Welcome to October and to the final newsletter of the year from the team at ngoLAW. There is quite a bit of content here so, to help you navigate it and find the bits you need first, a summary:
- The times we live in Reflections on our mental state, a handy document for organisation health-checks, and mental health resources for non profits.
Useful for: NGO leaders and founders, those looking for tailored support.
- POPIA update Updated suggestions for approaches to compliance and resources
Useful for: practical tips and links for all NGOs on their journey with compliance
- 18A legislation changes coming A small tweak to section 18A of the Income Tax Act that could have a big (positive) impact but which requires some attention and planning for compliance
Useful for: All organisations which issue 18A receipts and want to make sure they continue to comply with SARS requirements
- NPO Amendment Bill Some alarming and some rather puzzling proposed amendments to the NonProfit Organisations Act. Response opportunity closes end October.
Please share immediately and widely - to ensure that your networks of organisations have a chance to comment and influence the amendments.
- Training: Financial Management for nonprofit leaders Links to a training series by Cathy Masters.
Useful for: topical, practical guidance on financial management
We hope that you find all of this information useful, not too alarming (!) and, as usual, please feel free to send this on to anyone who you think might benefit from it. If you have been sent this by someone else and would like to receive future newsletters, click this link to subscribe ….. If you would rather not be sent these, then unsubscribe at the end of the newsletter.
Keep the questions coming and send us suggestions for future topics – visit our website, hit the ‘contact’ tab, and enter your question into the ‘Contact Form’ space provided.
Stay safe, keep calm and carry on- A Luta Continua!
Nicole, Bandile, Janice, Lisa and Dorothy
THE TIMES WE LIVE IN
Those who work in and for non-profits and those who govern them know what they are signing up for and are under no illusions about the commitment, the effort and the energy it takes to do good and do it well. And NGO leaders and workers are used to obstacles and setbacks, to constant change in the funding environment and we adapt, we are so good at that. Many NGOs are built to deal with crises, with urgent and pressing needs, so you would think that surviving in a long-term global pandemic and dealing with unrest and instability would be in our DNA, yet still …
All of us are under what feels like relentless pressure, and without the outlets, social interactions and connections which might before have buffered, balanced and diluted the demands on us. Electronic communication has been a life-line (and has given us some new opportunities) but has come with its own costs and downsides.
As we prepare for year-end board meetings and many are counting the cost of losses (fiscal, opportunities and personal) we wish all of our readers a chance for deep and honest reflection and the understanding and support that you need to make hard choices. Your bravery, perseverance and devotion to those you serve is seen and we hope that you are carving out some real time for self-care and to rest and recover, so that we may face future challenges with renewed strength and hope.
For those looking for help and support for the mental health and recovery of those who work in their organisations, please see this link to a free mental health support service that has been set up specifically for those who work in and for non-profits https://www.npowersa.org/about . Their toll free hotline is 0800 515 515.
This from their website:
“NPOs have always been important in providing support and care to South Africans and this has been highlighted throughout the Covid-19 pandemic. Although NPOs provide such crucial services, resources are often stretched and teams are overworked and facing trauma every single day. Pandemic-related issues have caused many NPOs to close their doors and to stop the valuable work they have been providing when communities need it the most. NPOs have always provided help, resources and support to others, but never before has the mental health of our NPOs and their staff been prioritised. While many corporates have Employee Assistance Programmes in place, the NPO sector has been forgotten in these processes. Now more than ever, we need to give NPOs the Mental Health support they so desperately need.
NPOwer is a first-of-its kind NPO Mental Health Support Programme and 24-hour toll-free Helpline that offers FREE Mental Health care and support to all NPOs in South Africa. This initiative sees Tshikululu Social Investments partnering with SADAG (South African Depression and Anxiety Group) who provide psychological first aid to NPO leaders, staff and volunteers, many of whom are experiencing unprecedented strain and burnout.”
The NPOwer programme includes a dedicated 24-hour NPO Mental Health and Psychosocial Support Helpline manned by a team of dedicated counsellors. The programme also includes capacity workshops on NPO related issues. The Toll-Free NPOwer helpline is now LIVE and will be open 24 hours a day, 7 days a week, 365 days a year with counselling available in all 11 official languages.”
