerations Specific to Qualifying Small Enterprises

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1. Obtain the returns prepared in accordance with the Employment

Equity Act.

3. Re-calculate the Score for Employment Equity.

2. Determine the correct allocation of race, gender, level of

management and disabilities

A7. The Verification Agency should comply with all the requirements applicable to the Generic Scorecard excluding requirements for black people with disabilities and different levels of management and should recalculate the formulae as per the following examples:

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Example 1

Total Management = 20Total Black representation at Management level = 10Total Black Women representation at Management level = 5

Step 1: Calculate the Adjusted Recognition for Gender

Formula: A= (B/2)+CB = 10/20 *100 = 50% (black people)C = 5/20*100 = 25% (black women)Therefore A = (50%/2)+25% = 50%A is then used as B in the Step 2 below.

Step 2: Calculate the score for the indicator

Formula: A = B/C*DB = 50% (Adjusted Recognition for Gender)C = 40% (target)D = 15 (weighting)A = 18.75 limited to 15

Example 2

Total Employees = 200Total Black representation at Management level = 80Total Black Women representation at Management level = 40

Step 1: Calculate the Adjusted Recognition for Gender

Formula: A= (B/2)+CB = 80/200 *100 = 40% (black people)C = 40/200*100 = 20% (black women)Therefore A = (40%/2)+20% = 40%A is then used as B in the Step 2 below.

Step 2: Calculate the score for the indicator

Formula: A = B/C*DB = 40% (Adjusted Recognition for Gender)C = 60% (target)D = 10 (weighting)A = 6.67

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Guidance to Broad Based Black Economic Empowerment (B-BBEE) Codes of Good Practice 400: Skills Development

IntroductionScope of this section

1. This section deals with the Verification Agency’s responsibility to verify the measured entity’s Skills Development element of the B-BBEE Codes of Good Practice.

Effective Date

2. This guidance is effective for B-BBEE verification certificates issued on or after 9 February 2008.

Objective

3. The objectives are to obtain sufficient appropriate evidence about whether:

(a) The enterprise has complied, in all material respects, with the key measurement principles for calculating the Skills Development element of the B-BBEE Codes of Good Practice; and

(b) The calculation for measuring the Skills Development scorecard does not contain material misstatements.

Requirements

4. The Verification Agency shall:

a) Determine if the measured entity is entitled to allocate points to the Skills Development element of B-BBEE by obtaining sufficient appropriate evidence about whether the measured entity:

i) Complies with the Skills Development Act and the Skills Development Levies Act.

ii) Is registered with an applicable SETA.iii) Has developed a Workplace Skills Plan; andiv) Implemented programmes targeted at developing Priority Skills

generally and specifically for black employees. (Ref: Para. A1 and A2)

b) Determine that the measured entity did not achieve a higher number of points than the weighting points.

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Appendix 5:

c) Obtain sufficient, appropriate evidence to determine whether expenses are correctly allocated to Skills Development Expenditure for qualifying employees and the Learning Programme Matrix. (Ref: Para. A3 and A4)

d) Determine the accuracy and completeness of the weighting points of the skills development scorecard. (Ref: Para. A5 and A6)

Application material A1. Before the Verification Agency continues with procedures to

verify occurrence, accuracy, classification and completeness of the measured entity’s score, the Verification Agency shall:(a) Inspect administration documents and documents required to be

submitted by the measured entity to the Department of Labour and to the South African Revenue Services to determine compliance with the Skills Development Act and Skills Development Levies Act.

(b) Inspect a registration certificate to determine if the measured entity belongs to a SETA.

(c) Inspect the latest workplace skills plan.(d) Inspect proof of the measured entity’s programmes implemented to

develop Priority Skills generally and specifically for black employees.In the case where all the requirements listed above are not met by the measured entity, no score shall be allocated for the Skills Development element of the scorecard.

A2. If the measured entity falls outside the scope of the Skills Development Act and the Skills Development Levies Act and if there is no applicable SETA for the industry to which the measured entity belong, the measured entity would be regarded as compliant with these Acts. These measured entities still have to comply with points (b) to (d) of requirement 4 in order to allocate points to the Skills Development scorecard. Measured entities that do not have an applicable SETA cannot be rated for the learnership indicator.

