×
,

A Guide To BEE Audit Preparation

By Vuyelwa Ntuli | 2 May 2022

Background 

SANAS has resumed on-site verifications from the 1st of April 2022. Over the past 2 years, we have adjusted to doing BEE audits remotely and therefore it is of utmost importance for companies to get expert assistance to ensure that audits are done in an efficient manner as we move back to on-site verifications. 

A measured entity can spend a significant amount of time and money to transform the company and achieve its required BEE level. The above does not always reflect in the BEE certificate obtained after verification and this can have a detrimental effect on the company.  

The process is challenging as it is not easy to manage the audit, and as a result, the final certificate might not reflect the time and resources spent to achieve the desired BEE outcome through your BEE strategy.   

Companies that have participated in the Youth Employment Service or YES programme have experienced additional challenges as a result of the pandemic with some requirements not being met.     

The above can be because of several factors but not limited to the below:  

  • Not understanding the BEE audit process.  
  • Inability to provide the required supporting BEE documentation to the verification agent.  
  • Not meeting the BEE audit timelines of a particular verification agent.  
  • Not reviewing the draft audit results against the company forecast and liaising with the verification agent.  
  • Not meeting the YES requirements and therefore affecting the level enhancement  

Before starting your BEE Audit verification, it is important that:  

  • The correct supporting documentation for all your BEE claims is in place.  
  • Interpretative stances on legislation are understood and signed off by your verification agent.  
  • An independent/in-house BEE score is calculated pre-audit for you to better address any variances during the audit.  
  • Changes to legislation are understood as well as assessed for impact on your scorecard.  
  • Chat to your BEE consultant to double-check your: score;interpretations, supporting documentation, and process. 

A crucial point to remember is contained in Section 10.2.4 of the SANAS R47-03 Accreditation of B-BBEE Rating Agencies document which states the following:

The B-BBEE Rating Agency shall ensure that all dealings are directly with the Measured              Entity and not a third party.

Transcend Corporate Advisors, as BEE consultants, can assist you with your BEE Audit journey by helping you understand the verification process resulting in an efficient and accurate verification. We, however, need a power of attorney signed prior to the audit so that we can engage directly with the verification agency.   

The benefits of preparing for your BEE audit and consulting with BEE consultants are as follows:

Area

Why is this important?

Updated industry interpretation of new requirements in the Revised BEE Codes of Good Practice 

It is vital to understand how verification agencies (VAs) will interpret and apply new requirements under the Revised BEE Codes, to ensure compliance, strategic alignment, and implementation 

Audit principles as part of the verification process 

The BEE verification is similar to a financial audit, and thus it is crucial to understand the links between the two processes.

Identifying key stakeholders in the verification process and how to manage them 

A successful verification outcome is a collective effort, and so it is essential that key stakeholder efforts are aligned 

Understand the data required for Verification and completing a BEE verification file 

If the data collected and supporting documentation are not correct, the BEE scorecard/certificate will not yield the desired outcome and the results will be skewed 

Documentation required for Verification and compiling a verification file 

It is crucial that the data collected is matched by the correct and valid documentary evidence 

Understanding sampling and different methodologies 

It is important to understand which scorecard elements will be subjected to sampling, as well as “why” and “how” 

Understand how the BEE measurement period works and elements that are linked to the measurement period 

It is crucial to note that some elements are measured as a progress over the measured period / financial year, and some elements are measured “as at” the time of the BEE audit, as well as “why” and “how” 

Trouble-shooting if the Verification agent gets different scores 

It is imperative to be able to identify possible causes where the projected and preliminary scores differ 

Understanding what  statutory documents are required for the BEE process and the consequences for not submitting them 

For example: 

 

  • Employment equity reports not submitted to the Department of Labour, no points for the Management Control element 
  • Workplace Skills Plan not submitted to your relevant SETA, no points for the Skills Development element 
  • Valid tax clearance certificate from SARS 
  • Audit financial statements ready and audited? Or are you using a set of Management Accounts? 

The impact of Covid-19 / National Lockdown 
  • Interpretations may have changed/leniencies provided 
  • Digital audits/digital interviews are new and may be run differently 
  • Many COVID relief initiatives may have a positive impact on the scorecard and must be stress-tested accordingly. 

