Ownership of NGOs
The hearings into the tragic deaths of 94 psychiatric patients after their removal from Life Esidimeni, and other facilities, to NGOs has brought issues of NGO governance and management into the public eye. In particular, the hearings have raised the prickly questions of ‘ownership’ of NGOs and of dealing with conflicts of interest.
These issues are interlinked, and are dealt with really clearly in the soon-to-be-published guide: “NGO Matters: Practical FINANCIAL MANAGEMENT for Nonprofits” written by Paul Tyler and Cathy Masters (with Nicole Copley). The following are two extracts from the guide, to be published by Juta:
• On ‘ownership’
“Myth: a person or group of people can own an NGO.
People often think of, and refer to, the organisation they started and/or run as belonging to them in some way. Some people have even ‘sold’ organisations, not understanding that a nonprofit can never be owned by any individual or group of persons. Nonprofits do not have shareholders. Even if there are members, there is no ownership. A nonprofit exists for a purpose and should function and be designed to outlast the people who serve it at any time.”
• On conflicts of interest:
A passionate drama teacher develops an innovative training programme and would like to use this for the development and support of unemployed youth. She also wants to offer the same training, for a fee, to others who can afford to pay. In order to be able to raise funds for the work with unemployed youth, she decides to set up a nonprofit organisation, through which the costs of the youth development programme can be donor-financed, but to also offer the same programme, for a fee, through her own business.
In this situation there is a conflict of interest, as the nonprofit could become a lucrative ‘client’ for the founder. To address this conflict, the organisation must have independent governing body members who would then collectively decide on how this, and any other, conflict of interest can be avoided or managed. They will bring independent judgement to bear on the choice of providers of the relevant youth development and support activities and the awarding of contracts.
While it is not wrong for a nonprofit to pay a reasonable fee for services rendered to it, an organisation needs to guard against corruption, if it provides jobs or contracts for the founder, or friends and/or family contacts and businesses of the founder. No guarantee should be offered that an organisation will be obliged to use any particular service provider or provide employment to any person, even the founder.”
Our view is that, if those who establish and serve an organisation understand that the organisation, and the work it does, do not belong to them in any way, there is a clearer path for dealing with conflicts of interest.
Please contact us for further advice around governance of NGOs and how to manage the risks around conflict of interest. Just the appearance of conflict of interest can seriously damage the reputation of an organisation, leading to loss of credibility, reduction in support and accusations of corruption.
To purchase the guide, and the other useful titles in the NGO Matters series, please follow the link https://juta.co.za/products/ngo-matters/
Cathy Masters BCom (Hons) CA(SA) and Paul Tyler BSC (Hons) FCA
Cathy and Paul from CMDS are Chartered Accountants who have worked in the non- profit sector for many years. They understand the financial, tax and legal issues facing the sector and are also experienced trainers who are passionate about sharing the knowledge that comes from their many years of experience.
CMDS is a specialist financial management consultancy for non-profit organisations advising, training and supporting a diverse range of NPOs since 1987, from small CBOs to international funding agencies
Nicole Copley (BA LLB LLM-tax) (Non practising attorney) NGOLAW: Specialist consulting to the non-profit sector
Nicole Copley is an NGO lawyer who has worked in the NGO sector since 1993: setting up organisations, drafting and amending founding documents, obtaining tax exemptions and NPO registrations, and providing advice and assistance to NGOs. Her background is in business law, and she also drafts and checks agreements for her clients