1. Background/Introduction

The Draft White Paper for Social Welfare was released by the Department of Welfare in February 1997. Among other issues, it identified the need to address the policy and legislative environment, particularly relating to financing and fundraising issues, in which not-for-profit organisations operate. Recognising the restrictions imposed on the proper functioning of the not-for-profit sector (NPOs), the Department of Welfare committed itself to amending or replacing the Fundraising Act 107 of 1978.

The need to reform the policy and legislative environment for NGO's and CBO's was initially highlighted by the Development Resource Centre (DRC) in 1992. In consultation with a number of non-governmental organisations, the DRC conducted the Independent Study into an Enabling Environment for NGOs. Over a period of several years this organisation facilitated and co-ordinated broad public debates on the issues and problems facing the NGO sector. It also identified possible strategies for support.

Following the release of the White Paper for Social Welfare, the Minister of Welfare appointed a Technical Reference Team to further investigate the matter. The process was driven by the NGO Directorate within the National Department of Welfare. Other key stakeholders included Provincial Departments of Welfare, the Department of Trade and Industry (Companies Act No. 61 of 1973), the Department of Finance (Income Tax Act 58 of 1962) and the Departments of Justice and Safety and Security , various 'line ministries', including health, and representatives of the NGO sector.

2. The Need to Transform the Legislative Environment for NPOs

NPO's are defined as " an association of persons, whose objectives and activities, when viewed as a whole, exhibit the following characteristics:

• it should have been established for a public purpose;
• it should be private and independent;
• it should be self-governing; and
• its income or profits should not be distributed to its members, trustees, or directors, except as reasonable compensation for services rendered".

Following the democratic elections of 27 April, 1994 many legislative and policy changes were brought about by the Government of National Unity. In the previous dispensation many progressive NGOs and CBOs were funded by foreign donors. After the elections, however, international donors sought to establish more direct relationships with the new government, channelling financial assistance directly into governmental aid programmes. Many NGOs and CBOs struggled to adjust to the changes in the new funding environment. Increasingly, NGOs had to compete for access to scarce resources. In the former homelands, particularly, there were differing dispensations for fundraising and work by non-profit organisations, often leading to the creation of an environment hostile to their work. As a result, many organisations either closed down or failed to develop capacity in the areas where they were most needed.

Further, the not-for profit sector felt that existing legislation and policy was poorly developed. The legal framework continues to be fragmented, disempowering and contradictory. As the Minister of Welfare argued " There is a history of problems with the Fund-Raising Act, which has been widely criticised by NPOs as unacceptable and seriously flawed. It is supposed to prevent the misuse of money donated by the public but instead it controls NPOs. For instance by taking away their decision-making power. The existing registration process is expensive and time consuming, as well as being unenforceable. These factors all contribute towards an unfavourable operating environment for NPOs."

The Draft White Paper for Social Welfare defines an enabling environment as "an economic, political, cultural and legal environment which enables people to achieve social development."

The new Constitution provides for the freedom of voluntary association. To build a participatory democracy and to promote tolerance and innovation, Government recognises that it has to extend support to the not-for-profit sector by building sustainable partnerships and by exploring strategies through which problems experienced by NPOs can be addressed. To achieve this objective, a co-ordinated strategy, involving a number of government departments would have to be used. In keeping with this, government is currently formulating interventions in a number of different, but interrelated areas, such as taxation, the National Development Agency (NDA), and the development of more consistent government policies. The proposed changes for the not-for-profit sector thus forms one part of a range of government measures and should be viewed in that context.

The proposed legislation for NPOs begins with the assumption that the public itself must take responsibility for which NPOs they support and how they do so. Government aims to create a climate of good governance, organisational credibility and informed choices, with minimal state interference. The approach is an inclusive one with emphasis on creating an open accessible registration system, which builds the capacity of the sector to become self-regulating over time.

Thus the purpose of the new legislation is to create a system for administering not-for-profit organisations. It will enable NPOs to negotiate matters such as registration, financial accountability and fundraising, etc. through simple forms of incorporation. By encouraging organisations to meet basic standards, the proposed legislation aims to improve the effectiveness of NPOs, thereby increasing public confidence in the sector. It is also envisaged that the strengthening of partnerships between government and the NPO sector will increase capacity to meet the challenges of the reconstruction and development of South Africa.

The proposed legislation argues for a fundamental shift the away from government control over fundraising to the recognition of NPOs, and providing accreditation, where required. In this way a basic standard will be met, laying the basis for increased confidence in development organisations.

In order to benefit from any tax relief negotiated with taxation authorities or service contracts between NPOs and the state, NPOs will be required to register. All donors will be encouraged to insist that their beneficiary organisations be registered .

It is recommended that:

• the Fund Raising Act 107 of 1978 be repealed.

• the new policy aims to create an enabling environment for NPOs through a simple, flexible registration system, based on the principle of minimal government interference.

