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Journal of Islamic Accounting and Business ResearchEmerald Article: Accountability in the sacred context: The case of management, accounting and reporting of a Malaysian cash <IT>awqaf</IT> institutionHairul Suhaimi Nahar, Hisham Yaacob

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To cite this document: Hairul Suhaimi Nahar, Hisham Yaacob, (2011),"Accountability in the sacred context: The case of management, accounting and reporting of a Malaysian cash <IT>awqaf</IT> institution", Journal of Islamic Accounting and Business Research, Vol. 2 Iss: 2 pp. 87 - 113

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Accountability in the sacredcontext

The case of management, accountingand reporting of a Malaysian cash

awqaf institution

Hairul Suhaimi NaharAccounting Section, School of Management, Malaysia Science University,

Penang, Malaysia, and

Hisham YaacobDepartment of Accounting and Finance,

Faculty of Economics, Business and Policy Studies,University Brunei Darussalam, Gadong, Brunei Darussalam

Abstract

Purpose – The concept of accountability has long been argued in the academic and public policydebate to have been contextually ingrained in the technical processes of accounting and reporting.Both processes provide lenses through which the extent of managerial accountability in the corporatecontext could be objectively examined. The sacred religion of Islam as a social order with a completecode of life classifies accountability as being dual; in line with the duality concept in life – in thistemporal world and eternal hereafter, necessitating for accountability concept in accounting andreporting from the Islamic worldview to transcend beyond the point of worldly objectives. Parallel tothis line of reasoning, the purpose of this paper is to undertake a preliminary empirical investigationwith respect to accounting, reporting and accountability practices of a Malaysian cash awqaf (Islamicendowment) management institution over a six-year period, from 2000 to 2005.

Design/methodology/approach – The paper uses triangulation research approach, consisting ofcase study method and archival documentation review and analysis.

Findings – The preliminary findings indicate that, while the root of accountability in themanagement, accounting and reporting practices seems to exist in the awqaf entity studied,significant improvements remain necessary to ensure accountability could be continuously enhancedand uphold.

Originality/value – Debating accountability concept in the context of management, accounting andreporting as practiced by faith-based institution of awqaf from the Islamic perspective inevitablydirects this study to highlight the notion of Islamic accounting and reporting commonly andextensively discussed in the realm of Islamic finance and banking. The study’s conjecture is that,by debunking the myth of Islamic accounting and reporting as only serving the acute domain oftransactions reflecting the Islamic financial products in banking environment, it helps to reshape,broaden and emphasize the all encompassing relevance of Islamic accounting and reporting to that ofnot-for-profits, religiously grounded entities such as awqaf institutions. The study further contributesto the accountability and financial reporting literature in Islamic not-for-profit organizations bystudying the importance of sound accounting practices and reporting transparency in ensuringaccountability.

Keywords Islam, Finance, Banking, Accountability, Accounting, Reporting, Awqaf,Mutawallis (awqaf trustees), Non-profit organizations

Paper type Research paper

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1759-0817.htm

Accountability inthe sacred

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Journal of Islamic Accounting andBusiness ResearchVol. 2 No. 2, 2011

pp. 87-113q Emerald Group Publishing Limited

1759-0817DOI 10.1108/17590811111170520

1. IntroductionThe Islamic revivalism (Al-Tajdid Al-Islami ) ignited post twentieth century hadeffectively provided impetus for the reshaping and aligning of Muslims’ (hereinummah) daily practices with those previously promulgated by Prophet Muhammad(Peace Be Upon Him) (Yousif, 2004). It began immediately after the collapse of theOttoman Empire with the aim of returning Islam to its original pure form (Mawdudi,1992). One of the revivalism agenda is to rejuvenate many of the previouslyde-emphasized Islamic institutions such as bayt-al-mal (Islamic wealth administration)and awqaf (Islamic endowment). While bayt-al-mal administers among others thecollection and disbursement of zakah (compulsory Islamic tax) (Al-Qaradawi, 1999),awqaf institutions, on the other hand, focus solely on the management of assets (bothliquid and illiquid) voluntarily donated by Muslims for specific purposes (Cizakca,1998). Both were, however, established with the basic aim of providing social andeconomic safety net, particularly to the poor and needy in Islamic society (Kahf, 1994,1998; Muhammad, 2010). The imperative of these socio-economic vehicles is dulyemphasized by God (Allah) in the Quran[1]:

And in their wealth and possessions, there is right of the needy (Quran; 51:19).

