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The International Journal
of Not-for-Profit Law

Volume 12, Issue 4, November 2010

A publication of the International Center for Not-for-Profit Law

Table of Contents

Letter from the Editor

Counterterrorism and Civil Society

NGO Responses to Counterterrorism Regulations after September 11th
Elizabeth A. Bloodgood and joannie Tremblay-Boire

Civil Society, Aid, and Security Post - 9/11
Jude Howell

Thirty Years of Women's Activism in Sudan
Frank van Lierde


Doing Good and the Law: Questions of Control, Paternalism, and Partnership - An Organizational Perspective
David Z. Nowell

An Enabling Framework for Citizen Participation in Public Policy: An Outline of Some of the Major Issues Involved
Dragan Golubovic

Reflections on the Legislative Environment for Nongovernmental Organizations in Botswana
Zein Kebonang and Kabelo Kenneth Lebotse

Developing Standards and Mechanisms for Public Financing of NGOs in Croatia
Igor Vidacak

Lottery Proceeds as a Tool for Support of Good Causes and Civil Society Organizations: A Fate or a Planned Concept?
Katerina Hadzi-Miceva

Country Report: Moldovo
Hanna Asipovich

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Editorial Board

Developing Standards and Mechanisms for Public Financing of NGOs in Croatia

By Igor Vidacak[1]


There is a wide range of not-for-profit, nongovernmental associational forms that are recognized and regulated by national law in Croatia. These include associations, foundations, funds, trade unions, employers' associations, institutions (or public benefit non-profit companies) and religious organizations. The most important organizational types for the formal gathering of citizens around shared interests and the promotion of not-for-profit, public benefit activities, reflected in the sheer numbers of registrations, are those commonly referred to as NGOs (or associations under the legal terms). According to September 2010 data, there are more than 41,700 NGOs registered in Croatia.[2]

In general, Croatia has developed a rather supportive legal and institutional framework for the establishment and public financing of NGOs, which complies with international standards and offers some good practices that may be of interest for other countries in the region and more widely.

Changing environment for public financing of NGOs in Croatia

The system of public financing of project and programs of NGOs in the Republic of Croatia has undergone substantial changes during the last two decades. During the 1990s, the funding policy was predominantly fragmented and dispersed among various government bodies and ministries, as well as marked by lack of coordination, strategic approach, and clearcut criteria for the approval of grants to NGOs.

The first efforts towards introducing a more systematic approach to public financing of NGOs were taken in 1998 when the Parliament adopted the Decision on criteria for the determination of NGOs whose activities are of interest to the Republic of Croatia and on the allocation of funding to NGOs from the State Budget.[3] This Decision was based on the Associations Act (from 1997) and was supposed to allow, among others, for a stronger Parliament oversight of State funding of NGOs, as well as to enable the creation of a high-level inter-ministerial committee, chaired by deputy prime minister, to develop criteria for funding NGOs of interest to the Republic of Croatia.

In the same year, the establishment of the Croatian Government's Office for Cooperation with NGOs marked the beginning of the new framework for cooperation between the Croatian Government and associations active in Croatia. This cooperation was facilitated by financing, consultations, education, and information sharing, as well as through coordinating legislative initiatives on issues affecting civil society organization. The setting up of the Office also meant the centralization of the largest portion of funds from the State Budget dedicated to NGOs that were previously secured from the budgets of individual government bodies and ministries. In addition, the Office contributed significantly to introducing a transparent funding mechanism characterized by (1) the public announcement of calls for proposals and clearly stated criteria, (2) the creation of independent groups for review and assessment of projects, and (3) a well-established monitoring and evaluation process (see Bezovan, 2004). In 2001, the Government adopted the Proposal of the Program of Cooperation between the Government of the Republic of Croatia and Non-governmental, Non-profit Sector, which aimed to create effective mechanisms to improve relations between the Government and the nongovernmental, non-profit sector while stipulating at the same time their different roles and responsibilities in the resolution of problems and in the development of the community as a whole. That same year, after a long public consultation, the Parliament adopted the Associations Act by which the Government committed itself to drafting a Code of Good Practice, Standards and Benchmarks for the Allocation of Funding for Programs and Projects of NGOs and to proposing it to the Croatian Parliament. The Act on Organizing Games of Chance and Prize-Winning Games, adopted in 2002, introduced the obligation to finance eight different activity areas of work of civil society organizations, ranging from the development of sports to civil society development, to the amount of 50% of the total revenue from games of chance.