Please make use of this valuable resource and long may it continue!
At ngoLAW we are embarking on an internal year-end reboot-reflection process, and have developed the following questionnaire for use in preparation for our sharing session, please click on the link to access and use, or customise for your purposes.
POPIA COMPLIANCE UPDATE: RESOURCES AND OPTIONS
The ‘D’ day for POPIA compliance has come and gone. Some of us have it all sussed and sorted, some had good intentions but have been diverted by other dramas, and some are still wondering whether they need to engage with POPIA (for the last lot, yes you do!)
The good news is that the Information Regulator’s office seems to be as stuck as its website still is, with the Information Officer registration portal still not accessible due to technical difficulties. Our suspicion is that the technical difficulties were caused by a deluge of registration attempts on 1 July. The bad news is the same as the good news, really – with nothing so far coming out of the Information Regulator (other than the 13 July warning that photos of the ex-President taken by Correctional Service members have been published in breach of JZ’s rights to protection of his personal information) we do not have much to go on, in terms of further guidance for implementation.
The market is flooded with people selling POPIA compliance packages and services, and there is no shortage of choices out there. We have seen that there are four main components of compliance which need dealing with:
- Public compliance- websites and other public documents need to be aligned and tweaked to demonstrate that your organisation has thought through POPIA and related requirements and is taking steps to comply with them;
- Internal policies, systems and processes- this is about adjusting the ways you work and communicate to take POPIA compliance into account. HR consultants and labour lawyers are typically providing sound advice and useful documents to deal with this aspect;
- Cyber-security- here you need the expertise of people with IT skills, to assess your current systems, storage, protocols and to change or build them for improved security (note that the weakest point for security is often people, which leads us to the next topic…)
- Training- implementing training and awareness programs inside the organisation is part of POPIA compliance. Once again, there are many who are offering this service. For online training, Michalsons has developed a non-profit ‘lens’ through which their size-tailored training package can be viewed. Depending on how fast you work through the material provided (they charge a monthly fee for however long it takes you) it can be a reasonably priced option, and they do offer discounts on their published price to non-profits on request. See their costings here.
PS: (No, we are not being paid by Michalsons 😊) but this also looks useful Webinar Registration - Zoom a free webinar from 10-11 on Thursday 14 October dealing with data protection for researchers.
ADVANCE NOTICE – CHANGES COMING TO 18A RECEIPTS
The current provisions of section 18A of the Income Tax Act requires that 18A receipts which are issued to donors include the following details:
- Your organisation’s name, address and PBO number;
- The donor’s name and address;
- The date the donation was received;
- The amount of a monetary donation/nature and value of property donated;
- The required certification being: we hereby certify this receipt is issued for the purposes of section 18A of the Income Tax Act, 1962, and that the donation will be used exclusively for the objects of [your organisation’s name].
Over the last couple of years, SARS has gained ground in being able to detect fraudulent 18A tax deduction claims and they now really need to be in a position to connect the dots and make sure that the amounts that taxpayers claim as 18A deductions are actually making their way to the 18A approved organisation as claimed. The first step taken in this direction was a couple of filing seasons back, when the systems at SARS were linked so that there was an automatic rejection of tax deduction claims if the PBO number inserted was not a valid number or was not a number of an organisation having 18A status.
This resulted in a huge panic as it had literally never mattered before whether actual, valid donors inserted the NPO registration, trust registration, NPC registration or any other number they chose. Organisations with large numbers of regular small donations from individuals had to hurriedly educate and inform donors (and in some cases, obtain ‘new format’ PBO numbers from SARS to be inserted with efiling). At that time SARS asked us not to publicise their new ‘super power’ (😊) as they had a once off opportunity to detect fraudsters.
In the context of 18A regulations, we need to remember that there is a ceiling (10% of taxable income) on how much taxpayers can claim in each tax year. Therefore any reduction in fraudulent claims should result in an increase of actual donations to organisations which do have 18A status.
The practical gap that exists is that, aside from conducting audits of both donor and recipient organisation, SARS currently has no easy way to detect whether a tax claim for a deduction purportedly made to an organisation which has 18A status, was ever actually given to the organisation named. [A side note here: publishing your PBO number on websites and email footers is good for boosting credibility with potential donors, but also provides the details that fraudsters need to make fake 18A tax deduction claims.]
