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A guide to setting up, registering and governing an NGO

Are you looking to establish a non-governmental organisation (NGO) or searching for resources to strengthen your pre-existing organisation? We’ve curated a guide that will help you think through the legal, financial and technical questions associated with setting up and governing an NGO in South Africa.

Governance

Guide To Organisational Governance

What is the role of a governing body?

It is important to understand the role of a governing body in an organisation.  Its key purpose is monitoring and oversight of the organisation, its finances, its strategies and the performance of its Director, CEO or co-ordinator.  Risk management has also become an important role for NPO boards.

Overall accountability to the government, SARS, its partner communities, the public and the organisation’s donors is the responsibility of the governing body.  Just as in business, the governance of an NGO is critically important. 

Governing bodies of South African NPOs are known as:

  • Management Committees (Voluntary Associations)
  • Boards of Trustees (Trusts)
  • Boards of Directors (Non-profit Companies)


The Board does not involve itself in the operations or management of the organisation. It is important not to confuse governance with management. A useful distinction is to think about governance as determining the “what” – what the organisation does and what it should be in the future. Management controls the “how?” – how the organisation will operate to reach its stated goals and aspirations. Management, therefore, focuses on the operational side of the organisation, which is equally important.

Useful Resources

What is governance and why is it so important? – video
http://askinyathelo.org.za/what-is-governance-and-why-is-it-so-important/

Civil Society Accountability Principles and Practice South African Toolkit
https://commonwealthfoundation.com/wp-content/uploads/2013/06/Civil_Society_Accountability_Toolkit_South_Africa.pdf

Ensuring legal compliance

As a legal structure, it is necessary for an NPO to adhere to relevant legislation (some of these requirements are dictated by the Companies Act and the Income Tax Act, depending on how the organisation has been legally established). The Board is, therefore, responsible for legal compliance and for the ongoing review of legislation to ensure that the organisation is not in breach of current laws. Where organisations are also registered as a Public Benefit Organisation (PBO), the Board is responsible for ensuring that the organisation complies with all relevant SARS regulations.

The Board also holds responsibility for drawing up relevant governance documents for the organisation which outline how the organisation will operate. Included in these documents are the broad principles of basic internal structures as well as guidelines of how the finances and assets of the organisation will be dealt with.

Oversight of strategic direction and annual planning

The Board plays a very important role in annually reviewing, guiding and endorsing the strategic goals of the NPO. Critical to this process is evaluating the effectiveness of the organisation’s strategy in the previous year and reviewing future strategies that will create the greatest impact in light of a fast-changing world. 

Arising out of strategic decisions, the review allows for effective forward planning recommended by management relating to how the organisation will implement programmes and projects to achieve the chosen strategies and what is required for those programmes.  This ensures that fund-raising requirements are aligned with a clear sense of direction (what the organisation is wanting to achieve) and with a good justification for the resources it will need.

Financial oversight

The Board is responsible for ensuring that the organisation has the resources and funds it requires to do its work effectively. Equally, therefore, the Board also holds responsibility for monitoring how the organisation uses its resources and how it spends its money. It is for this reason that the Board is required to establish a financial policy and budget guidelines, which is in keeping with the spirit and founding mission of the organisation, and to which the organisation must adhere.

Monitoring financial resources 

Monitoring of financial resources is one of the main responsibilities of the organisation’s governing body and needs to be taken seriously as a pre-requisite for achieving the financial sustainability of the organisation. Many boards establish a finance and risk sub-committee so that a detailed focus on financial issues is undertaken.

Board members should:

  • ensure they understand and monitor the organisation’s budgets and expenditures;
  • assist in identifying funding sources and building and maintaining relationships with donors. Donors generally make grants to organisations in which they have confidence. Donors often rely on the credibility of Board members in their assessment of risk before investing in an organisation; and
  • consider the issue of building financial reserves as a strategy for ensuring the financial sustainability of the organisation as well as its resilience.  At a minimum, there should be adequate reserves to cover staff retrenchment in the case of downsizing or closure.