In 2002, the Government Office for NGOs initiated a decentralized model of organizational structure for the further encouragement and support of civil society. The aim was to decentralize the cooperation and state funding from one centralized office into diverse stakeholders. This resulted in various ministries, government agencies, and institutions becoming responsible for channeling state funds directly to NGOs active in the field of their jurisdiction, and they were also encouraged to designate one person or a unit responsible for cooperation with the NGOs.

The rationale behind decentralizing the cooperation and funding process was the need to renew direct communication between various ministries and NGOs and strengthen their cooperation in addressing particular needs of citizens. It also opened the possibility for diversifying the funding sources and reaching out to alternative and matching funds in the implementation of common activities between the Government and NGOs.

Following the start of the process of decentralization of public funding of NGOs, a Council for Development of Civil Society was set up in 2002, as a cross-sector advisory body to the Government, primarily responsible for the implementation of the Program of Cooperation, creation of the Strategy for the Development of the Civil Society, and harmonization of the state funding process. In 2003, a National Foundation for Civil Society Development was established by the Parliament with the aim of promoting and supporting the sustainability of the sector, cross-sector cooperation, civic initiatives, philanthropy, and voluntarism through education and publications, grant giving, public awareness campaigns, evaluation services, research, and regional development. By the establishment of the National Foundation, a new institutional architecture was completed in order to support creating an enabling environment for civil society development in Croatia./p>

Three pillar institutional framework for supporting NGOs

The three-pillar framework for supporting NGOs as autonomous, competent, and active agents of economic, social, and political development of Croatia is based on the collaboration and continuous interaction of the following institutions: Council for Civil Society Development, National Foundation for Civil Society Development, and Government Office for Cooperation with NGOs. These institutions work closely together to promote policies and initiatives for the development, support, and sustainability of NGOs in Croatia.

The Council for Civil Society Development plays a strategic advisory role in regard to formulating policies affecting NGOs. It benefits from expert and technical support of the Government Office for Cooperation with NGOs. The Council is composed of twelve representatives of ministries and other Government bodies, twelve representatives of NGOs as well as three representatives of other forms of organized civil society (foundations, trade unions, and employer's organizations). Representatives of NGOs are elected by NGOs themselves through a transparent and democratic procedure after a public call for nominations and a public call for voting for eligible candidates, which proved to be a unique practice in this part of Europe. The participation of hundreds of NGOs in electing the Council members makes it a legitimate body in which the exchange of opinions, standpoints, know-how, and experience between the representatives of different sectors takes place. The Council members actively engage in various awareness-raising events such as public discussions, round tables, and public consultations, and seek to engage with business community representatives, universities, and journalists. At the very beginning of the Council work in 2002 and 2003, this body had a formal role of approving the decisions on the award of grants to NGOs from the State budget (based on the proposal of the Government Office for Cooperation with NGOs). Since 2004, in a decentralized environment of public financing of NGOs, the Council has retained a more strategic role as a key national cross-sector platform for dialogue on NGO-related public policies in Croatia.

As the strongest national public grant making institution in Croatia, the National Foundation for Civil Society Development provides a series of essential support services to NGOs. It is the largest donor that is oriented towards operational grants and institutional support, enabling NGOs to focus more on their "core business" rather than investing scarce human resources into continuous fundraising and working from project to project. As a public funding entity, it is unique in the region in its ability to act independently from state government, owing to the inclusion of a majority of civil society representatives on its governing body. In recent years, the Foundation has initiated the decentralization of its funding, signing agreements with four regional foundations responsible for managing community grants programs in their specific regions, which contributed to the diversification of funding and initiated a re-granting model. The Program of Decentralization of Grants for Civil Society Development in the Republic of Croatia, in partnership with four regional foundations, streamlined the process of funding short-term civic initiatives at the local level. These efforts are complemented by the activities of the National Foundation's funded network of associated NGO partners in five regions that provide various types of training, networking, technical assistance, and clearinghouse services at the local level which form an important part of infrastructure for furthering the regional development of civil society.