All this so far is context to try to understand the following: The Tax Administration Laws Amendment Bill published on 28 July 2021 contains the following, seemingly minor and boring, proposed addition to section 18A:
“18A (2)(a)(vii) such further information as the Commissioner may prescribe by public notice, or”
This addition is to the list of items or information that must be included on the 18A receipt issued and does not specify what additional information should be included, but gives the Commissioner for SARS the ability to issue a notice giving the details of further information which will need to be collected by the organisation and then included on the receipt issued to donors.
Thinking it through, the practical outcomes must be directed at allowing SARS to access details so they can cross-check claims made for tax deductions against receipts issued by organisations. To my mind, (and confirmed in conversation with SARS) the most obvious detail would be the tax reference numbers of donors. (Oddly, we find that people are very private about their tax reference numbers. This may be because they are private about their tax affairs and not aware that SARS guard all information very diligently?)
So, if step one is for the organisations to record the tax reference numbers of donors on the receipts issued, the logical next step would be for all organisations to report to SARS on the value of donations, with each value linked to a donor tax reference number. This would complete the circle and allow SARS to reject tax claims for donations not made (or for inflated donations claimed). This would involve some extra administration to collect and report but would be worth it for the gains to the entire sector.
The explanatory note issued by SARS on the amendment supports this interpretation, but with some confusing bits. The SARS note reads as follows:
“2.2 Income Tax Act, 1962: Amendment of section 18A
The information required by law in the receipts issued for tax-deductible donations is limited and entities issuing the receipts are not required to provide third-party data on the donations to SARS on a systematic basis. SARS has detected that receipts are being issued by entities that are not approved to do so. To ensure that only valid donations are claimed and to enhance SARS’s ability to pre-populate individuals’ returns, it is proposed that the information required in the receipts be extended to allow such information as the Commissioner may prescribe by public notice from time to time. Third-party reporting will be extended in future to cover the receipts issued.”
If you read it as a whole, the ‘third party’ data on donations refers to the tax reference numbers of donors and the last statement about ‘third party reporting’ being ‘extended in future to cover the receipts issued’ refers to future reports to be lodged by 18A organisations with SARS, as already mentioned.
The puzzling bit of the SARS memo is the sentence in the middle: ‘SARS has detected that receipts are being issued by entities that are not approved to do so.’ Now, this is not the issue which will be solved by the gathering and reporting of this additional information, as there is already a SARS mechanism in place for this: when tax deductions are claimed, if the exemption reference number recorded on efiling is not one of an organisation which has 18A status, the tax deduction will be rejected. The organisation which thought it had 18A but didn’t (surprisingly still a lot of that around) will then face the wrath of the person who gave them the money but can’t get the tax deduction. It’s a neat, self-solving issue which does not require spending of tax money to police.
The bottom line for 18A organisations is that they should start preparing now for this anticipated change so that when the Commissioner issues the notice they:
- Know how to adapt their 18A receipts;
- Ensure they collect the required information; and
- Have a system (a spreadsheet will do it) in place to record the value of each receipt, linked to the tax reference number of the donor, to make reporting to SARS each year easier.
Watch this space for updates on this important issue.
MAKE YOUR VOICE HEARD: PROPOSED AMENDMENTS TO THE NPO ACT
Those of us who work in the sector estimate that we have seen (and been involved with some parts of) about four or five processes of development of amendments to the NPO Act but none of these has seen the light of day, as new brooms have swept (not clean, that phrase is not appropriate) but they have swept previous work away and begun again. Now we have a Nonprofit Organisations Amendment Bill, 2018 (!), published for comment on 1 October 2021 (but only really released on 4 October) and which calls for public comment within 30 days. (October ends on a weekend, so we advise lodging your comments by close of business on Friday 29 October). As the draft Bill was not yet, at time of sending out this newsletter, available for download on the DSD site please follow this link to the Bill on the very useful PMG site: to download, read and form your opinions.
