Impact of New BBBEE Legislation on NPO’s

HGG Financial Group

• The HGG Financial Group - establishment by Hendrik Gerryts in 1998.

• Since then, the company has grown into a formidable force in the financial services arena – offering forward-thinking finance.

• Our range of services has been carefully selected to meet our clients’ current and future financial needs.

HGG Financial Group• HGG Professional Accountants

• HGG Wealth

• HGG Trust

• HGG NPO Sustainability Solutions

• HGG Consult

• HGG BEEadvised

• HGG Technology Support

• HIB / Helderberg Insurance Brokers

History of BBBEE

Classification per the codes 2013

• Exempted Micro Enterprise (EME) = < R 10 million

• Qualifying Small Enterprise (QSE) = R 10 million ≤ R 50 million

• Generic Enterprises = ≥

BBBEE Scorecard

* Priority Element – 40% of target must be achieved Turnover Thresholds

Element Weighting

Ownership* 25

Management Control 15

Skills Development* 25

Enterprise and Supplier Development* 30

Socio-Economic Development 5

Total 100

REVISED BBBEE POINTS• The amendments to the Codes significantly changed the manner in which a

firm’s BBBEE status (or level) is calculated, as the number of BBBEE points required to achieve a particular BBBEE level has been increased.

NPC/PBO EME

NPC/PBO under 10m t/over deemed:

• 75%+ black beneficiaries– level 1, 135% recognition

• 51-75% black beneficiaries– level 2, 125% recognition

• <51% black beneficiaries– level 4, 100% recognition

NPC/PBO QSE

NPC/PBO 10m-50m t/over deemed:

• 75%+ black beneficiaries– level 1, 135% recognition

• 51-75% black beneficiaries– level 2, 125% recognition

• <51% black beneficiaries– use Specialised QSE scorecard

EME & QSE Affidavit

To access deemed status as EME or QSE, each year senior director of NGO signs and swears to an affidavit:

• turnover for the past year is R 10m/less OR

• R 50m/less; and

• % of black beneficiaries

Key Objectives of the Revised Codes

• Drive growth of SMME black owned enterprises

• Encourage job creation

• Drive local manufacturing and processing

• Accelerate representation of Black woman, rural and youth in the economic activities

• Encourage to be pro-active not re-active

BBBEE Commissioner

• Functions:– Oversee, supervise & promote adherence to the Act

– Safeguard the objectives of B-BBEE

– Receive, Investigate & respond to complaints relating to B-BBEE

– Maintain a registry of major BEE transactions (above a certain threshold)

• Penalties– 10% of annual turnover or

– up to 10 years imprisonment for those convicted of the offence of fronting

Fronting: B-BBEE Act No. 46 of 2013• Black people appointed to a company & discouraged from substantially participating

in the core activities of the company;

• Economic benefits received as a result of BEE status of an enterprise do not flow to black people in the ratio specified in the relevant legal documentation

• Conclusion of a legal relationship with a black person to achieve a certain level of BEE compliance without giving that black person the economic benefits that would reasonably be expected to be associated with the status or position held by that black person

• Conclusion of an agreement with another enterprise in order to achieve or enhance BEE status in where:

– (i) there are significant limitations on the identity of suppliers, service providers, clients or customers;

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

– (iii) the terms and conditions were not negotiated at arm’s length and on a fair and reasonable basis.

Sector Codes

Ownership - QSE

Ownership – Generic

Management Control - QSE

Management Control: Generic

Skills Development: QSE

Skills Development: Generic

SKILLS DEVELOPMENT

• This is a priority element, meaning an entity will drop a level should it fail to meet or exceed 40% of the total weighting points

• The scorecard uses an approach similar to Employment Equity with targets that are based on racial demographics provided in the Employment Equity Act and Commission on Employment Equity Report

• Bonus points are awarded for the absorption of unemployed black learners after the completion of the learnership programs

• Unemployed people who receive training reflected on the learning matrix will also be accounted for under skills development

Skills development (Priority Element) 20,0

GENERIC SCORECARD Indicatorweighting

Indicatortarget

Skills development spend for black people as a percentage of leviable amount (Refer learning programme matrix)

8,0 6,00%

Skills development spend for black employees with disabilities as a percentage of leviable amount (refer learning programme matrix)

4,0 0,30%

Black employees participating in Learnerships, Apprenticeships and Internships as a % of all employees

4,0 2,50%

Black unemployed people participating in training specified in learning programme matrix as a % of all employees

4,0 2,50%

Bonus points: Black people absorbed by the measured and industry entity at the end of the learnerships programme 5,0 100%

Learning Program Matrix – Summary• Category A: Bursaries – Full-time study. Degree: University, college,

school or ABET provider• Category B: Internships – Mixed mode institutional instruction and

supervised workplace learning. Degree: University, college, school or ABET provider

• Category C: Learnership – Registered structural experiential learning in the workplace after achievement of a qualification

• Category D: Apprenticeship: Work based learning that requires formal contract. SAQA registered qualification

• Category E: Work-integrated learning: Work based learning that does not require formal contract but is formally assessed.