 

Appointment and oversight of CEO/Director

One of the most important decisions a Board has to make is the appointment of the organisation’s leader (Head/CEO/Director). In addition, the Board needs to monitor the leader’s performance agreement and key performance indicators that have been mutually agreed upon. 

Conducting programmatic review

While it is the organisation’s purpose and objectives outlined in its founding document that provide direction and focus for its work, it is important to note that they are also the basis on which the organisation’s programmes are planned.  A programme relates to the structures, processes and practices that have been put in place to deliver activities (which may be services, projects, campaigns, or research) that meet the needs of beneficiaries and, collectively, contribute to the organisation’s mission. 

It is worth remembering that because the Board has in-depth knowledge of the organisation but is generally not involved in the implementation or delivery of services, it is well placed to review the quality of service provided by the organisation and, therefore, to provide guidance and support for improvement.

Risk assessment 

The board has a role to assess, avoid and minimise any risks that the organisation is facing. Risks include financial risk, leadership succession, reputational risk, technological risks and safety. Ensuring policies are in place to mitigate risk is part of the board’s responsibilities. These can include approval of various organisational policies such as human resources, sexual harassment and conflicts of interest.

Ambassadorial role

The Board has a role in protecting and enhancing the public image of the organisation.

What Codes of Governance are appropriate for South African NPOs?

The Independent Code of Governance for NPOs in South Africa was developed by civil society organisations to promote good governance, high standards and best practice amongst NPOs. The Code represents a strong sentiment within the sector not to be regulated, either by the state or the corporate sector.

The Independent Code “consists of a set of principles, values and responsibilities intended to guide and inform the way that organisations are managed and conduct their affairs. It is also intended to serve as a standard or measure to assess performance and guide members of governing boards and others who carry responsibility for governance”.

The Code includes eight fundamental values to guide legal, fiscal and leadership principles for NPOs that signatories to the Code are asked to commit to.   Organisations wishing to subscribe to the Code may do so online at www.governance.org.za. Also to be found on this website are resources and mechanisms aimed at strengthening governing structures at NGOs.

Useful Resources

The Independent Code of Governance for Non-profit Organisations in South Africa

www.governance.org.za

King IV Report: Institute of Directors South Africa

The King IV Report on Corporate Governance for South Africa includes a supplement specifically for non-profit organisations ie Part 6.3.

It offers 16 key principles of good governance and points out that good corporate governance contributes to the success of an NPO as it enhances the functioning of its leadership structures and provides the arrangements by which the governing body should govern the NPO so that it is able to meet its strategic objectives. The particular benefits that could be derived from the good governance of an NPO include the following:

  • Added credibility and enhanced reputation.
  • Increased impact of activities and advocacy through stronger stakeholder relationships and more effective operational processes.
  • Access to funding, grants and loans on better terms.
  • The ability to leverage a wide pool of expertise for employment and volunteer work.
  • Better fraud prevention due to improved controls.
  • Business continuity arrangements that permit the NPO to operate under conditions of volatility, and to withstand and recover from acute shocks.
  • Leadership continuity through succession planning.

Useful Resources

King IV Report

https://www.iodsa.co.za/page/king-iv

How to identify, recruit and induct Board members?

The composition of an organisation’s governing body, such as a Board, varies enormously across organisations depending on the legal form of the organisation, the guidelines in the founding document and its structure.

There are generally four positions that exist in all boards:

  1. Chairperson, who oversees the functioning of the Board;
  2. Vice-Chairperson, who supports the chairperson;
  3. Treasurer, who oversees the organisation’s finances; and
  4. Secretary, who prepares and maintains all official board documents pertaining to the organisation.


Very often, the organisation will establish small sub-committees that will hold responsibility for specific tasks or projects such as a human resources sub-committee, a finance and risk sub-committee and a board recruitment sub-committee.

