Non-Profit Sector Development Numbers

In Russia, the official statistics of the non-profit sector are taken care of by two federal agencies, the Ministry of Justice and the Federal State Statistics Service, or Rosstat.

ОП РФ

Chairperson of the Commission of the Civic Chamber of the Russian Federation on Development of Non-Profit Sector and Support of Socially Oriented Non-Profit Organisations

According to the data of the Ministry of Justice of the Russia Federation, there are about 220 thousand non-profit organisations operating in our country. Their number has remained stable for the last few years. However, it is quite hard to understand how many of them have been engaged in active operations. Since none of the agencies provides us with such information. You can only trust the rule-of-thumb expert assessments which say that we have got no more such organisations than 15 – 20% of those registered. Nevertheless, the non-profit sector, today, has been vibrantly developing. More and more non-profit organisations raise private donations and become more active in working with citizens. Non-formal civil activity has been on the rise, too. However, what is absolutely bound to be addressed in depth by the non-profit sector is to ensure that citizens develop more trust for it. As expecting people to come forward and join non-profit organisations as volunteers, expecting them to donate their money is only realistic when the level of trust for non-profit organisations is high. Yes, it is true that it has grown up during this past year. But there is still room for improvement. For that, non-profit organisations have to become more transparent and accountable. Yes, indeed, we do have such organisations which produce public reports but still this is not enough. Non-profit organisations must interface with each other better, set up partnerships, establish self-regulating organisations, because all the above would protect them from fraud and help them be more accountable and operate in compliance with high ethical standards.

According to the Ministry of Justice, in 2015-2016 the total number of NPOs in Russia was stable with a trend towards minor growth. At the end of 2015, its register counted some 226 thousand NPOs, and at the end of December 2016, their number was slightly over 227 thousand. In early November 2017, there were over 223 thousand NPOs on the Ministry’s register, thus, the number of NPOs reduced by almost 4 thousand in one year.

Some independent research and expert assessments show that only 15-25% ^* of all registered NPOs continue to run as going concerns. Yet, the Ministry’s register does not shed light on the number of organisations that are still operable. The Ministry’s statistics are not fit for analysis of any specific lines of NPO activities, nor do they allow for any conclusions about financial standing or those who work for the third sector.

Moreover, some major state-owned corporations are still included in the Ministry of Justice register as NPOs (Rosatom, Rostechnologii). More than four thousand political parties (including their regional offices) are also in this register among NPOs.

Although the category of socially oriented (SO) NPOs was added to laws in 2010, the statistical accounting of the third sector has not changed much since then. Statistical accounting of SO NPOs is done by the Federal State Statistics Service known as Rosstat. According to this statistics agency, the number of SO NPOs continues to go up, i.e. at the end of 2015 Russia had 140,031 SO NPOs, while at the end of 2016 their number rose to 143,436 or 63% of all registered NPOs. Yet, statistics in this case do not mean that the sector grows, but rather that a greater number of NPOs is categorised as organisations with a social focus, and in order to be categorised this way an NPO only needs to make a reference in its charter to as much as one line of activity that is declared as socially oriented. The list of SO NPOs includes, amongst others, the Analytical Centre of the Russian Federation Government, the Agency for Strategic Initiatives, as well as various government funds ^* .

According to the Rosstat’s statistics, the overall revenue of SO NPOs was reported to amount to RUB 686 billion in 2015 vs. RUB 831 billion in 2016 (including revenue from the sale of goods and services of RUB 254 billion, and proceeds from Russian commercial organisations totalling RUB 174 billion). These numbers of astronomical magnitude do not align with the overall economics of the real non-profit sector (i.e. in 2016, SO NPOs received ca. RUB 11 billion of support from the federal budget). Clearly, these numbers include, amongst others, various government funds, budget-sponsored sports clubs and other organisations which can be categorised as non-profit only nominally.

Meanwhile, other numbers supplied by Rosstat on the SO NPO sector are also questionable. For example, according to the agency, the overall headcount of SO NPOs at the end of 2015 was 911 thousand (vs. 989 thousand in 2014), or 1.3% of the country’s economically active population. However, at the end of 2016 this figure dropped to 672 thousand. How could the headcount of SO NPOs go down by more than 300 thousand in one year alone while the state is boosting its financial support to SO NPOs, and the latter get engaged in the delivery of socially oriented services? At the same time, at the end of 2015 Rosstat reported some 2.5 million volunteers supporting SO NPOs vs. 3.8 million at the end of 2016. This rapid growth against the headcount reduction is difficult to explain.

In 2017, “Open NPOs”, a public project, was launched. The purpose of this initiative is to aggregate information on grants, subsidies, and contracts of NPOs. The project shows in a clear and straightforward manner which organisations obtained government support ^* . However, sociological surveys and data aggregators are not a replacement for the so much needed adequate government statistics.

At the end of the day, we have no true and adequate way to assess the cash flows channelled through NPOs, while the real contribution of most SO NPOs is not accounted for, and there is no information on their areas of focus. Government statistics do not allow for real accounting of non-profit organisations and do not shed light on the structure of the third sector. Without a clear picture of the structure and the resources available to the non-profit sector, there is no way for proper and efficient government regulation of this sphere or adequate support to NPOs. To solve this problem, we need regular in-depth and systematised research into the third sector standing in Russia and the dynamics of its statistical parameters.

Legal Field for Non-profit Sector

In countries with a long-standing tradition of non-profit activities, they use differentiated approach towards regulating and supporting non-profit organisations and towards their reporting obligations.

Russia’s public domain and government regulation are still dominated by the idea of the third sector as a homogeneous pool of non-profit organisations, i.e. the organisations that do not quote profit generation as their main purpose. As a result, during statistical assessments, the data are fed in by all NPOs as one single array, despite the fact that these organisations are so different that the data aggregated this way would not produce an adequate picture.

In effect, today the third sector is deeply segmented. It amalgamates smaller socially oriented NPOs operating at the municipal levels as well as major corporate and private charitable foundations and many other types of organisations. An important component of the third sector are the multi-branch professional and corporate alliances, i.e. business associations (Chamber of Commerce and Industry, Russian Union of Industrialists and Entrepreneurs, Opora Rossii (Russia’s Support), Association of Farming Enterprises and Agricultural Cooperatives (AKKOR)), self-regulating organisations, trade unions, artistic and creative unions, whose purpose is to protect the interests of relevant groups, maintain a consolidated position, communicate it to the legislative and executive branch, and to build a comfortable competitive environment. There are organisations that act on behalf and in the interests of their members, i.e. gardening partnerships, tourist societies etc. And, finally, NPOs integrate a variety of public associations, i.e. parish communities or sports fan clubs.

A big chunk of the sector are small NPOs (with up to five employees) doing their work for free with all costs (documented, minimal event-related costs) are covered out of the pocket of the organisation’s head who personally prepares and delivers zero balance accounting reports to relevant supervisory authorities. According to a survey of local NPOs in 2016, almost 37% of NPOs show that they received funding below RUB 100 thousand in 2016 ^* .

Finally, there are non-profit organisations that are established or created with the support of or directly by government authorities. These include sports clubs which are frequently registered as autonomous non-profit organisations. In 2016, they received grants, subsidies and contracts from the state in excess of RUB 20 billion. ^* . The sector has many government-funded or government-affiliated NPOs. This “organised public sector” is widely engaged in servicing the government order, which leads to the governmentalisation of the third sector.

In some instances, an NPO may be registered with one purpose only, that is, to participate in government tenders and competitions to obtain access to government subsidies in order to prey on the government support. There is a well-shaped layer of NPOs specializing in grant competitions and government projects (intermediaries, promoters of grant applications ). Let us have a look at the case reported by the Civic Chamber of the Kabardino-Balkarian Republic. In 2014, Delay Dobro (the name meaning ‘do good’ in Russian), a local non-profit organisation, received a presidential grant of RUB 1 million for the creation of an all-Russia online discussion platform RosDisput. However, the platform never appeared online and, other than the intriguing name, nothing else is known about the project, or about a number of similar projects whose initiators’ names say nothing to the region’s civic activists ^* . In fact, these organisations are not directly related to non-profit activities, therefore, they should not enjoy various benefits or preferences. However, the applicable laws in their current form do not allow for any ranking among various NPO types.

Lawmakers have the same set of requirements applied to different NPOs, thus limiting access to additional tax benefits and preference for some of them. There is a variety of forms to support small businesses (easier registration, reporting, targeted support), yet, there is nothing like this for the non-profit sector. But NPOs have to pay the same taxes as the commercial sector enterprises. NPOs do not enjoy any reduced property or land tax rates, therefore some non-profit organisations running public shelters or rehabs sometimes spend up to a third of their project’s worth on taxes.

Incentives cannot be available to all NPOs. Therefore, it makes sense to consider categorising NPOs into various groups with different tax regimes as well as reporting and transparency requirements. There is a need for a tailored approach to regulating charity funds which gather donations, while NPOs wishing to be supported from the government budget must provide more in-depth reporting. A clear legislative line should be drawn between commercial and non-profit activities in order to make sure that NPOs are not used as a tax optimisation tool.

Lack of structure in the third sector results in quite stringent NPO registration requirements, which lead to complaints primarily from smaller socially oriented NPOs representing an overwhelming majority in this sector. There is no simplified registration process for NPOs, there is no regulation in place to make the state registration service available online and/or through the single window system at Multiservice Centres ^* . Today, to register and maintain the status of an NPO is much more of a challenge than to register and maintain the status of an entrepreneur. A limited liability company is easier to register than an NPO, thus many choose to register non-profit initiatives as businesses. On the one hand, this is a justifiable step for many NPOs collecting private donations and eager to get government support, while, on the other hand, smaller socially oriented initiatives see it an entry barrier for the sector.

For years now, there have been discussions around the excessive mandatory reports to be prepared by NPOs, which are much more abundant and more difficult to prepare than the reports by small businesses. Rosstat sets out 59 various statistics reporting forms, there are also reports to the Federal Tax Service, Ministry of Justice, and various social funds ^* . An NPO, as if it were an industrial facility, must provide to the Social Insurance Fund a confirmation that their employees do not have any harmful exposure, otherwise the NPO will have to make a higher accident insurance contribution. Such reports are a very serious burden on smaller organisations. This is probably the reason why, in quantitative terms, the number of registered NPOs in Russia’s third sector does not grow and reduced over the past year.

Thus, the item on top of the agenda should be reorganising the government statistics system for the third sector and legislative delineation of various NPO categories. The purpose of such delineation is to make governmental support of the non-profit sector more efficient. Enhancement of applicable legislation may take the form of adopting an amended version of the 1996 Law “On Non-profit Organisations”, which now resembles a patchwork as a result of numerous amendments and addenda. Government regulation of the commercial sector with a significantly more flexible approach to clustering businesses into small, medium, and large ones can be used as a template. The first, yet an absolutely insufficient step in this direction could be the legal definition of public service providers as a free-standing category of NPOs with extra government support.

As to legislative developments in the non-profit sector, experts have for years pointed at the vagueness of the “political activity” wording in the ‘foreign agent’ law. This allows for much leeway in the interpretation of laws when dealing with financing from outside Russia. For example, should the financing that comes from such a reputable source as the UN, where Russia is a member, be considered foreign financing? What is the difference between financing from a foreign organisation and international financing? On the other hand, the law interprets financing from a Russian company generating its income from activities outside Russia as foreign financing. The law contains no clear statement that an organisation must not only receive the financing that is anyhow related to foreign sources, but it has to have a purpose and must act upon the instruction of the foreign agent of influence. Today, the foreign agent law encourages the establishment of holding companies, where one organisation deals with politics and is funded with Russian money, and the other deals with foreign money and is out of politics.

