Gabrielle Ritchie | Director, The Change Room | 21st June 2017
Good governance is the foundation of a successful NPO. Governance can make or break your organisation – if it is great you can fly, if it is poor you can fail. In NPOs, therefore, we should know as much as possible about the key features of our organisational governance.
But what are they key governance-related facts your Board should have at its fingertips:
Here are the 13 top things your Board must know about your NPO:
- What kind of entity is our NPO?
In terms of the law: in South Africa, your NPO could be one of three kinds of entity – a voluntary association, a trust, or a non-profit company (ex-Section 21 company, an entity type which no longer exists)
- What kind of founding document do we have?
If you are a voluntary association, you will have a constitution. If you are a trust, you will have a trust deed. And if you are a non-profit company, you will have a Memorandum of Incorporation. There are no other options. Those three are it. Your Board should know which kind of founding document your organisation has – and should refer to it in those terms.
- Is our NPO registered as such with the Department for Social Development’s NPO Directorate?
For NPOs to be able to access all the legal and tax benefits of being a non-profit in South Africa, and in most cases to be able to access donor funding, they need to be registered with the NPO Directorate. Successful application will result in you being issues with an NPO registration number clearly indicated on an NPO registration certificate issued by the NPO Directorate. NPO – which stands for non-profit organisation – is a generic term for a non-profit or non-governmental entity in South Africa. As such, your organisation is an NPO regardless of whether you are constituted as a voluntary association, a trust or a non-profit company. It is critical that your Board knows that should you not comply with the Directorate’s requirements – such as submission of annual audited financials – you can be deregistered as an NPO, which can have a number of negative knock-on effects (such as donors keeping a long barge pole between themselves and your organisation!)
- What is our NPO registration number?
All of your Board members should have a copy of the NPO registration certificate somewhere in their Board manual, and should be able easily to access the NPO registration number.
- Are we registered as a public benefit organisation (PBO) with SARS?
Being awarded PBO status as a non-profit means that SARS considers you a tax-exempt organisation. Which means you don’t have to pay tax on your income (there are limits to this untaxed income depending on how it is generated, and how it links to your overall NPO mission – but you’d need a tax or NPO finance specialist for that. Ideally, you’d have one of those on your Board, but there are not a huge number of accountants around who are deeply familiar with NPO finance, law and tax matters!). Being tax-exempt – and SARS will issue you with a PBO number in addition to your income tax number – does not exempt you from submitting tax returns, however. Go to the SARS site to find out more about income tax returns for tax-exempt organisations.
- Are we registered with any other entities or professional bodies?
Many NPOs register with professional associations in their sector, or may be part of broader sector networks. Your Board should know about these memberships, whether there is a fee, and what benefit they bring to the organisation besides (as may be the case) a legal requirement and/or professional status.
- What are the main laws governing our NPO?
All NPOs are subject to a few basic Acts in South Africa. These include the Nonprofit Organisations Act, the Income Tax Act and a range of other Acts including the Basic Conditions of Employment Act. Your Board must establish which other laws are pertinent to its work (eg. Acts relating to health, child welfare, criminal justice, education, rights and social justice, information).
- How many board members does our founding document specify we must have?
An NPO founding document will somewhere specify the number of board members. If the Board does not have this number, it should be recruiting for new members based on identified skills gaps on the board. Most South African NPO boards have between five and eight board members. It should not be more than eight, including the organisational Director (whether ex-officio or, in the case of non-profit companies, as a full Board Director).
- To whom does our NPO need to submit annual and/or other reports?
All NPOs need to submit annual audited financials to the NPO Directorate, to maintain their registration. In addition, those NPOs who also have PBO status need to submit their annual audited financials to SARS. Further, non-profit companies – all of which are registered through CIPC (Commercial and Intellectual Property Commission) – must submit annual audited financials to CIPC. NPOs who receive funding from Department of Health, Education or Social Development are usually also required to submit monthly and annual reports. Your Board needs to know who must be reported to, how often these reports must be submitted, and whether these reports are being submitted timeously.
- When is our financial year-end?
Board members must have a good grip on the NPOs financial management, including when the NPOs financial year-end is. In most cases it will either be end-Feb or end-March in any given year. Your Board needs to know this, as it impacts on planning and timing around the preparation of annual audited financials, the Board signing off on the statements, and the submission of these financials to the relevant bodies indicated in (9) above.
- Are we able to issue Section 18A tax deduction certificates to our donors, where applicable?
Section 18A status, which allows an organisation to offer a tax benefit to its donors, must be specifically applied for, and is only granted to organisations working in areas of the public benefit activities (PBA) specified by SARS.
- When is our NPO AGM?
While it might be a matter of good governance practice to hold annual general meetings every year, it is not a requirement – unless this is specified in your founding document. Voluntary associations hold annual general meetings, and non-profit companies with members (aka shareholders in the for-profit sector), but trusts do not have members and generally don’t hold AGMs. Some organisations, regardless of entity and/or requirements per founding document, like to hold annual meetings as a way to engage their communities, friends, supporters, donors and – where relevant – government departments with a vested interest in the success of the organisation. Your board members must know what is required of your NPO in terms of an AGM.
- Have we signed on to the Independent Code of Good Governance for Nonprofit Organisations in South Africa?
This Code of Good Governance outlines the key principles, values and practices of good governance in nonprofits – and shines a spotlight on the key responsibilities of any NPO board member. This Code provides a “sign-on sheet” which facilitates the Board of an NPO to declare that it has adopted the Code to guide its governance practices. This Code has no legal standing and is an in-principle commitment which is self-regulated, providing an excellent guide for monitoring one’s organisational governance. More information can be found at www.governance.org.za. PS – if you Board signs on, you also get to display the Independent Code logo on your organisational platforms and marketing materials. It looks good to donors – and it’s a great logo.
For insights into whether your Board is fundraising-fit, and why it needs to be, see my blog on this at https://philanthropediasa.wordpress.com/2016/06/03/507/
To support your Board, alert them to the great governance-focused resources at: