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Controlling the purse-strings: Proposed new law on non-profit organisations is vague and confusing — we need clarity

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Shelagh Gastrow provides advisory services to the philanthropy sector, higher education advancement and non-profit sustainability. She works with individuals and families on how to integrate their wealth and their values into meaningful and effective philanthropy. From 2002-2015 she was founder and executive director of Inyathelo and focused her efforts on strengthening civil society and universities through programmes to develop their financial sustainability whilst promoting philanthropy in SA. Her work has gained public recognition locally and internationally.

It would be a huge concern if the proposed new law governing non-profit organisations is, for example, an effort to control international philanthropy which may fund organisations or media that could be seen as critical of the government.

The Department of Social Development has asked for written comments on the new Non-Profit Organisations Amendment Bill. The public must do this before the end of October.

The principal Non-Profit Organisations Act was passed in 1997 and has stood the test of time. It was a ground-breaking piece of legislation that created an enabling environment for the growth of the non-profit sector, and it did away with the restrictive laws created during the apartheid period, including those related to fundraising. It created the NPO Directorate in the Department of Social Development, which was intended to serve as the central point for non-profit registration and, ideally, a facility to serve the sector.

However, the directorate was never adequately funded or staffed and therefore became notoriously inefficient.  Many organisations did not bother to register (it is not compulsory) if they did not receive funding from the state. One of the key critiques of the directorate was the fact that it was not independent, but well embedded in state structures.

So what are the changes that the government would like to see when it comes to the regulation of non-profit organisations? Key elements include a change in government structure, doing away with the NPO Directorate and the creation of a Registrar of Non-profit Organisations; the introduction of compulsory registration of foreign organisations operating in South Africa and the establishment of an Arbitration Tribunal to deal with disputes.

First, while registration for local organisations is voluntary, registration of foreign non-profits working in South Africa will be compulsory. There are benefits for South African organisations to have a central registration point. For voluntary associations, registration with the current directorate enables the opening of a bank account and receipt of funding from government departments and agencies. In essence, it should be an additional layer of governance to reassure donors.

However, the most important registration for donors is that with the tax exemption unit at the South African Revenue Service which ensures that the non-profit is tax exempt. Donors do not want tax paid on their donations.

The question is, why now the pressure on foreign organisations that work in South Africa? We do not know how many there are, but it is assumed that their income also comes from abroad. Those that wish to raise funds in South Africa would be required to register here in any event. South Africans are extremely unlikely to send money to an organisation’s headquarters in Europe or America for work to be done here, although this does happen on occasion.

It is also not clear what foreign non-profits are being targeted. Are these organisations undertaking charitable work in South Africa, are they donor agencies and international philanthropic foundations or does this also include entities such as the World Health Organization, Unesco, Unicef, UNHCR and the UNODC, which all have some presence in the country?

It would be a huge concern if this is an effort to control international philanthropy, for example, which may fund organisations or media that could be seen as critical of the government.

There are currently no restrictions on foreign individuals serving as members or trustees of local organisations. However, due to the requirements of the Financial Intelligence Centre Act, it is becoming harder for foreign board members to open a bank account in the country.

Another element of the proposed change is the specification of organisational governance structures and mechanisms “which shall at a minimum include the office of or designation of the chairperson, secretary and treasurer with their deputies”. This will require at least six people on the governance structure, not taking into account how difficult it is for non-profits to attract board members who are volunteers rather than remunerated.

In addition, voluntary associations only require three members in order to be established and these demands may well fly against the constitutional right of freedom of association (Section 18). It is well known that governance in the non-profit sector can be problematic, as people are not trained or advised on what is required at a time when greater professionalism and technical capacity is the order of the day. This should have been a service provided by the NPO Directorate. 

In order to mitigate against corruption, the changes in the act also include the required disclosure on whether an office bearer has previously been found guilty of embezzlement of funds in the non-profit sector. Why this does not apply to any form of embezzlement, corruption, theft and so on in any entity, including business or government, is unknown.

There is no clarity in the proposed legislation about the exact role of the Arbitration Tribunal, although its intended establishment appears in the preamble.

Some years ago, the Department of Social Development engaged with the Charity Commission for England and Wales (the Charity Commission) to assess if something similar could be established here. It is not clear what happened to that costly consultation. However, what is evident is that in comparison to the NPO Directorate in SA, the Charity Commission is quite a well-oiled structure providing positive services to charities (NPOs) in England and Wales. 

Besides providing for a searchable and useful register of charities, it provides guidance for auditors on how to prepare accounts for their charity; assistance to people wishing to establish an organisation and how to think about their governing document; and how to ensure that they meet the public benefit requirements for tax exemption.

The commission also has a regulator where people can submit complaints about fundraising (eg how fundraisers behaved) as well as advertising complaints regarding any advertising campaign or the number of emails that are received from a charity. A person can also complain to the Charity Commission if an organisation is “not doing what it claims to do; losing lots of money; harming people; being used for personal profit or gain; involved in illegal activity”.

Auditors and trustees can also report to the Charity Commission on their concerns and there is a whistle-blowing facility for charity employees or volunteers. It is not clear what a tribunal will do in South Africa, but it seems to point to mediation and the solving of disputes.

According to a report published by the National Development Agency in March 2021, “no procedure exists to enable a member of the public to report a CSO whose operations or activities are questionable to any independent institution, such as an ombudsman. Similarly, the absence of regulations dealing with the issue of whistle-blowers within the civil society sector remains one of the regulatory framework’s serious omissions”.

Another element of the new legislation is the prescription of “benefits or allowances applicable to non-profit organisations, after consultation with the committees of the two Houses of Parliament and the concurrence of every Minister whose department is affected by a particular benefit or allowance”. This process could take years to go through the system, so it could be assumed it will happen once and apply for a number of years.  

It is interesting to note that government views the non-profit sector through a service provider lens rather than as a vibrant, active civil society. Many organisations are not charities, but rather work in the areas of research, policy, advocacy, capacity development and training in a huge range of sectors including environment, human rights, health, education, food security, arts and culture, entrepreneurship and innovation.

There is also the view that as there is inadequate funding to provide the resources and professional skills required, the whole regulating structure within the Department of Social Development should just be scrapped and situated in the SA Revenue Service as it is in the United States. There is little trust in South African civil society that anything will improve if the new Registrar remains situated in the DSD.

It is up to civil society to respond to these changes and to gain clarity on the thinking behind them. At present, it is still too vague. DM

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