Financial accountability of civil society organizations

In recent decades, civil society organisations (CSOs) – an alternative term to ‘Third Sector’, used to capture all forms of collective organisation which fall outside government and business sectors – have grown both in number and in their impact on policy-making, at European and also non-Member state level.

The best known types of CSOs are non-governmental organisations (NGOs). The number of NGOs operating at international level is estimated at roughly 40 000. The annual Yearbook published by the Union of International Organizations reports approximately 1 200 new entries every year (inter-governmental organisations are also included in this number, however).

Public institutions, motivated by the need to increase their legitimacy, have increasingly delegated functions to CSOs. Concomitantly, CSOs have expanded their access to public funding. According to the Organisation for Economic Co-operation and Development (OECD), NGOs operating at the international level disburse more than the development aid provided by the United Nations (UN), and channel almost two thirds of the European Union’s (EU) relief aid.

In part because of increased access to public funding, and in part because of a stronger relationship with public powers, CSOs are under pressure to demonstrate that they use the resources they are given in an efficient, accountable and transparent manner, e.g. by adopting policies on fiscal transparency, and by maintaining financial solvency.

The EU’s interest in regulating CSOs is relatively recent. At present, the legal framework addressing CSOs’ financial accountability includes two ‘categories’ of norms: those that regulate the award of public contracts and the concession of grants, and those norms that address transparency and openness. The first category includes the rules on public contracts and the rules on (co-)financing of CSO projects; whereas the second category includes the Financial Transparency Initiative (FTJ) and the Joint Transparency Register (JTR). The FTJ gathers all information on EU funding in a single database. The JTR gathers information produced by the various organisations (including CSOs) that are interested in lobbying the EU, and who register voluntarily.

Defining the boundaries of CSO fiscal accountability and effectively tackling cases of fraud or financial mismanagement remains a difficult endeavour. To begin with, the EU still lacks a single overarching understanding (and, consequently, legal definition) of CSOs. This translates into the absence of clear legal definitions, and more generally into the opacity of the information available on CSOs through EU databases. Moreover, as CSOs are ‘private entities’, they are not submitted to the same integrity mechanisms and norms that apply to public institutions, including internal and external oversight. Finally, a significant administrative burden imposed on CSOs may, in the end, counter EU efforts to tackle financial mismanagement by CSOs.

In many respects, the issue of CSO financial accountability has come to resemble a dialogue of the deaf: EU institution-proposed reforms have been postponed, or have not produced the outcomes expected, or have been fiercely opposed by CSOs. At the same time, the self-regulatory tools (including policies on selecting donors, self- monitoring and codes of conduct and standards) developed by CSOs to enhance their financial accountability have not obtained official recognition from EU institutions: and, consequently, have not satisfied critics.