To:

Mr. Gramoz Ruci, Chairman of the Parliament of Albania

Mrs. Anila Denaj, Minister, Ministry of Finances and Economy

Mrs. Vasilika Hysi, Deputy Chairman of the Parliament and Chairperson of the Subcommittee on Human Rights

Mr. Ulsi Manja, Chairman, Committee on Legal Affairs, Public Administration and Human Rights

Mr. Arben Ahmetaj, Chairman, Committee on Economy and Finances

For information:

Mrs. Ogerta Manastirliu, Minister, Ministry of Health and Social Protection; Chairman of the National Council of Civil Society

Mr. Mario Mariani, Head of Co-operation, Delegation of the European Union in Albania

Mrs. Leyla Moses-Ones, Chargé d’Affaires, Embassy of the United States in Albania

His Excellency Mr. Adrian Maître, Ambassador of Switzerland in Albania

His Excellency Mr. Duncan Norman, Ambassador of the United Kingdom in Albania

His Excellency Mr. Johan Ndisi, Ambassador of Sweden in Albania

Her Excellency Mrs. Guusje Korthals Altes, Ambassador of the Netherlands in Albania

Mr. Enton Duro, Director of the General Directorate of Taxation

Mrs. Elira Hoxha, Executive Director, National Accounting Council

Mr. Andi Kananaj, Executive Director, Agency for the Support of Civil Society

Mrs. Eriola Muka, Director, Directorate of Policies and Priorities for Development at the Prime Minister’s Office

Mr. Blendi Dibra, Vice-Chairman of the National Council for Civil Society

Subject:       For some clarifications and amendments to the Law “On Accounting and Financial Statements”

We, a group of civil society organizations, have become aware of Law no. 25/2018 “On Accounting and Financial Statements”, through an invitation from the National Accounting Council (NAC) as the designated body for drafting the performance report format that NPOs have to submit to it under the applicable law.

The law was published in the Official Gazette No. 9222 on May 17, 2018 and has entered into force since 1 January 2019. This law has been drafted and approved without the knowledge and participation of the sector and comes to the attention of civil society organizations only at this moment when the process of drafting the reporting formats from the NAC has begun.

The civil society sector itself has many issues that need to be addressed internally. These issues are being discussed at forums across and beyond the sector in order to increase the NPOs functioning standard, the quality of its activity and the increased transparency of NPOs. Proper and unequivocal treatment of NPO financial reporting is essential to their development and is one of the important priorities set out in the Roadmap for the Government Policy Towards more Enabling Environment for Civil Society Development 2018-2022, a Strategic Document for the development of the sector.

Law no. 25/2018 “On Accounting and Financial Statements” brings some new changes and additions to the reporting of non-for-profit entities, which are a concern and a step backwards regarding the reporting of civil society organizations.

Specifically, the issues of concern are listed as follows:

• Article 13, item 5, the law seems to abolish the relief provided by the NAS for NPOs, set in the Order of the Minister of Finance No. 62 dated 17.09.2015, regarding the presentation of financial statements for organizations with a total asset or total income less than ALL 5 million, unifying the type of financial statements for all NPOs. In fact, the reporting according to the financial statements set out in this law, against the “income-expense” format set out in the NAS would make the financial reporting irrelevant and would be a burden to the institutional capacities of many small organizations and those operating on volunteer basis.

This change represents a step backwards in creating an enabling environment for NPOs in the country, not taking into consideration the (non-profit) nature of the work, and the size of NPOs. This change contradicts even the best practices in this regard.

• Article 17, item c, provides for the obligation of NPOs whose the total asset or total income in the financial statements exceeds 30 million ALL, to prepare the performance report, a report which together with the financial statements should be published on the organization’s official website.

According to the description in paragraphs 1 and 2 of Article 17 of the law, on the content of this report, and also the preliminary discussion on the format of this report, it seems to be not in compliance with the non-profit nature and activity of NPOs.

BUT, the main concern with this request is related to the motivation and need of lawmakers to assess the performance of these organizations, which for the sake of legal definition are the largest organizations in the country whose focus is human rights protection; monitoring, evaluating and denouncing of corruption cases at all levels of the state; monitoring of the elections and advancing the legal framework in this regard, etc.

