Croatia: Anti-corruption and anti-fraud measures to be tightened for NGO’s

Associations Act Croatia

While to some it may seem relatively minor, this is a very significant development for the advancement of accountability in public funds. It is another step in moving away from the old totalitarian communist system, where only those at the top had insight into the expenditure of public funds, and closer to full democracy.

Croatia’s government on 30 January 2014 has approved the new Accounting Act for non-profit organisations/ perhaps one could say it is a compliment to the Associations Act well known throughout Western democracies. The Act will require non-profit organisations to submit regular income and expenditure and asset reports to the Finance Ministry, including the Catholic Church.

NGO’s are set to be forced out of their comfort zone, which to date had meant that little, if any, accountability measures enforced when it comes to acquittals of government funding.

All non-profit organisations with revenues more than 1.2 million euros per year will have to face audit reports as well, Finance Minister Slavko Linic said. To my liking and to the standards applied in Western democracies, with their government funded organisations the 1.2 million euros seems a most generous benchmark and should be lowered significantly.

The aim is to introduce transparency in the operation of all civilian organisations, regardless of whether it is sports, church or some other companies,” Linic told reporters on January 31st.

Minister Linic has also stated that non-profit associations that achieve an annual trade greater than 230,000 kunas (30,000 euro) will need to form a trading company or some other form of association that is not non-profit.

The reactions to the new requirements for Regular Income and Expenditure reports and Audit Report requirement has caused quite a stir in Croatia over the past fortnight. Some are against it and criticise it, and others are for it. But most seem to see this move as the introduction of new taxes and a new way to fill the collapsing government budget.

GONG’s (an NGO) executive director Dragan Zelic, while in essence supporting the transparency of non-profit sector operations, stated that the new Act needs refining, that “it’s not in keeping with the strategy of stimulating social entrepreneurship because the work of non-profit associations that employ a significant number of people will be made more difficult…”. While it may be that the new Act needs refining, it’s difficult to see how the number of employees would make the NGO’s work more difficult – all it can do is take a longer time to prepare reports but not to the levels of hardships as any extra work would surely be factored into an affected NGO’s budget.

According to SEtimes portal, the parliamentary opposition condemned the announcement of church taxation, saying that the Catholic Church is a force for stability in Croatian society.

The church gathers people and she is credited for Croatian history, and I think this is some kind of further ranting which is completely unnecessary,” said HDZ’s leader Tomislav Karamarko.

Wherever we turn in the world, the debate as to whether the church/religious institutions should pay taxes is as old as the taxation system itself. So, Croatia is no different.

However, it is customary in Western democracies or legal systems to say that a non-profit organisation can still make a profit, but this profit must be used to carry out its purposes and must not be distributed to owners, members or other private people. Any profit made by the non-profit organisation goes back into the operation of the organisation to carry out its purposes and is not distributed to any of its members.

Hence, tax exemptions and/or tax concessions come into play.

Putting the issue of tax dues aside, one thing is most important: NGO’s must be subject to financial accountability and transparency. Such processes and their rigour do in fact ensure a path towards minimising the risk of corruption, fraud and misappropriation of public funds. And, God knows, the NGO’s in Croatia have had little if any audits and inspections and proper annual acquittals of government funds received, as far as I can see. Furthermore, I would suggest, the government should not only insist on Financial and Audit Reports from NGO’s but it should also insist on Compliance certification/reports. I.e., that an NGO did what it was funded to do, including what percentage of government funding is expended in direct services/activities as opposed to the indirect, such as purchases and running of luxury vehicles we seem to see everywhere in Croatia. I could not agree more: accountability and transparency of NGOs in Croatia badly need improvements and any disquiet about whether the church or any other non-profit need to pay taxes should be regulated under a string of tax concessions and exemptions avenues made available under the taxation law as is customary in the developed world. It is regretful that much of the public disquiet has revolved around the issue of the church coming under the taxation law rather than on pushing for these reforms for NGO’s because the new Act should be seen as a positive measure in combating corruption, fraud and misappropriation of public funds. Ina Vukic, Prof. (Zgb); B.A., M.A.Ps. (Syd)

Comments

  1. They should stop financing all the NGOs from state budget because the people are paying for that, many NGOs have no purpose and work against Croatia.

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    • I don’t think that would be good Zvonko B, I think NGOs are needed but only for the sphere of activities needed for the betterment of life of Croatian citizens etc and they need to be tightly controlled etc because they’re in receipt of public funds, and I think many NGOs in Croatia shouldn’t exist because they’re more political in nature than providing services or developing services for the people…

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      • Yes Ina it can go that way too. I’m mostly associated with the veterans’ associations of which there are a thousand or more, instead of being just one, and finances to those associations that work against Croatia should be pulled straight away.