A3. The Verification Agency determines whether scholarships and bursaries constitute Skills Development expenses by obtaining sufficient appropriate evidence about whether any portion of the scholarships or bursary is recoverable by the measured entity. The following conditions however do not affect the recognition and should be included in Skills Development expenses:(a) The obligation for the employee to successfully complete their

studies within the allocated time period , and/or(b) The obligation for the employee to continue employment with the

measured entity for a period following successful completion of studies, such period not exceeding the period of studies

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A4. The Verification Agency determines whether legitimate expenses are allocated to Skills Development expenses by obtaining sufficient appropriate evidence about whether learning programme expenses are evidenced by an invoice or appropriate internal accounting record. The following may serve as evidence:

A sample of training descriptions for Skills Development Spend claimed by the measured entity falling into each category of the Learning Programme Matrix to determine whether the training has been allocated to the appropriate category.

A sample of learnership agreements for employees of the measured entity which have learnerships in progress.

A sample of attendance registers for internal training and relevant proof of attendance for external courses.

A sample of the invoices for Skills Development Spend e.g. invoices for items listed below.

Inspection of the Work Skills Plan and the Annual Training report to determine if the training calculated by the measured entity is in line with the reports submitted to the SETA.

Agreeing the training against the Learning Programme Matrix to determine under which category it falls – this is important to determine whether salaries or wages paid to an employee participating as a learner may be included in the Skills Development Spend and that the Category G learning programmes do not exceed 15% of the total skills development spend.

Skills Development Spend includes the following:

i) Cost of training materialii) Cost of trainersiii) Cost of training facilities and cateringiv) Scholarships and bursaries as discussed in A3v) Course feesvi) Accommodation and travelvii)Administration costsviii) Costs of employing a skills development facilitator or

training managerix) Salaries paid to an employee attending a learning

programme which is a learnership or a programme as per category B, C or D of the learning programme matrix.

x) Uncertified learning programmes and Category G Learning programmes (informal programmes) that do not exceed 15% of total value of skills development expenditure.

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A5. When determining the accuracy of the scorecard the Verification Agency may:(a) Recalculate the percentage of Skills Development expenditure for

black people and black women as a percentage of the leviable amount per the measured entity’s calculation.

(b) Recalculate the percentage of Skills Development expenditure for black people with disabilities and black women with disabilities of the leviable amount as per the measured entity’s calculation.

(c) Recalculate the number of black people participating in learnerships or category B, C and D using:i. Learnership agreements signed by both the learner and the

measured entityii. The identity documents of the learners to substantiate the race

and genderThe measured entity must have documents from the applicable SETA that substantiate that the learnership is registered with the SETA.

(d) Inspect that the Skills Development Spend is in line with the training stated in the measured entity’s Annual Financial Statements.

(e) Inspect that the training is in line with the Annual Training Report and Section 7 of the EEA2 form.

(f) Determine the leviable amount and verify against the applicable payroll documents and the Annual Financial Statements. Inspect that this amount excludes the Skills Development Levy.

(g) Agree the compliance targets and weighting points used in the formulae to the Skills Development Expenditure and Learnerships scorecard items 2.1.1.1; 2.1.1.2 and 2.1.2.1

(h) Recalculate the Adjusted Recognition for Gender formula:A = B/2 + CA = the adjusted recognition for gender figureB = the number black employees divided by the total population of

employees per scorecard items 2.1.1.1; 2.1.1.2 and 2.1.2.1C = the number of black women divided by the total population of

all employees. The percentage of black women cannot be more than 50%

(i) Recalculate the Compliance formula:

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A = B/C x DA = the score per scorecard items 2.1.1.1; 2.1.1.2 and 2.1.2.1B = the adjusted recognition for gender percentage calculated aboveC = the compliance target per scorecard items 2.1.1.1; 2.1.1.2 and 2.1.2.1D = the weighting points per scorecard items 2.1.1.1; 2.1.1.2 and 2.1.2.1

(j) Example Calculations: Example 1Skills Development Spend on Black People = R5000Skills Development Spend on Black Women =R1000Total leviable amount = R 100 000

Step 1: Calculate the Adjusted Recognition for Gender

Formula: A= (B/2)+CB = (R5000/R100 000)*100 = 5% (black people)C = (R1000/R100 000)*100 = 1% (black women)Therefore A = (5%/2)+1% = 3,5%A is then used as B in the Step 2 below.Step 2: Calculate the score for the indicator

Formula: A = B/C*DB = 3,5% (Adjusted Recognition for Gender)C = 3% (target)D = 6(weighting) A = 7 limited to 6

