The Charities and Societies Proclamation refers to three stages in the coming into operation of charities and societies except charitable committees. These are: formation, registration and licensing. Formation refers to the early stage where the situations necessary for the coming into being of the charity or society as an entity are put into place. The most distinct feature of this stage is that the charity or society does not have legal personality during this stage, which usually takes a period of three months. As such, its capacity to engage in acts with legal consequences (juridical acts) is limited. Most notably, it is limited in its capacity to raise funds. This stage reaches its end either upon registration or when the charity or society ceases to exist for failure to apply for registration.
The next stage in the life of a charity or society is registration which may be considered the most important stage since the very existence of the organization commences with registration. Upon registration, the charity or society acquires legal personality thereby becoming a subject of rights and duties. In other words, the merely formed entity acquires the capacity to engage in acts that have legal consequences such as entering into contracts. For a charity or society this translates into the capacity to start working towards its objectives by engaging staff and implementing activities. Unless the charity is dissolved reasons stipulated by law, it maintains its legal personality for an indefinite period of time.
However, the act of registration and consequent acquisition of legal personality does not enable the charity or society to start realizing its capacity to engage in juridical acts. For that it requires a license. Licensing is the process through which the charity or society gets a certificate permitting it to operate in its identified area of operation and engage in activities/projects designed to achieve its establishment objectives. While the initial license is normally acquired upon fulfillment of legally stipulated conditions, the license certificate has to be renewed periodically.
The subject matter for the current short article is two-fold: the requirements for the renewal of licenses for charities and societies; and, the interplay between these conditions and the conditions set by sector administrators for the signing of project agreements and by donors for funding.
Requirements for Renewal of License
The renewal of licenses is to be conducted by the Charities and Societies Agency upon application by the charity or society after completion of three conditions. The first condition and second condition refer to the simple matter of payment of renewal fees, and submission of complete and accurate performance and audit reports respectively. The third, on the other hand, encompasses a broad spectrum of conditions represented by adherence to the provisions of the Proclamation or Regulations or directives issued thereunder. In other words, the Agency can deny renewal of the license where it determines that the applicant charity or society has violated any provision of the CSP, CSR or the various directives issued by the Agency.
The Charities and Societies Agency has subsequently issued explanations on the requirements for renewal of licenses. According to information available from the ChSA website, the following are the cumulative requirements stipulated (edited for language):
- Approval of the activity and audit reports of the charity or society for the previous three /3/ years;
- A finding by the Agency ensuring that the charity or society has not violated the provisions of the proclamation, regulations and directives issued to implement the proclamation, orders given by the Agency, or its own regulations;
- Submission of the activity and financial plans for the next three (3) years has been prepared in line with article 20 of directive eight issued by the Agency and approved by the board or executive of the Charity or Society;
- Submission of a project agreement entered into between the charity or society and the appropriate government body;
- Submission of proof of payment of taxes to the revenue and customs authorities and,
- Payment of license renewal fee of ETB 400.
While all of these requirements could be traced to the provisions of the proclamation or subsequent regulation and directives, two appear to have become issues of concern among the 1804 charities and societies having to renew their licenses during the current fiscal year.
The first is the need to submit activity and financial plans for the coming three years. The rationale for this requirement is understandable in terms of ensuring the sustainability of the organizations and predictability of their activities as well as encouraging them to take control of their operations. This will also reduce donor dependence which appears to be a serious issue especially for Ethiopian resident charities and societies. However, the requirement does not appear to fully take into account the current realities defining the relationships between the organizations and their donors. Even under the most ideal conditions, few if any organizations could predict the availability of funding for pre-determined set of activities for more than a year in advance. In most cases, organizations are expected to respond to calls for proposals advertised by donors for project funding rarely extending beyond one fiscal or calendar year. Thus, while the idea of a three year operational plan is commendable, it would be practically impossible to adhere to in any realistic way.
The requirement also raises another more practical issue relating to the sequence of the process involving licensing and fund raising. Generally, donor organizations require that the organization be appropriately licensed for the proposed implementation period of the project to be funded. This has to be done in advance. We are here talking about eligibility to submit a proposal in response to a call for proposals or other funding process. The actual release of funds could not be contemplated without fulfillment of this condition. As such, the charity or society in question cannot be expected to come up with a realistic financial plan for a period of three years in advance.
The second requirement for renewal of license that raises similar but distinct questions is the need to submit a project agreement entered into between the charity or society and the appropriate government body. Assuming that this is a reference to completed projects or projects under implementation at the time of application for licensing, the requirement would appear redundant. If, on the other hand, the project agreement is to be sought for future projects to be implemented in the coming three years, the charities and societies in question would face two major problems. First, they would have to seek agreements with government bodies for projects that may or may not be actually implemented since they cannot adequately foresee the availability of funding. In this case, they would be setting themselves up for serious measures and sanctions for failing to abide by their project agreements. Secondly, understood as such, the requirement does not appear to take into account the practice among sector administrators in terms of conditions for signing project agreements. These requirements that have to be fulfilled prior to the signing include a valid license as well as committed funding for the projects to be implemented. This would be logical since the government body in question is interested in aligning the planned projects with its overall development plans and ensuring that the necessary resources are in place. As such, the charity or society is locked into two levels of mutually exclusive conditions: you need a valid license to get a project agreement and a project agreement to renew your license.
In short, charities and societies are required to submit costed three year operational plans and agreements with sector administrators to secure renewal of licenses. Sector administrators on the other hand require a valid license and proof of project funding to sign the agreements. Donors on their part require a renewed license (as well as an operational agreement) to provide funding. This set up has created a situation where a charity or society falls into a vicious circle of requirements preventing it from operating. This could also become an existential issue for the organization since cancellation of license or insolvency due to lack of funding could result in dissolution.
Although further study and deeper analysis may be required to get to the bottom of the issues, the apparent disparity in the requirements for renewal of license could be traced to two factors. First, this fiscal year marks the first batch of charities and societies that have implemented activities for a period of three years since registration or re-registration in 2010 thereby required to renew their licenses. As such, gaps and problems are bound to arise in the practical implementation of the applicable rules. This is especially true since the initial process had accommodated registration and licensing as conjoined processes. Secondly, the practice to date has yet to harmonize the respective requirements by the Agency, the relevant sector administrators and donors in terms of exercising their roles in regulation and funding. Taking into account the multiple and concurrent accountabilities of charities and societies, this is to be expected.
Finally, resolving these problems would require a range of measures by the Agency, sector administrators and donors to deal with the problems as they arise and put in place coherent approaches for the future through a process of consultation involving all stakeholders.
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