Once an organisation receives public benefit status and does not pay tax on its income, how transparent should the public expect it to be? Contrary to the US, in South Africa people prefer to undertake their philanthropy under the radar.
There is currently a major debate about philanthropic accountability, with calls to “shift the power” away from top-down philanthropy towards more engaged decision-making, taking into account the views of communities beyond the strategies and objectives of private philanthropy.
Investing donor money into communities is not only the activity of private philanthropy, but also corporate social investment, international aid organisations and government grants. The general public often lumps all these grantmakers under the rubric of philanthropy. Yet there are differences and these can be important.
For many individuals involved in private philanthropic giving, the question is “whose money is this anyway?” People want to have the choice to give their own post-tax money to their own passions – whether it is saving the rhino, bursaries at specific universities or investing in technology and innovation. For this they can also receive a tax benefit in terms of 18A of the Income Tax Act.
Yet others with dreams to make a difference go the extra mile and establish permanent philanthropic foundations and charitable trusts. The founders will define the objectives of the entity, it will be registered as a non-profit organisation and will obtain public benefit status so that it doesn’t pay tax on the donated funds. Members of the founding family may serve on the board of the foundation and, keeping costs very low by not having any further infrastructure, follow their own passions when it comes to where the funds go.
Other foundations are more professionalised and employ staff and advisers to assist with grantmaking decisions, deploying strategies for societal change and assessing how best to make an impact. Yet, frequently, the founders believe that the money is still theirs to decide how best to be spent.
Private foundations in South Africa have increasingly moved away from responding to written funding proposals submitted by civil society organisations and tend to seek out their own partnerships in line with their objectives. There are complaints from the non-profit sector that it is difficult to make contact and sometimes there is simply no information on the web about how to connect and what interests the foundation has. This is where complaints about transparency and accountability are founded.
The fact is that once money has been transferred to a foundation, it is no longer the property of the individual donor. A charitable trust or foundation is an independent entity and a separate juristic person. Essentially, the money is no longer under the control of the founding donor, but is now under the control of a governing board. That board may have members of the family serving on it, but in time other directors or trustees are appointed, especially to fill certain functions that the family may not have, such as someone with legal, governance or financial skills.
Presently many South African philanthropic foundations established decades ago no longer have representatives of the original family on their boards and are governed by either volunteer board members or paid trustees/directors.
Other foundations are created as a result of a bequest and the individual may well designate specific people to serve as trustees/directors to ensure that the objectives of that bequest are met. With no family members on the boards, there is the potential that the chosen trustees continue operating a low-budget foundation while receiving fees for running the foundation without any accountability. While the world may be changing radically, these foundations are at risk of being run by the same people for decades and there is no change in their grantmaking focus or the way grants are made.
The question then is around transparency. Once an organisation receives public benefit status and does not pay tax on its income, how transparent should the public expect it to be? Should the foundation’s founding document, the names of board members, whether they are paid, details of its grants, the cost of its overheads and its audited financial statements be made available to the public as they are in the US, for example?
Contrary to the US where people publicise their philanthropy almost to the point of competition, South Africa is a country where people prefer to undertake their philanthropy under the radar and there is the fear that demanding this level of transparency may well affect the willingness of high-net-worth individuals to establish foundations during their lifetimes.
Among the key institutions in South Africa that hold millions and possibly billions of philanthropic rands are the banks. These trusts are often part of a bequest, but also can be a way of avoiding tax. Yet there is no transparency and accountability with regards to the trusts that are meant to disburse philanthropic money.
The business of banks is to make a profit and it is to their advantage to ensure they offer a full service to their clients, including philanthropy. This brings more money under management and earns trustees’ fees. Grantmaking is not the core business of a bank and the public does not know if the banks do this well or not. The public has no idea if grants are actually made, if care is taken to adapt these trusts to a changing world, if changes are made to trust documents when they are no longer appropriate (such as trusts that may limit beneficiaries to a particular race) or if grants are just made to the personal connections of the bank trustees.
How do we know that expenditure has been made in the public interest; how do we know if there has been no personal gain enjoyed by the founders and fiduciaries; how do we know if the funds have been used solely for the fund’s stated objectives for which it received tax benefits? We simply don’t know. Since all these trusts held by banks are public-benefit entities, the public has a right to know.
What does the public do if it becomes evident that there may be issues with how a foundation is being run? For example, what if trustees are earning excessive fees, affecting the ability of the foundation to make grants? What if grants are continually made to organisations that are ineffectual or where relatives are working? What if attempts are made to channel donations for the benefit of a favoured individual rather than the public? There is no ombudsman for the non-profit sector, and that includes philanthropy. How far do we want the government to control philanthropy?
This leads us to the question as to how far do we keep philanthropy away from the government? The current trend is collaboration: philanthropy working with the corporate sector, aid agencies and the government to achieve commonly agreed outcomes. Yet philanthropy is extremely diverse and includes a range and even networks of entities that put their resources to the grindstone to deal with perceived problems faced by society. They often view those problems in ways that differ from the government, but also in ways that differ from the people in the communities that are affected by their funding.
When we hear Gwede Mantashe complaining about philanthropy being the equivalent of a foreign agent, it is this different perspective that bothers him. Philanthropy is indeed a source of money used for the public good that often differs from the priorities and interests of the government (or a governing party) and this could be a good thing.
We are living in a country where governance and accountability are very thin on the ground. It would be wise to develop a framework to ensure that our civil society and philanthropic sector can show standards of governance and accountability that could be emulated by the government.
Ten years ago the civil society sector developed the Independent Code of Governance for Non-Profit Organisations in South Africa. This could be revisited to ensure that we move with the times and that levels of accountability are enhanced. It is perhaps better to self-regulate than to wait for the government to fill the gap.