Example 2Skills Development Spend on Black People with disabilities = R500Skills Development Spend on Black Women with disabilities =R100Total leviable amount = R 100 000

Step 1: Calculate the Adjusted Recognition for Gender

Formula: A= (B/2)+CB = (R500/R100 000)*100 = 0.5% (black people)C = (R100/R100 000)*100 = 0.1 % (black women)

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Therefore A = (0.5%/2)+0.1% = 0.35%A is then used as B in the Step 2 below.Step 2: Calculate the score for the indicator

Formula: A = B/C*DB = 0.35% (Adjusted Recognition for Gender)C = 0.3% (target)D = 3(weighting) A = 3.5 limited to 3

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Example 3Total No of Black People participating in Learnerships = 50Total No of Black Woman participating in Learnerships = 20Total No of employees = 1000

Step 1: Calculate the Adjusted Recognition for Gender

Formula: A= (B/2)+CB = (50/1000)*100 = 5% (black people)C = (20/1000)*100 = 2% (black women)Therefore A = (5%/2)+2% = 4,5%A is then used as B in the Step 2 below.Step 2: Calculate the score for the indicator

Formula: A = B/C*DB = 4,5% (Adjusted Recognition for Gender)C = 5% (target)D = 6(weighting) A = 5.4

A6. When determining a score for Skills Development, the Verification Agency may perform the following verification steps/ procedures:

Considerations Specific to Qualifying Small Enterprises

A7. The Verification Agency should comply with all the requirements applicable to the Generic Scorecard excluding requirements to comply with Skills Development Act, Skills Development Levies Act, SETAs and a Workplace Skills Plan and should recalculate the formulae as per the following example:

Skills Development Spend on Black People and Black Woman = R250

Total leviable amount = R 10 000Determine the percentage spent:(R250/R10 000)*100 = 2.5%

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1. Determine if the measured entity may

allocate points to the Skills Development scorecard

4. Recalculate the Score for Skills Development.

2. Obtain the proof of skills development

spend in the form of invoices and other

financial documents

3. Determine the leviable amount

Development scorecard

2. Determine whether expenses are correctly

allocated to Skills Development

Expenditure for qualifying employees

and the Learning

Programme Matrix.

Formula: A = B/C*DB = 2.5%C = 2% (target)D = 25(weighting) A = 31 limited to 25

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Guidance for the Verification of Contributions to Preferential Procurement Measured in Terms of Statements 500 Broad Based Black Economic Empowerment Codes of Good Practice

IntroductionScope of this section

1. This section deals with the Verification Agency’s responsibility relating to the verification of a measured entity’s Preferential Procurement element of the B-BBEE Codes of Good Practice.

Effective Date

2. This guidance is effective for B-BBEE verification certificates issued on or after 9 February 2008.

Objective

3. The objectives are to obtain sufficient appropriate evidence about whether:

a. The measured entity has complied, in all material respects, with the key measurement principles for calculating the Preferential Procurement element of the B-BBEE Codes of Good Practice;

b. The assertions relating to Preferential Procurement contributions and the assertions pertaining to beneficiaries of these contributions does not contain misstatements that materially affect the Preferential Procurement scorecard.

c. The calculation for measuring the Preferential Procurement scorecard does not contain material misstatements.

Requirements

4. The Verification Agency shall:(a) Determine if the measured entity has Procurement Spend from B-BBEE

suppliers that meet the criteria as set out in point 2.1 of the Preferential Procurement element of the codes. (Ref: Para. A1);

(b) Determine that the entity did not allocate a higher number of points than the weighting points;

(c) Obtain sufficient, appropriate evidence to determine whether the calculation of Total Measured Procurement Spend (as per point 5 of the codes) is not materially misstated by the measured entity (Ref: Para A2 and A3);

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Appendix 6:

(d) Obtain sufficient, appropriate evidence to determine whether the calculation of Exclusions from Total Measured Procurement Spend is not misstated by the measured entity.(Ref: Para A4 and A5);

(e) Determine that the entity only relies on verified information (i.e. verification certificates) to report preferential procurement (Ref: Para. A6);

(f) Obtain sufficient, appropriate evidence to determine whether the allocation and classification of B-BBEE Recognition Level of suppliers are not misstated by the measured entity (Ref: Para. A7);