In a decentralized system of public funding, the Government Office for Cooperation with NGOs remained a focal policy-making point in the Government, responsible for coordinating the work of various government bodies in regard to developing cooperation with the non-profit, nongovernmental sector. This includes the following activities: designing standards and recommendations for improving the financing system of NGOs' activities from the state budget and other public sources; reporting to the Government on the overall funding of NGOs from public sources at all levels; proposing new legal initiatives for the activities of the nongovernmental and non-profit sector in Croatia; monitoring the implementation of adopted national programs and strategies influencing NGOs; developing standards of consultation for NGOs in public policy-making; and programming priorities for funding of NGO programs from the EU pre-accession and structural funds, in close collaboration with the Council for Civil Society Development.

As can be clearly seen above, the three-pillar institutional framework is a combination of centralized policy-making and decentralized support to NGOs. It is based on a wide consensus of various stakeholders that was reflected in the formulation and adoption of the National Strategy for the Creation of an Enabling Environment for Civil Society Development and the related Operational Implementation Plan,[4] which saw the cooperation of more than 60 civil society organizations, government bodies, local authorities, universities, and businesses.

The work of the three mentioned institutions is complemented by twenty other ministries, government agencies, and institutions developing funding programs and other types of cooperation with NGOs at the national level. They also develop important activities for local and regional government bodies, which are essential for long-term sustainability of NGOs and other forms of grass-roots initiatives.

Code of Good Practice, Standards and Benchmarks

Following several years of a decentralized system of public funding of NGOs in Croatia, in February 2007 Parliament adopted the Code of Good Practice, Standards and Benchmarks for the Allocation of Funding for the Programmes and Projects of NGOs.[5] The adoption of the Code was foreseen already in the Associations Act passed in 2001. The obligation of its adoption was renewed in 2006 through the National Strategy for the Creation of an Enabling Environment for Civil Society Development and the related Operational Implementation Plan. On the date of entry into force of this Code, the Decision on criteria for the determination of NGOs whose activities are of interest to the Republic of Croatia and on the allocation of funding to NGOs from the State Budget ceased to have effect.

The purpose of the Code is to guarantee that grant-making decisions made by public bodies at all levels are made according to established principles and standards. More particularly, the Code highlights eight principles which should guide the financing processes:

The Code also stipulates that in case of misuse of grants by the association, the grant provider shall suspend further payment of grants and request that the grants already disbursed be refunded.

In order to be given access to public tender procedures for the approval of grants from the State Budget for programs and projects of public benefit in the Republic of Croatia, NGOs must fulfill the following three basic criteria:

In addition to an application for funding, NGOs are required to submit a financial report, a certificate showing that the responsible person in the association has no criminal record, and an excerpt from the Register of NGOs of the Republic of Croatia, as well as other documents pursuant to the conditions stipulated in the tender announced by the grant provider.

The Code emphasizes the specific role of the Council for the Development of Civil Society in regard to monitoring, analyzing, and evaluating funding from the State Budget approved by grant providers to programs and projects of NGOs in the Republic of Croatia through public tender procedures in accordance with the provisions of the Code. Grant providers are required to submit information about financed programs and projects to the Council for the Development of Civil Society and to the Office for Cooperation with NGOs.

On the basis of this provision, the Government Office for Cooperation with NGOs introduced a regular and thorough monitoring and analysis of public funding of NGOs, which results in detailed annual reports submitted to the Council for Civil Society Development and, finally, to the Government of the Republic of Croatia. The positive impact of adoption of the Code on Good Practice, Standards and Benchmarks for the Allocation of Grants for Programmes and Projects of NGOs is also reflected in the almost disappearing practice of grantmaking outside public calls for proposals, using discretional power of the minister or other heads of public body. In 2009, only 2.9 % of all state grants have been awarded in that way.

