Accounting weekly

NPOs Are in Crisis: Here’s How to Make Them Resilient

In South Africa, NPOs make as many headlines for helping people as they do for being non-compliant or looting lottery money. Quinton Simpson, former head of ACCA and veteran in the NPO sector, shares his plan to create value in the NPO space.

Understanding the crisis: Too many NPOs exist for the wrong reasons

There are over 230 000 NPOs in South Africa, most are non-compliant. Quinton Simpson, an NPO consultant, believes that this vast number is linked to the unemployment crisis. “I think there’s an idea that unemployed people may be able to extract funding from the government if they propose a solution to the social dynamic problems.”

NPOs are also often a conduit for corruption, notes Simpson who is currently writing a book on the NPO crisis. Ongoing reporting published in GroundUp has revealed multiple instances where National Lottery funding given to NPOs has been looted instead of being used for public benefit.

SAIBA is committed to helping turn around the NPO compliance situation through its members volunteering their time to get NPOs compliant through its NPO Assist program.

The supply and demand mismatch

Simpson says that, in addition to too many incapacitated NPOs, there is a supply-demand mismatch. “If you go and see where the big chunks of foreign donor funding is directed at, it’s healthcare. And then you look at the NPOs that we’ve registered. They’re all in basic education in the communities, and providing food for the poor, so they’re literally not in line with where the need is.”

A similar dynamic exists with corporate CSI spending. Large companies are increasingly donating to NPOs which provide services or goods that ultimately are useful to the corporates. “Take the mining sector, they need overalls for their workers. So they’ll create a project where they give out money to an NPO (assisting with making textiles), but in return those overalls come back into the system,” says Simpson.

How to build NPO resilience:

Step 1 Make registration and enforcement more rigorous

“The fact that NPOs get registered, that’s for me the beginning of the problem,” says Simpson. “Once they submit the registration papers, they should indicate in what segment they qualify. Are you a foundation, self-funded? Where is the proof of funding? If you are a medical doctor, will you get your funding through expertise? If you say, ‘I have a calling to make a difference in society’, then you have to demonstrate how you’re going to become self-sustainable.”

“I would not be afraid to close non-compliant NPOs down,” says Simpson.

Step 2: Consolidate by setting up a membership body system

The model that Simpson has in mind will be familiar to accountants. He believes there should be a few membership bodies that provide assistance and enforce standards. Not dissimilar to how the membership bodies like SAIBA operate in the accounting space.

“I’m not one for over regulation, but I’m also not one for wasting resources,” says Simpson. He instead speaks about the need for ‘impact driven regulation’. “If you look at the 213 000 registered NPOs, if you go test, I’d estimate potentially 10% of those should be NPOs. You can’t go and capacitate them all because they’re just so far removed from being fundable.

“It’s like sending a Standard 3 child to university.”

Step 3: Unleash potential funding

Simpson sees new opportunities opening up thanks to this consolidation. “We can go as a consolidated unit to, for instance, USAID or wherever and get funding. This will break that dynamic that only the old school big NGOs in South Africa get most of the major funding.”