Help one another in furthering virtue and God-consciousness (Taqwa), and do not help oneanother in furthering evil and enmity (Quran 5:2).

The revitalization of awqaf practices had effectively resulted in the establishment ofdifferent forms of awqaf institutions in different parts of the world including corporate,private (e.g. NGOs) and government controlled entities (Husain, 2007)[2]. Irrespective oftheir form of establishment, awqaf institutions are essentially entities with charitableaims, to which the accountability concept is paramount in the context of their survival.This necessitates for effective operations, appropriate accounting methods andtransparent reporting being devices reflecting mutawalli’s (awqaf trustee) (Yayla,2011)[3] accountability to provide collective influence towards awqaf’s survival. Unlikeaccountability concept inherent in conventional endowment setting, awqaf institutionsare expected to embrace a more holistic accountability connotation. Mutawallis areeffectively required to observe multiple accountability traits – primary and secondary(Hisham and Shahul-Hameed, 2006). While the latter is related to the normal managerialaccountability towards waqifs (donor)[4] (Yayla, 2011) and beneficiaries (Ahmad-Zamri,2010), the former requires mutawallis to observe another form of intangibleaccountability – sacred accountability towards Allah. This is premised on the factthat awqaf operations are effectively governed by Shari’ah (Islamic law) which isdesigned by God, to which all Muslims are obliged to adhere to (Lewis, 2001).

Sacred accountability is evidently examinable from the vantage point of Islamicorganizations like awqaf. Its unique attributes and socio-economic implications deservedue attention; especially the strategic role of accounting and reporting as accountabilitytools to enhance ummah’s confidence in current awqaf practices. Mutawalli’saccountability is even more crucial in the case of cash awqaf where donated liquidassets (i.e. cash) are collected, pooled and administered. Additionally, given the multipleaccountability traits, mutawalli’s unique position in awqaf arrangement and theimportance of maintaining ummah’s confidence towards awqaf institutions andpractices meant that the role of accounting and reporting for awqaf transactions areapparently imperative. Thus, proper management of awqaf assets, appropriate

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accounting methods and transparent reporting of awqaf transactions should thereforefacilitate the upholding of both primary and secondary accountabilities.

It is envisaged that the additional layer of intangible accountability to the Creator(Allah) in the sacred accountability framework governing awqaf would ensure andenhance the effective functioning of its operations. Hence, examining currentmanagement, accounting and reporting practices in awqaf institutions technicallyhelps in assessing the extent of mutawalli’s accountability in ensuring the adherence ofawqaf practices to Shari’ah requirements, thereby enhancing ummah’s confidencetowards awqaf institutions. This will in turn ensures the survival of awqaf institutionsto serve the ummah’s socio-economic objectives.

Despite the importance of awqaf institutions and the unique role of accountability,prior research on awqaf has been rather fragmented and relatively under-developedcompared to both secular and other faith-based charity institutions (Al-Qaradawi, 1999;Elsergany, 2010; Hamid, 2003; Iqbal, 2000; Mohammad-Akkhtar, 1983; Namazi, 2010;Hyndman, 1990; Hyndman and McDonnell, 2009; Sinclair et al., 2010)[5]. The literatureon awqaf generally covers the historical aspects (Cizakca, 2004; Razali, 2004), legislations(Khalid, 2002; Khan, 2002; Siti-Mashitoh, 2006), administration (Hashmi, 1984;Yayla, 2011; Zainal-Abidin, 1999) and awqaf practices across different geographicalboundaries (Haque, 2002; Kuran, 2004; Mohd-Daud, 1999). Research highlightingcontemporary awqaf practices and the accounting and reporting of awqaf transactionsin the context of upholding accountability are noticeably scarce (Adnan et al., 2007;Ihsan et al., 2006)[6]. This reflects a major gap in the existing awqaf literature.

