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NPO’s Arise

After thousands of Non-Profit Organisations (NPOs) were deregistered by the Department of Social Development (DSD) in 2012 due to non-compliance, the NPO community was in dire need of professional assistance. Through an initiative by SAIBA and the South African Institute of Tax Professionals (SAIT) a unique partnership was forged between the private sector and the DSD. The aim is to assist these community-based organisations free of charge, to comply with their financial reporting requirements.

In an interview with Peter Netshipale, Deputy Director General of the DSD for BA Review, he describes the department’s experience of this partnership, as well as the reasons for the current state of affairs and his hopes for a sustainable partnership that may continue well into the future.

Helene Cilliers | Business Accounting Review

Actually, it is the first of its kind where a government department partners with a private organisation to assist communities, enabling them to deliver a service.”

Handy, effective and efficient. This is how Peter Netshipale, Deputy Director General of the Department of Social Development (DSD) describes a unique partnership between his department, SAIBA, SAIT and First National Bank (FNB).

The partnership is an initiative of the Southern African Institute for Business Accountants (SAIBA) and the South African Institute of Tax Professionals (SAIT), and was established in 2015, after media reports uncovered a serious lack of compliance by the Non-Profit Organisation (NPO) Sector.

After the news reports were published, the DSD confirmed that more than half of the 140 513 NPOs on its database were non-compliant. This prompted SAIBA and SAIT to come to the rescue of the NPO sector and to pledge R10 million in volunteer services by their members, in order to help the NPO sector become compliant with regulatory filing requirements with the South African Revenue Service (SARS) and the DSD. These volunteers offer free tax, accounting and legal information, advice and services to basic and start-up NPOs.

According to Netshipale, almost R10 billion per year flows through the NPO sector of which R7 billion is contributed by the government. It is therefore in the government’s interest to make sure that all registered NPOs are compliant with the NPO Act, 1997 (Act No 71 of 1997). All NPOs, whether voluntary associations, companies or trusts that want to apply for government funding, must be registered in terms of the NPO Act.

This requires that the DSD ensures that the standard of governance within Non-Profit Organisations is maintained, which entails that all registered NPOs, apart from reporting on their activities, must also submit annual financial statements and reports.

After the implementation of the NPO Act, which repealed portions of the previous dispensation’s “draconian” Fund-raising Act, 1978 (Act No 107 of 1978), there was a flood of applications for the registration of NPOs.

The reason, according to Netshipale, was that government control in terms of the Fund-raising Act made it virtually impossible for NPOs or NGOs to operate in the country. The result was that many NPOs operated illegally and without the government’s knowledge.

By relaxing the laws governing NPOs, the state now has control over registered Non-Profit Organisations and the type of services they deliver. The registration process for community-based NPOs is now much easier. In order to access government subsidies or money from the National Lottery, they must be registered with the DSD.

Most of these NPOs are voluntary associations which, according to the NPO Directorate at the DSD, represent 95% of the organisations that are registered in terms of the NPO Act. These associations can register for free with the DSD and are ideal vehicles for community-based organisations.

However, most of these associations were found to be non-compliant and in 2012 almost 80% of them were deregistered, said Netshipale. This caused a huge public outcry. In response the DSD invested R2.5 million in an awareness and educational campaign aimed at helping NPOs improve their compliance. Due to the high rate of non-compliance by NPOs, the Minister of Social Development, Honourable Ms Bathabile Dlamini, has put a moratorium on the deregistration of NPOs, in the process re-registering all NPOs deregistered in 2012. This was in an effort to encourage compliance by NPOs and adopting a developmental approach in addressing the administrative matters relating to compliance.

Minister Dlamini announced that there would be no de-registration of NPOs until she herself was satisfied that the Department has done all it can to assist NPOs with compliance. The awareness-raising campaign as well as Public Participation Programmes (izimbizo and community dialogues) were therefore rolled out nationally, to assist NPOs with compliance and increase access by NPOs to the Department’s NPO officials for direct, face-to-face service.

“And then SAIT and SAIBA approached us and suggested collaboration. They would use their skills and funding from FNB to assist the NPOs to comply with the act,” said Netshipale. “We agreed to their proposal and the Inter-Governmental Committee on Non-Profit Organisations welcomed the partnership, which entailed that SAIBA and SAIT would develop a strategy and implement it. They go into the communities and identify the NPOs that are not compliant, workshop them and through their members assist NPOs to compile financial statements.”