As no explanatory Memorandum has yet been made available on the Bill, some of the proposed provisions are somewhat mysterious. Some clumsy drafting makes interpreting and responding a bit tougher, and then there is the missing ending to a crucial amendment, which seems to have fallen into a crack between pages 8 and 9 of the Gazetted version.
Organisations may respond individually or in groups. We suggest that you do both: lodge individual comments and also send your comments and proposals through to others who may be collating joint proposals. We are beginning work on collating a joint response from a group of lawyers and accountants who work for non profits. If you would like our assistance with your individual or joint submissions, please do let us know.
Brief notes- some of the proposed changes in the Bill:
1. Not allowing any organisation whose name is confusingly similar to that of any other organisation or person to register, unless they have verifiable legal rights to the name or consent to use it
The NPO register is currently full of organisations with identical or confusingly similar names as there is no checking name mechanism for voluntary associations and trusts and they can just choose their name subject to the common law prohibition on ‘passing off’ (using a similar name to an established brand to benefit by association or confusion).
This amendment seeks to avoid confusion and improve credibility by policing the use of similar names.
The practical problem with imposing this requirement during the registration process, is that there does not at this stage appear to be an advance check/reserve name process proposed (as there is at CIPC). This could lead to delays with organisations having to amend their founding documents and begin again. (It does seem that it is intended that registration of an NPC name with CIPC or letters of authority in the name of a trust will constitute ‘legal right to that name’.)
2. Requiring that minimum organisational structures in place before registration include the offices of chair, secretary, treasurer and their deputies.
A deputy chair is a good idea, but vice treasurers and vice secretaries are not as common and this requirement would effectively mean that the board of an organisation must have at least six persons on it (when three has up till now been the effective minimum).
3. Mandatory registration for ‘foreign non-profit organisations that intend to operate business/es within the Republic’
The language of the proposed section around this is confusingly drafted and the intention (especially in the absence of an explanatory memorandum) is unclear. What mischief is aimed at? What does ‘operate’ mean?
The Companies Act already has a provision requiring local registration with CIPC of any foreign non-profit that does more than have meetings, a bank account and property in South Africa: As soon as a foreign non-profit needs to employ locals or as soon as they for longer than six months ‘engage in nonprofit activities’ in South Africa, they have to register with CIPC. Perhaps the drafters of this Bill are not familiar with the provisions of Section 23 of the Companies Act? We will certainly raise this issue.
4. The rather curious requirement to disclose, on application, ‘whether a member or office-bearer has been previously found guilty of an offence relating to the embezzlement of money of any non-profit organisation and the status of the conviction’
First, the likelihood of those who knowingly admit such persons to their boards disclosing this on application seems extremely slim. If there is a way for the information to be checked and verified, then this checking should be taking place automatically, without the proposed requirement to disclose. And if there is no way to check and verify, then it is, we think, useless to require the disclosure.
5. The removal of the deadline for filing of annual reports ‘within nine months after the end of its financial year’
We understand that the intention behind this amendment was to allow for the annual reports which are filed to be differentiated based upon the size (turnover?) of the organisation, so that smaller organisations are not inappropriately burdened. However, the effect of the proposed deletion is that the deadlines for reports are deleted and the only reference to annual reports is now found in the regulations to the Act. Some tweaking is clearly required.
This is not an exhaustive list of the proposed changes, nor is it our final commentary on them, as we have still to digest, consult and collate responses.
FINANCIAL MANAGEMENT TRAINING
Our friends at Ziyo Accounting have put together an online training series starting on 13 October: What every NPO leader needs to know about financial management in these troubled times.
Cathy Masters, the founder of CMDS (now Ziyo) and long-term specialist in the sector, will be presenting the training (in cahoots with Nicole Copley in the first session). The link to book your seats is https://www.quicket.co.za/events/149522-what-every-npo-leader-needs-to-know-about-financial-management-in-these-trouble/?preview=t and the dates and topics of the four sessions are:
- 13 Oct: Who's the boss? The role & relationship with the governing body on matters financial
- 27 Oct: Integration of financial viability & program - planning & monitoring
- 3 Nov: Evidence & Accountability
- 10 Nov: Dealing with uncertainty, crisis & risks (Including financial sustainability strategies)
Looks useful and timely.