Hence, this paper attempts to explore the manifestation of dual accountability in thesacred, religiously embedded institution of awqaf in Malaysia. Specifically, our firstresearch objective is to investigate the management, accounting and reportingpractices of a cash awqaf administration by an Islamic Religious Council in one of thestates in Malaysia. Second, based on the accountability framework developed byStewart (1984), we seek to locate the extent of mutawalli’s accountability as reflected byits operations, accounting and reporting practices.

Based on triangulation research approach, i.e. interviews and document analysis,we find the presence of accountability in the management, accounting and reportingpractices but there is scope for further improvement to ensure accountability iscontinuously uphold. Further, as transparent reporting of awqaf transactions servesthe objective of ensuring accountability, we propose some fundamental modificationsto the current accounting and reporting system.

Our paper contributes to the wider literature on accountability in faith-basedinstitutions and the role of trustees. We also contribute to the awqaf literature andpractices by highlighting the much neglected issues of accounting and reporting for cashawqaf transactions by a cash awqaf institution operating in a country which claimed tohave a more developed economic model among Muslim countries. Our empirical results(albeit preliminary) on the extent of mutawalli’s accountability in managing cash awqafprovide the basis for undertaking future in-depth investigative projects on suchreligious institutions which would further contribute to the development of appropriatefuture policy framework in the specific context of management and methods foraccounting and reporting of cash awqaf transactions.

The paper proceeds as follows. The next section presents discussions on awqaf andits position in Islam followed by the nature of accounting, reporting and accountability


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in Islam, including issues related to awqaf operations and awqaf accounting andreporting practices in Section 3. Section 4 explains the research method employed inthis study. Section 5 presents the research findings followed by discussions of thefindings and suggestions in Section 6. Section 7 concludes the paper.

2. Islam and the institution of awqafIslam literally means “peace” and “submission” (Abdalati, 1998; Mawdudi, 1992) and aMuslim is regarded as one who “resigns himself/herself to Allah” (Mohd-Rizal et al.,2006, p. 127). The Islamic faith considers Allah as the only God (Quran, 112:1) andaccordingly, Muslims must submit to Allah in everything (Baydoun and Willet, 1997).Such act of bearing witness to the existence and oneness of God is termed as Tawheed(unity of God) (Faruqi, 1992). By subscribing to Tawheed, Muslims are required toobserve the rule of Shari’ah.

The Shari’ah emphasizes, among others, the notions of universal brotherhood as wellas social and economic justice, all of which are deeply ingrained in the Islamic teachings(Kamla, 2009; Lewis, 2001). It requires that all worldly resources are to be utilized in amanner fulfilling the needs of all human beings and to serve the objective of achievingequitable distribution of income and wealth (Dogarawa, 2009). Specifically, Islamprovides that wealth should not be circulated only among certain sector of the society –the rich (Quran, 59:7). To achieve this aim, Islam instituted several religiously basedeconomic vehicles including zakah and awqaf, which central tenet lies in the Islamicconcept of sadaqah and infaq (Islamic donations). These wealth mobilization techniquesconceptually subscribe to the equivalent concept of charity in the non-Islamic context.

Awqaf is a much older and more established philanthropic vehicle compared to zakahin Islam (White, 2006) and it differs from zakah in at least four aspects. First, while zakahfalls under the category of compulsory charity, awqaf is voluntary in nature(Siti-Mashitoh, 2006). Second, awqaf involves using one’s wealth for religious purposesover and above the minimum and obligated threshold of zakah (Alam, 2010). Thirdly,awqaf falls under a specific branch of sadaqah termed as Sadaqah-Jarriyyah (good deedswhich continue even after death) (Haq, 1996). In this context, the soul of the deceased willcontinue to be rewarded so long as the awqaf assets he/she donated continue benefitingthe beneficiaries. Finally, and in the specific context of social and economic development,awqaf extends the role of zakah which ensures the flow of cash fund to those in need –asnafs or zakah beneficiaries. This is done by mobilizing resources (Raimi et al., 2010;Salim, 2007) and providing the necessary material infrastructure (Dogarawa, 2009).