There would be a specific focus on township and rural areas, targeting community based organisations (CBOs). “At a pilot programme in Hammanskraal, over 200 NPOs attended the event and by the end of the day they all had − for the first time − a valuable financial statement from a reputable person, plus they were in line with Financial Intelligence Centre Act (FICA) requirements.” More than 80 volunteers assisted at this event.

Netshipale says the NPOs were “ecstatic” with these services. “And actually, it is the first of its kind where a government department partners with a private organisation to assist communities, enabling them to deliver a service.”

He says that after the implementation of the partnership, indications were that should this initiative be rolled out throughout the country, the result will be a clean and compliant NPO sector.

“We currently have 153 000 registered NPOs. This year 136 000 of them will have to report between April and July. Through the partnership, we are sure we can reach that number.”

According to Netshipale the low compliance numbers before were mainly due to the fact that most of the community-based organisations don’t have money to pay for financial professionals, or they do not have the knowledge to do it themselves, or in some cases they are not even aware that they have to report back to the DSD. According to a Memorandum of Understanding (MOU) between SAIT, SAIBA and the DSD, social upheaval, ineffective use of state funds, and a negative perception from the donor community will be the end-result if the current situation remains unchecked.

It says that according to StatsSA, close to 60% of the NPO sector’s income consist of government grants and donations. The rest is either obtained from membership subscriptions, and/or services and sales. Close to 90% of the expenses of NPOs are allocated to compensation of employees.

In the MOU, the parties set out the roles and responsibilities, whereas the DSD provides the necessary data on NPOs that is maintained as national Register of NPOs in terms of section 24 of the NPO Act; provide all the necessary guidance and leadership as required; lead and participate in the capacity building to community-based organisations; and provide logistical support to SAIT and SAIBA to support this partnership.

SAIT and SAIBA enable community mobilisation and empowerment, and provide a sustainability plan. They provide technical support to NPOs, and build their capacity in order to be compliant with the NPO Act and other regulatory legislation; provide organisational infrastructure to undertake the task; mobilise NPOs to participate in the road shows and training sessions as well as development and compliance events; mobilise the tax and accounting profession to provide pro bono volunteer services to the NPO sector, mobilise the banking sector to provide free infrastructure support to NPOs and offer cost effective and banking services to unbanked and under-banked NPOs.

The professional expertise offered by SAIT and SAIBA through their 20 000 members, relate directly to the mandate and scope of the NPO Directorate, namely the education, enablement and support of the NPO Sector.

SAIBA and SAIT have already created a platform called NPO Assist (www.npoassist.co.za) for NPOs to access the voluntary services. The volunteer will meet with the NPO and perform a needs assessment. The meeting will be held at the NPO place of work, FNB branches, DSD branches, or alternatively at the office of the accounting officer. Following the needs assessment, the accounting officer will develop a compliance project plan and intervention. The plan will be agreed upon and signed off by the NPO and accounting officer. This intervention may be reported to the DSD and the outstanding reports filed by the accounting officer and registered tax practitioner (where relevant).

The volunteer services by the extended community of 20 000 accounting officers and tax practitioners will assist NPOs with setting up bookkeeping systems; preparing financial statements and submitting these to the NPO Directorate; completing the NPO narrative report; filing tax exempt returns; applying for tax exemption status and Public Benefit Organisation (PBO) status with SARS; and improving the management of the NPO. In a key supporting capacity, FNB agreed to provide accounting software for SAIBA and SAIT members to enable NPOs to comply with the NPO and Income Tax acts requirements.

In addition, FNB also provides banking, logistical and educational facilities in support of the partnership and will provide funding in support of these activities. FNB is also working on a solution to make its branches available as physical drop-off points for NPOs to drop off documentation that must be submitted to the DSD and SARS for their annual filing.

It will also make a free central call centre available where NPOs can receive telephonic assistance, and will provide its Instant Accounting software at no charge to registered NPOs.

“I think if the business world emulates what SAIBA, SAIT and FNB have done for other government departments, this country will go a long way,” said Netshipale.

“When a government department delivers a service, we don’t always deliver it ourselves, but in this case it is unique because the private sector is paying for everything.”

Netshipale says the initiative with SAIBA and SAIT will have to carry on indefinitely into the future.

“This means that the DSD will at some stage have to start contributing to it financially − hopefully with the assistance of Treasury − to ensure its sustainability”, he says. It will also require assistance from the private sector, such as what FNB is providing at the moment.

“We would also like to roll out a model where SAIT and SAIBA become trainers, for example to temporary students. We realise that the two organisations don’t have enough members who can render the service for free indefinitely,” says Netshipale.