DEPARTMENT OF SOCIAL DEVELOPMENT – REPUBLIC OF SOUTH AFRICA
Copyright 2005, Department of Social Development, Pretoria, South Africa
All rights reserved. No part of this publication may be reproduced, stored or transmitted without the permission of the copyright holder. Short extracts may be quoted, provided the source is fully acknowledged.
For much of the 1980s, Nonprofit Organisations (NPOs) had played a significant role in challenging the injustices of apartheid, and addressing the needs of vulnerable communities.
Recognising this, the South African Government enacted the Nonprofit Organisations Act 1997, (No 71 of 1997) as part of its intention to create an enabling environment for the nonprofit sector. This legislation was conceived as part of the project to transform society. It is a result of a lengthy process of policy and legislative reform initiated by government and negotiated with civil society organisations.
The NPO Act mandated the Department of Social Development to create an administrative and regulatory framework within organisations can conduct their affairs by providing a voluntary registration facility. It has been implemented for the last seven years since 1998. To date over 38 000 nonprofit organisations has been registered by the Department.
The process has not been easy, however, and many challenges have emerged. Some of these relate to the difficulties of monitoring an increasing number of NPOs, while attempting to ensure that public funds are well managed and safeguarded. Other challenges relate to the role of the NPO Directorate to enhance standards of good governance within the NPO sector, and promote greater benefits for NPOs. Various stakeholders have been discussing these pertinent issues in different forums. These discussions and issues raised have necessitated the need to assess the impact that the Act has made within the sector. It is good practice, and is in the interest of responsive, relevant and effective service delivery, that government legislations and policies be reviewed at regular intervals.
To this end, the Department of Social Development conducted an impact assessment on the NPO Act, to determine how it has affected the NPO sector in South Africa. An independent research consultancy, Umhlaba Development Services was contracted to conduct the study on behalf of the Department.
The Research was conducted between July and November 2004, and involved a national sampled survey of NPOs, as well as discussions with selected key government, civil society, and private sector stakeholders. Of particular significance, the study sought to respond to pertinent questions including: Has the registration contributed to a more enabling environment for the sector? Do the provisions of the Act and the work of the Directorate create an enabling administrative framework for the sector? What benefits have been derived from the implementation of the Act? These are but some of the questions that this study explored.
In carrying out the study, a Reference Group composed of key role players within the sector was formed to provide an important feedback mechanism throughout the different phases of the study. Our sincere gratitude goes to the members of this Reference Group and the organisations they represented.
These are: CBO Network (the South African Chapter of the Community Organising Regional Network), Charities Aid Foundation Southern Africa (CAFSA), Department of Agriculture: – Registrar of Cooperatives, South African Early Childhood Development Congress (SA ECD Congress), Legal Resource Centre (LRC), National Development Agency (NDA), Non-Profit Partnership (NPP), SA NGO Coalition (SANGOCO), Tax Exemption Unit of SARS, and Richard Rosenthal Attorneys. Organisations and individuals who took part in the various aspects of the study are also acknowledged for the immense contributions they have made to the success of this exercise.
The Department of Social Development foresees these recommendations from this study would lead to more efficient and effective interventions to enhance the ability of NPOs to operate effectively. Umhlaba Development Services (Umhlaba) was contracted by the Non-profit Organisations Directorate within the Department of Social Development to conduct a study in July 2004. The purpose of the study was to assess the impact of the NPO Act of 1997 on Non-profit Organisations in order to make recommendations in line with the findings of the Assessment, and the needs of the sector. The design of this assessment focused on determining the impact of the Act on NPOs, donors, and other agencies working with the non-profit environment through a research process. The research process utilised a combination of research methodologies, including a national telephone survey of NPOs, in-depth interviews, focus groups and case studies. In total the assessment conducted over 930 interviews with NPOs, government, donors, and other stakeholders. This assessment is therefore the largest study on this issue to date in South Africa, and offers an extensive information base for a variety of NPO stakeholders. The Telesurvey database may serve as an important baseline study for future longitudinal surveys and studies.