Waqafa from which the word awqaf (plural of waqf ) is derived literally means“confinement and prohibition” or causing a thing to stop or stand still (Hassan, 1984).Linguistically, it takes the meaning of “stand still, hold still, not to let go” (Ahmed,2004, p. 2). Awqaf is however operationally defined as ownership of assets meant forspecific charitable purposes determined by the waqif(s) by dedicating the assets’usufruct to identified beneficiaries (Hashmi, 1984; Hassan, 1984; Kahf, 1998)[7]. Thisindicates that awqaf technically involves granting of specific assets to specificbeneficiaries on a perpetuity basis, serving specific noble religious objectives.

The extant literature on awqaf acknowledges the existence of two types of awqaf,namely, ordinary (illiquid assets, e.g. land and buildings) and specific (liquid assets,e.g. cash) (Baskan, 2002; Cizakca, 1995, 2004; Yayla, 2011), the ownership of which arelegally sanctioned by Shari’ah from being changed, transferred and inherited

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(Khan, 2007). Cash awqaf, which was introduced and flourished during the OttomanEmpire (Baskan, 2002; Cizakca, 1995, 2004; Hoexter, 1998; Kuran, 2001), functions asfinancing device to develop and support ordinary awqaf (Sadeq, 2002) as well asproviding credit facilities with repayments being subsequently used to finance socialservices for those in need (Cizakca, 1995).

Extant awqaf literature also indicates the role of mutawalli in awqaf assetsmanagement. The appointment of mutawalli who possesses almost similar conceptualcharacteristics to that of trustees in conventional endowment context hassystematically created accountability issues which are commonly addressed by theneed for maintaining proper accounting records and transparent reporting practices(Yayla, 2011). As Tawheed warrants Muslims to submit to Allah in everything(Baydoun and Willet, 1997), accounting, reporting and accountability in awqaf contextmust also therefore falls under the ambit of Islam. This is discussed next.

3. Accounting, reporting and accountability in IslamThe non-Islamic perspective generally focuses on two worldly roles of accounting andreporting. First, they function as a basic yardstick for the assessment of managerialaccountability arising from the separation of ownership from control (Bushman andSmith, 2001; Davis et al., 1982; Gray et al., 1996; Sunder, 1999; Watkins, 2007). Second,they act as a guiding device for financial reporting users in making economics (Arnoldand Cooper, 1999; FASB Concept Statement), social (Gray, 2002) and environmental(Buhr, 1998; Hopwood, 2009; Maunders and Burrit, 1991) decisions often devoid ofreligious aims. Such roles, drawn from the secular viewpoint, is deemed to be confinedto only worldly aims and purposes (Quattrone, 2004; Jayasinghe and Soobaroyen,2009)[8] (Shahul-Hameed and Yaya, 2005), neglecting and displacing the holisticdimension of Islam being a complete way of life.

Prior studies have acknowledged the Islamic conceptualization role of accounting,reporting and accountability in at least three specific areas (Haniffa and Hudaib, 2002;Kamla et al., 2006; Lewis, 2001; Napier, 2009). First, Islam locates the position ofaccounting, reporting and accountability in the spiritual context. Second, Islamintroduces the notion of sacred accountability (taklif ) based on religious spirit andfinally, it identifies strategic roles of accounting and reporting in ensuring theachievement of taklif. Central to the conceptualizing process are the main Islamicconcepts of Tawheed, dualism in life and the role of man as Khalifah (vicegerent). Theseconcepts collectively establish a framework in explaining how accounting, reportingand accountability as secular activities as currently understood and perceived in thenon-Islamic context (Laughlin, 1988; Shahul-Hameed, 2000; Tinker, 2004) manifest itselfin the Islamic denomination.

The concept of Tawheed principally commands Muslims to worship and submit to asingle God, i.e. Allah (Quran, 112:1-4) who is the Creator (Quran, 6:12-14) who createdhumans for the purpose of worshipping Him (Quran, 51:56). To guide Muslims on howto submit and worship Him, Allah bestowed Muslims with the religion of Islam as aDheen – a complete way of life (Al-Buraey, 1990), with Shari’ah as the social (Faruqi, 1992;Lewis, 2001; Tinker, 2004) and economic (Chapra, 1992; Mohamed-Haneef, 1997; Naqvi,1981) constitution. Thus, Shari’ah governs the conduct of human’s worldly and spiritualaffairs by rejecting the sacred-profane dichotomy (Al-Attas, 1993; Elmessiri, 1996).


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Accordingly, Dheen necessitates worldly activities including but not limited toaccounting, reporting and observing accountability to be regarded as an act of worship(ibadah) (Yaaqub, 2006)[9] (Quran, 6:162-163). This effectively establishes the link betweenworldly activities and human spiritual dimension in the Islamic domain. Thenon-recognition of sacred-profane divide in Islam is further reinforced through theconcept of dualism in life whereby this world is considered as a transit point during whichhumans are tested before the eternal journey to the hereafter (Quran, 3:185; 4:77; 6:32; 13:26;18:7; 57:20). In view of the temporal nature of this world, worldly activities are therefore notthe end for Muslims but are simply means to attain salvation in the everlastinghereafter[10]. The next eternal world is promised by Allah (Quran, 82:1-4; 84:1-6; 87:17; 88:1;101:1-5) beginning with the Day of Judgment during which all humans will be resurrectedand judged (Quran, 81:1-14; 82:1-5; 84:1-13). The judgement entails the presentation of a“report book” (Quran, 36:12; 56:8-10; 58:6; 75:13; 84:7-8) containing the recording of allhuman (in) actions in this world by the assigned angels (Quran, 78:29; 82:11).

The judgement results would subsequently determine whether humans should berewarded with heaven (Quran, 76:11-22; 85:11; 88:8-16; 98:7-8) or punished with hell(Quran, 77:29-33; 78:21-36; 88:2-7). This is central to the accountability concept in Islam(taklif ) as the eternal reward and punishment in the next world should provide strongmotivations for Muslims to be accountable for their (in) actions in this world(Mohamed-Haneef, 1997). Additionally, the link between the three worldly elements(accounting, reporting and accountability) and duality in life can be discerned in theword hisab or “account” which has been extensively referred to in the Qur’an (Askaryand Clarke, 1997)[11].

The word “account” in Islam conceptually relates to human’s obligations as Allah’srepresentative on earth (Khalifah–vicegerent) (Quran, 2:30; 35:39) and has to “account”to Allah in the hereafter on all matters pertaining to their worldly endeavours(Askary and Clarke, 1997; Ros-Aniza and Abdul-Rahim, 2003). Human’s appointmentas Allah’s vicegerent effectively position them as trustee (or steward) to Allah’s resources(the universe) which are granted as reasons (Quran, 6:95; 13:2; 31:20) and means (Quran,16:14) for worshipping Allah (Mohamed-Haneef, 1997). As vicegerents, humans agree toassume such responsibility in covenant with Allah (Abdul-Rahim, 2003), reinforcingthe centrality of accountability in life, especially for Muslims. Thus, Islam considers theconcept of Tawheed, dualism in life and human vicegerency as equally important incontributing to the establishment of a more comprehensive and sacred accountabilityframework, i.e. taklif.

Unlike accountability in non-sacred context, taklif encompasses both primaryand secondary accountability (Hisham and Shahul-Hameed, 2006) with the formercapturing the essence of Dheen whereby worldly activities are considered as ibadah ifresources granted by Allah are utilized for the purpose of pleasing Him by way ofbenefitting society. Thus, both accounting and reporting become enabling tools forhumans to evaluate their sacred accountability to both fellow humans and Allah(Shahul-Hameed and Yaya, 2005). Table I depicts the implications of Tawheed, dualismin life and vicegerency on accounting, reporting and accountability.

The above presents the essence of the new paradigm in accounting, reporting andaccountability framework termed “Islamic accounting”. It was initially developed tofacilitate the accounting and reporting for Islamic banking and finance transactions butlater include transactions by other institutions operating within Shari’ah parameters.

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Islam therefore provides a starting point of departure from the focus of accounting andreporting to facilitate the secular wealth maximization aims (Kamla, 2009) to alsoinclude the ethical (Briloff, 1986; Francis, 1990)[12] (Gambling and Karim, 1991) andsacred accountability (Lewis, 2001) beyond single worldly concerns (Baydoun, 2000).Accordingly, given the spiritual attachment and dual form of accountability, it isexpected that the roles and functions of accounting, reporting and accountability inawqaf operations would be wider than its conventional endowment counterparts.