(g) Obtain sufficient, appropriate evidence to confirm the calculation of enhanced B-BBEE recognition through Value Adding Suppliers and Enterprise Development Spend (Ref. Para A8);

(h) Determine the accuracy and completeness of the scorecard, including all three indicators of preferential procurement (Ref: Para. A9 and A10)

Application material

A1. When determining whether the entity calculated total Measurable Spend accurately the Verification Agency may:(a) Obtain Audited Financial Statements or a signed copy of management

account and detailed income statements;(b) Obtain confirmation from management on any additional information

that may be necessary for the calculation of total measurable spend; (c) Agree goods and services relating to Cost of Sales, Operational

Expenditures and Capital Expenditure incurred during the reporting period to audited financial statements, or a set of management account signed off by management

(d) Conduct cut-off test by tracing to a sufficient sample of goods received notes to confirm that the claimed procurement occurred during the reporting period.

A2. When determining whether the applicable inclusions when calculating the total procurement spend have been applied the Verification Agency may select a sample of specific spend to inspect that only items that are listed as inclusions in paragraph 5 of Code 500 have been included. These may include:

i. Procurement from Schedule 2 and Schedule 3 public sector entities as per the Public Finance Management Act

ii. Procurement from all monopolistic suppliersiii. Procurement on behalf of a third party, where such procurement is

reflected in the financial records of the entityiv. Procurement from Labour Brokersv. All imported good and services

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A3. Recalculate Total Procurement Spend as per the entity’s calculationsA4. When determining whether the measured entity calculated exclusions

accurately the Verification Agency may select a sample of specific spend listed below to confirm that all Procurement Spend listed as exclusions in paragraph 6 of Code 500 have been excluded. These may include:

i. Procurement from Schedule 1 public sector entities as per the Public Finance Management Act;

ii. Procurement from a regulated monopolistic suppliers (identify and confirm legislation or regulation which regulate such monopoly);

iii. Procurement on behalf of a third party, where such procurement is not reflected in the financial records of the entity (trace spend to confirm that it is not included in financial records);

iv. All investments or donations (Paragraph 6.5 of this code);v. All items comprised in salaries;vi. For imported goods, obtain a list of Imports excluded from the total

Measurable Spend and determine that the reasons for importing the goods are only the following:

i. There are no local production (through a confirmation from management)

ii. The import represent component or raw material for value add (obtain evidence that the import is used in further value-adding process)

iii. The import differs from the locally produced substitute in terms of:

1. Brand2. Technical Specifications

A5. Recalculate Exclusions as per entity’s calculationsA6. When verifying the B-BBEE Recognition Spend calculated by the

measured entity, the Verification Agency must ensure that the entity only uses verified B-BBEE status for its calculations.

A7. When verifying the accuracy and completeness of the procurement calculation, the Verification Agency may:(a) Obtain a schedule of all B-BBEE suppliers included in B-BBEE

Procurement Spend, including total spend with the supplier, B-BBEE recognition status and proof of B-BBEE recognition status;

(b) Agree a sample of suppliers to invoices to determine that the amount included in the schedule is accurate;

(c) Agree a sufficient sample of suppliers to valid verification certificates as proof of B-BBEE status;

(d) Determine whether the correct B-BBEE recognition level has been applied in the calculations of B-BBEE spend;

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(e) When an entity have recognised B-BBEE suppliers without sufficient verified proof (i.e. valid verification certificate), confirm that all such B-BBEE spend is deducted from the calculated B-BBEE spend. A supplier letter or a self-assessed scoring system does not represent sufficient proof of a supplier’s B-BBEE status. (Only B-BBEE suppliers with verification certificates are included in the calculation of B-BBEE spend);

During the Transitional Period ending 9th February 2008, suppliers with only proof of narrow-based status may be accepted, but it must be subjected to conversion penalties as contained in the Codes.(f) Select a sample of suppliers and determine that the right recognition

level is applied based on the supplier’s B-BBEE status;(g) Agree a selected sample of QSE and EMEs recognised by the entity to

valid verification certificate;(h) For EMEs only, agree a sufficient sample of suppliers to either a valid

verification certificate or auditors or accounting officer’s letter;(i) Agree the schedule of black-owned or black-women owned supplier to

valid verification certificate; and(j) Recalculate the total B-BBEE spend of the entity.

A8. To determine whether the enhanced B-BBEE recognition status has been applied, the Verification Agency may:(a) Obtain a schedule of suppliers with enhanced B-BBEE recognition

status due to its status as value adding supplier or as an enterprise development candidate of the entity;

(b) Agree a sample of Value-adding suppliers to the entity’s proof and calculation of value-adding status or a confirmatory verification certificate. To calculate value-adding status, determine whether the sum of profit before tax and payroll exceed 25 percent of revenue;

(c) Agree a sample of enterprise development candidate to specific enterprise development programs, and proof that benefit was provided to the enterprise.

(d) Recalculate the application of enhanced recognition factors at 1.25 for Value-adding suppliers and 1.2 for Enterprise development candidates; and

(e) Recalculate the application of enhanced recognition factors at 1.5 for Value-adding suppliers that are also beneficiaries of the measured entity’s Enterprise development initiatives.

A9. To determine whether the scorecard is complete, the Verification Agency may:(a) Recalculate the B-BBEE recognition spend as per A7 over Total

measurable spend and express as a percentage of target and weighting contained in the scorecard;

(b) Recalculate total B-BBEE spend with QSE and EME and its application in the scorecard; and

(c) Recalculate total B-BBEE spend with black-owned and black women owned entity and its application in the scorecards.

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A10. Example calculation:Step 1: Calculate total measured procurement:

Type AmountCost of Sales 100 000Operational Expenditure 10 000Capital Expenditure 5 000Qualifying imports 15 000Monopolistic procurement 12 000Pension and medical aid contributions 8 000Total Measured Procurement 150 000

Step 2: Calculate B-BBEE procurement spend:

Supplier Name

Amount

B-BBEE Status

B-BBEE Recognition level

Value Add supplier (Y/N)

ED Recipient (Y/N)

Category

Calculated B-BBEE spend

A 150 1 135% Y N A R253.13 i.e. (R150*1.35*1.25)

B 200 2 125% N N A R250 i.e. (R200*1.25)

C 300 5 80% Y N A R300 i.e. (R300*0.8*1.25)

D 400 No documentation

0% N Y A R0. (no recognition)

E 500 7 50% Y Y B R375 i.e. (R500*0.5*1.25*1.

2)Total B-BBEE spend 1 178.13

Step 3: Calculate the B-BBEE procurement spend as a percentage of total measured procurement spend:Formula: A=B/C*DB-BBEE procurement spend = (1178.13/150 000*100)/50%*12

= (0.79%/50%*12)=0.19

A11. When determining a score for Preferential Procurement, the Verification Agency may perform the following verification steps/ procedures:

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Considerations Specific to Qualifying Small Enterprises

A12 Using the same figures but calculating for a Qualifying Small Enterprise:The Verification Agency should comply with all the requirements applicable to the Generic Scorecard and should recalculate the formulae as follows:

The same information is used as in the above example.B-BBEE procurement spend for QSE’s= 1178.13/150 000*100/40%*25

= (0.79%/40%*25)= 0.49

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1. Determine Total Measurable Spend 3. Confirm the status of import

exclusions

4. Obtain evidence of BEE Status (i.e. valid verification certificate)

5. Obtain evidence of Enhanced BEE recognition (Value-adding

suppliers and Enterprise Development Candidates)

6. Recalculate Total BEE Spend

7. Recalculate Average Target for Year under Measurement for all 3

scorecard indicators

8. Recalculate the Score for Preferential Procurement

2. Determine Exclusions

Guidance for the Verification of Contributions to Enterprise Development Measured in Terms of Codes 600 of the Broad Based Black Economic Empowerment Codes of Good Practice.

Introduction

Scope of this section

1. This section deals with the Verification Agency’s responsibility relating to an enterprise’s compliance with the Enterprise Development element of the B-BBEE Codes of Good Practice.

Effective Date

2. This guidance is effective for B-BBEE verification certificates issued on or after 9 February 2008.

Objective

3. The objectives of the Verification Agency are to obtain sufficient appropriate evidence about whether:

(a) The enterprise has complied, in all material respects, with the key measurement principles for calculating the Enterprise Development element of the B-BBEE Codes of Good Practice;

(b) The assertions relating to enterprise development contributions and the assertions pertaining to beneficiaries of these contributions does not contain misstatements that materially affect the enterprise development scorecard and therefore, the Generic Scorecard.

(c) The calculation for measuring the Enterprise Development element of the B-BBEE Codes of Good Practice does not contain misstatements that materially affect the Generic Scorecard.