 

Our BEE Audit assistance service offerings include the following: 

  • Pre-verification and file review 
  • Verification phase and onsite assistance 
  • Post-verification and wrap assistance
  • Where necessary, this includes application to the DTI for dispensation for YES if there are requirements not met as listed on the YES practice note.  

Supporting documentation required for verification:

1. Financials and general documents

  • Company registration documents
  • Memorandum of incorporation
  • Valid Tax Clearance Certificate 
  • Blank Company Letterhead
  • Copy of previous BEE Certificate
  • Last 5-year Annual Financial Statements 
  • Proof of financials: based on the measurement period / financial year

Annual Financial Statements (AFS)

Management Accounts

No further documentation required

Further documents may be required to test the validity of the Management Accounts:

 

  • VAT 201s
  • VAT statement of account
  • Sales Journals
  • Traces to specific accounts
  • Trial Balance
  • Fixed Assets Register

2. Ownership

  • Copy of latest share certificates 
  • Latest share register 
  • Copy of shareholder's agreements  
  • Confirmation of Voting rights if not stated in the Shareholders Agreement 
  • Copy of the Trust deed of any trust that holds equity in the business 
  • Copy of sale of shares agreement/subscription agreement, depending on the nature of the acquisition of the shares 
  • A written record of the names of beneficiaries, in the case of a trusted shareholder 
  • Copies of all Shareholders ID's 
  • Statement per Black New Entrant confirming his/her status as such 
  • Net Value: A valuation of the company at the date of the last financial year or latest 
  • Net Value: Proof of payment for any liabilities owed by Black shareholders for the financing of their share purchase (Loans) 
  • Sale of Assets: Valuation of the company, the assets sold, and any outstanding acquisition debt 

3. Management control  

Statutory documents: 

  • Latest EEA2 and EEA 4 forms (Employment Equity Report Submissions) 
  • Proof of the above submission 
  • Current dated COR39/full disclosure certificate reflecting the registered company directors 
  • Company organogram 
  • Memorandum of Incorporation 
  • Management representation letter confirming voting rights of directors, executives and other executive management  
  • Latest Payroll report 
  • Latest Minutes of Board of Directors and EXCO meetings 
  • Non-executive director declarations (in respect of non-executive board members) For each sampled employee: 
  • Latest payslips and employment contracts 
  • Certified ID copies 
  • EEA1 forms (in respect of employees living with disabilities) 
  • Doctor’s note / medical certificate (in respect of employees living with disabilities) 
  • Need to be interviewed by the verification agency 

4. Skills development 

Statutory documents: 

  • EMP201s for the financial period (to validate SDL and the payroll) 
  • EMPSA for the financial period 
  • Copy of the (WSP) Workplace Skills Plan (WSP) 
  • Proof of the WSP submission to the relevant SETA 
  • Proof of SETA Approval of the above WSP 
  • Management Rep Letter confirming that Mandatory Skills Spend was not claimed 
  • Management Representation letter confirming the % time of employees dedicated to training 
  • 12-month payroll report to confirm CTC of Training Managers / SDF for the year 
  • Additional during Covid: Proof financial statements (in the case of the 4-month SDL holiday during Lockdown) 

Documents for each sampled training such as: 

  • Certified ID copies of all trainees 
  • Invoices and proof of payments relating to the sampled skills pend 
  • Proof of attendance (either attendance registers or certificates) 
  • Copies of bursary contracts/agreements 
  • EEA1 and Doctor’s disability confirmation letter for the disabled employees/learners
  • Proof of absorption (Permanent Employment contract)  

5. Preferential procurement

For each sampled local supplier: 

  • Supplier spend report as printed from the system 
  • Valid BEE Certificates/Affidavits for each sampled supplier 
  • Detailed Supplier ledgers for each sample 
  • 3 to 5 invoices per sampled supplier 
  • Proof of payment (depending on verification agency) 

For each sampled foreign supplier/import: 

  • Detailed Supplier ledgers for each sample 
  • 3 to 5 invoices per sampled supplier 
  • Proofs of payment (depending on verification agency) 
  • Proofs of currency conversion (if invoice is in foreign currency) 
  • Management Rep Letter confirming reasons for exclusion 
  • ESD Plan for imported goods and services that are being claimed as an exclusion (not applicable to  capital goods)   

Statutory documents: 