3.1 Accounting, reporting and accountability implications on mutawalli’s rolesAwqaf, like other charity entities, practically operate in low value conflict and high trustenvironment (Laughlin, 1996). Accountability is thus imperative for such entities toensure public confidence and trust as well as continuous flow of funds to support theiractivities and survival (Laughlin, 1996; Sinclair et al., 2010). Owing to the unobservablefiduciary, moral and economics relationship between charity organizations and theirdonors, accountability serves the purpose of measuring, evaluating and reportingtrustees’ performance (financial or otherwise) (Cutt and Murray, 2000).

The extant literature on faith-based charity organizations across differenttheological beliefs have also acknowledged sound accounting and transparent

Concepts ConceptualizationImplications on accounting, reportingand accountability

(1) TawheedOneness of Allah Allah is the only God to be worshipped

and submitted by humansThe conduct of worldly and spiritualaffairs are guided by Shari’ah

Allah is theCreator

Allah creates everything for a purpose,i.e. to worship Him

All activities must be considered as anact of worship (ibadah)

Worldly creatures are resources,reasons and means to worship Allah

Accounting, reporting andaccountability are not worldly affairsdisparate from spiritual engagement

Islam as Dheen Islam as a complete way of life withShari’ah as the governing rule and therejection of secularism, i.e. sacred-profane dichotomy

Accounting and reporting are means toworship Allah

(2) Dualism in life The existence of the everlastinghereafter and the Day of Judgmentwhere human’s performance in thisworld is being judged, i.e. accountabilityWorldly (in) actions determine human’sfate in the hereafter (heaven or hell)

Islamic accountability concept based onthe notion of taklifAccounting and reporting asaccountability tools to ensureobservance of taklifNeed to account to Allah for all worldly(in) actions. Reward and punishment inthe everlasting hereafter shouldmotivate Muslims to be accountable fortheir (in) actions in this world

(3) Human asVicegerent

Resources (the universe) are granted tohuman as reasons and means forworshipping Allah

Reiterates and reinforces the centralityof Islamic accountability (taklif )concept in life

Human appointment as vicegerentreflects trusteeship in covenant withAllah

Table I.The implications ofIslamic concepts on

accounting, reporting andaccountability


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reporting practices as common mechanisms through which accountabilities in suchorganizations could be discharged and assessed (Connolly and Hyndman, 2004;Jayasinghe and Soobaroyen, 2009; Hisham and Shahul-Hameed, 2006; Laughlin, 1990;Quattrone, 2004; Steccolini, 2004; Van-Staden and Heslop, 2009). Specifically, it couldbe achieved by providing timely, relevant and consistent (non) financial information tostakeholders (Keating and Frumkin, 2000).

Figure 1 shows the framework linking accounting and reporting to the dualaccountability expected of mutawallis in awqaf arrangement.

Being a trustee in awqaf arrangement, the mutawalli is accountable to both waqif andbeneficiaries[13]. Such secondary accountability could be visibly viewed and objectivelyassessed through Channel A, consisting of the observance of awqaf deeds and also bypractising sound accounting and transparency in reporting. It is in this context that thepresence of accounting and reporting legislative interventions applicable to charityorganizations[14] helps in reinforcing the importance of financial reporting being legalinstruments to ensure trustees’ accountability in such organizations. Channel B, on theother hand, depicts the Islamic paradigm which effectively imposes demand for allhumans to be accountable to Allah and hence, waqif, mutawalli and beneficiaries(ummah) are all accountable to Allah for their worldly (in) actions. Through this channel,sound accounting and reporting transparency would function as devices enabling waqifand beneficiaries to indirectly determine whether mutawalli has discharged his/herprimary accountability to Allah and also serve as means for mutawalli to demonstrateboth his/her primary and secondary accountabilities.

3.2 Issues in accounting and reporting for awqafMost literature on awqaf is silent on technical issues surrounding accounting andreporting of awqaf transactions. Additionally, in the absence of specific financial reportingstandards for awqaf (being a charity, not-for-profit entity), mutawallis (especially inMalaysia) have only the financial accounting and reporting framework meant forprofit-making corporations as their reference. This raises a number of theoretical andpractical issues in so far as awqaf transactions are concerned. We consider below two mainissues with regards to accounting and reporting for awqaf operations.