In order to allow greater openness and transparency of public funding of NGOs, the Government Office developed a public internet database of financial support to public administration bodies at national, regional, and local levels, as well as foreign donors (including EU funds) since the year 2004. The database is searchable according to the type of donor, level of government, name of organization, name of the project or program, and name of the project leader.[2]

In accordance with the measure of the Operational Plan for implementing the National Strategy for the Creation of an Enabling Environment, the Office and the National Foundation have developed a manual setting clear and detailed guidelines for all public bodies providing grants to NGOs. In addition, a series of training programs has been conducted by the Office and the National Foundation for representatives of public bodies at the national, regional and local level. The adoption of the manual as well as the implementation of training programs on the implementation of the Code were also identified by the Croatian Government as priority measures in the field of anti-corruption and strengthening transparency of public administration.

Trends of public financing of NGOs in Croatia

During the first, centralized stage (from 1998 to 2003) of the implementation of the Programme of Allocation of Funding, the Government Office for Cooperation with NGOs financed a total of 1,997 projects and programs of associations in a total amount of HRK 105,328,942.33 (€ 14.6 million) through public tenders, and systematically monitored the implementation of these financed projects and programs. It is important to note that since 2002, the Government Office for Cooperation with NGOs has introduced a novelty into the former Program of Allocating Funding to NGOs by providing the possibility of financing multi-year programs of associations implemented in the area of social welfare, health protection, and extra-institutional education. In all, 131 programs were financed in this manner for a period of three years, whereby the provision of a part of public services in the area of social welfare, the health service, and education was systematically contracted to civil society organizations for the first time.

In the decentralized model, particularly in the period from 2004 to the present day, the amount of funds directed towards initiatives, projects, and programs of civil society organizations by state administration bodies, such as the offices of the Government of the Republic of Croatia and the National Foundation for Civil Society Development, represents more than twice the amount of the previous five-year period, achieved in not more than two years.

During the past decade (from 1999 to 2009), 27,543 projects of citizens' associations gained financial support from the State budget amounting to more than 320 million euro.

The analysis of grant making practices conducted by the Government Office for Cooperation with NGOs reflects substantial imbalances in State funding to different NGO subsectors. In 2008 and 2009 the field of sports absorbed one fourth of the total amount awarded (26%). After that follows the field of protection and promotion of culture and cultural heritage (19%). Projects supporting persons with disabilities and socially vulnerable groups were awarded some 17% of the total amount. Projects focusing on youth and children got about 12%, while war veterans amount to around 10%.

Table: Public funding of NGOs (1999-2009)

Financial year Total amount of financial support to from public funds on a national level (HRK) Number of programs and projects financed
1999 28,316,522.47 276
2000 20,545,740.86 348
2001 22,188,893.00 481
2002 17,188,893.00 450
2003 17,088,893.00 442
2004 111,096,378.86 2,733
2005 136,504,021.66 3,163
2006 321,636,823.06 2,766
2007 470,192,095.08 4,923
2008 624,170,075.33 6,350
2009 528,232,869.36 5,611
TOTAL 297,161,205,68 (ca. 319 million €) 27,543

Data source: Government Office for Cooperation with NGOs, www.uzuvrh.hr, April 2010

The biggest public grant making body remains the Ministry of Science, Education and Sports with 31% of the overall amount for NGOs from the State budget. It is followed by the Ministry of Culture (18.2%), Ministry of Family, War Veterans and Intergenerational Solidarity (13.2%), Ministry of Health and Social Welfare (12.1%), Council for National Minorities (8%), National Foundation for Civil Society Development (5.6%), the Ministry of Regional Development, Forestry and Water Management (3.3%), and a number of other bodies with rather small shares in the overall funding.

After almost a decade of continuous increase of public funding of NGOs from the State budget, a downward trend started in 2009 due to the impact of global recession and economic crisis. The table below shows the clear decrease of public funding of NGOs at national, regional, and local levels.

According to the research conducted among NGOs that received grants from the State budget in 2008 (National Foundation for Civil Society Development, 2010[7]), almost 70% of NGOs rely on State budget and local/regional governments' budgets as the main source of funding. The fact that government support (both central and local) has become the major source of funding for NGOs in Croatia is an important indicator of the government's general recognition of citizen's self-organizing as value in itself, as well as beneficial to various spheres of social development.