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      • It’s very concerning to hear that so many associations exist for veterans’ affairs, Zvonko B, however I believe that one would not be enough, at least one for every region say that encompasses an electoral district might be an adequate coverage given the wide span of services that are relevant…and yes, those that work against Croatia should have the plug pulled out of them.

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  2. Co-financing NGO’s is the only just key for any help to NGOs.
    The parasites who exclusively depend on the state budget have never done anything good for anybody. The private sector has always proven to de more effective in service delivery, fee for service sector, and there’s nothing that cannot be found on offer today.

    Associations or NGOs -YES
    Co-financing of associations or NGOs – YES
    Cut off the parasites, let them live off their own work – YES
    Those are my views when it comes to the question of relationship between NGOs and public funds.

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  3. Great reading.The world economy is suffering from the same epidemics .jalal

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  4. Hi Ina, This is somewhat off topic of this article, but interesting article with accompanying video of Seselj comparing Nikolic to himself – if he is a war criminal then so too is Nikolic…but our government refuses to recognize Nikolic as a Chenik who openly supports a Greater Serbia…our elites view Serbia with rose coloured glasses which is endangering Croatia. http://www.dnevno.hr/vijesti/svijet/114528-video-evo-kome-se-klanja-josipovic-seselj-priznao-da-je-cetnicki-vojvoda-nikolic-s-njim-sudjelovao-u-zlocinima.html

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    • Thank you Sunman, everything is somehow connected – good link and I too think Croatia’s leadership should be more particular and strict as to whom they deal with, talk with, etc – set some standards of relations

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  5. A good step in the right direction.

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  6. Računovodstvo says:

    Hooray! How about applying this to the government?

    On another note, Ina, is there any possibility that you might blog about the protests in Bosnia?

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    • Yes there is a great possibility regarding blogging on protests in Bosnia, Racunovodstvo, have been on the case watching and following for few days now.
      And, yes, it’d be good to apply the transparency and accountability measures to the government

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  7. “Thank you Ina. This helps me to understand. It is only right that any one who gets public funds must account to the public for how those funds are used. A church should want to be especially transparent in such an instance. I have found it better here for a church to never receive public money directly but to always set up a separate corporation with outside directors always under the scrutiny of independent auditors – as for example a College or a Hospital. It is so much cleaner that way with no misunderstandings about anything. There is also work that churches, synagogs, mosques and so forth do that is only about religion and I am of the opinion that those things should never be funded from the public treasury but only by private donations. In such a case 230000 kuna is not sufficient to maintain St Stefan’s cathedral for example and yet the public benefits so I might not want to tax those donations. On the other hand, where there are investments in corporations or land for profit — I am of a slightly different opinion because its not fair for someone who has to pay taxes to compete with someone who does not. My little congregation here has no property and no money. We meet in private home. I am not paid. When we need communion wine, who ever is going near the store next buys some in advance. The same with the host. So we don’t even register as a non-profit because we don’t have anything and don’t want anything. I am also of the opinion that full transparency will not harm the church but will go a long way to restore confidence in the church. The church should never have anything to hide. This will be a very positive move! Yes!”

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    • OK David I will try my best. NGO or Non-government organisations are those that are either fully or partially funded by the government (public funds/budget) to do the work they are set up to do. They are in essence considered non-profit or not-for-profit and any tax abatement they may have is not counted in this funding, but income from charitable donations is counted as income just as gov funding is and therefore comes under financial reporting . They have not had to submit reports on financial dealings or audit reports that are transparent etc in the past and the new law is introducing such accountability measure. What the minister is saying is that if such a organisation earns or makes a profit that is greater than 230,000 then it cannot be a non-profit …and it falls under the taxation umbrella – however, I have not yet managed to fully study the taxation provisions to cater for charities, non-profits etc and I would assume that they do have some abatement, concessions, exemptions etc… all in all I see this a positive move

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  8. therealamericro says:

    Rainy days lie ahead for GOLJUP, HaHaOhhhh, BaBe(tine), Centar za Mir i Nenasilje and other sham NGO fronts.

    It must be noted that the discredited (and ultimately, ICTY stricken from being submitted into testimony due to blatant contradictions, inconsistencies and bold faced lies) “evidence” provided by Croatian Spring trial regime witness / JNA front party (UJDI) Zarko Puhovski was funded by Western intelligence agencies and Croatia’s government.

    It must be noted when a similar law was suggested in the 1990s, it was denounced by the NGOs, and foreign press, as “totalitarian” and “fascistic.”

    I can’t believe it, but the government has actually done two positive things for Croatia – Milanovic went to Mostar and now this.

    I don’t expect any more positives in the short or long term from them, but I will take what I can get.

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  9. I don’t have any idea about this content to make a comment but still i wanna make a comment because of your blog and your presentation style. It’s pretty nice keep it up 🙂

    With Regards,
    http://pressleaks.wordpress.com

    Like

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