3.2.1 Objective of accounting and reporting, accounting terms and reporting formatfor awqaf. Accounting primarily helps in constructing (social) reality (Hines, 1988) byreflecting the nature of reality for transactions it represents (Maurer, 2002). Accordingly,the objective and model of accounting and reporting for awqaf transactions musttherefore reflect the charitable, not-for-profit reality it posses. Philanthropic motive

Figure 1.Accounting, reporting andaccountability in awqaf

Mutawalli(Awqaf Trustee)

Waqif(Donor)

Beneficiaries

ALLAH

A

Source: Authors Own

B

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of awqaf effectively renders the decision usefulness (DU) objective for economic decisionmaking less important. While the primary aim of providing relevant information fordecision-making purposes remains valid, the target users who are expected to utilize theinformation in making the necessary decisions and the types of decisions they make,are no longer consistent with the operational nature of awqaf transactions.

Target users in the context of awqaf include not only the waqifs (current orpotential) but also the whole ummah, and the decisions are no longer solely economicsin nature. Since awqaf practices have a religious root, decisions arising from reportedinformation do not only aid in making economic decision of whether to be involved inawqaf practices but also Shari’ah decisions especially in determining whether awqafoperations have been conducted within Shari’ah parameters and equivalentlyimportant, whether mutawallis have appropriately discharged their primary (to Allah)and secondary (to waqifs and beneficiaries) accountabilities.

The conceptual issues associated with the adoption of DU in awqaf also meant thatmany concepts, accounting terms and reporting format applied in corporate (for-profit)context to be of little relevance in catering for the unique nature and structure of awqaftransactions. For instance, the concept of profit as embedded in for-profit organizationsis also arguably irrelevant in the third sector (specifically charities), given the absenceof surplus over revenue available for distribution (Wells, 2006). Additionally, theprevailing accounting term “assets” which is conceptually related to “future economicbenefits” (MASB Financial Reporting Standard 101) is also inconsistent with awqafoperations. Neither waqifs who provide the inward cash flows to cash awqaf fund northe mutawallis who manage the awqaf fund, are expected to directly reap the accruingfuture benefits from the use of the assets.

Furthermore, the reporting format using the “profit and loss account” is also unsuitablein the context of awqaf since they operate as not-for-profit institutions which could onlygenerate either “surplus” or “deficit” instead of “profits” or “losses”. Moreover, the conceptof “deficit” would also be of little relevance to awqaf (particularly cash awqaf ) as themutawalli’s disbursing capabilities are effectively bounded by the fund available based onthe amount collected. Hence, applying the economic model of accounting and reporting(which emphasizes on profit) to awqaf proves to be problematic.

3.2.2 The nature of cash awqaf collections. In the case of cash awqaf operations,monies collected are conceptually “liabilities” to the mutawalli since they have to managethe fund according to the pre-specified aims stipulated in the awqaf deeds. Thus, cashawqaf cannot be considered as income to mutawallis but rather as an income to the fundwhich the mutawalli is managing. In this regard, the adoption of fund accounting isarguably more relevant to better reflect the conceptual underpinning of mutawalli-awqaffund relationship and the role of mutawalli as trustee rather than the owner of cashawqaf fund.

4. Research methodIn view of the exploratory nature of our research, we adopt the qualitative approachwhereby data is gathered based on physical observations and archival documentsin the natural setting. It provides rich data for deeper understanding of the identifiedphenomenon (Leonard and McAdam, 2000) which cannot be explained by anymeasurement or quantification process commonly used in quantitative research(Zickmund, 2000). The choice of case study method is deemed appropriate as we seek


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to have in-depth understanding of real situation, thus providing accurate perspectiveswhilst ensuring validity of observations (Taylor and Bogdan, 1984).

