financial management

This past year has been a tough one for all in South Africa but we have survived albeit battered and bruised. The 2010 Soccer World Cup is only a few months away and there are signs that the economy is picking up and a positive spirit is responding to this stimulus.

CSI will stay flat

First signs of economic green shoots are showing, a growth of 2.4 percent for this year is predicted by AfriFocus, an investment company, although this is encouraging it will take some time before companies are able to replenish corporate social investment (CSI) budgets, so don’t get too excited, stay real as the cut-backs made in late 2008 and 2009 will be in place for at least another year.

Remember that CSI income is derived from company profits and few corporates will be in a position to boost CSI until they find themselves in the same healthy position before the recession struck.
Some analyst have a sense that a few companies may drop their CSI programmes permanently as associated administrative costs and oversight of projects is time consuming and the promised fuzzy feeling from social responsibility is not realised. Fundraisers take note – this must be your fault, so fix it!

International decline in donations

Many non-profits, who have enjoyed long-term relationships with foreign foundations (mainly USA linked), have received depressing news that cut-backs will continue and that in some instances programmes will be suspended. However, President Barack Obama has made a commitment to strengthen the USAid programmes in South Africa, so those few who are able to comply with stringent criteria will be happy.

Some were able to increase international support; mainly from European government funding agencies, but then they have been nurturing these relationships for a long time and have programmes that fall into line with new focus areas. Another factor contributing to ‘less money’ is a strong Rand, predicted to remain close to R7.5/US$ for at least the first-half of 2010. We can only dream of those halcyon days during 2001 and 2002 when the rate was R20 to the US$1.00.

Shut-downs

The economic downturn is blamed for the closure of many non-profit organisations, between 5 000 to 9 000 – most will never return, which is tragic as this will eventually impact on development goals for the country. Others have downsized to such an extent that they are unable to deliver services on the scale that they were able to do for the past 15 years. We can expect a downward trend in the number of active organisations for a couple of years. As some would have it “2009 is a year that is best forgotten”.

More effort, not less, into raising funds

Brave NPO’s have put extra energy into raising funds this past year and have actually reported better returns than in previous years, but these are exceptional cases and they had the support of visionary board members who were prepared to back new or increase existing initiatives. However, the maxim remains – when the going gets tough, put more effort into raising funds and creating new relationships.

One organisation that is not such a well known brand, upped their direct mail campaign to individuals and had an 85 percent return on their investment. Another charity that is very well-known decided to go the e-mail route sending thousands of appeal messages to unknown faces, “much cheaper, more modern” the new leaders (from the corporate sector) thought and dumped their annual postal Christmas campaign, the e-mail campaign didn’t do well.

We will find ourselves in competition with some government departments for funding this year and probably for years to come, as some attempts will be made to dip into the private sector for contributions towards programmes! For instance the health sector is in dire straits and many of the government funded hospitals will consider setting-up fundraising arms for major capital equipment and even raise money for top-ups and short-falls in running costs. This model of a separate fundraising entity has worked extremely well for the Red Cross War Memorial Children’s Hospital in Cape Town through the Children’s Hospital Trust. This is common practice in the United Kingdom to have a charity arm where they have a national health system in place. Also it’s common place in the USA and other countries. Not fair you may cry “isn’t our tax contribution sufficient?” sadly no it isn’t. The National Health Insurance will be introduced but it will take awhile for the new machinery to work - some voluntary health organisations may find this to their advantage in the long-term but their voices need to be heard.

Setting Higher Standards

The New Companies Act will come into being around June 2010 (or maybe a bit later) and there will now be an entity known as the Non Profit Company (NPC) instead of a Section 21 Company not for gain – it’s vital that leaders get to grips with these amendments and consider their options as soon as possible. Every Section 21 is deemed to have amended its Memorandum of Incorporation to expressly state that it is a Non Profit Company (NPC) and change its name accordingly by the new effective date. Visit www.nonprofitlawyer.co.za for help and updates.

The King III Report also calls for stricter governance and standards in the NPO sector - this will become a hot topic for the next few years and the demands envisaged on the NPO sector will drain human resources and create even more paper-work.

The above changes will pressurise amendments to the 1997 NPO Act and we will find that the character of an enabling environment and voluntary registration might have to change to one that is compulsory and prescriptive. We so wanted to avoid this in the early 1990’s when the Bill was first drafted but alas illegal doings have emerged like money laundering, terrorist manipulation, generally bad governance with sloppy oversight by board members that an about face is unavoidable. The engagement for amendments to the NPO Act will probably start this year but it will take two or more years to get the process to draft stage as it requires resources and a budget.