Definitions

4. Unless a reference to Statement 600 is given, the definitions below are the definitions contained in Part 2 of Schedule 1 of the Codes of Good Practice, containing interpretations and definitions.

(a) Benefit Factor: means a factor specified in the Benefit Factor Matrix applicable to fixing the monetary value of enterprise development contributions claimable under statements 600 and 806. The different Benefit Factors are contained in the Benefit Factor Matrix which is contained in Annexure 600 (A) of Statement 600.

The Benefit Factor Matrix, as per Annexure (A) of Statement 600, classifies enterprise development contributions into five broad groups, namely:

a. Grants & related contributions;b. Loans & related contributions;

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Appendix 7:

c. Equity investments & related contributions;d. Contributions made in the form of human resource capacity; ande. Other contributionsThese groups of enterprise development contribution are elaborated upon in paragraph 3.2.5 of Statement 600, which provides a non-exhaustive list of enterprise development contributions.

(b) Enterprise Development Contributions & corresponding Beneficiaries: consist of monetary or non-monetary, recoverable or non-recoverable contributions actually initiated and implemented in favour of beneficiary entities by a Measured Entity with the specific objective of assisting or accelerating the development, sustainability and ultimate financial and operational independence of that beneficiary. This is commonly accomplished through the expansion of those beneficiaries’ financial and/or operational capacity (paragraph 3.2.1 of Statement 600).

(c) Enterprise development contributions are categorised according to the type of beneficiaries which are the recipients of such contributions. The different beneficiaries are defined in the Definitions section of Schedule 1 of the Codes, as follows:

a. Category A Enterprise Development Contributions: involve Enterprise Development Contributions to Exempted Micro-Enterprises or Qualifying Small Enterprises which are 50% black owned or black women owned. (Category A Enterprise Development Contributions, enjoy enhanced recognition at a multiple of 1.25, after the contribution has been adjusted by means of the Benefit Factor Matrix as described in paragraph 3.2.2 of Statement 600);

b. Category B Enterprise Development Contributions: involve Enterprise Development Contributions to any other Entity that is 50% black owned or black women owned; or 25% black owned or black women owned with a B-BBEE status of between Level One and Level Six (Category B Enterprise Development Contributions do not enjoy enhanced recognition. Instead 100% of Category B enterprise development contributions is recognizable as per paragraph 3.2.3 of Statement 600).

(d) Grant Contribution: means the monetary value of Qualifying Contributions made by the Measured Entity to a beneficiary in the form of grants, donations, discounts and other similar quantifiable benefits which are not recoverable by the Measured Entity.

(e) Inception Date: means a date specified by a Measured Entity as being the date from which its Contributions are measurable before the commencement date of statement 600 and 806.

(f) Net Profit After Tax (NPAT): means the operating profit of a measured entity after tax. It incorporates both the equity/ loss figures and abnormal items, but excludes extra ordinary items as determined by (GAAP) Generally Accepted Accounting Practices.

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Requirements

5. The Verification Agency shall determine whether the NPAT, average targets or turnover apply to the Enterprise Development calculations.

6. The Verification Agency shall evaluate the quantified amounts calculated by the entity using a standard valuation model to determine whether the Enterprise Development Contribution may be recognised.

7. The Verification Agency shall determine whether the cumulative recognition of Enterprise Development contributions is accurate.

8. The Verification Agency shall obtain sufficient, appropriate evidence to determine whether contributions should be included in Enterprise Development Contributions.

9. The Verification Agency shall obtain sufficient, appropriate evidence to determine whether contributions should be excluded from Enterprise Development Contributions.

10.The Verification Agency shall determine the accuracy of the scorecard.

11.The Verification Agency shall determine if the entity is entitled to be allocated points for contributions to the enterprise development element of B-BBEE.

12.The Verification Agent shall determine that the entity did not achieve a higher number of points than the weighting points plus any bonus points that may apply.

13.The Verification Agency shall determine the accuracy and completeness of the scorecard.

14.The Verification Agency shall verify the B-BBEE status of enterprise development beneficiaries by obtaining evidence to support claimed B-BBEE status

15.Based on the above, the Verification Agency will determine whether these beneficiaries result in the classification of enterprise development contributions as Category A or Category B enterprise development contributions (see the definition of “Enterprise Development Contributions” as contained in Part 2 of Schedule 1 of the Codes of Good Practice, containing interpretations and definitions). Should the beneficiary entity not be classifiable in terms of either of the aforementioned categories, the Verification Agency must determine whether or not the beneficiary entity qualifies as a beneficiary entity in terms of paragraph 3.2.4.

