Follow the Money: The Funder Cannot Outsource Accountability

Eleven Months of Delivery Assurance, and One Pattern That Will Not Go Away

Over the eleven months since Ethos Verify's Delivery Assurance Review (DAR) and due diligence frameworks went into operation, one pattern has recurred across engagements with sufficient consistency that it can no longer be treated as anomalous. Supplier development programmes are found with no evidence that the businesses they funded survive beyond the funding period. Skills initiatives are evidenced by attendance registers and little else. Governance structures exist on the intermediary's letterhead but nowhere in its operations. And beneath a disclosed management fee, an economic arrangement sits undisclosed, unexamined, and unreconciled against the funder's scorecard.

That pattern is the subject of this piece. It is not a hypothetical governance concern. It is what independent review keeps finding when a funder's spend is traced past the point where most assurance work stops.

This sits inside a wider picture that South Africa's own transformation data has been signalling for some time. Enterprise and Supplier Development scorecard performance rose from roughly 19% to 66% of available points between 2013 and 2023, and Socio-Economic Development spend has consistently exceeded target by a wide margin. Yet only around 62% of measured entities report an effective ESD strategy, only 61% report meeting their own programme targets, and industry estimates put credible business development providers at roughly 30% of the market. The B-BBEE Commission has recorded fronting or misrepresentation in over 90% of the complaints it receives in a given year, and a backlog of roughly 60 fronting matters has sat referred for prosecution without resolution. Compliance has improved. The evidence that compliance produced capability has not kept pace.

The uncomfortable governance principle corporate funders need to confront is this:

You can outsource programme delivery. You cannot outsource accountability for the integrity of the B-BBEE claim sitting on your scorecard.

If a corporate allocates R100,000 to an ESD or SED initiative, appoints an intermediary, and subsequently claims recognition arising from that expenditure, governance cannot reasonably end with proof that R100,000 left the corporate bank account. The corporate should be able to establish what happened next.

This becomes particularly important where the disclosed commercial structure looks like this:

• Corporate expenditure: R100,000 — funded
• Disclosed management fee: R15,000 — retained by the intermediary
• Intended programme delivery: R85,000 — passed to the appointed provider

But the intermediary holds an undisclosed commission arrangement with the provider appointed to deliver that R85,000 intervention. This is not a constructed example. It is a structure Ethos has encountered often enough, across eleven months of reviews, to treat as a standing risk rather than an outlier.

The funder's governance question must therefore become:

What happened to the R85,000?

PRECCA Changes the Governance Conversation

The Prevention and Combating of Corrupt Activities Act (PRECCA) should cause boards, executives and persons in positions of authority to take hidden commissions seriously.

Not every undisclosed commission constitutes corruption. Not every excessive margin constitutes a PRECCA offence. But where an intermediary entrusted with selecting or managing a programme provider receives an undisclosed economic benefit from that provider, the arrangement warrants investigation into whether gratification was connected to an improper appointment, decision, inducement, breach of trust or other prohibited conduct.

PRECCA also creates a separate reporting obligation under section 34 for persons in positions of authority, in circumstances where the statutory requirements are met.

The governance consequence is important: once credible evidence of potential corruption emerges, “we did not know” cannot become a permanent control environment. The organisation must investigate. It must follow the transaction. It must identify the ultimate economic beneficiaries. And where the statutory reporting threshold is triggered, the appropriate persons must comply with the reporting obligations imposed by law.

The Codes Create a Second Accountability Layer

The same transaction must then survive B-BBEE scrutiny.

The Department of Trade, Industry and Competition describes fronting as deliberate circumvention or attempted circumvention of the B-BBEE Act and Codes, commonly involving compliance claims based on misrepresentations of fact. It specifically recognises benefit diversion as a fronting risk — and, as noted above, the Commission's own complaint data suggests this is not a marginal concern.

That matters enormously for ESD and SED. If the corporate believes R85,000 is funding beneficiary delivery, but an undisclosed economic arrangement reduces the underlying intervention, the funder must determine what value was actually delivered before relying upon beneficiary declarations or other evidence for B-BBEE recognition.

The question cannot simply be: what did we pay? It must become: what can we substantiate?

The Beneficiary Declaration Is Not a Receipt for the Funder's Spend

This is where transformation assurance needs to become considerably more rigorous and it is consistently the weakest point across the engagements Ethos has reviewed over the past eleven months.