Useful resources

Basics of non-profit law in South Africa https://ngolawsa.co.za/the-basics/
NPOs: From Starting Up to Closing Down – a how-to guide to the relevant statutory and governance framework http://lrc.org.za/wp-content/uploads/pdf/2018%20NPO%20Guide_final.pdf
Nicole Copley, non-profit lawyer https://ngolawsa.co.za
Ricardo Wyngaard, non-profit lawyer https://nonprofitlawyer.co.za/index.php

Recruitment and induction

Recruiting new Board members that fit the values and culture of the organisation is critical to good governance. This should be an ongoing process for the Board as it is important in succession planning. Very often, new Board members in non-profit trusts or non-profit companies are selected by invitation but it is also possible to recruit through advertising or engaging with professional associations such as accountants or lawyers.  New board members bring new approaches as the organisation changes and responds to needs in the external environment that it serves.

New Board members who have not been part of the establishment of the organisation are generally orientated through an informal induction process. It is very important that they become familiar with

  • the role of Board members and their expected level of involvement;
  • the organisation’s purpose and objectives;
  • the legal and tax status of the organisation;
  • the financial systems and practices of the organisation, as well as the status of the organisation’s finances, at the time of joining;
  • human resources and remuneration practices; and
  • any contractual agreements that are in place with external stakeholders.


Potential Board members could be asked to attend one or two Board meetings before they are officially appointed. This will enable both the prospective Board member and the Board itself to evaluate whether this appointment would be appropriate.

Once appointed the new Board member should have an opportunity to meet the staff of the organisation.

An induction pack should be assembled that will provide all the appropriate information about the organisation.  This can include:

  • The founding document of the organisation
  • Short history of the organisation
  • List of current Board members with short resumes
  • List of senior management with short resumes
  • Audited financial statements for the past two years
  • Annual reports for the last two years
  • List of donors and amounts of their donations
  • Strategy and planning documents
  • Minutes of recent board meetings
  • List of future board meetings
  • NPO and PBO documentation
  • Any recent evaluations.


If requested, the following can also be included:

  • Important policy documents
  • Governance codes.

Skills and attributes of Board Members

When recruiting Board Members, it is important to think about the skills, attributes and expertise that people bring and be clear about how these will add value to the work and/or functioning of the Board.

Diversity is an important consideration. People of different races, genders and ages bring different insights, which are important for ensuring objective decision-making processes by the Board. Similarly, a person from the community in which the organisation works will bring a particular understanding and experience of particular challenges and issues that community members face. It could be hugely valuable for the Board to have access to such insight.

It is important for the organisation to undertake some due diligence when it comes to new Board members. This includes checking the following:

  • They have no criminal record.
  • They have the time to attend to the organisation’s affairs and attend meetings.
  • There is no conflict of interest with the organisation.

What is required of Board Members?

At a practical level, organisations need to be certain that they can rely on Board Members to:

  • attend Board meetings regularly; as a general rule these will happen four to six times per year;
  • read all documents before the meeting; it is critically important that Board members receive these documents well in advance to give them adequate time to read them. Documents will usually include a management and financial report as well as a background summary of any other important issue that needs to be discussed or agreed upon; and
  • be willing to use their time, skills, influence and contacts to garner support for the organisation and its work and thereby, ensure its long-term sustainability.

Do Board members get paid?

Board members of NPOs are generally not paid for their services. In some instances, they receive a small stipend but this is usually only intended to cover their travelling cost to and from Board meetings.

What is the role of the head of the organisation?

The Head/Director/CEO of the organisation is hired by the Board to lead and direct the organisation and to implement its strategies, policies and programmes, as approved by the Board. To be effective in this role, it is important and necessary that the Head of the organisation holds significant responsibility for giving strategic direction and for driving organisational development so that the organisation is indeed able to achieve its goals.