Government Support and Financial Standing of the Third Sector

Over the recent years, the government support to the third sector has grown through bigger grants, admission of non-profit organisations to providing social services in traditionally budget-funded spheres.

These are all important steps towards improving the financial sustainability of the non-profit sector. Today the development of the non-profit sector in the country to a large extent is initiated by the state.

The key format of government support of socially oriented NPOs are subsidies (grants) from the federal budget. The total support allocated to SO NPOs rose from RUB 8 billion in 2015 to RUB 11.2 billion in 2016. In 2017, the programme of presidential grants alone channelled RUB 7 billion in support of NPOs. ^*

Financing of SO NPO programmes from federal budget in 2015-2016.

In 2017, the system of government support of NPOs underwent change: there was created the integrated operator, the Presidential Grants Fund. According to general feedback, the applications selection process has improved, the award and spending of the grants have become more transparent, and an electronic document management system and a system of electronic feedback on applications have been introduced. The Fund received a records-breaking number of applications, and more than 80% of grant awardees are from Russian regions, while earlier most of the grants went to Moscow-based NPOs.

The Civic Chamber of the Russian Federation plans to introduce public presentations and discussions of outcomes for the national-scale projects funded through presidential grants. Regional civic chambers are to become discussion forums to focus on efficiency of projects carried out in their regions.

A project can be submitted for co-funding so that it can receive financial support not from the state only, but also from businesses through fundraising. This practice should be encouraged in all types of government supported SO NPOs to nourish their skills of finding resources for sustainable development and to prevent NPOs from turning into quasi-governmental agencies.

Support of NPOs from regional budgets is affected by the 2016 roll-in of the competitive co-funding of regional SO NPOs support programmes from the federal budget. Without federal budget financing a number of regions now offer even more funding to their SO NPOs, however for most regions keeping such programmes, especially given their budget shortfalls, is very risky. It is clear that without federal incentives the framework of SO NPO values, principles, criteria, and development initiatives can fall apart. Therefore, it is feasible to revive federal co-funding of regional SO NPO support programmes on a competitive basis.

Supporting NPOs through grants at the regional level is less transparent and aligned. Open-source publications on recipients of budgetary funds, supported projects and their project outcomes should become a must.

Regional authorities should expand non-financial forms of NPO support, which are quite versatile, from the free-of-charge rent of premises, including rooms in universities, public establishments, libraries, clubs, to information support and support with materials, i.e. by helping NPOs out with printed materials. Most regions do not provide clear and straightforward information on non-financial support available to NPOs. Some people rent offices at beneficial rates on behalf of NPOs, while in reality the offices are used for commercial purposes. Today it is a matter of pressing urgency to create an integrated electronic property navigator of all offices and premises available to NPOs for rent, similar to the navigator available for small businesses.

With the available statistics, it is quite a challenge to evaluate the total volume of government support channelled into the third sector. If we look at the data provided by Rosstat, in 2016 the total funds channelled into SO NPOs amounted to RUB 28 billion from the federal budget, RUB 49 billion from regional budgets, RUB 10 billion from municipal (local) budgets, and RUB 6 billion from state non-budgetary funds. But this also includes the government subsidies to autonomous non-profit organisations outside the scope of the public procurement law. Among recipients of government support are some NPOs with affiliation to public social establishments and professional sports clubs which can only nominally be treated as civil society institutions.

