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)

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