Performance assessment at a time when these organizations are not contractually and financially related to the state, said otherwise when they do not use state funds or receive tax and financial reliefs, makes it unjustified. Moreover, this is considered to be a violation of the freedom and independence of the non-profit sector.

The requirement for the preparation and publication of the organizations’ performance report becomes even more odd when it is not determined which is the appropriate institution to assess this performance; which is the Albanian or international standard to assess the performance against, and eventually make judgement on its conformity; which are the penalties for organizations that do not meet the performance standard.

All these questions make this requirement of the law pose a high potential risk for state intervention in the independent activity of the non-for-profit sector.

In accordance with the existing legal framework, NPOs prepare and submit financial statements to tax authorities and are subject to ongoing monitoring by them. They also submit activity reports directly to donors and public institutions from which they receive funding, in accordance with the relevant rules and procedures. Western practice, including some Western Balkan countries, includes the requirement to produce an annual activity report and provide public access (in any form, but not determinant on the official website). But this is only about those organizations that have the status of “For Public Benefit” and those who benefit from public funds.

• Article 22, item 1 of the law provides the obligation of entities to “… submit to the respective authority where they are registered, the annual financial statements for publication…”. In the case of non-profit organizations, the “respective authority” is the Tirana District Court.

This obligation is an added burden to civil society organizations, especially those from outside Tirana, that will have additional costs to present their financial reports and other documents that the law provides, to the Tirana District Court.

On the other hand, this demand does not bring any added value in terms of sector transparency, public access or facilitation of control and monitoring by relevant institutions. The court does not have an institutional mandate to manage or use this type of information. While the financial statements are submitted by non-profit organization in the Regional Taxation Directorates like any other entity, this new requirement of the law is unjustified. Any need for information both for institutional and public needs can be accomplished by these Directorates. Moreover, the Tirana District Court has failed in these nearly 20 years to produce an accessible electronic register for the non-profit sector in the country.

• Article 22, item 3, provides for the obligation of NPOs to publish on their website the annual financial statements if the total asset or total income in their financial statements exceeds 30 million ALL. They should also publish the performance report.

Thus, the law force NPOs to have official websites, while this is not a legal obligation envisaged by the legal framework for the registration and operation of NPOs, as it is not a legal obligation for the vast majority of profit-making entities.

Honorable representatives of state institutions and donors supporting the non-profit sector, we remain committed to strengthening our public communication and transparency as an important tool in strengthening public trust. We find that voluntary self-regulation in the form of the Code of Standards is one of the forms to strengthen this transparency to the public. But any legal regulation that tends “to grade” the quality of the non-profit sector’s work from state institutions would be interfering in its activity.

Considering the above, in the name of the signing organizations, we ask:

• Organization of a meeting to discuss these issues with representatives of civil society organizations, the Ministry of Finance and Economy and representatives of the Parliamentary Committees;
• Reviewing of the Law “On Accounting and Financial Statements”, for its best functioning.

Thank you in advance for taking into consideration our request.

Respectfully,

(in alphabetical order)

Albanian Center for Population and Development (ACPD)

Albanian Disability Rights Foundation (FSHDPAK)

Albanian Helsinki Committee

Albanian Institute of Science (AIS)

Albanian Local Capacity Development Foundation

ARSIS, Social Organization for Youth Support

Balkan Investigative Reporting Network – BIRN Albania

Beyond barriers

Center for Rights at Work

Center ACT FOR SOCIETY

Civil Rights Defenders – Albania

Co-PLAN Institute for Habitat Development

Dorcas Aid International Albania

Gender Alliance for Development Centre

Help the Life Association

Initiative for Social Change (ARSIS)

Institute for Democracy and Mediation (IDM)

Institute for Development and Research Alternatives (IDRA)

Open Society Foundation in Albania (OSFA)

Observatory for Children and Youth Rights

Partners Albania for Change and Development

Resource Environmental Center – Albania

Roma Active Albania

Ryder Albania

Save the children – Albania

Tirana Legal Aid Society (TLAS)

Tjeter Vizion NGO

Terre des Hommes

Urban Research Institute (URI)

Useful to Albanian Women

“Vatra” Psycho-Social Centre

Vision OJF

World Vision Albania

Note: The contact point for this issue is Partners Albania for Change and Development at @resourcecentre.al or tel: 04 2 2540881