So far, our society predominantly believes that the non-profit sector cannot and must not make money. This is the sector with predominantly low pay, while some NPOs cannot afford a full-time accountant or a lawyer. However, the third sector is an important employer which will become a significant economic player in the future. Those NPOs who do want to make money by selling services or goods need to be taught to do this so that they could source funds for new projects and pay decent salaries to their staff. That is an essential prerequisite for the overall NPOs sustainability. This will expand the planning horizon for the third sector and contribute to its efficiency because it will task NPOs to assess the social impact of their projects and so make them more responsible cost-wise. Successful social entrepreneurs projects could be a benchmark for the whole of the third sector.

Russian regions see the emergence of non-profit organisations capable of sourcing their funding, attracting volunteers and being fully accountable to the state for the money they spend. However, they are yet too few, and most NPOs have no full time employees, professional accountants or transparent governance.

Resource centres, volunteer organisations, centres of social innovation are all there to render legal, organisational, information support and advice to SO NPOs in the regions. Resource centres in regional centres and municipalities could take up the task of providing basic legal and financial training to NPO staff. In 2017, resource centres for NPOs operated in 31 regions only ^* , and the total number of such centres across the country is 234 ^* . This number is obviously not enough because, in addition to consultations, resource centres could create a favourable environment for joint projects, arrange for exchange of positive experience, and replicate best social service practices. After the resource centres support programme sponsored by the Ministry of Economic Development was discontinued, all further support of such centres has been provided through the Presidential Grants Fund. Regular funding of resource centres from regional budgets could also be a viable option. It is advisable to have resource centres established in all constituent territories of the Russian Federation, i.e. on the basis of regional civic chambers. There should also develop a network of municipal resource centres.

The Civic Chamber of the Russian Federation has an important role as a centre of competencies, a kind of an ‘open university’ that will aggregate information on projects of social significance to build a civil contract culture between businesses, the government and the society, define and coordinate methodological support for public control institutions, independent assessment of services quality, volunteering, and social entrepreneurship.

Third Sector and the Society

Citizen activism remains largely unformalised.

Member of the Commission of the Civic Chamber of the Russian Federation on Family Support, Maternity and Children Support

Central to our society today is lack of trust. Mutual mistrust of the civic society and the state authorities, its various groups is the worst thing that can happen to us. It is not acceptable to allow of internal alienation developing instead of cohesion, quest of enemies among your friends and neighbours instead of searching for common values and grounds for such values to be created.

For the public sector, for non-profit organisations, trust is the main capital and main resource. For citizens to interact with non-profit organisations, for the government to interact with non-profit organisations, a deficit of trust for each other is the destructive element which does not allow the sector to develop, does not allow institutes as well as public control and public mutual assistance to be actively implemented. One of the reasons for such lack of trust is, among other things, the fact that unfortunately in the sector there exist fraudulent organisations disguising themselves as foundations and non-profit organisations. While another reason for mistrust is the blurred borderline, inside the sector itself, between the non-profit organisations, i.e. associations of citizens around this or that subject matter or problems as opposed to major foundations and organisations established by the state, which constitute non-profit organisations in form rather than in essence. On their upkeep, the government, among others, spends vast amounts which distorts perception of support for the non-profit sector in this country. Confusion with respect to forms of the organisations and associations results in it being very difficult to understand what indeed the non-profit organisations sector represents. For our purposes, we need to define what different forms of organisation the sector is composed of. To ascertain how to directly isolate the citizens' associations set up at their own initiative. To determine the difference in the support measures for these or those forms of non-profit organisations.

And never fear, under no circumstances do we fear that this sector might develop. Any reasonable government should be interested in developing the sector, in developing citizens' activity aimed at creation, mutual assistance and, of course, at identification of problems in the society, at public control. What is a non-profit organisation? It is just an association of people around solution of tasks or problems which matter to them. This is a mirror of which one should not be fearful and in which the government authorities are well advised to look as often as possible, to get an understanding of where something is not working or, vice versa, where there is a resource for development, for improvement of citizens' life and correction of their work. And it is important to build interaction based on trust, since there is no opposition between the state and the society. We are part of the common whole.

