Recognizing how critical a supportive fiscal framework is to the financial sustainability of civil society, ECNL focused significant attention on initiatives addressing tax reform, public benefit status (which is linked to tax exemptions), philanthropy, and government funding. ECNL worked to support NGO initiatives in the following countries:

During 2005, ECNL focused efforts to promote public participation primarily by supporting local initiatives to improve the legal framework for volunteerism. Many countries lack a legal framework governing the rights and obligations of volunteers and the legal entities hosting them. Commonly, volunteers are operating in a legal vacuum. ECNL helped local partners tackle these and other issues in Bosnia, Croatia, Macedonia and Serbia, as well as in Hungary. In addition, ECNL worked in Bosnia to develop a state-NGO compact of cooperation, which will further enable meaningful public participation.

Throughout the year, ECNL made efforts to advance the accountability and governance practices of NGOs in CEE and in Europe. ECNL, through Nilda Bullain, is a member of the CEE Working Group on NGO Governance, which held two meetings in 2005. The Working Group is developing a publication to complement the Handbook of NGO Governance, which was published by ECNL in 2004. In addition, ECNL contributed its governance expertise to a number of initiatives in SEE, such as the CroNGO Project, the Macedonian Civil Society Strengthening Program, and the Civil Society Sustainability Program in BiH.

ECNL worked in 2005 to strengthen connections between the EU and Southeast Europe, an in particular with Bulgaria, Romania and Turkey. ECNL shared expertise, in addition, with partners in the NIS region, including Ukraine and Central Asia.

ECNL's cross-border activities had global reach in 2005, due in large part to the ICNL-sponsored Global Forum on Civil Society Law, to which ECNL made significant contributions in planning and conducting. The first-ever Global Forum on Civil Society Law drew together 150 leading experts from over 60 countries. Participants represented a cross-section of stakeholders, including civil society organizations, the government, the legislative branch, academia, and the donor community. The Forum was a great success. It made a number of important contributions to the development of NGO law around the world.

In addition, ECNL used its CEE expertise to support partners in the neighboring NIS region. Three delegates from Central Asia (ICNL staff lawyers from Kazakhstan, Kyrgyzstan and Uzbekistan) participated in a week-long study tour in Budapest, Hungary, in October 2005. ECNL played the pivotal role in designing and organizing the study tour. The study tour exposed the Central Asians to a far more progressive regulatory environment and provided invaluable comparative information to support law reform initiatives in their home countries.

Throughout 2005, ECNL representatives participated in international conferences, meetings, and events. Such events can provide for the exchange of cross-border expertise and experience, and have allowed ECNL to establish its reputation as a the leading resource for civil society law expertise in Europe.

During the year 2005, ECNL successfully raised sufficient funding to meet its target budget for the coming year; strengthened its organizational capacities in financial management, communication and administrative capacity; and reviewed its strategy for the next phase of its development. We succeeded in securing an extension of the Regional Cooperative Agreement for Serbia and BiH until the end of 2006 and to obtain multi-year funding from USAID sources in three other countries in the Balkans. We identified a number of strategic alternatives and are exploring their validity to ensure sustainable institutional development. We launched a new website and extended our contact database throughout Europe. At the same time it still remains a challenge to engage in successful partnerships to secure EU funding for ECNL. In addition, due to recently adopted legislation in Hungary, ECNL will have to undergo re-registration as a nonprofit entity within the next three years.

The Annual Report is the responsibility of the Company's management.

The task of the auditor is to attest the Balance Sheet, Profit and Loss Statement and Supplementary Annex on the basis of the audit.

I conducted the audit in accordance with International Standards on Auditing and applicable law and regulations in Hungary. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

I believe that the audit I conducted provides a reasonable basis for issuing an independent audit report and attestation clause.

The audit dispenses with the detailed analysis of certain items in the Annual Balance Sheet and Profit and Loss Statement due to the following point hereinafter:

The Company's Annual Report for 2005 is based on reliable accounting; the accuracy of the accounting for different economic activities can be stated.

On the basis of the audit I propose to the Founders to accept the Company's Annual Report for 2005.

Clause

While conducted the audit I reviewed the yearly report of ECNL Kht., its items and details supported by invoices and vouchers as specified by the standards of the applicable Hungarian audit regulations. On the basis of this I have made sure that all proof are satisfactory and sufficient to confirm that the yearly report has been prepared in accordance with the Act and Principles of Accounting.

I state that the yearly report reflects the fiancial status - including proceeds and possesions - of ECNL Kht. truly and reliably.

Budapest, March 23, 2006.

Entz Béláné
Registered auditor
Chamber registration no.:003159