16.Should the Verification Agency not be able to confirm that the proposed beneficiary entity qualifies as a beneficiary entity in terms of any of the three possibilities above, the Verification Agency must not confirm enterprise development contributions in favour of such entities.

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Documentation Requirements & Procedure for the Evaluation of Evidence

17.The following documentation shall be obtained:

(a) Audited financial statements (possibly from the most recent audited financial statements going back up to five years, depending on the cumulative contribution claims being put forward by the entity)

(b) Evidence of the B-BBEE status of beneficiaries, which may be in one of the following forms:

a. Verification certificate;b. Letter/ affidavit signed by directors of the beneficiary business

which asserts that the shareholders meet the definition of “black” as contained in the Codes;

c. Letter/ affidavit signed by auditors of the beneficiary business which asserts that the shareholders meet the definition of “black” as contained in the Codes;

d. Identity book where no company is registered, but the person operates as a sole trader or in partnership and does not have a formal business structure.

Application material

A1. When determining a score for Enterprise Development, the Verification Agency may consider the following verification step/ procedures:

A2. Where enterprise development contributions may include VAT (e.g. payment of overhead costs), verifiers should confirm that VAT is not included in amounts claimed

A3. Where the B-BBEE status of beneficiary entities cannot be substantiated, contributions to such entities may not be included in enterprise development contributions

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1. Determine Inception Date

in consultation with client

(3.1.2.1 & 3.1.2.2)

3. Annual Average of Cumulative Contributions

If Inception Date more than 1 year earlier than date of measurement, request proof of prior contributions

4. Verification of Prior Contributions

If prior contributions not verified by accredited agency, request sample documents for verification of prior

contributions

5. ED loans

Codes imply that outstanding loan amounts count each year, but this would mean part of same monies

lent would be recounted each year, therefore additional credit given???

6. Calculate Average ED Contributions

Ave. ED contributions

= sum of cumulative contributions to date from date of Inception divided by no. of years from Inception Date

to date of measurement7. Calculate Average Target for Year under Measurement

Ave. target

= sum of NPAT (or turnover formula) figures to date divided by no. of

years from Inception Date to date of measurement

8. Calculate Score for ED

Ave. target

= Ave. annual contributions divided by Ave. annual target multiplied by

15 weighting points

2. Target: NPAT or turnover?

Turnover only if no profit on average over last 5 years. Verify NPAT or turnover based on financial statements.

NPAT: see Codes Schedule 1 – definitions, see also par. 2.1. of Statement 700.

Turnover: see par. 2.2 of Statement 700.

A4. Example calculation:If the Measured Entity provided an interest free loan of R10, 000 to an enterprise development beneficiary/ SED beneficiary on 30 June 2007, the formula to be used in determining the enterprise development points for the measured entity is as follow:

Assume NPAT= R 1 million

Step 1: Calculate Enterprise Development Contributions/ Socio Economic Contributions

Enterprise Development Contribution = R10, 000 (loan amount outstanding) x 100% (the benefit factor) x 6/12 (the average period during which the loan amount has been outstanding)

= R5, 000

% of Contribution: R5000/R1000000 = 0.5%

Step 2 Calculate the score for the indicator

Enterprise Development:

Formula: A = B/C*D

B = 0.5% (contribution)

C = 3% (target)

D = 15 (weighting)

A = 2.5

Considerations Specific to Qualifying Small Enterprises

A5. The Verification Agency should comply with all the requirements applicable to the Generic Scorecard.

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Guidance for the Verification of Contributions to Socio-economic Development Measured in Terms of Codes 700 of the Broad Based Black Economic Empowerment Codes of Good Practice.

Introduction

Scope of this section

1. This section deals with the Verification Agency’s responsibility relating to an enterprise’s compliance with the Socio-Economic Development element of the B-BBEE Codes of Good Practice.

Effective Date

2. This guidance is effective for B-BBEE verification certificates issued on or after 9 February 2008.

Objective

3. The objectives of the Verification Agency are to obtain sufficient appropriate evidence about whether:

(a) The enterprise has complied, in all material respects, with the key measurement principles for calculating the Enterprise Development element of the B-BBEE Codes of Good Practice;

(b) The assertions relating to enterprise development contributions and the assertions pertaining to beneficiaries of these contributions does not contain misstatements that materially affect the enterprise development scorecard and therefore, the Generic Scorecard.

