Fronting and Misrepresentation in the BEE Industry

Let’s delve into a critical conversation to unlock genuine transformation and unravel the complexities within the B-BBEE landscape, shedding light on the challenges of fronting and misrepresentation. This article reflects the outcome of a session arranged by the ABP.

From a B-BBEE Act point of view, Fronting undermines the true spirit and objectives of B-BBEE and erodes the foundation of fairness and equity. As a general rule; you may not take any deliberate action to circumvent the B-BBEE Act and Codes. It’s a stark reminder that, as advocates for true empowerment, we must remain vigilant against deceptive practices that hinder progress. Misrepresentation dilutes the essence of B-BBEE, thwarting its intended outcomes.

 

It’s imperative to shed light on these crucial aspects of the B-BBEE landscape – fronting and misrepresentation. Some interesting focus points shared:

  • All B-BBEE Professionals need to understand the objective of the B-BBEE Act and the Definition of Fronting Practice in terms of the B-BBEE Act; and
  • All BEE Professionals have an obligation to report any Fronting Practice which can be done directly to the BEE Commission. It is important to note that reporting does not necessarily stay anonymous.

MAIN FRONTING PRACTICES:

  1. Splitting of Business Activities to remain under the turnover threshold to be measured as an EME or QSE;
  2. Fund Manager’s B-BBEE Status being used as the status of Mandated Investments;
  3. Share Options –In most cases, no transfer of shares has taken place and if the Share Option is not implemented correctly, this will be seen as Fronting Practice, especially if it is clear that the Share Option will never take effect;
  4. Decreasing Leviable Amount and Headcount, such as companies moving employees to non-operating companies;
  5. International Courses are claimed under Skills Development without Formal Recognition from SAQA. Verification Agencies may only recognise International Courses if they have confirmation from SAQA;
  6. Learnership Programmes that are implemented for a 2 -3 month period and then cancelled;
  7. Joint Ventures are entered into for B-BBEE Status Purposes, but after the JV has been done, there is no test to see whether both JV Partners contribute to the Project in terms of the JV Split.

SECTORS WITH MOST INSTANCES OF FRONTING:

  • Construction
  • Transport
  • MAC

 

Lastly, the panel recommended that we all keep our eyes open, changes in the B-BEE codes are looming, across all Sector Codes in 2024.  

Together, we can build an inclusive B-BBEE landscape that truly uplifts communities and fosters economic growth. As 2023 draws to a close, let’s reflect on how we can collectively combat fronting and misrepresentation and furthermore, ensure that B-BBEE becomes a beacon of true transformation. Join the conversation – share your insights and let’s drive change together!

 

Contact BEE Analyst for more information at (012) 997 0037 or email marizaan@beeanalyst.co.za