There are more than 61 000 NPOs registered with the NPO Directorate and on average around 10 percent will be deregistered due to non-compliance or lack of commitment to submit annual reports. Few bother to lodge Appeals, probably about 140. But there are more than 12 000 new registrations annually. This is probably higher than in most countries in Africa where similar legislation exists. Interesting to note that 33 percent of the registered organisations are in social services (the aged, children, the disabled, poverty relief, early childhood development, gender and so forth).

Buzz around Impact assessment

More donors will be requesting that you measure the impact of projects and how their investments made a difference – not just numbers to how many you helped but how lives have improved, how things have changed. This will need in-depth record keeping, research and interpretation, all very costly exercises but it will have to become part of the process if you want to secure funding from international agencies and large corporate donors in South Africa. "No numbers without stories; no stories without numbers." Comment from an evaluator on how quantitative and qualitative outcomes can reinforce each other .

Climate Change – new balls please!

Is Climate Change just a buzz word to you or is it giving you sleepless nights? If you’re working in disaster management, conservation and agriculture and other areas then it should be giving you nightmares. The outcomes from the COP15 talk shop was a big flop to ‘sign-the-deal”, latter-day hippies protesting just won’t cut it - so our best hope will rest in the efforts of civil society actions, in particular ecological and human rights organisations, who will need to, as they say in tennis, get “some new balls, please”!

Bingo!

At last, a call for lottery improvements! Minister Rob Davies of the Department of Trade and Industry (DTI) appointed the new Lotteries board at the beginning of December last year and requested that they seriously look at the way the distribution is being carried out and to speed-up the process. He has also taken advantage of a clause in legislation that allows for the appointment of a DTI representative to the board; Ms Zodwa Ntuli will be the person to have her finger on the pulse and kick some butt if the new measures falter and hamper development of our needy communities. However R1.3 billion was successfully distributed during 2009 and we praise the National Lottery Distribution Trust Fund (NLDTF) for this incredible achievement. Well done to all.

Training

Those NPO’s operating in the education and training sector will find themselves very frustrated with the Sector Education and Training Authorities (SETA) as rumours of closure or mergers continue to rumble on, even though their mandate has been extended to March 2011. If they disappear what will replace this system that does work on many levels. Isn’t it better to stick with the devil we know and fix shortcomings?
An interesting observation is that the benefits of the skills levy hasn’t been harnessed by the non-profit sector on the grand scale envisaged due to the so-called complexities of application. The majority of organisations encourage their staff and volunteers to attend short courses, receive attendance certificates and apply their new knowledge - few are keen to acquire qualifications when time is so precious. It’s a convoluted process for those already working a 12-hour day in the average NPO. Sad but true.

Women and children first

The new ministry for Women, Children and People with Disabilities is a great idea but so far it hasn’t said or done anything. The former nurse and union activist; Minister Noluthando Mayende-Sibiya seems to be keeping a low profile and at times uncertain about her role - is it possible she needs help from the NPO sector and perhaps a budget from the President? What about a campaign in recognition of those wonderful people who carry out home-based care duties on a daily basis to thousands of lonely people in our communities. Also the volunteers in our communities who give emotional support to child-headed households and those who counsel battered women and abused children! There’s so much more we can do together.

Challenges ahead;

• Be prepared for a little drop in CSI giving but continue to nurture relationships
• Convince your board members to get involved in raising funds and put more effort into this important work to ensure continuity of services
• Brace yourselves for more rules and regulations and higher levels of accountability
• Don’t underestimate the effects of climate change and put measures in place to prepare for; increase in costs, disruption in communities, health issues, power supplies and so on
• continue to invest in your people – tap into the Skills Levy and ensure staff growth through training
• Keep a watchful eye on the Lotto – make sure they perform
• Be proactive and draw attention to social issues through the media, lobby, make a noise at government level

- Ann Bown of Charisma Communications, is a financial sustainability consultant, mentor and coach to non-profit organisations. For more information go to www.charisma.za.org

With South Africa being the only African country with a seat on the Group of 20 (G20), while serving as co-chair of the working group on reforming the International Monetary Fund, it has "a moral obligation towards the continent to call for more responsible management of the global financial system".

This is what the Global Call to Action against Poverty's South Africa branch would want to see from South Africa's finance minister, Pravin Gordhan, at the two-day G20 meeting that started today in Pittsburgh in the U.S.. Global Call to Action against Poverty (GCAP) is an international alliance of civil society bodies.