In order to assess the impact of the NPO Act on the NPO sector in South Africa, five key themes where drawn from the five objectives of the Act. These are:
(i) Creating an Enabling Environment
(ii) Establishing an administrative and regulatory framework within which NPOs can conduct their affairs
(iii) Encouraging NPOs to maintain standards of governance, transparency and accountability, and to improve those standards
(iv) Creating an environment within which the public may have access to information concerning registered organisations
(v) Promoting a spirit of co-operation and shared responsibility within government, donors and other interested persons. While the assessment found that government as a whole has become significant in its breadth of support and engagement with the NPO sector, the resources and implementation capacity for the NPO Act is severely lacking. The financial resources allocated for the implementation of the Act are insignificant when compared to the size, scope and vibrancy of the NPO sector on the one hand, and the complexity of the NPO Act on the other. The allocation of responsibility to a Directorate within the
Department of Social Development, and the limited financial resources made available to this Directorate, have – in the researchers’ opinion – constrained the potential impact of the Act. Given the enormous amounts of energy and input into the formation of the NPO Act, it is somewhat surprising that the overall impact of the Act has been uneven, and in some cases quite limited. The assessment has found that the impact of the Act has been high in the administrative and regulatory environment, somewhat less in the establishment and maintenance of standards in the NPO sector, and quite limited in the overall scope of government-donor-NPO relationships.
Of particular concern is the limited extent of awareness of, and engagement with, the NPO Act by a range of key stakeholders engaging with the Non-Profit environment. It is significant to note that the majority of funding organizations interviewed in this assessment do not require NPO registration in order to fund an organization. Similarly this assessment has found that national government departments are generally unaware of the content and prescripts of the NPO Act, and have structured their own engagement with NPOs without much impact from either the Act, or the NPO Directorate.
A clear limitation that has emerged from the assessment with respect to impact is the lack of clear definition of the benefits of NPO registration. The primary motivations for registration by NPOs has been because they thought it compulsory, from an expectation of increased funding, and the potential for taxation benefits. The assessment has found that in all respects the actual benefits accruing to NPOs have been limited, and those that have benefited have tended to be larger NPOs more often registered primarily as Section 21 Companies or Trusts.
In light of this, the sustainability of the impact of the NPO Act remains questionable over the longer term. If the benefits are unclear, and there is a continuation of limited engagement by a range of governmental and donor agencies, NPOs will reconsider the motivation for registering, especially in the face of the perceived administrative burden of registration and compliance.
Perception of enabling environment differs between categories of respondents. South African government departments, perhaps not surprisingly, feel that an enabling environment exists for NPOs in South Africa. They point to policy features that enhance the potential for NPO engagement in policy, planning, and implementation of government programmes, as well as enhanced opportunities of government funding of NPOs. In the main, donors feel that there is an enabling environment for NPOs in South Africa, although there is an important distinction in responses. Donor agencies that were established by the South African government were most likely to say that there is an enabling environment, while local South African grantmaking organizations (that work most directly with community based and grassroots organizations) were most likely to say that the environment is not enabling.
Most of the small, emergent Community Based Organisation (CBO) participants in this assessment felt that the environment for civil society participation in the general development arena in South Africa has improved. They point to a number of factors, including that the numbers of community-based organisations (CBOs) have increased since the introduction of the NPO Act, and some of the smaller community based organisations and structures have managed to acquire a more organised and formalised status.
The assessment has found the regulatory environment to be somewhat inconsistent and fractured, leading to a reduction in overall efficacy and impact of the NPO Act. Also, the assessment found clear problems with a “one size fits all” approach to NPOs inherent in the NPO Act. The assessment has found that the lack of recognition given to different categories of NPOs affects them in different ways.
Small emergent CBOs are often unable to meet the minimum standards set by the Act and the Directorate, and as a result struggle to maintain compliance. Larger, more sophisticated organisations feel the NPO registration adds to the administrative burden, while undermining their “blue chip” status with certain donors.
This assessment has found the benefits to NPOs to be limited, and that this is at odds with high expectations amongst NPOs. Smaller NPOs, especially CBOs, also bemoan the administrative burden of registration and compliance with the Act, and the overall cost of compliance. This point is somewhat reflected in the limited levels of narrative and financial reporting found in the survey of different types of NPOs, indicating a general difficulty amongst NPOs to meet their reporting requirements. Despite this, awareness of the NPO Act and the registration process is relatively high and increasing, and there are growing numbers of registered NPOs. This in itself reflects the emergence of a large number of localised, community-based structures established for public benefit. Administratively, the increase is creating further difficulties for the NPO Directorate, which is faced with capacity limitations.
A particularly striking feature of the NPO sector emerging from this assessment is the general lack of capacity within NPOs to manage their affairs, and to deliver quality services. This situation poses the greatest threat to efforts to maintain high standards across the sector. The NPO Directorate currently seeks to improve standards through the production of good practice guides and standardised templates, and through desktop monitoring of reports. While this assessment indicates that many NPOs appreciate these measures, and that they have incorporated some of these documents into their day-to-day functioning, a number of gaps and criticisms remain.
The assessment has found that the status of NPO registration, and the quality of organisational practice presumed, is widely questioned by a variety of NPO stakeholders. Donors, NPOs themselves, and government officials working with NPOs have expressed misgivings on the levels of compliance and standards of governance, operation and accountability within NPOs who have successfully registered. There is a general sense of limited practical implementation of good practice guidelines by the NPOs themselves. A particular feature that has emerged relates to poor standards in financial reporting. There is a need to address this weakness, and to step up monitoring. Enforcing compliance to minimum standards of financial management is necessary if NPO registration is to be considered as being meaningful. This poses a huge challenge, not only for the Directorate, but also for the entire sector and its stakeholders. It is imperative that some form of coordinated monitoring of compliance to basic standards and documenting of good practice is developed for the sector, especially across the various registration procedures and legal identities There seems to be a general consensus amongst all stakeholders that the current collation and dissemination of information is inadequate. Consistent criticism has been directed through the assessment at the current form of information gathering and collation, and the way this information is made available. The current information system seems adequate specifically for the purposes of registration, but seems to offer limited opportunity to provide more significant monitoring data. A specific area of concern to many NPOs, especially in the health and welfare sector, is a perceived lack of transparency with regard to the awarding of grants to NPOs. The key concern in this respect relates to the perceived potential for inappropriate awards of grants, and perceptions of potential corruption.
This weakness is indicative of the general lack of integration of information management across departments and provinces with regard to NPOs and the NPO sector, which presents a clear challenge to a comprehensive approach to NPOs from government.
The assessment has found the role of the NPO Directorate to be limited in building partnerships between government, donors, and NPO networks. There has been significant criticism from national NPO networks in particular, who allege that the Directorate has in effect circumvented them in their activities with NPOs. A critical component of cooperation is the synchronisation of procedures and programmes between departments, especially with registration and disbursement schedules. This often has adverse effects on NPOs. Of particular concern is the lack of provincial coordination regarding NPO programmes and regulation.
Given the findings of the assessment, three primary recommendations have been made. Specific recommendations for additional measures related to each of these recommendations are made in the report.
Recommendation 1: Minister to Address the Fragmented Regulatory Framework.
The Minister should facilitate a process to assess and align relevant legislation, to allow for an integrated regulatory framework that allows for consistency within the legal framework for registering NPOs. This will require high-level political facilitation between the relevant Ministries for Trade and Industry, Justice, and Finance, as well as SARS.
Recommendation 2: Revise the Act to Allow for Differentiated NPO Registration.
The NPO Act should be revised to allow for registration of different categories of NPOs, which recognises different levels of capacity amongst NPOs. This will allow for more targeted programmes from government, civil society actors and donors, and would set appropriate standards for different NPOs in place.
Recommendation 3: Allocate Sufficient Resources and Capacity for the Implementation of the NPO Act.
The South African government should commit much greater resources for the overall implementation of the NPO Act. In the immediate term, this would require a significant increase in the current budget and human resource capacity for the efficient implementation and administration of the Act within the Department of Social Development. This will require immediate availability of resources to address severe capacity constraints within the Directorate, and to address backlogs with regard to applications.
UMHLABA DEVELOPMENT SERVICES
Project Leader: Dave Husy
Project Co-ordinator Rayna Taback
Researchers: Farah Hassim
Lilo Du Toit
Research Assistant: Eddie Plaatjie
Field Workers Maggie Kgatshe
Specialist Advisors: Prof. Ran Greenstein