/ 29 April 2011

Verification agencies under whip

But industry players claim government is inconsistent in its censure of nonconformance.

The South African National Accreditation System (Sanas) is tightening the screws on black economic empowerment verification agencies, in some cases even causing businesses to come to a grinding halt for months.

Sanas is a state institution that falls under the department of trade and industry. It is the single national accreditation body mandated to accredit conformity assessment bodies. There are 56 BEE verification agencies in South Africa, which have issued 30?000 BEE certificates.

Industry turn-over is estimated by an industry source to be R200-million a year. BEE Rating Solutions is one such agency that was taken off the list of accredited agencies in December last year after being suspended at the end of October.

Its accreditation has now been reinstated. Nonconformance was identified by Sanas and the agency was suspended for three months to rectify any issues. “But our nonconformance was on a par with other verification agencies,” said BEE Rating Solutions managing director Johann du Toit. Sanas, he said, has significantly tightened its requirements. “What was accepted in the past is not accepted now.”

Although Du Toit said the issues were now resolved, he disagreed with the way things were carried out. “They need to be consistent — and they can’t just turn your business off.” “This is the beginning of the end for the sector codes,” said Keith Levenstein, the chief executive of EconoBEE. His consultancy has laid several complaints against agencies for serious offences and claims Sanas has brushed these complaints “under the carpet”.

Levenstein said the BEE Ratings case creates the impression of Sanas favouring some agencies over others. In 2009 Rob Davies, the minister of trade and industry, gazetted charters as sector codes in terms of the Broad-Based Black Economic Empowerment Act. These are the tourism, forest, construction and transport sector codes. A code for chartered accountants is the latest to have been gazetted.

“But few companies and verification agencies have bothered to follow those charters,” Levenstein said. “The whole rationale behind verification is to obtain a consistent and accurate approach to BEE. But different agencies still use different procedures or interpretations to issue wildly differing scorecards.”

Sanas told the Mail & Guardian that all accredited verification agencies are required to comply with the same requirements and demonstrate their competence in the same manner before accreditation is granted. Once accreditation is granted, organisations are expected to continue complying with the requirements. As part of the accreditation process, Sanas conducts assessments at different intervals to ensure continued compliance.

“During these assessments, where requirements are not met, nonconformance is raised. “If the nonconformance is of such a nature that the accuracy of results is questionable, appropriate sanctions are applied.” Such sanctions include clearance of findings on site, suspension or eventual withdrawal.

“The accuracy and reliability of results produced by accredited verification agencies is of paramount importance to the integrity of the BBBEE verification process aimed at ensuring black participation in the main stream economy of our country.”

BEE Rating Solutions, Sanas said, was suspended “due to failure to maintain the accreditation requirements”. Levenstein claimed that Sanas did not adhere to its own sector codes. “What is quite ironic is that even companies that were signatories to the sector codes have not bothered to use them — Sanas itself has not bothered to obtain a verified certificate as required by the codes.”

He said the department of trade and industry had wasted tax money in setting up the BEE codes as well as sector codes for specific industries. “It now appears as if the sector codes serve no purpose and could well be scrapped. “Although some sector codes are nearly two years old, they have not been implemented, and the department, the sector councils and Sanas are making no effort to get them to be used.”

Information flow, Levenstein said, is also a problem. “A good percentage of agencies don’t even know about the sector codes and fail to check the industry of their client when the client requests verification.”

The department told the M&G that, once gazetted as such, sector codes are legally binding and enforceable. Sector codes have the same legal status and meaning as the generic codes of good practice, but provide for specific and peculiar industry targets and weightings.

“So businesses operating in a sector code-gazetted industry cannot opt to be measured in terms of the generic codes of good practice when so much time, financial resource and efforts have been invested in developing and gazetting these charters,” the department said.

Generic BBBEE scorecards are used only in instances in which there are no sector codes applicable. “Sector codes are even more legally binding and enforceable on all state organs and entities in their exercise of their functions.”

The department did not specifically respond to questions on whether Sanas has a verified certificate as required by the codes. The department told the M&G it had embarked on an awareness and advocacy process to further familiarise verification agencies with the codes used to measure sectors.

This article originally appeared in the Mail & Guardian newspaper as a supplement to the M&G in partnership with Metropolitan