  • Import certificate (to validate imports) 
  • Additional supporting documents for foreign suppliers 
  • TMPS Calculation 

6. Enterprise and supplier development

Statutory documents: 

  • Valid EME or QSE Affidavit of the beneficiary, confirming revenue bracket and black ownership (if any) of the beneficiary 
  • Company profile/website (beneficiary)
  • Enterprise Development Agreement or Supplier Development Agreement
  • Acknowledgment/confirmation letter from the ED / SD beneficiary  
  • Supplier Development: supporting ledgers and invoices to prove that they are a supplier  

To prove the support given: 

  • Grant: proof of payment 
  • Loan: proof of payment; loan agreement; loan ledger 
  • Discounts: proof discounts; comparative invoices, etc 
  • Direct costs incurred: invoices for costs; proofs of payment 
  • Overheads: invoices and proofs of payment for the overheads 
  • Time of employees: time sheets; payroll reports to prove salaries 
  • Early payments: invoices and payments paid early 

Bonus points: 

Job creation: proof of jobs created – IDs, payslips, employment contracts 

Graduation of an enterprise from Enterprise Development to Supplier Development level: Proof of support given prior to becoming a supplier, proof of support post becoming a supplier 

7. Socio-Economic Development

Statutory documents: 

  • Acknowledgment letter from the beneficiary, indicating the:
    • Value of contributions received
    • The percentage of black people who benefitted from the contribution
    • Independent competent person’s report confirming the % of black people who benefitted from the contribution 
    • Company profile/website (beneficiary)

To prove the support given: 

  • Grant: proof of payment 
  • Discounts: proof discounts; comparative invoices, etc 
  • Direct costs incurred: invoices for costs; proofs of payment 
  • Overheads: invoices and proofs of payment for the overheads 
  • Time of employees: time sheets; payroll reports to prove salaries 

8. YES Programme

Statutory documents:

  • YES Registration Certificate
  • Proof of payment for the YES registration/invoice
  • CEO Pledge
  • Confirmation of Registration and Placement start date with the YES Non-Profit Company
  • Previous BEE Certificate and Report (Where applicable)
  • Proof of non-displacement of current B-BBEE Initiatives and maintenance of B-BBEE Status Levels
  • Signed Annual / Audited Financial Statements for the last 3 Years to calculate the NPAT Targets
  • EEA2 Report and EEA4 Report Proof of submission of EEA2 & EEA4 Report to Department of Labour (where applicable)
  • Employee list as at Measurement Date - To Calculate Headcount Targets
  • Payroll report closest to Measurement Date - To Calculate Headcount Targets
  • DTI dispensation approval (if required)

To prove the support given:

  • Certified copies of IDs of Black Youth
  • Samples of Signed Employee / Workplace contracts
  • Samples of Payslips
  • Unemployment declarations
  • Interview of sampled youth

Common interpretative queries per element:

Element

Examples of Interpretative Queries

Management control
  • Which EAP (Economically Active Population) statistics are applicable?
  • Are learners (Skills Development) treated as employees for the purposes of the Management Control Scorecard? Particularly learners living with disabilities

Skills development 
  • Should the completion of a learnership and the absorption of the learner happen within the same measurement period (i.e. prior to financial year-end)?
  • From which date are stipends paid to learners recognized?
  • What happens if a learner does not complete the learnership but the company gives them a permanent contract?

Preferential  procurement 
  • How should an ESD Plan look like?
  • What evidence is required for the exclusions of locally unavailable capital goods/services with value-add?
  • What happens to an EME affidavit if the measured entity spends with them more than their turnover threshold?

Enterprise & Supplier development 
  • How are outstanding loans calculated and recognized?

Socio-economic development
  • What is the cut-off age for Skills Development vs Socioeconomic Development for contributions made towards schooling/school fees?
  • Supporting documentation required – is an independent competent person’s report required to confirm beneficiaries? 

 

Contact Transcend Corporate Advisors for assistance to ensure your BEE plan and audit are on track to achieve optimal results. 

 
Please ensure you book a slot for audit assistance as soon as possible as this is our busiest time. 

Contact Transcend

 

 
Watermark
Vuyelwa is a Senior Consultant at Transcend Corporate Advisors. She serves clients with auditing and project management solutions, working on many high-profile clients.

Vuyelwa Ntuli

Recent posts like this: