Nonprofit Organisations Certification Model Pakistan for
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Nonprofit Organisations Certification Model Pakistan for
Nonprofit Organisations Certification Model Pakistan Centre for Philanthropy NPO Certification Model Index Section 1 - Overview a. NPO Certification - An Introduction 1 b. Pre-requisites 7 Section 2 - Evaluation Standards a. Internal Governance 13 b. Financial Management 23 c. Programme Delivery 29 Section 3 - Appendices Appendix I. Certification Process 37 Appendix II. Certification Process Flow Chart 39 Appendix III. Field Evaluation Process Flow Chart 41 Appendix IV. Certification Committee & Panel 43 Overview NPO Certification - An Introduction Pakistan Centre for Philanthropy (PCP), established in 2001 under section 42 of The Companies Ordinance, 1984, is an independent, nonprofit, support organisation created to facilitate collaboration among the philanthropists, nonprofit organisations (NPOs) and the government for social development in Pakistan. It is led by an independent Board of Directors, comprising eminent citizens and leaders from the corporate sector and civil society. Its mission is to promote the volume and effectiveness of philanthropy for social development in Pakistan. The Centre runs a number of programmes to achieve its objectives. The NPO Certification Programme is its flagship programme. The certification regime developed by PCP in 2002-03 endeavours to set sector wide standards of good internal governance, transparent financial management and effective programme delivery. The purpose is to strengthen the civil society by bridging the information and credibility gap that exists between the donors and recipient organisations. The Government of Pakistan in the Revenue Division authorised PCP as the first NPO Certification Agency vide notification no 1116(1)/2003 dated December 18, 2003. An organisation may wish to obtain certification for enhancing its credibility in the wider public (including donors) view or for obtaining tax benefits from the Federal Board 1 of Revenue (FBR) or for both. The Certification Model (which contains the standards and process of evaluation) applies in either case. PCP's certification focuses on the examination of structures, systems, procedures and processes put in place by an organisation to deliver the services it promises and to ensure sustainability of its programmes. It falls beyond the mandate of certification process to evaluate the degree of success of programmes except to the extent it is reflected in the standards of programme implementation. viz these provisions and submit its observations and recommendations to the NPO concerned. 3) PCP's Certification Model consists of standards organised in three categories (Section II) against which an NPO is assessed. The three categories relate to NPO's internal governance, financial management and programme delivery. 4) Fulfilment of these standards fetches scores for the NPO. A maximum score is assigned to each standard. In most cases, score assigned to a standard is further divided into smaller components depending upon the ingredients of the standard and various aspects like degree of compliance etc. Wherever expressly provided an NPO is assigned score on a standard on a defined range. The maximum attainable score for all standards is 1000. Details of these standards and the scoring system are given in Section II. An NPO must attain a total score of at least 600 and a minimum 50% score in each individual category to be certified by PCP. 5) Applicability of standards varies according to the size of the NPO. This is highlighted in the second last column of each table of Section II. For this purpose, the NPOs are divided into small, medium or large organisations as 3 under : Some important points about the certification regime are given below: 1) The pre-requisites for consideration of an application for PCP certification are contained in Section I. An application by an NPO will only be processed if it meets these requirements. 2) An NPO applying for certification for the purpose of availing tax benefits (under Section 2(36) read with Section 61 and/or under Clause 58 of the llnd Schedule of Income Tax Ordinance, 2001) must also comply with the requirements of the Income Tax Ordinance, 2001 and the Income Tax 2 Rules, 2002. Although it is the prerogative of the relevant authorities in the FBR to finally check an organisation's compliance with these requirements, PCP will also examine the applicant organisation's status viz a 1.The term FBR, wherever used in this Model, also includes its field offices, unless the context provides to the contrary. 2.Relevant provisions from the Income Tax Ordinance, 2001 and the Income Tax Rules, 2002 are available on PCP web site (www.pcp.org.pk). 3.This categorisation of NPOs derives from the general consensus of various stakeholders expressed in the consultative process that led to the development of this Model. 01 NPO Certification-An Introduction a) b) c) If the average of total annual receipts of an NPO during the last three years is less than Rs. 1.0 million, it is a small NPO; any branches or facilities/ outlets) on a mutually convenient date) involves examining the field records; reviewing programme delivery; and meetings with governing body members, the executive head(s), and managerial and programme staff of the organisation. A brief beneficiary feedback survey is also conducted. If the average of total annual receipts of an NPO during the last three years is more than Rs. 1.0 million but less than Rs. 5.0 million, it is a medium NPO; and If the average of total annual receipts of an NPO during the last three years is more than Rs. 5.0 million, it is a large NPO. 6) In case a standard (or its component) does not apply to an NPO being evaluated, marks will be assigned on a pro-rata basis for such not-applicable standard (or component thereof). b) The Desk Review of the applicant NPO is conducted first. If the organisation meets the prerequisites as contained in Section I, its application is processed further. If not, the application is returned to the organisation and the reason(s) for doing so are specified. c) If the organisation has applied for certification for seeking tax exemptions, its compliance with the tax related provisions given in Section I is also checked. If the organisation complies, PCP proceeds further with the evaluation of the organisation. If not, the application is returned to the organisation and the reason(s) for doing so are specified. 7) Appendix I, II and IIl display the workflow of certification process. These charts indicate that: a) When an NPO applies to PCP for certification, a 2-member team of evaluators is assigned to the case. For the purposes of evaluation two basic instruments are applied – the Desk Review and the Field Evaluation. Desk Review involves examination of application and supporting documents furnished by the NPO. The Field Evaluation (comprising a visit to the organisation (including d) The NPO's case is then assessed and scored against standards contained in Section II. Once the Desk Review is completed, Field Evaluation of the organisation is conducted and the NPO is awarded score on relevant standards. e) Both Desk Review and Field Evaluation, evaluate the NPO's performance in achieving its aims and objectives during the last three years. f) On the basis of such evaluation, a detailed report about the organisation is prepared. This report contains an assessment of the NPO's performance in the areas of internal governance, financial management and programme delivery, the scores obtained by the organisation on all the standards and its financial highlights over the last three years. g) Once finalised, the report is shared with the concerned organisation and its comments/ observations/ reservations/ feedback on the report are duly considered. h) The assessment report along with the feedback received by the organisation is then placed before the Certification Panel, which is the final authority to grant or refuse the certification application of an NPO.The Panel is a five-member independent body, three of which are nominees of the PCP Board of Directors and two represent the Government of Pakistan.4 The 4.The Board nominees for the Certification Panel are not members of the Board. Instead, the Board has identified persons of acknowledged professional eminence and integrity to sit on the Panel. The two representatives from Government of Pakistan are ex-officio members. Chairman, National Council of Social Welfare and the Chief Direct Tax Operations, FBR represent the Ministry of Social Welfare and the FBR respectively. (List of Panel members is given in Appendix IV). 02 NPO Certification-An Introduction Certification Panel deliberates upon the report and recommendation of PCP 5 and examines the comments received from the organisation. The Panel may or may not concur with PCP's recommendation in any given case or it may send the case back to PCP for re-evaluation. i) j) If the Certification Panel decides to grant an applicant NPO certification, PCP issues a certificate to the NPO in the prescribed format. If, however, the Certification Panel decides to refuse the application for certification, it will advise PCP to regret issuance of the certificate to the NPO. The Panel may also decide to defer the NPO's application for certification for a certain period of time – ranging to a maximum of 1 year. This provides the NPO concerned an opportunity to make up some of the deficiencies and qualify for certification. In case of either deferral or rejection, the Panel's reason(s) for doing so are also duly recorded. T h e P a n e l m a y, o n P C P ' s recommendation or the NPO's request or on the basis of its own judgement, defer its decision regarding an organisation. However this deferral is for a period not exceeding one year. k) I) Once an organisation has been certified, PCP designs its web profile and places it on the Centre's website. The profiles are derived from the evaluation conducted and prepared in consultation with the certified NPO. PCP periodically publishes these profiles in the form of a Directory of Certified NPOs. In the event of applying for tax exemptions the NPO is required to furnish the certificate and the detailed evaluation report to concerned FBR authorities along with other required documents. 8) Every effort is made to complete the process of certification within 10-12 weeks of the NPO furnishing its duly filled in application. This, however, might take longer in case of NPOs that do not furnish the required documents in time or if the field visit to the applicant NPO is delayed due to unavoidable circumstances. 9) Certification is valid for three years following the date on which certificate is issued. All subsequent renewals of certification are also valid for the same period of time. The renewal is based on a fresh evaluation. 10) A certified organisation should apply to PCP for renewal of certification within three months of the expiry of validity of certification earlier granted. 11) PCP informs the FBR and any other Certification Agencies of the names of certified, deferred and rejected organisations, immediately after the Panel decision. 12) All information provided by an organisation applying for certification is deemed public information unless specified otherwise. 13) The Certification Panel may withdraw certification in case of NPO's dissolution, bankruptcy, failure to comply with mandatory reporting requirements, utilising the funds or property of the NPO for the benefit of people other than the stated beneficiaries, any of the information provided by the NPO having been proved to be false, or any of the material information proved to have been deliberately concealed by the organisation. Certification, however, shall not be withdrawn without giving the NPO concerned an opportunity of explaining its position in this regard. 14) Certification is a highly subsidised process and the applicant NPO pays a small proportion of the total cost of evaluation and certification (depending upon its size), the rest being borne by PCP. The subsidy is provided on a graduated scale so that the largest subsidy goes to the smallest NPO.6 15) In addition to certification, PCP also 5. In light of the score obtained by the organisation, PCP proposes that the organisation be certified or deferred or rejected. PCP may also draw Panel's attention to anything that is considered important for Panel to decide a case. 6. Certification fee schedule is available in certification application form as well as on PCP's website (www.pcp.org.pk). 03 NPO Certification-An Introduction plays a role in the development and promotion of NPOs. a) Capacity building is an important part of the certification regime. The capacity of an organisation is built during the certification process itself. In case of those organisations that do not meet the required standards for certification, PCP facilitates linkages with specialised capacity building organisations. b) If the certified NPO intends to apply for tax exemptions under relevant laws, PCP also provides assistance in preparing required documents for submission to the FBR. 16) The Model is a living document, which is reviewed periodically in consultation with all stakeholders. The first such review was conducted in 2006-07. 17) Certain concepts and definitions used in this Model are explained below: a) ‘Benchmark’ is a measurement or standard that serves as a point of reference by which process performance is measured. b) ‘Beneficiaries’ are the individuals, communities, or organisations expected to benefit from the projects or programmes. c) ‘Best Practices’ are the processes, practices, or systems that are widely recognised as improving an 04 organisation's performance and efficiency in specific areas. Successfully applying best practices can reduce expenses and improve organisational efficiency. d) ‘Budget’means an estimate of future incoming funds, expenditure and other applications of funds for a particular accounting period. e) ‘By laws’ are the rules governing the operation of a nonprofit organisation. By laws often provide the methods for the selection of governing body members, the creation of committees, the conduct of meetings and contain guidelines for the administrative, financial and programmatic functioning of an organisation. f) ‘Capacity’ means all the resources available to an organisation, i n c l u d i n g p e o p l e , m o n e y, equipment, expertise, linkages and information. g) ‘Capacity building’ is a coordinated process of deliberate interventions by insiders and/or outsiders of a given organisation leading to (i) skill upgrading, both general and specific; (ii) procedural improvements; and (iii) organisational strengtheninBg. Capacity building refers to investment in people, systems, institutions, and practices that will, together, enable organisations to achieve their development objective. Capacity is effectively built when these activities are sustained and enhanced with decreasing levels of external dependence accompanied by increasing levels of goal achievement. h) ‘Charitable organisation’ is an organisation that is created and operated exclusively for religious, scientific, literary, educational, athletic, public safety, social development, rights advocacy or community service purposes, and does not distribute earnings, profits or surpluses to its members or staff. i) ‘Charter’ means a description in writing of the purposes, aims, objects and the mode of functioning of an organisation. These may include the constitution, memorandum or articles of association, or the trust deed, depending upon the law whereby the NPO is registered. j) ‘Chief Executive Officer’ means the executive head of the organisation working under the supervision and control of the governing body. k) ‘Directory’ means a Directory of organisations certified by PCP. This document contains detailed organisational and programme NPO Certification-An Introduction information about NPOs included therein with an intent of promoting them from PCP platform. l) ‘Disclosure’ for the purposes of this Model, means disclosure to the general public, notwithstanding any legal or statutory requirement to do so. There could be different means and modes of disclosure. For evaluation purposes, information or data shall be deemed to have been publicly disclosed once it is: i). Published in a document which is meant for wide distribution; or ii). Placed on a website; or iii). Submitted to a government department as public information. m) A ‘donor’ is the one who gives s o m e th i n g w i th o u t r e c e i v i n g consideration for the transfer. n) ‘Endowment’ is the principal amount of gifts and bequests that are accepted subject to a requirement that the principal be maintained intact and invested to create a source of income for an organisation. o) ‘Evaluation’ means an assessment of an organisation, its programme(s) or project(s) (irrespective of whether the same have concluded or not). Evaluation also involves articulation of opinion and comments on the organisational structures, it's financial systems and on the state of programme delivery of an NPO. It is a management tool that is built around a formal process for evaluating performance and impact that help measure progress towards achieving intermediate targets or ultimate goals. p) ‘External evaluation’ means any evaluation conducted by an individual or organisation that is external to the NPO being evaluated. The Terms of Reference (ToRs) are defined by an external commissioning authority, and the evaluation report is primarily for an audience external to the organisation. q) ‘Internal evaluation’, on the other hand, means any evaluation conducted by an individual or organisation, either internal or external to the NPO, for primarily the internal audience of an NPO. Typically, the ToRs for an internal evaluation are also defined by the Board or the management of the organisation. r) ‘Financial System’ is an information system, comprised of one or more applications, that is used for any or all of the following: collecting, processing, maintaining, transmitting and reporting data about financial events; supporting financial planning or budgeting activities; accumulating and reporting cost information; and supporting the preparation of financial statements. s) ‘Fixed assets’ include land, building, vehicles and equipment. t) ‘Governing body’ (GB) means the body, board, council or committee of directors, trustees or executives, as the case may be, in which control of the NPO is vested. Its name, for any given NPO, may depend upon the law whereby the NPO is registered or owes its juristic personality (e.g. for an NPO registered under section 42 of The Companies Ordinance, the Board of Directors is the governing body). For the purposes of this Model, any subcommittee of governing body formed with a specific mandate is deemed to be the governing body for that purpose. u) ‘Grievance Settlement Procedure’ is a procedure for staff to object to and seek redressal against an order from a colleague or a senior officer that they believe to be illegal, unethical or counterproductive. v) ‘ I n d i c a t o r ’ i s a f e a t u r e o r phenomenon that can be objectively measured in quantitative or qualitative terms as a means of gauging progress towards achieving a goal or measuring the impact of a specific intervention. w) ‘Managerial staff or management’ of 05 NPO Certification-An Introduction an NPO includes all persons performing organisational functions which are (wholly or in part) supervisory in nature. x) ‘Monitoring’ is a continuous activity to keep track of and record what actually happens in a project or programme. Monitoring systems comprise procedural arrangements for data collection, analysis and reporting. It also defines reporting channels and requirements. y) ‘Nonprofit Organisation’ is an organisation that is formed and registered under any law for religious, educational, health, environment, charitable, welfare or development purposes, promotion of amateur sport or for any other purpose of general public benefit. It is a non profit distributing concern i.e. all its income, commodities, property and other assets are applied solely towards the promotion of its objectives and none of its assets or income are paid or transferred directly or indirectly by way of dividend, bonus, remuneration, grant of other benefits by way of profit or otherwise howsoever; to any of its member or the relative or relatives of a member or members. z) ‘Outcome' is the ultimate, long-term resulting effect – both expected and unexpected – of the beneficiaries' use or application of the organisation's outputs. 06 aa) ‘Outputs’ are direct products of a programme's activities, generally measured in relation to inputs. They are quantitative and are typically measured by 'how many', 'how often' and 'over what duration'. bb) ‘Output Indicators’ are the specific characteristics or behaviours measured to track a programme's success in achieving its outputs. They further define outputs and make them measurable. cc) ‘Overall salary structure’ includes (but is not limited to) any established brackets or grades of salary and perks applicable on the employees of the NPO, and average salary of managerial and secretarial staff. dd) ‘Policy’ means a document, duly approved by the governing body (or a sub-committee or the management, whosoever is authorised for such approval), which provides the details of procedures and processes to be adopted by the management of NPO to address any given issue on a specific subject, e.g. personnel policy, recruitment policy. For the purposes of this Model, following aspects of any given policy of an NPO are included in the definition of policy per se: i). Approval procedure ii). Extent of implementation iii). Mechanism to put it into practice iv). Wide knowledge among the staff that the policy exists ee) ‘Pursuance of personal gain’ would include using official position in the organisation for obtaining any kind of material benefit either directly or indirectly, other than the payment for services provided. ff) ‘Staff’ unless specified otherwise includes all paid workers, consultants and advisors of the NPO. gg) ‘Transparency’ involves disclosure, sharing information and acting in an open manner. Transparency allows stakeholders to gather information that may be critical to uncovering abuses and defending their interests. Transparent systems have clear procedures for decision-making and open channels of communication between stakeholders and organisations, and make a wide range of information accessible. hh) ‘Unrelated persons’ are those who are not related to each other by relation of blood or marriage. For the purposes of this Model, relations by blood include parents, siblings, children, grandparents and real uncles/ aunts: Relations by marriage include spouse, brothers/ sisters-in-law and parents-in-law. Pre-requisites Pre-requisites Read with Section 61 07 Pre-requisites 08 Pre-requisites No. The Requirements of Income Tax Ordinance and Rules 09 Pre-requisites No. The Requirements of Income Tax Ordinance and Rules 10 Evaluation Standards Evaluation Standards 11 Internal Governance Internal Governance 13 Internal Governance 14 Internal Governance 15 Internal Governance 16 Internal Governance 17 Internal Governance 18 Internal Governance 19 Internal Governance 20 Internal Governance 21 Financial Management Financial Management 23 Financial Management 24 Financial Management 25 Financial Management 26 Financial Management 27 Financial Management 28 Programme Delivery Programme Delivery 29 Programme Delivery 30 Programme Delivery 31 Programme Delivery 32 Programme Delivery 33 Programme Delivery 34 Programme Delivery 35 Programme Delivery 36 Appendices Appendix I 37 /payorder CERTIFICATION PROCESS F 38 Appendix II 39 Certification Process Flow Chart Appendix III Field Evaluation Process Flow Chart Financial Management 41 Appendix IV Certification Committee Mr. Saeed Ahmed Qureshi Chair Certification Committee Chairman, Pakistan Red Crescent Former Deputy Chairman, Planning Commission Dr. Attiya Inayatullah President Emeritus, Family Planning Association of Pakistan. Former Federal Minister for Women Development, Social Welfare and Special Education Mrs. Munawar Humayun Khan Chairperson, Sarhad Rural Support Programme Mr. Mueen Afzal, H.I. Former Secretary General, Finance & Economic Affairs. Certification Panel Dr. Humayun Khan Chair Certification Panel Rtd. Foreign Secretary Mr. Wasim A. Zuberi General Manager IPR TransOil Corporation Mr. Shamim Ahmad Khan Co-Chair Certification Panel Former Chairman Securities & Exchange Commission of Pakistan Dr. Saba Gul Khattak Visiting Research Fellow Sustainable Development Policy Institute Dr. Qurat-ul-Ain Bakhteari Chairperson Institute of Development Studies & Practices (IDSP) Syed Farhan A. Bokhari Correspondent for Pakistan Financial Times Contributing Editor “The News” Chairman National Council of Social Welfare Ministry of Social Welfare & Special Education. Chief Direct Tax Operations Federal Board of Revenue (FBR) ED PCP is Ex-Officio member of Certification Committee & Panel 43 Board of Directors Eminent Citizens Dr. Shamsh Kassim-Lakha, H.I., S.I. Chairman, PCP Board of Directors, Former President, Aga Khan University, Karachi Mr. Mueen Afzal, H.I. Former Secretary General, Finance & Economic Affairs. Mr. Zaffar A. Khan Former Chairman, Pakistan International Airlines Dr. Attiya Inayatullah President Emeritus, Family Planning Association of Pakistan. Former Federal Minister for Women Development, Social Welfare and Special Education Mrs. Roshan Khursheed Bharucha ex-Senator, Former Minister for Social Welfare, Baluchistan Mr. Mahomed J. Jaffer Senior Partner, M/S ORR, DIGNAM & Co., Chairman, ICI (Pakistan), Ltd Mrs. Munawar Humayun Khan Chairperson, Sarhad Rural Support Programme Mr. Saeed Ahmed Qureshi Chairman, Pakistan Red Crescent Former Deputy Chairman, Planning Commission Mr. Arshad Zuberi Chief Executive and Editor, Daily Business Recorder Corporations Mr. Towfiq H. Chinoy Chairman, International Industries Ltd., Karachi Mr. Arif Habib President, Arif Habib Securities Limited, Karachi Mr. Hussain Dawood Chairman, Engro Board of Directors Mr. Zaiviji Ismail Chairman, Shell Companies in Pakistan Mian Ahsan M. Saleem Chief Executive, Crescent Steel & Allied Products Khawaja Iqbal Hassan Chairman, PICIC Commercial Bank Civil Society Organisations Mr. Firoz Rasul President, Aga Khan University Syed Babar Ali Pro-Chancellor, LUMS, Advisor, Packages Limited Mr. Badaruddin F. Vellani Chairman, AKF National Committee Mr. Shoaib Sultan Khan Chairman, National Rural Support Programme Lt. Gen. (Retd.) Syed Parwez Shahid Chief Executive Officer, The Citizens Foundation Dr. Suleman Sheikh Chief Executive, Sindh Graduates Association About the Centre Pakistan Centre for Philanthropy (PCP) is an independent nonprofit support organisation licensed under section 42 of the Companies Ordinance, 1984. Located in Islamabad, it is led by an eminent Board of Directors comprising acknowledged leaders from the government, business and citizen sector. PCP emanated out of original research on philanthropy and is an outcome of recommendations of 'The International Indigenous Philanthropy Conference of 2000'. The Conference (attended by His Highness the Aga Khan and the President of Pakistan) supported the idea of fostering an enabling environment for civil society and endorsed the creation of PCP to promote structured and strategic approaches to enhancing philanthropy for social development. Instead of getting into direct service delivery mode, PCP seeks to help others in their altruistic efforts through meaningful support services. In line with its mission of increasing the volume and effectiveness of philanthropy for social development in Pakistan, PCP has designed innovative programmes (i) Philanthropy Support Services (3P & 2P); (ii) Nonprofit Organisations Certification; (iii) Research and (iv) Communication and Advocacy. Philanthropy Support Services launched its first support initiative, Public Private Partnerships (3P) in mid 2003. The 3Ps involve a partnership between a public sector agency, a private for profit entity and a nonprofit organisation to achieve a collective outcome. Under this initiative the Centre has channelised corporate philanthropy for education in rural areas of Sindh. The Centre has also developed a 'District Manual', a 'School Adoption Model' and has given inputs in the formulation of 'Government of Pakistan's Operational Policy on 3P for Education'. Philanthropy Portal (2P) is a unique online development market place which aims to help grant makers find and reach the most suitable destination for their charitable funds. This mechanism is based on an engine that sifts through a databank of credible, certified organisations and returns donation options based on preferences identified by grant makers. Nonprofit Organisations Certification is a standard setting regime that aims to promote good governance, transparent financial management and effective programme delivery in the nonprofit organisations so that they can enhance their credibility and transparency. Certified organisations are promoted through PCP's website to assist government and donors in identifying credible partners for social development. Research endeavours to expand the empirical map on voluntary giving which largely remains untapped, while simultaneously its findings help stakeholders, particularly policy makers, better plan and organise social investment for civic benefit in Pakistan. Studies carried out by the Centre include; The Enabling Environment Initiative (EEI), High Net-worth Individuals (HNI), Diaspora Philanthropy by Pakistanis in the USA, Corporate Philanthropy in Pakistan: Survey of Public Listed Companies, Collaboration between Government and Civil Society Organisations and Going Beyond Business: Intelligent Corporate Philanthropy. Communication and Advocacy is an essential underpinning function that enables PCP to promote knowledge and philanthropy best practices across boundaries; generate informed discussions and voice issues concerning the growth and development of civil society. For more information visit www.pcp.org.pk Tel: (9251) 2855903-4, 2287077-37 Fax: (9251) 2287073 [email protected] www.pcp.org.pk