In August 2023, sustainable solutions provider Phambano Technology Development Centre reported findings and insights from its study, “The State of Due Diligence in South Africa”. The results support Food & Trees for Africa’s (FTFA’s) long-held view. The South Africa’s nonprofit sector must step up its game if it wants to change our country’s social landscape significantly.
Accountability through due diligence
One of the most complex challenges currently faced by non-profit organisations (NPOs) is demonstrating that they manage their resources efficiently and do not deviate from accomplishing their mission. Historically, there has been a lack of accountability within South Africa’s NPO sector and research has noted the extraordinarily high number of unregistered nonprofits operating in the country. This has led some to see the sector as an opportunity to make easy money, free from checks and balances.
The apt acronym for Phambano’s Standard Tiered Evaluation Process (STEP) urges nonprofits and funders to move forward with their governance, risk management, and compliance processes, in order to address these and other concerns. STEP is a localised due diligence platform. It provides nonprofits and funders with a 360-degree view of these critical facets of their operations.
This has never been more important, with a number of recent regulatory changes relating to the NPO, Trans-property Control, Companies, and Financial Intelligence Centre Acts already in operation. “Organisations should have engaged with those changes. They should have introduced mechanisms now to comply,” stated legal practitioner Ricardo Wyngaard in the webinar discussing the study findings. “This changing landscape requires increased NPO due diligence… the road to compliance is not an easy one.”
Getting ahead of the compliance curve
Wyngaard noted that it’s not enough to simply state your compliance. It is essential to record what you have done and demonstrate that compliance – an area where most NPOs in South Africa currently come up short.
“Organisations that deal with the issues of increased compliance obligations now will be ahead of the curve; it’s all about collecting information, especially for NPOs,” Wyngaard emphasised.
“FTFA is registered at the Department of Social Development as a public benefit organisation (PBO) and, as such, we have stringent compliance and auditing procedures to ensure that our books are open, that they are accessible, and that the transactions are transparent,” says Robyn Hills, FTFA head of programmes.
“Because of our PBO status, which was put in place before the new regulations came into play, potential corporate donors know they can rely on a legitimate 18A tax certificate from FTFA,” she continues.
“The trust in that partnership, that collaboration, and that transaction facilitates a situation where our expertise will be able to positively impact the beneficiaries with whom we work. It means that the impact we report on for environmental, social, and governance (ESG) and for annual reviews are as high, as robust, and as effective as possible.”
Building strong relationships through transparency
The study reported that most funders prefer internal, robust due diligence for their own best practice, taking a customised approach with different levels of compliance depending on the grant size in question. They are also usually willing to adjust these strategies in response to evolving circumstances and the information they receive.
This shows that through effective due diligence of their own and transparency in terms of what is being done with a funder’s money, nonprofits can build stronger relationships with their funders based on trust and flexibility. These stronger relationships can also help to speed up processes like grant reviews and verification, as there is already a foundation of trust that has been laid.
“Transparency is critical,” stresses Hills. “For example, FTFA is open about the fact that we currently rely on just 20% of all our donations to cover office costs, salaries, communications, management and reporting, compliance, audits, operations, and things like electricity costs and printing. All of these costs add up, but many organisations are not clear about what money is being spent where.”
Wyngaard further pointed out that peer review between funders is common, so the types of relationships NPOs build with their partners will affect their reputation throughout the funder ecosystem.
“More and more companies are coming to realise the benefits of choosing FTFA as an implementation partner for their ESG programmes and CSI,” says Hills. “We are fortunate to have strong relationships with several dedicated funders. These corporations fund the planting of thousands of trees, help to develop hundreds of community food gardens, provide core mission support for our EduPlant programme, and sponsor farmer mentorship programmes across South Africa.”
Forbes Nonprofit Council member Sarah Evans notes that the nonprofit sector has done a poor job of educating donors about what real programme success looks like “For the most part, nonprofits are acting on already proven or quickly proven concepts. Research and development investments are difficult to justify when the parameters of charity rating platforms preclude spending on efforts outside of the mission and without short-term results. We do this because we’ve been sending the wrong message to our donor base,” she explains.
Sending the right signals
NPOs need to be able to show financial donors and the wider public that they are trustworthy and committed to making a difference, but also that they deliver on their promises. The best way to do this is to maintain open communication channels with all stakeholders.
Evans points out that real impact can only be gauged from results over time. Being able to measure this impact (including the impact of donors’ money) requires additional spending and organisational capacity, inflating the true cost of an initiative. Studies have shown that the transparency of NPO operations and the engagement of stakeholders strengthen relationships and help to secure these much-needed resources.
Research further highlights the fact that, confronted by the complexity of our development challenges, one of the biggest failures in the nonprofit sector is a lack of communication, trust, common purpose, collaborative leadership, and sustainable relationships between the various sectors and stakeholders in development.
The solution to this failure is to ensure compliance, by doing your due diligence and adhering to the essential management concepts of transparency and good governance to keep all stakeholders in the loop.