• Credits for unit standards, CPD, Performance Development Programme

Learning Program Matrix – Summary

• Category F: Informal Training – Informal instructional progams. Workshops, seminars, conferences and short courses.

• Category G: Informal Training – Work based informal progams in the workplace. On the job training.

• Category A to E programmes are recognised in full.

• Category F and G are capped at 15% of total SD expenditure

Recognisable Training Expenses• Course fees, bursaries and scholarships

• Salaries, wages or stipends paid to a learner participating in Learnership, Internship or Apprenticeship

• Cost of trainers

• Cost of training facilities

• Administration costs

• Cost of Skills Development Facilitator or training manager

• Ancillary costs such as accommodation, travelling and catering but cannot exceed more than 15% of total SD expenditure

Enterprise and Supplier Development

• Preferential Procurement and Enterprise Development were merged to form an element to be known as Enterprise and Supplier Development

• Exempt Micro Enterprises (EME) and Start-Ups are automatically recognised as Empowering Suppliers

Enterprise and Supplier Development

Enterprise and Supplier Development

• Enterprise Development contributions are monetary or non monetary initiatives made with the objective of contributing to the development, sustainability and financial and operational independence of EMEs or QSEs which are at least 51% black owned

• Supplier Development contributions are identical except the beneficiaries are existing majority black owned suppliers to the corporate

• These two sub elements both form part of a priority element. Failure to achieve 40% of the points in each will result in discounting by one level

Enterprise and Supplier Development

Qualifying contributions• Cost of services to improve operational or financial capacity and / or

efficiency levels of qualifying beneficiaries including:– Professional and consulting services– Training and mentoring– Development of the capacity of beneficiary entities which enable them to

manufacture and produce goods / provide services not previously available in RSA

• Cost of services to improve operational or financial capacity and / or efficiency levels of qualifying beneficiaries including:– Professional and consulting services– Training and mentoring– Development of the capacity of beneficiary entities which enable them to

manufacture and produce goods / provide services not previously available in RSA

Socio-Economic Development

Socio-Economic Development

Main Principles applicable to SED

• Monetary or non monetary contributions

• Specific objective of facilitating income generating activities for targeted beneficiaries

• If 75% of value directly benefits black people then full contribution is recognised (if <75% then actual %)

• Definition of SED: Must have the object of promoting sustainable access of beneficiaries to the economy

Socio-Economic Development • Socio-Economic Development forms part of the government’s policy of Black

Economic Empowerment encouraging medium and larger organisations to help the previously disadvantaged facilitate their own business or income.

• implemented to reduce inequality, • promote the growth of the black middle class and • reduce unemployment• Unlike corporate social investment, Socio-Economic Development (SED) is a

means for companies to help black people gain sustainable access to the economy and become economically active.

• Qualifying Small Enterprises (with a turnover of more than R10 million but less than R50 million) and Generic entities (with an annual turnover of more than R50 Million) can provide sector specific educational or training programmes for qualifying beneficiaries by monetary or non-monetary contributions.

• Their BEE score is then weighted on the annual value of their contribution.

Socio-Economic Development • SED contributions qualify if they are made to defined beneficiaries aligned to

SED principles – resulting in individuals’ sustainable economic participation. • The compliance target is set at 1% of net profit after tax for a weighting of five

points. • If at least 75% of the contribution value benefits black people, the total value of

SED contribution will be recognised. • However, if less than 75% of the value of contribution benefits black people, the

value multiplied by the percentage of black people benefiting will apply. • Do note that not all contributions will qualify as total spend. • For example,

– if a full grant is given, 100 % of the contribution will count towards the score calculation.

– But if a company uses its own employee to train a recognised beneficiary, this non-monetary contribution will only count as 80%. I

– n order to measure their SED contributions, companies will need to tally the value of the contribution, their compliance target, and their allocated weighting points.

Socio-Economic Development

• The objective of this section is to measure initiatives that contribute towards SED or to Sector Specific Programmes that promote access to the economy for Black People.

• The challenges which this section of the scorecard seeks to address can be summarised as follows:

– The majority of Black People in South Africa are still unable to access the mainstream economy owing to poverty and a lack of education.

– The most critical aspect of this Element is that SED initiatives should result in sustainable economic participation by its intended beneficiaries and discourage dependence on hand-outs.

How to align and benefit?

• Ownership– NPO’s can become business partners

• Socio Economic Development

– Re-Align your programmes

– Become attractive and do not be distracted!

Thank You