By saying so, we refer to various community groups, associations, coalitions, public initiatives, and activists who do not see why they should formally register their organisations.

There is a growing gap between informal civic initiatives and the ‘organised public sector’. NPOs and civic activists interact only but very rarely and very little. For instance, regional civic chambers are fully focused on dealing with registered NPOs. This is why civic activists are rarely seen among visitors of civic chambers.

In 2017, the level of trust in the third sector has increased. Sixty-six per cent of Russians have trust in what NPOs and public associations do ^* . This result is good, yet there is room for improvement. Experts believe that, first of all, many people around us do not realise that the veteran councils, trade unions, their fitness clubs, or the art clubs their children go to are all non-profit organisations. Likewise, many do not realise that a lot of viral public campaigns (e.g. the Immortal Regiment march) are the result of a targeted effort of a specific activist or activists. People think of them as the ‘natural environment’ or an integral part of everyday life. And they certainly do not consider these organisations or campaigns as NPOs. Therefore, opinion polls normally capture people’s attitude to those of the NPOs that they perceive as NPOs, even though they do not resort to them too often or know very little of them.

Experts keep pointing out the poor level of general awareness about NPOs, where they work and how they do it. Even that Russia has a lot of organisations working for the benefit of the society, people seem to know very little about them. There are only four or five foundations that people know or trust. Quite often, the number of people aware of socially oriented NPOs is limited to those who have had some past experience with such NPOs. The SO NPOs are there to extend real assistance. But normally they have very limited financial resources. Thus, they can neither invest in raising awareness about their activities nor hire communications professionals. Moreover, in many occasions, they just do not have time for that.

It is natural to have no trust in what you do not know. When supporting those who are in need, people prefer to give their support directly in bypass of NPOs. The social advertising law does not seem to work. It contains no clear mechanisms or criteria, and there is no money to make it work. This issue was raised by President Putin during his meeting with members of the Civic Chamber of the Russian Federation in August 2017. The President mandated the Chamber to analyse law-enforcement practices as far as social advertising and to come up with ways to boost the accessibility of social advertising for SO NPOs. The Civic Chamber of the Russian Federation will maintain a special focus on this issue. In order to support this effort, in November 2017 the Civic Chamber of the Russian Federation set up a Coordination Council for Social Advertising and Social Communications.

Another side of the medal is that the NPO sector is poorly self-regulated. There are very few platforms for alliances and consolidation, and the sector looks very segmented. This results in the mushrooming of all kinds of charity frauds and fake NPOs, allegedly established to engage in political or commercial projects.

Global practice shows that a highway to improving overall trust in NPOs across the society is to make sure that they are transparent and open. Ideally, relevant public reports should be there in the public domain. These reports must be readily accessible for anyone willing to find out about any individual NPO. These reports are to cover key areas of activity, completed projects, and financial flows. Russia has so far not opted for public reporting from NPOs, and just a few dozen organisations release them. In 2017, the Point of Departure, a competition among best reporting NPOs, resumed its work. However, only 244 reports were submitted. On the one hand, many organisations have neither time nor resources to prepare such reports. Yet, on the other hand, NPOs have little internal and no external motivation to prepare them, even if we speak of charity foundations.

In the meanwhile, transparency is not something that is wanted from NPOs by the government only. The general public wants them transparent, too. Most countries with the advanced third sector have an NPO ranking system where an NPO’s rank is determined by the depth of its public report. In order for an NPO to access governmental funding, tax and other benefits, it must submit a more detailed set of data on its activities, including cash flows. In other words, transparency requirements should become more stringent. Thus, a more flexible reporting system is needed for different categories of NPOs. NPO reporting standards could be similar those used by commercial organisations for their non-financial reports. Such standards, once developed, could lay a foundation for communications between NPOs and their external stakeholders, including donors and grant makers.