(c) The calculation for measuring the Enterprise Development element of the B-BBEE Codes of Good Practice does not contain misstatements that materially affect the Generic Scorecard.

Requirements

4. The Verification Agency shall determine whether the NPAT, average targets or turnover apply to the socio-economic development calculations.

5. The Verification Agency shall evaluate the quantified amounts calculated by the entity to determine whether the socio-economic development contribution may be recognised.

6. The Verification Agency shall determine whether the cumulative recognition of Socio-economic development contributions is accurate.

7. The Verification Agency shall obtain sufficient, appropriate evidence to determine whether contributions should be counted as socio-economic development contributions, by making reference to the definition of socio-economic development contributions.

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Appendix 8

8. The Verification Agency shall obtain sufficient, appropriate evidence to determine whether contributions should be excluded from Socio-economic development Contributions.

9. The Verification Agency shall verify that 75% of the socio-economic development beneficiaries are black in terms of paragraph 3.2.2. If this is not the case, then the Verification Agency shall confirm that the value of contributions is multiplied by the percentage of the contributions that benefit black people, in terms of paragraph 3.2.3 of Statement 700.

10.With reference to the above, the Verification Agency shall obtain sufficient evidence to be able to determine an approximate percentage of black beneficiaries.

Application material

A1. The following documentation should be obtained:1. Audited financial statements (possibly from the most recent audited

financial statements going back up to five years, depending on the cumulative contribution claims being put forward by the entity)

2. Evidence to support the claimed percentage of black beneficiaries amongst beneficiaries of socio-economic development contributions, which may be in the form of a signed letter from the head of organization (e.g. clinic/ old-age home/ school etc) attesting to the percentage of black people which the organisation normally caters for.

A2. Before the Verification Agency continues with procedures to verify occurrence, accuracy, classification and completeness of the entity’s score, the Verification Agency determines whether the entity achieved the compliance targets in order to be able to allocate points to the scorecard.

A3. When determining a score for socio-economic development, the Verification Agency may consider the following verification step/ procedures:

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1. Determine Inception Date

in consultation with client

(3.1.2.1 & 3.1.2.2)

2. Target: NPAT or turnover?

Turnover only if no profit on average over last 5 years. Verify NPAT or turnover based on financial statements.

NPAT: see Codes Schedule 1 – definitions, see also par. 2.1. of Statement 700.

Turnover: see par. 2.2 of Statement 700.

3. Annual Average of Cumulative Contributions

If Inception Date more than 1 year earlier than date of measurement, request proof of prior contributions

4. Verification of Prior Contributions

If prior contributions not verified by accredited agency, request sample documents for verification of prior

contributions

5. Calculate Average SED Contributions

Ave. SED contributions

= sum of cumulative contributions to date from date of Inception divided by no. of years from Inception Date

to date of measurement

6. Calculate Average Target for Year under Measurement

Ave. target

= sum of NPAT (or turnover formula) figures to date divided by no. of

years from Inception Date to date of measurement7. Calculate Score for SED

Ave. target

= ave. annual contributions divided by ave. annual target multiplied by 5

weighting points

A4. Where socio-economic development contributions includes VAT (e.g. payment of overhead costs), verifiers should ensure that VAT is not included in amounts claimed

A5. Example calculation:If the Measured Entity provided an interest free loan of R10, 000 to an enterprise development beneficiary/ socio-economic development beneficiary on 30 June 2007, the formula to be used in determining the enterprise development points for the measured entity is as follow:

Assume NPAT= R 1 million

Step 1: Calculate Socio Economic Contributions

Enterprise Development Contribution = R10, 000 (loan amount outstanding) x 100% (the benefit factor) x 6/12 (the average period during which the loan amount has been outstanding)

= R5, 000

% of Contribution: R5000/R1000000 = 0.5%

Step 2 Calculate the score for the indicator

Socio Economic Development:

Formula: A = B/C*D

B = 0.5% (contribution)

C = 1% (target)

D = 5 (weighting)

A = 2.5

Considerations Specific to Qualifying Small Enterprises

A6. The Verification Agency should comply with all the requirements applicable to the Generic Scorecard.

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