GCAP sent an open letter to Gordhan in which the issue of prudent management of the global financial system is addressed. The letter insists that the G20 focus on improved regulation of corporate governance, financial reporting and banking, according to GCAP spokesperson Rajesh Latchman.

"By promoting such a system you (Gordhan) will ensure that recessionary pressures will be detected sooner and knock-on effects on emerging economies in the global South can be avoided or at least minimised," the letter stated.

To read the article titled, "Put Africa on the G20 Agenda in Pittsburgh", click here.

NGOs want Zimbabwe’s cash-strapped power-sharing government to return money seized by controversial central bank governor Gideon Gono and allegedly used to prop up President Robert Mugabe’s old government.

The National Association of NGOs (NANGO) says it has written to Finance Minister Tendai Biti demanding that he outline a repayment plan when he announces a mid-term national budget statement to Parliament this week.

In a press statement, NANGO argues that: “The government should highlight the government’s strategy in trying to return the money that it owes the local NGOs whose funds were taken by the Reserve Bank of Zimbabwe (RBZ) in 2008.”

To read the article titled, “NGOs demand funds seized by Gono,” click here.

Much is being discussed and written about regarding the global recession. We will only be able to see the full effect of this on funding when we look back in a year or two and can calculate the actual impact. Anecdotally though, there are many stories of reduced funding from foreign donors hardest hit by the crisis, and corporate donors whose profits are down and whose giving is often based on a percentage of net profits after tax.

Although no one expected a global crisis to the extent experienced, many organisations have been building up reserve funding in any event to see them through cash flow problems caused by, for example, a delay in donor funding, and to take away some of the pressure to fundraise.

There are a number of different views on reserves and we see a range of attitudes from donors in response to an organisation having a reserve. But has this crisis not perhaps highlighted that - as one organisation put it - a reserve is now a ‘have to have’ rather than a ‘nice to have’?

Some donors do perceive the existence of a reserve as a sign that an organisation does not need further funding. On the contrary, reserves should be seen in a positive light; as a sign that the organisation is in good financial health and so will be in a good position to deliver the results and impact required by the donor. This in my opinion is an area where a concerted effort should be made to help donors become aware of the importance and value of reserves - ultimately to the extent where donors are willing to provide undesignated funding for this purpose.

Building a reserve

Some may argue that it is not always easy to build a reserve. This can be true particularly where only designated funding has been received. However, it is not impossible and there are ways of doing this.

Trading activities

The South African Revenue Services (SARS) itself has recognised the need for non profit organisations (NPOs) to generate income through means other than fundraising and has made provision for this in the legislation pertaining to the tax exemption of NPOs.

Possibilities therefore include generating income through trading activities. For example, if you develop books on HIV/AIDS awareness the organisation could also sell these to corporates at a profit. There will possibly be some tax payable on this income but what remains is income that the organisation would not have had without doing this.

Bequests

Bequests very rarely come with conditions attached and these are a great way to start or supplement reserves.

Donors

If an organisation has a long-standing relationship with a donor it would be worth approaching them to ask for funding specifically to build a reserve, towards the organisation’s longer-term sustainability. If need be, they can impose certain conditions - for example, on the way that it is to be invested and reporting on the investment of the funds. One could even ask a donor to rather loan the funds for a reserve, so that the organisation could invest these and make use of the interest. Another possibility would be to ask the donor to match the funds raised towards a reserve.

Investing a reserve

The way in which reserve funding is invested will be a major contributing factor to the success of this as a sustainability strategy.

There is the common misconception that cash is the safest investment. While sometimes it can be, if funds are to be invested in cash for longer periods of time one ignores the effect of inflation at one’s peril. For example, inflation is currently at about 8% and if an organisation’s cash is earning about 8% in interest, there is no real return on the investment. We all know how much more R100 could buy us 10 years ago as compared to what it can buy now.

If the reserve is to be invested in the longer-term for at least 3 to 5 years, there should be some exposure to investments with the potential for capital growth but importantly, any investment of the funds needs to be in line with the fiduciary duties of the board and proper advice must be taken. Organisations cannot take the same level of risk in investing as individuals can, but at the same time keeping funds in cash for the long-term is not the solution either.

Some organisations with reserves are tapping into the capital of these during current trying times and others are making use of the interest earned on the invested reserve funds. Others still are managing to leave their reserves intact due to a continued flow of funding. Each organisation’s circumstances will be different. Without a doubt though, the existence of a reserve helps ease the pressure during times like these.

Anna Vayanos heads the Philanthropy Office at BoE Private Clients through which specialised investment and fiduciary services are provided to donors and NPOs. She can be reached at AnnaV@Boe.co.za