The Broad-based Black Economic Empowerment (B-BBEE) commission, founded to investigate and deal with fronting, fraud, and other B-BBEE transgressions, this week commented on the nearly 100 cases that it had received since April this year.
Commissioner Zodwa Ntuli has described some of the cases as ‘traumatising’, and again emphasized that the commission would take a hard stand against companies found in violation of B-BBEE codes. In light of this, businesses should partner with an accredited and reputable B-BBEE verification agency to ensure that their B-BBEE status is evaluated and reported accurately
This according to Mohamed Khan, B-BBEE manager at MAZARS, the international firm specialising in audit, accounting, tax and B-BBEE services, who says that the commission, which began its operations in April this year, was established to monitor and address what was termed as ‘rife fronting’.
“Fronting is a deliberate circumvention of the B-BBEE Act and Codes and commonly involves reliance on data or claims of compliance based on a misrepresentation of facts.”
He explains that some of the core issues highlighted in fronting incidents by the B-BBEE commission include: Organisations that position unqualified employees, such as a gardener or office manager as a board member or a shareholder. “In such cases, it is common that these employees would be asked to sign documents without truly bearing knowledge of the nature of the agreement at hand.”
There have also been instances where companies duplicate the organisation in order to increase business within the public sector whilst a non-compliant entity offers the same products and services in the private sector, says Khan.
“Cases were also found where a black person would be appointed as shareholder or board member, without fulfilling the duties associated with this role.”
Khan explains that there was a lack of consequences for such cases in the past, as no ‘watchdog’ existed to investigate claims of fronting. “Under the new, stricter B-BBEE codes – implemented on 1 May 2015 – together with the looming scrutiny of the B-BBEE Commission, there will no doubt be more severe consequences for fronting going forward.”
The process of lodging a complaint is quite simple and can be submitted by anyone, even a disgruntled employee or a competitor that suspects foul play, he says. “Those who lodge complaints will now also be able to follow-up on the progress of investigations and findings”.
“Engaging in B-BBEE fronting is a criminal offence and can lead to fines of up to ten percent of the entity’s turnover or up to ten years of imprisonment. Of course, the company in question would have to engage in fronting knowingly for these penalties to apply, but any negligence on the part of the company could hold consequences of its own, such as an investigation by the Commission.”
The B-BBEE Commission views fronting as a prevalent problem and as such, is not only renewing its efforts to root out cases of fronting, but – according to legislation – B-BBEE verification agencies are also expected to report instances of fronting, he says.
“In addition to financial and criminal penalties, misrepresentation of a B-BBEE scorecard can result in severe reputational damage to a business as well. It is therefore important for businesses to partner with a reputable accredited B-BBEE verification agency,” concludes Khan.