Table: Impact of economic crisis – downward trend of public funding of NGOs in 2009

Level 2008. (HRK) 2009. (HRK) Trend
National 623,783,861.59 529,596,954.21 15.2
County level 397,884,853.34 358,625,779.62 9.9
City level 510,456,185.13 468,245,149.10 8.3
Municipality level 230,700,645.06 219,094,594.65 5.0
TOTAL: 1,762,594,545.12 ca. 245 million € 1,575,562,477.58 ca. 219 million € 10.6

Data source: Government Office for Cooperation with NGOs, www.uzuvrh.hr, April 2010

On the other hand, the same analysis showed that only one third of NGOs had self-financing activities as part of their budget. This weakness is also reflected in the USAID NGO Sustainability Index for 2009 which stresses that financial viability still remains the weakest aspect of NGO sustainability in Croatia.[8] In view of the downward trend of public funding of NGOs, this may become a significant obstacle to the sustainability of NGOs in the forthcoming period.

Some lessons learned

Based on the experiences and lessons learned in recent years, a number of improvements in practice of public funding of NGOs in Croatia will need to be made.

One of the major concerns is related to the capacities of public bodies to monitor and evaluate NGO projects and programs financed from the public sources. The sheer number of grants approved – 6,350 grants in 2008 and 5,611 in 2009 – implies substantial challenges for civil servants working on monitoring and evaluating activities in NGO units of the ministries. Therefore, future improvements should include adjustments of the actual size of the grants to the actual costs and scope of projects or programs. Otherwise public funds, especially at the local level, tend to be dispersed without significant effect on the NGOs' capacities to deliver public goods.

Taking into account the experiences of some European countries, it will be necessary to consider the introduction of a practice by which the State concludes contracts on the performance of services of social benefit and tasks with NGOs using a procedure based on provisions regulating the procedure of public procurement, taking into account good practice of the European Union. The Ministry of Health and Social Welfare has developed standards for social service delivery which will have to be adopted by all NGOs aiming at entering the process of social contracting. This shift from grants to contracts will open a very important issue of introducing quality assurance system for nonprofit, nongovernmental organizations in Croatia. First steps in this direction have been made by the the National Foundation for Civil Society Development, which obliges all NGO beneficiaries of its operational grants to introduce a self-assessment-based quality assurance system adapted to Croatian needs on the basis of UK charity evaluation services.

In accordance with the objectives of the National Strategy for Creating an Enabling Environment for Civil Society Development, it will be necessary, apart from the already established methods and sources of financing the initiatives, projects, and programs of civil society organizations, to invest additional efforts in the identification of new innovative models—that is, into adjusting those which have proven successful in other countries.

Within the system of the allocation of grants, it is also necessary to earmark a part of the funds intended to provide institutional support to NGOs—that is, support for the performance of the basic activity of those organizations which have been assessed as significant contributors to civil society development or to the area in which they are active. Additional possibilities for indirect State financing of NGOs could be achieved by introducing new tax benefits for the activities undertaken for public benefit, although this measure proved to be very difficult to implement in times of economic crisis.

In view of the requirements of the EU accession process and the growing need to adjust domestic procedures of public funding to the EU standards and practices, it is to be expected that stronger emphasis will be placed on results and concrete evidence on fulfilling the beneficiaries' needs, while at the same time, the level of tolerance of any kind of irregularities in the implementation of NGO projects and programs will gradually decrease.

Given the recent withdrawal of international and bilateral donors, and the increasing prospects of EU funding for Croatian NGOs, it is important to note that EU funds are primarily available to highly professionalized NGOs with adequate organizational and human resources for the strict application process and project proposal formats.

Therefore, a diversification of public funding sources and mechanisms will need to be continuously ensured in order allow smaller NGOs equal access to State budget funding, but also to the budgets of local and regional self-government units. The variety of mechanisms should include multiyear contracts on the financing of general, public needs in society, year-long (or shorter) projects as well as small incentives to those civic initiatives that bring new ideas and new models of development or new ways of resolving existing problems.

Finally, in order to avoid overlaps and allow better complementarity of the EU and domestic funds for NGOs, stronger efforts towards coordination of all public bodies involved in using the EU structural funds after the EU accession will need to be ensured.




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