On the Transparency of Civil Society Organisations

It has been alleged multiple times in recent years that civil society organisations operate in a non-transparent fashion, and do not reveal the sources of their funding. It therefore makes sense to clear up any confusion: this document outlines the current regulations regarding transparency and reporting requirements for civil society organisations. If the goal is actually to increase transparency, this paper will also explain how this can be achieved without increasing reporting tasks which are already quite time-consuming. We will also try to find the reason why organisations established by groups of citizens should, in the first place, be held to the same principles as those applying to the state.

Tuesday, 2 June 2015

Revised: 15 May 2017

Which organisations are considered civil society organisations?

According to the Civil Act, the following organisations are considered civil organisations:

What rules currently apply to the transparency of civil society organisations?

The Civil Act (1) and the relevant government decree (2) already include comprehensive regulations concerning the reporting requirements of civil society organisations, establishing the fundamental conditions of transparency. The law requires the compulsory compilation and publication of reports:

1) Civil society organisations (just as other business entities) are required to prepare annual reports of their operations, assets, and financial and revenue situation following the closing of the books at the end of their business year. (3) Accounting reports are to include an appendix on public benefit activities, which – irrespective of public benefit status – all civil society organisations must submit electronically to the courts by 31 May of the following year. The reports are publicly available in the court registry of civil society organisations and are searchable and downloadable by organisation name. Additionally, organisations must publish their reports on their own websites (if they have one).

The annual report must contain the following details:

- membership fees and donations received from the founder,

- the amount transferred to the organisation from 1% personal income tax contributions,

- revenues generated by services tendered and goods sold by the organisation,

- revenues from financial transactions,

- support and donations for activities related to the objectives of the organisation, detailing additionally the following (and further highlighting amounts received from EU structural or cohesion funds)

- funding received from the central budget,

- public service revenues,

- funding received from local or minority self-governments or local government associations,

- normative funds,

- funds received from the EU budget, foreign states, international organisations or through international agreements,

- support or donations received from other civil society organisations and

- all other revenues.   

The expenditure side of the report must detail the following:

- material-type expenditures;

- staff costs, specifying remuneration provided to executive officials;

- other expenditures, including targeted expenditures (e.g. support, donations).

The public benefit appendix must contain a verbal description of the following:

- the organisation’s public benefit activities,

- the primary target groups of these activities and the number of individuals benefiting from these activities

- the key results of these activities,

- and, each on a separate page, the utilisation (numerically and verbally) of amounts received in each support programme (a support programme is taken to include support and donations received from the central budget, local government or international sources or other financial entities, aimed at sustaining or developing the activities of the organisation).

The format and length of these reports is determined by form no. PK-242, which is to be filled out and submitted electronically.

2) In the case of (private) donations collected by civil society organisations, organisations are required to report their activities and the utilisation of these funds through the communication media they regularly make use of (website, newsletter, daily newspaper, Facebook etc.). No specific regulations govern the deadlines for or the frequency of the dissemination of such information; the only requirement is that the report prepared by the organisation identifies the use of these donations.

3) According to the regulations, reports must be prepared on the utilisation of 1% contributions by 31 May of the second year following the receipt of these contributions; the funding is to be used in any case by 31 December of the year following the receipt of these contributions. Reports must be submitted to the tax authority electronically. The report must specifically detail amounts spent on general overhead (which may not exceed 25% of the funding received or a maximum of 25 million HUF) and the amount spent on activities related to the objectives of the organisation; in addition to figures, verbal descriptions must also be included. The 1% reports may be found on the Civil Information Portal – searchable by organisation – and must also be published on the website of the organisation (if it has one).

So if these requirements are already in place, does that mean civil society organisations are already transparent in their operations?

Various further regulatory and other changes may be introduced which would help make the operations and finances of civil society organisations more transparent, without increasing already substantial reporting burden.

While the simplified report and public benefit appendix prepared by an organisation following double-entry bookkeeping requires the organisation to submit various pieces of important information, these are not suitable for providing an easy-to-understand picture of the operations of the organisation. This could be remedied in two ways, (1) If the key data were to be listed separately on a main page; or (2) if the courts’ database, on the page of each organisation, provided this data in a clear way, highlighting information taken from the reports, and also enabled users to conduct searches using these criteria. The two options are certainly not mutually exclusive.

We believe the key data listing should highlight the following: total revenue and expenditure of the organisation, staff expenses and the average wages paid by the organisation. We would also find it relevant to identify the number of employees and volunteers the organisation has.

The search engine birosag.hu has been significantly upgraded recently; its effectiveness could be further improved by allowing users to search for financial data as well as the information types mentioned above. We also recommend that the civil society organisation database be made available for downloading or electronic access through an API (see parlament.hu). This would make it possible to conduct searches, for instance, for organisations which, in a specific year, had received funding from the Open Society Foundation.

Additionally, it would be important for legislators to provide easily understandable assistance and guidance for organisations as they seek to meet their reporting requirements and fill out the necessary forms prescribed by the law. The requirements described above have been in force since 2012; and while organisations do their utmost to respect these regulations, many of them – especially smaller associations lacking financial or legal knowledge – have a difficult time navigating their way through the requirements. Training sessions, consultations or written guidance may be useful for improving the content of the reports so that they provide an accurate picture of the work of each organisation.

Why require civil society organisations to operate in a transparent manner?