In this context, it is critical that a positive and productive relationship exists between the Board and the Head of the organisation, as it could influence the success or failure of the organisation.

At an operational level, the Head of the organisation is responsible for the day-to-day running of the organisation. This includes:

  • accountability to the Board;
  • leadership of the management team;
  • providing direction through anticipating change, innovation, identifying opportunities and decision-making in line with the organisation’s purpose and objectives;  
  • programme implementation in line with the constitution, purpose, mission and strategy;
  • implementation of policy decisions and directives of the governing body;
  • oversight, supervision, support and evaluation of programmes and operations;
  • accountability for administration, maintenance of records, files, archives, IT requirements and POPIA compliance etc.;
  • accountability for HR policies and procedures in line with legislation;
  • drawing up the budget together with the organisation’s financial administrator,  and developing a fundraising plan;
  • installation of financial controls together with the organisation’s financial administrator and stewards resources;
  • responsibility for ensuring that annual audits are completed;
  • fundraising;
  • building social capital with external stakeholders, including marketing, in order to attract the resources, funds, relationships and partnerships that position the organisation in civil society; and
  • providing adequate and reliable reporting to donors.

Useful resources

Leadership for Advancementhttp://askinyathelo.org.za/leadership-for-advancement/
What is the difference between leadership and management in a non-profit?https://www.boardeffect.com/blog/what-difference-between-leadership-management-nonprofit/

How often do organisations report to donors?

Reporting to donors is part of the organisation’s contractual obligation. If an organisation fails to report on time, it faces the real threat of a halt in future funding and it can also result in reputational damage.

Each report should be donor-specific and a response to certain requirements that the donor has stipulated. Some donors have forms that require completion, others require a number of attachments, whilst others leave the format to the organisation itself.

Besides being a contractual obligation, a report is part of donor care. It can be a way to thank donors, recognise their contributions and continue building the relationship between the organisation and the donor. A donor impact report can enhance relationships, transparency and accountability.

Reporting to donors needs to reflect the following:

  • Be clear about what progress the project (being funded)/organisation has made during the grant period.  How much of what you had planned to do have you managed to achieve?
  • Whether all the conditions of funding have been met. In your report, also address each condition that has not been achieved and provide your assessment of what exactly influenced this.
  • If monitoring and evaluation strategies were a condition of the grant, show/reflect on how the measurement criteria are being adhered to and/or how the impact is being measured.
  • Respect for submission dates. Make sure that relevant reports (reports that speak to the work funded or what you promised a community forum you would do) are submitted as promised.


What happens if things go wrong?

On occasion, something can go wrong in a project or programme. It is important to connect with your donor immediately to explain what happened and what the organisation will do to correct the problem. Do not wait as it is better that the donor hears from you than someone else who may not have the facts.

Useful resources

The Complete Guide to Donor Impact Reportshttps://www.wpcharitable.com/donor-reports/

Guides to help your NGO thrive

Navigating the technicalities of establishing, registering and running an NGO can be intimidating. We provide free guides to help your organisation grow and thrive. With easy-to-follow instructions on important topics from how to establish an NGO to governance, monitoring and evaluation, as well as useful tools and templates, we’re here to help you!

Are you looking to establish a non-governmental organisation (NGO) or searching for resources to strengthen your pre-existing organisation? We’ve curated a guide that will help you think through the legal, financial and technical questions associated with setting up and governing an NGO in South Africa.

Monitoring and evaluation (M&E) is essential for NGOs to determine how effective the work they’re doing is and identify areas of improvement. We’ve put together an easy-to-follow guide for all levels of experience including tips, tools and advice from experts.

Many NGOs may feel intimidated by the Protection of Personal Information Act (POPI Act or POPIA). To assist you, we have compiled a guideline that unpacks, in simple language, the most essential aspects of the Act that NGOs need to know and understand in order to take the first steps towards becoming compliant.