• the new registration system aims to legitimise and promote recognition of NPOs as credible social agencies, committed to meeting certain basic standards.

• through the process of registering, organisations have the option to become formally incorporated as ' registered-not-for-profit organisations' - a new institutional form.

• the registration office be accommodated in the NGO Directorate of the Department of Welfare, Pretoria. The Department of Welfare has committed itself to making the process simple and accessible by providing model constitutions, widely disseminating forms and other supplementary material. In addition, strategies will be identified to encourage donors to support organisations which are registered. This new legislation also obliges the NGO Directorate to provide support and capacity building services which allow NPOs to access the registration system, thereby encouraging a self regulatory civil society.

• specific benefits, such as tax exemption, be linked to registration, and key role players such as donors and local governments be encouraged to only interact with registered NPO's.

• all organisations, registered or not, be entitled to raise funds for their activities. In the event of irregular financial practices and fraudulent fund-raising, charges are to be pursued by the complainants themselves rather than by the Department of Welfare

• initiatives which promote self regulation by the sector itself, for example, accreditation systems and Codes of Conduct be supported and encouraged.

5. Registration Procedures

Registration will take place in the NGO Directorate of the Department of Welfare, Pretoria. This office will have full responsibility for managing the process, including making it accessible to the public, organisations, and donors.

In order to register, an organisation must submit an application form and a certified copy of its constitution, outlining its aims and objectives, membership criteria, procedure for amendment of constitution and provision for its management structure and the disposal of its assets upon dissolution. Provided the necessary documents have been lodged, registration is automatic, and not at the discretion of the Registrar.

After the initial registration, organisations will be required each year to submit detailed statements of their financial accounts and narrative reports, including membership lists, to the Registrar's office. The reporting documents must be submitted within four months of the close of the financial year.

Registration will be for a limited period only, e.g three years, after which it must be renewed. Failure to renew registration or to meet the reporting requirements will lead to loss of registration. Periodically, a list of de-registered organisations will be circulated to all key stakeholders, particularly donors.

Should an application for registration be unsuccessful, the organisation concerned has the right to appeal against the decision; to be forwarded the reasons for the refusal in writing, and also to have access to a Board of Appeal. Should an organisation still wish to appeal further against this decision, it has the right to have the matter heard by an Arbitration Tribunal drawn from an Arbitration Panel. Candidates for the Arbitration Panel will be nominated through a public process and appointed by the Minister of Welfare in consultation with the Portfolio Committee on Welfare. Final recourse will be through a court of law.

The proposed legislation duely acknowledges the role of non-governmental and community-based organisations. It recognises that sustainable development can best be achieved through the strengthening of this important sector, and that government should facilitate a context within which community-based initiatives could become more effective.

Below are some points for consideration:

• It is estimated that there are presently about 54,000 non-governmental and community-based organisations operating throughout the country. Does the proposed legislation adequately take account of the diversity in organisational mandate, governance structure and location of this sector?

• The NGO Directorate of the Department of Welfare, Pretoria is charged with managing the registration process. Is the centrality of the venue consistent with the aim of making registration more accessible and the general move in government toward decentralisation?

• The stated aim of the new legislation is to put in place simple forms of incorporation. Each year, within the first four months of the close of the financial year, organisations would be required to submit detailed financial and narrative reports to the Regisrar. Given the infrastructural, financial and staffing difficulties experienced by many organisations, is a four-month reporting period a realistic timeframe? Would subsequent interventions by the Registrar, such as de-registration, aim to look at the factors which might have contributed to non-performance and then build capacity? Will this serve to strengthen or hamper the effectiveness of organisations? Is there potential that such registration requirements would further inhibit community-based organisations? Would this meet the aim of the bill to make the registration process more accessible ?

• What are the timeframes and how would organisations be able to indicate their need for support and capacity building programmes to the NGO Directorate? What are the strategies to inform the NPO sector, particularly those in historically disadvantaged areas, about the proposed legislation, the registration process and registration requirements? Is a pilot implementation phase envisaged? How will the implementation of proposed changes be evaluated?

• What are the outstanding constraints experienced by the NPO sector that might not have been addressed through this bill?

• The proposed changes for the funding environment for NPOs, is part of an overall strategy to strengthen and support NPO's. Which government department will take responsibility for ensuring consistency and co-ordination of the various initiatives?

The Technical Reference Team has drafted a national framework which would lay the foundation for Not-For-Profit Sector Legilsation. The framework is not available for public perusal yet. However, the Department of Welfare has scheduled a National Conference in Pretoria on 23 May 1997. The purpose of the conference is to update participants on the process to date regarding this policy document. Those unable to attend the conference can forward their comments to the National Department of Welfare, P.O Box X901, Pretoria, 0001 before 23 May,1997.

It is envisaged that this legislation will be introduced in Parliament by June, 1997.

For more information, please contact Bea Abrahams at (021) 696-4873 or fax (021) 696-9308 or by e-mail at philaw@wn.apc.org.

PHILA

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