Nonprofits Warned To Comply With Law Or Face Deregistration

Nonprofits Warned To Comply With Law Or Face Deregistration. Thousands of South African nonprofit organisations (NPOs), many with long-standing community impact, are being urged to meet legal compliance standards as the Department of Social Development (DSD) begins a process to update its records starting at the end of October.

Non-compliant NPOs may face deregistration from the DSD’s NPO register. Organisations at risk of deregistration could see disruptions in government funding, negatively affecting their ability to maintain contracts, partnerships, and essential services in vulnerable communities.The NPO Working Group, a sector representative body, is calling on NPOs to retain their status by using the DSD’s available assistance to address compliance issues promptly.

The number of registered NPOs in South Africa has grown significantly, from the introduction of the Nonprofit Act in 1997 to 295,924 by October 2024. However, compliance remains low. The DSD reports that approximately 64,000 NPOs registered between 1998 and 2013 have yet to file an annual report, making them the initial focus of the deregistration process.

The NPO Act Compliance Standards

The NPO Act requires organisations to submit an annual narrative report of activities, financial statements, and an accounting officer’s report within nine months of their financial year-end. While the financial statements do not need to be audited, a professional accountant’s review is mandatory. Previous attempts by the DSD to update the NPO register and enforce deregistration have faced sector pushback.

Smaller and volunteer-driven NPOs have particularly struggled to meet compliance standards, often due to limited resources and difficulties with DSD systems. In response to concerns, the DSD implemented support programmes; however, lack of follow-through led to continued non-compliance issues.

Deregistration and FATF Compliance

The push for NPO compliance has gained urgency since South Africa’s placement on the Financial Action Task Force (FATF) grey list in February 2023. FATF targets countries with inadequate measures to prevent money laundering and terrorist financing. The perception that an unregulated NPO sector contributes to these risks has increased pressure on the DSD to enforce compliance with the NPO Act.

According to Nicole Copley, director of ngoLAW and member of the NPO Working Group, the FATF’s grey-listing has amplified the urgency for NPO compliance.

Deregistration Process and Phases

The DSD’s deregistration efforts will proceed in three phases, with phase one beginning on 31 October 2024. Following phases will be announced in 2025. The deregistration process includes:

• Initial notices to non-compliant NPOs, providing a month to file missing reports.
• A final deregistration notice after the initial month, with a one-month appeal period.
• Appeals to the Arbitration Tribunal for organisations contesting deregistration.

Resources and Support for Compliance

Since 2020, the #KnowYourNPOStatus campaign has aimed to help NPOs comply with DSD requirements. However, technology issues have slowed compliance for some, requiring the use of manual submissions. The NPO Working Group advises organisations to check their status on the DSD website and re-submit reports where necessary.

“Inyathelo encourages nonprofits to act swiftly,” says Feryal Domingo, Inyathelo’s Acting Executive Director and Chairperson of the NPO Working Group. “Review internal controls, submit outstanding documentation, and avoid the risk of deregistration.”Ann Bown, communications lead for the NPO Working Group, suggests NPOs submit affidavits in place of audited financial statements to fulfil DSD requirements affordably.