The contribution of government in an effective regulatory system

Diagram of The Regulatory Bridge
Sector Self-accountability Government Public / Funders

The establishment of an effective and enabling legal and regulatory framework for the NGO sector is crucial for the development of a healthy NGO sector in a country. The unique advantage of government regulation is that it can impose comprehensive regulatory requirements and meaningful legal penalties for non-compliance. However, the capacity of government to effectively regulate the entire sector is limited. This section explores different solutions that have been identified.

Considering different models for effective regulation

A variety of models for NGO oversight have been adopted internationally. The main distinctions are in the number, specialisms and status of the regulatory body(ies): 

  • Are there single or multiple regulators?
  • Is the regulator(s) the tax authority, a ministerial body or a specialist NGO regulator?
  • Is the regulator a government body under the direction of a minister, a government body that is not subject to ministerial oversight (an independent decision-maker) or a non-government body?

More details on the various models are provided below. Each of the models have inherent advantages and disadvantages, but their success or failure in practice is also dependent on how they are implemented and issues such as resources, expertise, clarity of regulation and public and sector trust.

Government:

Where a government agency is the regulator.

Tax-based model: e.g. Canada (the Canada Revenue Agency). In Canada, the Canada Revenue Agency (CRA) is the gatekeeper for charitable status. Registered charities are exempt from paying income tax and can issue receipts for non-refundable tax credits to individuals who make donations to them. The CRA makes decisions on applications for registration based on the law, reviews applications for registered status, receives and processes annual information returns, and provides information on registered charities to the public. It also develops interpretations and guidance based on the law and audits registered charities to ensure compliance with the provisions of the Income Tax Act.

The tax based model is adopted in a number of countries worldwide (Singapore is another good example). The advantages are obvious for countries where NGOs receive tax benefits. There is a consolidation of regulation in one body. The weakness is that the tax agency's speciality and primary interest is assessing tax exemption. It is not necessarily the best qualified agency to adjudicate or advise over non-financial matters. 
 

Court-based model: e.g. England and Wales (the Charity Commission). In England and Wales, the Charity Commission is the gatekeeper for charitable status. Its aim is “to provide the best possible regulation of charities in England and Wales in order to increase charities’ effectiveness and public confidence and trust”. The Commission’s three main functions are: advisory (the Commission provides general and bespoke advice to charities on legal requirements and best practice); regulatory (the Commission registers and monitors charities and enforces compliance with legal requirements) and legal (the Commission has powers equivalent to the Courts in relation to charities, which it can use in an enabling or protective manner).

The Commission is part of government, but it is a non-ministerial government department. The Commissioners' (the Charity Commission's Board members) duty is to fulfil the aims of the Commission as established by law (in the Charities Acts 1993 and 2006) and it is answerable to the courts for its decisions. It is therefore independent of both the political process and the charitable sector.

The Commission is funded by Parliament and the the Commissioners are ultimately accountable to Parliament for funds spent. As such the Commission is publicly examined periodically by the Parliamentary Committee on Public Accounts.

Government / Non Government Partnership:

Where the government has entered into a regulatory partnership with one or more sector representatives.

Kenya: The NGO Co-ordination Act, 1990 (the Act) provided for the creation of a self-regulatory body for NGOs (the National Council of NGOs) alongside a Government oversight body (the NGOs Co-ordination Board). The NGOs Board was established to oversee the registration, coordination, monitoring and evaluation of NGOs in the country and their role in national development. The NGO Council’s primary objective was to develop a code of conduct for the enforcement of self-regulation in the sector. The NGO Council has significant representation on the NGO's Board: 8 of the 21 Board members are recommended by the NGO Council.

Non Government:

Where the government had charged a non-governmental body with specific responsibility for aspects of regulation.

Philippines: the Philippine Council for NGO Certification is an NGO established by the sector in response to government threats to remove NGOs' favourable tax status. The tax authorities agreed that their activities were beneficial and that they attained certain standards in governance, accountability and transparency. Advice is provided to non-compliant NGOs to help them comply in the future. NGOs must reapply after one, three or five years.

Pakistan: the Pakistan Centre for Philanthropy's (PCP) Nonprofit Organisations' Certification Programme aims to facilitate credible nonprofit organisations in diversifying their resource base and expanding their programmes for social development. Certification is a 'seal of good housekeeping' for organisations that exhibit exemplary standards in organisational effectiveness. This is based on an independent and objective evaluation of the nonprofit organisation in critical areas of internal governance, financial management and programme delivery. The programme seeks to set sector-wide standards and incetivise adoption of 'best practive' in these areas. Certified organisations are promoted by the PCP through its website and databases - helping donors and the government in identifying partners for social development. Certification also forms the basis for the nonprofit organisations to claim tax benefits. For those organisations that fail to meet the standards, the PCP builds linkages with specialised capacity building organisation that help the organisation build its capacity to meed certification standards. 

More information on non-government regulation.

 

A number of countries are reviewing their models, with an increasing interest in the single, specialist and autonomous regulatory model typified by the Charity Commission for England and Wales. Several countries (for example New Zealand) have recently adopted, or are set to adopt, this model.