The gini coefficient in South Africa is reported to be 0.70, showing a gap that has widened from a baseline of 0.60 in 1993 to 0.68 in 2000 and 0.70 in 2008. [accessed from Leibbrandt, M. et al. (2010), “Trends in South African Income Distribution and Poverty since the Fall of Apartheid”, OECD Social, Employment and Migration Working Papers, No. 101, OECD Publishing. http://dx.doi.org/10.1787/5kmms0t7p1ms-en].
“The gini coefficient is a measure of economic inequality and the registered coefficient in 2008 is a far cry from creating an equitable society, let alone an egalitarian society.”
The originator of the article does not for a moment and by any stretch of imagination or long short think that BEE will deliver an egalitarian society, but concedes that it must bring about a society that not only subscribes to the values of equality and equity but practises these values. In my view this is the difference between an egalitarian society, a utopia and a pipe dream, and a society that upholds ideals of an equitable sharing of resources and wealth of its state.
The BIG question is: Can BEE deliver on this noble ideal?
The BEE Act is neutral just like money is neutral and will not harm anyone BUT “The love of money” may hurt people or individuals. So, it is how people respond to money that elicits a reaction for or against and not money itself. Problems with BEE are not endogenous or inherent within the Act itself but are imported and are a result of practitioners, companies – Measured Entities/ME’s, BEE Consultants and Verification Agencies (VA’s) who collude and attempt to manipulate the Act to suit narrow and selfish interests. This is usually called circumventing the Codes, simply put – Fronting – and this is rife in the BEE community.
The story of Enron and Andersen in the US that culminated to the demise of these two giants on 2 Dec 2002 mirrors how things can go wrong in the BEE Verification/Audit space.
“Andersen’s failures at Enron were the culmination of a decade of sliding standards and audit debacles at the firm, which had come to reward salesmanship over technical skill and to pursue higher profits even if it meant compromising a legacy of defiant independence.
When outsiders learned the details of Enron’s dealmaking, its highflying stock plummeted. By the time the energy trader imploded last fall after admitting it overstated earnings by hundreds of millions of dollars, Andersen had little defence, since its signature was all over the deals.” [accessed 17/11/14; http://www.chicagotribune.com/news/chi- 0209030210sep03-story.html].
Perhaps not to the same degree, scale, extent and colossal proportions, the case study above depicts, resembles and highlights a relationship between VA’s and their Client’s in the B-BBEE space in South Africa.
The Verification Agency signs on the client and becomes part of its order book. There is obviously an agency-client relationship that exists, 1) because money has changed hands but 2) because the client signed on happens to be one of “our own folk/ buddy”. How then do you expect any penalties to be metered out by the VA towards its client in the event there were suspicious issues of fronting? The agency is usually going to point out the mess if too glaring and show the client how to fix it and make this look neat on a piece of paper and then award a level and sign off the certificate. The company/ ME will go on to pitch and tender for business with that certificate. Who will question the authenticity of the certificate again, more especially if issued on the SANAS logo?
BEE can and is being manipulated by unscrupulous players that engage in collusive behaviour to outwit and circumvent the Codes. What is interesting is that a VA involved in such collusive behaviour advertently or inadvertently, overt or covert will outsmart SANAS officials during audits and the latter will keep renewing the registration of such a VA year in and year out, at best wittingly or unwittingly perpetuating the problem and at worst colluding with such a VA knowingly or unknowingly. Here is a first-hand experience at the coalface of BEE verification. The agency I worked for was due for a 5 year review by SANAS, shortly before I left. SANAS would then ask for a sampling frame i.e. a list from which they would draw their sample. What the office did and I was not part of this exercise because I never would have been asked to be part of it, due to my stance and views about BEE verification known in the office by everyone including the CEO. The office cleaned its sampling frame more like cleaning an academic record of a student i.e. not to show fail, but pass only to show; gave this to SANAS; dumped all files that could have possibly led to the VA closing down in a small store-room that was hidden away. Of cause the “random sampling” by SANAS officials from the “clean slate” still picked up audit queries which apparently threw SANAS officials in a tailspin among themselves and debating about withdrawing the accreditation on not. I dare that say the latter is the case as the same VA is still issuing certificates.
I therefore submit that Fronting or Circumvention of the Codes is a pandemic that requires a systems overhaul in dealing with BEE verification/ audit. It needs new thinking and a paradigm shift altogether. I also doubt that a clinical paper trail and unquestionable audit result would be any better if this was to be given to Accounting Firms and Auditors nor to Law Firms. I further postulate that the hypothesis as above in the form of the question “Can BEE deliver on this noble ideal” cannot be achieved if the status quo remains in the BEE verification industry. I also wish to emphasize the point that simply moving the task of BEE audit to the Audit Firms is not taking away the risk but only tinkering with the system, for reasons advanced above.
I have often suggested to colleagues when we engage in this discourse that any real and meaningful change in BEE will occur the day Government decides to open up a department to do BEE verification in it itself rather than delegating this to the market. Transformation is too important and critical a task to be left to the market and market forces. Having worked for a VA as a BEE analyst, I uncovered impediments as stated above that will make BEE unsuccessful and not least deliberate circumvention of the Codes/ fronting by verification agencies in collusion with their clients to obtain a better procurement recognition level. This as I have often said just puts the brakes on transforming the entire structure of the SA economy and should really be construed as “obstruction of justice” or “defeating the ends of justice”.
I therefore propose that Government should take over the BEE verification task and consider various forms and shapes this could take. I already suggest that the scope of the impending B-BBEE Commission be extended so that the task of BEE verification/ audit and issuing of certificates resides within the Commission rather than monitoring and evaluation which is and afterthought post-mortem process and mop-up operation, that is, appear on the scene when damage is already done – fire fighting/ putting out fires, rather than preventing same from occurring in the first place. I therefore argue for a total and integrated quality management system that builds in watertight quality components into the BEE verification/ audit process rather a process that inspects in quality as an aftermath of the event. If the Commission will adopt the latter they might find themselves inundated and spread themselves too thinly and may soon realize that the magnitude of the problem is beyond their capacity and scope to manage precisely because of its magnitude.
An inference or conclusion can be drawn from the above that circumvention of Codes is not just isolated incidents nor does it occur here and there but a systemic and systematic problem that occurs on an industry wide scale. I therefore contend that if we must register milestones and make gains this time round in facilitating a meaningful participation of Black people in the economy of the country over the next 5 years and beyond, then a business-process re- engineering approach and wholesale change should be introduced into the BEE verification/ audit space, otherwise this remains the weakest link in achieving developmental goals on the country.
The author of this article can be contacted for strategic alignment of BEE by small, medium-sized or large companies.