Many institutions, including civil society organisations, deal with shared issues of the political community and are active in the public domain. This makes the transparent functioning of these organisations a basic expectation; the theoretical basis of these expectations may differ, however, according to the type of institution. The content and the restrictions the legal system prescribes for the transparency of these organisations depend greatly on the underlying principles of the system.

The transparency of the government, and political parties seeking to delegate politicians to government, is justified principally by their relationship to exercising state power. These institutions have oversight over members of the political community, or were established to acquire the possibility of exercising such power. They are empowered by the community of citizens to exercise power; in turn, the citizens on whose behalf they exercise state power may also hold them accountable. Public attention is required to continuously monitor the activities of the government, whose fundamental task is to foster public well-being. Public attention, paid to the way state power is exercised, is able to serve as a counter-balance to the threats posed by biased and arbitrary state power processes and decisions. Accountability makes it possible to track the way public funds are spent, which may help prevent the misuse of such funds. Transparency also has counter-corruption and economic explanations: if a state is not transparent, corruption tends to rear its ugly head, which is detrimental to the economy, scares away investors and those seeking to provide assistance, and thus ultimately leads to poverty. Public attention, however, drives corruption away; as we say in Hungary, “sunlight is the best disinfectant.”

The theoretical foundations for the transparency of civil society organisations not exercising state power and not wishing to do so are a different matter. In their case, transparency is explained primarily by the fact that they, too, are institutions of public political discourse; they deal with matters relating to the community, they explore and work to resolve social problems, and their work is related to single individuals, as members of the political community, in exceptional cases. A civil society organisation operates in the public space where individuals may associate, exchange views and make statements freely. Thus, it is primarily their presence in political public discourse which demands transparency in their operations.

Organisations working in political public discourse are required to operate in a transparent manner primarily because it is this public nature which guarantees democracy and the participation of citizens in community decision-makingIn a democratic framework, it is critical not only for citizens to be aware of what the government is doing, but also for those who influence government it to operate in a transparent manner. For citizens are only able to judge the credibility of the work of civil society organisations if armed with this knowledge, and this is the only way in which citizens may become active participants of democratic public life; this is essential to ensuring that a democracy is a true participatory democracy. Both participation in community decision-making, as well as the ability of citizens to influence state power decision-making make it necessary for information pertaining to institutions playing an intermediary role in this to be made available. Comparing divergent views and meaningful public policy debates requires that the information upon which these are based may be learned and disseminated In this sense, the transparency of the entire political landscape is a precondition to exercising political liberties and thus – indirectly – the democratic functioning of society.

Naturally, in cases in which a civil society organisation uses public funds, or plays a role in exercising state power, the same justifications as those which apply to the transparency of state affairs also apply to it – insofar as its use of public funds and its exercise of state power is concerned. 

Drafted in 2015 by: Fanny Hidvégi (HCLU), Sándor Léderer (K-monitor), Veronika Móra (Ökotárs), Máté Szabó (HCLU)

Signed by:

Máté Varga, Civil College Foundation

Ildikó Simon, Cromo Foundation

Ada Ámon, Energy Club Climate Policy Institute and Applied Communications Association 

Gábor Daróczi, president, Chance for Children Foundation

Tamás Dombos, Háttér Society

Adrienn Zubek, Human Platform Association

Sándor Léderer, K-monitor

Gábor Polyák, Mertek Media Monitor

Györgyi Kocsis, Hungarian Europe Society

Márta Pardavi, Hungarian Helsinki Committee

Erika Muhi, Legal Defence Bureau for National and Ethnic Minorities (NEKI)

Bea Bodrogi, EMMA Hub – Women’s Association for Birth Rights in Hungary

Stefánia Kapronczay, Hungarian Civil Liberties Union

Zsuzsanna Keszthelyi, Védegylet

This statement is hereby submitted as being correct: Stefánia Kapronczay, HCLU


[1] Act CLXXV of 2011 on the Right of Association, Public Benefit Status, and the Operation and Funding of Civil Society Organisations

[2] Government Decree 350/2011 (XII. 30) on Certain Issues of CSO Financial Management, Fundraising and Public Benefit Status

[3] Act C of 2000 on Accounting and Government Decree 224/2000 (XII. 19) determining the breakdown of annual reports.

Share

Related articles

What Is The Problem With The Hungarian Law On Foreign Funded NGOs?

On 13 June 2017, the Hungarian National Assembly (Parliament) adopted the Act LXXVI of 2017 on the Transparency of Organisations Supported from Abroad (hereinafter: the Law). It obliges associations and foundations that receives at least 7.2 million HUF annually from foreign source to register with the court as an organization receiving foreign funding, to annually report about their foreign funding, and to indicate the label “organization receiving foreign funding” on their website and publications. The list of foreign funded NGOs is also published on a government website. 

An open letter for president Juncker

Representatives of civil society organizations and communities which share an interest in achieving a concerted response to HIV/AIDS, Tubercolosis, and viral Hepatitis in Europe wrote an open letter for President Jean- Claude Juncker. 

[Public hearing] Hungary: the situation of democracy, rule of law and fundamental rights

The Alliance of Liberals and Democrats for Europe (ALDE) held a hearing on the situation of Hungary during the plenary session of the European Parliament in Strasbourg.  Representatives of civil society, press and experts have been invited to speak about developments in Hungary, notably the crackdown on NGOs supporting democracy and civil rights.