Research on NPOs in Indonesia

Two main research on Indonesian’s NPOs, in general, have been conducted in the last few years: World Bank research in 2010 and Department of Foreign Affairs and Trade, Government of Australia in 2014-2015.

The result of the studies showed the fact that a large number of NPOs do not comply with the prevailing laws and regulations as part of the public accountability principal, such as providing financial reports regularly. On the other hand, the government ministries have not conducted a proactive supervision related to the obligation to file the financial report. The government’s effort to develop inter-agency coordination related to NPO supervision, including imposing the sanction to those who breaches prevailing laws and regulations, has not been optimized yet.

The studies estimate that there are still thousands of NPOs that have not had the status of legal entity. The Ministry of Law and Human Rights is passive in nature in receiving registration from the circle of NPOs. The effort of awakening that possessing the status of a legal entity constitutes one of the forms of NPOs’ accountability has not been made widely.

As the largest Muslim country in the world, charity fund raising and zakat have become the most potential practice performed in Indonesia. Some NPOs focused in charity fund raising and zakathave eventually succeeded raising fund to reach the amount of billion Rupiah each year with the relatively good management of public reporting. Mass media, in particular private-owned television and printed media, are also actively raising fund for charity purpose and managed to collect billion Rupiah. However, accountability and transparency of fund raising conducted by mass media have become a debatable issue in numerous seminars and media. The fund raising conducted by mass media still is required to be strictly regulated related to its mechanism and also a restriction.

There are 131 foreign NPOs listed in the Ministry of Foreign Affairs. However, it is presumably a large amount of unlisted foreign NPOs conducting activities in Indonesia.

Supervision and partnership with foreign NPO still are required to be developed as an effort to develop accountability and transparency, as well as increasing the reward to the supremacy and independency of the Indonesia society. The obligations that must be fulfilled by Representative of a Foreign NPO are as follows: 1) Having a partnership with local NPOs that have been registered at the Ministry of Home Affairs; 2) maintaining representative office in the Capital of the State of

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the Republic of Indonesia (in Jakarta); 3) conducting financial management based on the national banking mechanism; and 4) preparing an accountability report and submitted to the competent official.The mechanism for supervision over foreign NPOs is conducted by the regional government in the regency/municipality where the NPO has its domicile. This report of accountability of monitoring and supervision over foreign NGOs is submitted to regent/mayor and then by the regent/mayor it is forwarded to governor every six months. Governor must report the same to Minister of Home Affairs once in six months.

The partnership between the government and NPOs related to the regulation is required to strengthen the accountability and transparency of NPOs. In the era of reformation and openness, the reaction of NPO, in particular the NGOs tend to oppose to a new regulation as it is deemed will limit the freedom of NPO. Having the fact, partnership and open dialogue is continually increased so that the regulation can be well accepted by each of the stakeholder.

Disclosure information to the public is still limited. Various important information regarding socialization NPO legislation, NPO data, and financial statements in the media, fundraising information and activities have not been actively informed by the government and NPO to the public. Along with the publication of Law Number 14 The year 2008 on the Openness of Public Information, an effort to increase transparency and accountability of this NPO needs to be socialized. Members of NPO largely assume that accountability is submitted to donor agencies only. Only big NPOs have begun to use independent auditors and publish its financial statements through annual reports, websites, and other mass media.

Public-advising is required to be enhanced to increase the transparency of NPO information and its public accountability. Each NPO needs to be encouraged to inform the profile of its institution, also its activities and financial report to the public as one of the effort to support public accountability. This obligation is actually stated in the prevailing laws and regulations; however, there is only a small number of NPO comply with the laws and regulations. This public-advising is relevant with the issuance of the Law on Openness of Public Information. The government is also required to provide the information managed to the NPO and public openly.

The effort to strengthen accountability and transparency of NPO should be followed with the increase of NPO protection, in particular by still keeping the freedom to be involved in an organization, increasing the independence of NPO from the dependency from the foreign source of

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fund which one of the efforts is to increase the capability of an NPO in raising fund domestically, developing a protection to NPO social workers, and granting of reward to the well-achieved good practices, tax incentives, and other incentives.

Effective laws and regulations are significant factors to maximize the positive contribution of NPO sector. Effective laws and regulations are by nature enabling, providing a space to the sector and enabling it to work at maximum potentiality. Effective laws and regulations create NPO sector that is feasible, accountable and independent with a series of approved norms and attitudes. Laws and regulations also formalize the relation among the government, the community, and NPO sector by presenting a series of explicitregulation as well as improving information on their respective identity.

Feasible NPO sector requires a framework of effective laws and regulations in order to maximize the positive contribution of NPO to the civil society. Good effectiveness is by nature empowering, giving space, and enabling NPO to work at maximum potentiality. Effective laws and regulations provide protection to the accountability and transparency of NPO sector. Laws and regulations also formalize the relation among the government, community and NPO sector through the creation of express regulations and improving the openness of information from the respective parties.

The regulatory framework of NPOs that becomes the responsibility of the Ministry of Home Affairs is the Laws and Regulations relating to a community organization. One of the objectives of the Ministry of Home Affairs is to improve accountability, transparency, and responsiveness in the decentralized governmental organization. Supervision of a community organization requires public support and participation. The central, as well as regional ministries, conduct partnership and supervision to the activity of NPOs. The public may give information or report if they find critical matters. However, the public has not been aware that they have a very strategic role in improving accountability of NPOs.

Another issue is internal factors of an organization. Mistreatment can happen because an NPO does not have established supervision and leadership system. In the capacity of financial management, the cause of mistreatment can happen since the system of financial management and implementing staff is still weak. The weakness can be seen from the implementation of an

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accounting system that does not meet with the goodfinancial standard; the lack of knowledge in computer skill and accounting software.

Financial statements are supposed to be audited by Public Accountant and prepared in accordance with the applicable financial accounting standard. However, NPOs have not implemented supervision and financial transparency system; and do not undertake audit from a public accountant. An audit by a public accountant is not performed because the cost is relatively expensive. NPOs prefer to conduct an internal audit by themselves. There are times when fund misuse is not being processed further; instead, it is covered up to maintain the credibility of the organization to their donors. It may also happen because of supervision and monitoring from donors in the financial sector is not vigilant. Fund misuse in the local level (implementing location) can happen because of weak monitoring and supervision from the parent NPO.

Moreover, many NPOs do not have a bank account on behalf of themselves. Although large NPOs generally already have a bank account under their on the name, but generally small NPOs still use bank account on behalf of their board or director. This can lead the potential of financial abuse if the NPO’s board is dishonest and not transparent.

Bank account of the organization is still in the name of the individual. NPOs whose account are still on behalf of individual pose a weakness in which the funds maintained in the account can be misused by the individual.

The benefit gained by an NPO if it has the status of legal entity is that it may become a party in court, may open a bank account on account of the organization by firstly possessing an NPWP, and it has more chance to have cooperation with government agency as well as donor agency at home country as well as abroad.