A beneficiary should not be asked to confirm a number merely because that number is convenient for the funder's scorecard. If the corporate paid R100,000, that does not automatically mean the beneficiary received R100,000 of value. If R15,000 was transparently retained for management, the funder already knows that R85,000 was intended for programme delivery. If an additional undisclosed commission then flows between the provider and intermediary, the true value of the underlying intervention requires substantiation.

The assurance reconciliation:

• Corporate expenditure: R100,000 — amount funded
• Disclosed management fee: R15,000 — retained
• Expected programme delivery: R85,000 — intended for the beneficiary
• Undisclosed provider commission: Less: ? — requires investigation
• Actual value delivered: ? — support genuinely received by the beneficiary
• Declared value: ? — amount the beneficiary is asked to confirm
• Claimed value: ? — amount ultimately presented for B-BBEE recognition

These numbers must reconcile. Where they do not, the corporate should stop and investigate before claiming the contribution.

Misrepresentation Changes the Risk Completely

There is a significant difference between an inefficient transformation programme and a misleading transformation programme.

An inefficient programme may cost too much. A misleading programme creates evidence suggesting that something occurred when the economic substance says otherwise. The B-BBEE Act treats knowing misrepresentation and fronting seriously. The regulatory framework specifically addresses false or misrepresented information used in connection with B-BBEE status and benefits associated with compliance.

Therefore, if a beneficiary is caused to declare a value that materially exceeds the support actually received, and that declaration is knowingly relied upon to support B-BBEE recognition, the matter potentially moves beyond poor programme governance. It becomes a regulatory integrity issue.

Corporate funders should understand another uncomfortable reality: the intermediary may create the evidence, but the recognition ultimately appears on the measured entity's scorecard. The funder therefore has every reason to interrogate the evidence before relying upon it.

“We Paid R100 Million” Is Not an Assurance Conclusion

Boards and Social and Ethics Committees should reject transformation reporting that stops at expenditure.

The statement “the company spent R100 million on transformation” is incomplete governance information. This is precisely the gap King V's 2026 shift toward outcomes-based governance is designed to close: organisations are increasingly expected to “apply and explain” with verifiable proof, not paper compliance, and to evidence outcomes rather than maintain policy files.

The board should want to know: how much reached the intended interventions? How much was retained by intermediaries? What fees were disclosed? Were providers paying commissions, rebates or referral fees back to intermediaries, and were those arrangements disclosed to us? What value did beneficiaries independently confirm receiving? What amount was ultimately submitted for B-BBEE recognition? Were conflicts of interest identified? Were related parties screened? Were suspicious payment patterns investigated?

That is what it means to follow the money.

From Spend Assurance to Outcome Assurance

The old control model traces a document trail: a purchase order is issued, an invoice is received, payment is made, a beneficiary letter is obtained, and B-BBEE points are claimed. It proves that documents exist.

The governance-led model — the one Ethos has applied across eleven months of DAR and due diligence engagements — traces an economic outcome: funding is approved, intermediary economics are disclosed, the provider is independently appointed, conflicts and commissions are declared, the money is traced, delivery is independently substantiated, beneficiary value is verified, the declaration is reconciled, B-BBEE recognition is tested, and the board receives assurance. It tests whether the documents represent reality.

The difference between these models is fundamental. It is also, based on what independent review keeps surfacing, the difference between a scorecard that looks credible and a scorecard that is credible.

Corporate Funders Must Follow the Money

This should ultimately become a standing governance principle for ESD and SED: no material transformation contribution should be recognised merely because money left the funder's account. The organisation should be capable of demonstrating the economic journey from corporate expenditure to beneficiary value.

That does not mean every intermediary margin is improper. It does not mean every undisclosed commercial arrangement constitutes corruption. And it does not mean every difference between funded value and beneficiary value constitutes fronting. It means those differences must be visible, explainable, contractually defensible and technically supportable under the applicable B-BBEE framework.

Where hidden commissions are discovered, investigate them. Where beneficiary declarations cannot be reconciled, challenge them. Where B-BBEE evidence appears inconsistent with economic substance, do not claim it until it has been resolved. Where there are reasonable grounds to suspect corruption, escalate the matter through the appropriate governance and legal structures and assess whether PRECCA reporting obligations are triggered. And where an intermediary refuses to disclose how transformation funding moves through its ecosystem, the corporate should ask whether that intermediary should continue to be entrusted with transformation capital.

Because transformation funding is not simply money spent. It is capital held in stewardship. And eleven months of independent review have made one thing clear: stewardship requires the funder to know where the money went.