Policy Brief on the Amendments of the NPO Act

The Department of Social Development issued a Policy Discussion document on the proposed amendments to the Nonprofit Organisations Act (NPO Act), 1997 (Act 71 of 1997), during the South African National NPO Summit, which took place from 14-17 August 2012 in Ekurhuleni, Johannesburg.

The policy discussion document seeks to provide the framework and guidelines towards amending the NPO Act in its current form to derive a truly enabling regulatory framework. The objectives are to ensure that the new regulatory framework is responsive to the challenges faced by the nonprofit (NPO) sector and to reflect the country’s adherence to the principles of a constitutional democracy that is underpinned by commitments to a free, equal and open society within the political and socio-economic contexts of South Africa and the prevailing global contexts.

The South African legal framework on NPOs

Civil society, particularly NPOs, have had profound influences on the emergence, shape and nature of our modern South African democratic society. In recognising this important role they have played, the South African government enacted the NPO Act as part of the legal framework to create an enabling environment for the sector.

The NPO Act mandates the department to create an administrative and regulatory framework within which NPOs can conduct their affairs by providing a voluntary registration facility. These NPOs are constituted as voluntary associations that are established in terms of common law, nonprofit Trusts established in terms of Trust Property Control Act of 1988, and the Nonprofit Companies incorporated in terms of the Companies Act of 2008 (previously the Section 21 companies in terms of the Companies Act of 1973, as amended).

These entities can register as NPOs in terms of the NPO Act. This Act serves as one of the entry points to the legal framework on regulating the sector.

Policy discussion document towards review of the current NPO Act

This policy discussion document contextualises the inherent weaknesses and challenges within the current regulatory framework and provides the structure and guidelines for the new nonprofit law which is based on contemporary issues affecting the NPO sector, and other international best practices adaptable for the South African context.

Situational analysis

A cursory analysis of the state of NPO registration reveals an average increase of 11 percent per annum of registered NPOs (i.e. from 76 757 in 2011 to 85 248 in 2012). Within these, social services organisations constitute the highest contribution at 34 percent registered NPOs, followed by community development and housing at 21 percent, and health and education with 11 percent, respectively.

NPOs are estimated to have contributed, in 2007, about R12.5 billion to the fiscus of the country, of which a significant amount is derived from the South African government in the form of subsidies and other forms of grants, followed by the private sector through its corporate social investment programmes[1]. Other forms of funding sources were derived from investments, membership fees and sales of services and goods and other forms of philanthropic giving.

Research indicates that NPOs operate both in the formal and informal sector of the country’s economy. The better resourced and organised NPOs that operate in the formal economy sector are usually referred to as NGOs and have all the attributes associated with this economy. Other NPOs that operate in the informal sector are poorly resourced and less formally structured. These types of NPOs are called community-based organisations and have characteristics of an informal economic sector.

The objectives and scope of the NPO Regulatory Policy Framework

The objectives of this review is thus to ensure that the new regulatory framework is appropriate and responds to the legal, political and socio-economic contexts of South Africa, which is a constitutional democracy and also an open society. Where current legislation meets this objective, it should be retained as part of the new legal framework. 

For these reasons, this policy document intends to make the case for reform, sets out a clear purpose and scope for the review of the current legal framework on NPOs in the country. Its purpose and scope are applied to identify and describe the principal areas to be addressed by the new legal framework based on the current contextual realities of the South African NPO sector.

The scope of this policy framework is thus to identify the fundamental rules governing the procedures of forming NPOs, governance within NPOs, reporting requirements and the enforcement mechanisms in the new regulatory framework. The review will also focus on the institutional requirements appropriate to ensure simplicity, effectiveness and consistent enforcement by clarifying the roles and responsibilities of different agencies and other role-players within this regulatory framework.

Issues for consideration

The new regulatory framework will aspire to promote transparency and accountability within the NPO sector without placing onerous requirements on organisations. The current ‘one-size fit all’ approach is inappropriate for the diverse nature of the South African NPO sector. There is also a need to encourage self-regulation within the sector to further increase the levels of accountability and transparency.

To make this possible, a new institutional arrangement for the regulatory authority in the form of the South African Nonprofit Organisations Regulatory Authority (SANPORA), that will meet the world class standards for such a function, is therefore proposed. The SANPORA will be mandated to encourage the formation of NPOs, undertake education and raising awareness, disseminate regular information on NPOs and enforce the law. The SANPORA will have the power to sanction violations peculiar to NPOs.

One of the critical approaches of the envisaged SANPORA will be to continue to engender high standards of leadership and good governance within the sector towards encouraging and building capacity for self-regulation. Concurrently, the new law will establish the South African Nonprofit Organisations Tribunal (SANPOTRI) which will be an independent body from SANPORA and will play a mediatory role between SANPORA and the NPOs.

Transformation of the current institutional arrangements

The current functions of the NPO Directorate can easily be transformed into the envisaged SANPORA in a new organisational form of a government component as envisaged in Section 10 of the Public Service Amendment Act 2007 (Act 30 of 2007). This will allow greater flexibility to deliver efficient regulatory oversight services to NPOs with appropriate government accountability arrangements within the Budget Vote of the Department of Social Development. A feasibility study will be conducted to satisfy the requirements of the Public Service Act and its subsequent regulations.

This policy document was presented to a range of stakeholders, first internally in government, and then externally to stakeholders and the nonprofit sector.

For the complete Policy Document, kindly visit the department’s website and inputs and feedback from everyone are most welcome.

[1] Renee Bonochis article on BoE gives advice NGOs can bank on. Business Day, 5 March 2007.

- Mapena Bok is acting Chief Director: Nonprofit Organisations at the Department of Social Development.

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