We analyzed the financial reports prepared by the selected cash awqaf institutionfor a six-year period (2000-2005), allowing us to observe and analyze any potentialaccounting and reporting patterns that emerge during the period. This eliminatespotential contextual errors and further refines the research method and design (Cooperand Schindler, 2003). We further supplement our archival data observations withsemi-structured and in-depth interviews. This involved face-to-face discussions withmutawalli which is a much better method of soliciting information given the two-waycommunication (Kahn and Cannell, 1957). Furthermore, the in-depth interviewsprovide rich data compared to merely observing mutawalli’s activities and also allowfor necessary follow-up procedures for clarifications (Marshall and Rossman, 2006),i.e. it provides answers to potential “why” and “how” questions.

Hence, a journal which records all data collected is systematically maintainedincluding the electronic recording and transcriptions (verbatim) of all interviews.These avoid losing or misinterpreting any important parts of the interviews whichcould adversely affect data analysis process (Leonard and McAdam, 2000). We adoptmultiple analysis methods including content analysis, descriptive statistics andcross-tabulation. Such triangulation approach aims at addressing both the reliabilityand validity concerns in qualitative research (Cooper and Schindler, 2003; Leonard andMcAdam, 2000; Taylor and Bogdan, 1984). In locating mutawalli’s accountabilitybased on the selected accountability framework (Section 4.2), we further supplementthe process with two specific ratio calculations (Sections 5.3.1 and 5.3.2). This providesquantifiable measure of accountability in justifying our process of identifying andlocating mutawalli’s accountability within the selected framework.

4.1 Context and sampleWe focus on a single cash awqaf institution in one of the 14 states in Malaysia(Abdul-Rahim and Goddard, 1998)[15]. The Federal Constitution states that allreligious matters are state matters to which the Sultan (the State’s Constitutional Head)is responsible with the exception of four states without the Sultan (Penang, Malacca,Sabah and Sarawak). The administration of religious matters in these four states isassumed by the Yang Di Pertuan Agong (The Majesty) who is selected on a rotationbasis every five years from among the Sultans. Accordingly, several administrativeinstitutions at both state (e.g. State Islamic Religious Councils (SIRCs)) and federallevels (e.g. Islamic Development Department–JAKIM) were gradually established tofacilitate this administrative framework.

The early awqaf practices in Malaysia were mainly concentrated on illiquid assetssuch as mosques and religious schools (Siti-Mashitoh, 2006) with mutawallis beingappointed from among the leaders in the society (Razali, 2004). With the proliferation ofphilanthropic activities among Malaysian Muslims and the advent of new publicmanagement philosophies, the government decided to centralize the management ofawqaf practices by enacting relevant laws empowering SIRCs to assume trusteeshipsof all awqaf assets. This effectively renders SIRCs to become the sole mutawalli to allassets endowed under the awqaf system in Malaysia.

The SIRCs currently handle both normal (illiquid assets) and cash awqaf (shareawqaf ). The latter was formally legalized following the approval of Fatwa

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(religious decree) Council in April 2007 and operates in a manner whereby cashendowments from the sale of awqaf share certificates are pooled and used for specificreligious purposes as determined by the respective SIRCs. Currently, only four SIRCsin the state of Selangor, Johor, Penang and Pahang have introduced cash awqafoperations.

Malaysia’s current legal settings with regards to Islamic matters based on theBritish designed Federal Constitution have effectively given rise to significantdifferential levels of operations, administrative and regulatory procedures acrossSIRCs in different states. In view of this and given the exploratory nature of our study,we therefore opine that analyzing accounting, reporting and accountability issues in asingle organizational setting systematically controls for various “noises” arising frommultiple settings approach which could confound the results and analysis thereof.Hence, we limit our focus on a single SIRC managing cash awqaf operations.

4.2 Assessing accountability using Stewart (1984) frameworkTo assess whether accountability has been delivered by our selected cash awqafinstitution, we adopt the established accountability framework developed by Stewart(1984). This framework is visualized in the form of a “ladder” covering both contractualand communal accountability reflecting output quality at different levels (Hayes, 1996).The four levels are:

(1) fiscal (probity and legality) accountability which is concerned with whetherfunds collected were spent as planned and/or for authorized purposes;

(2) process accountability which is concerned with whether stipulated procedureshave been properly followed;

(3) programme accountability which is concerned with whether activitiesundertaken have achieved its intended results; and

(4) policy accountability (accountability for priorities) which is concerned withwhether the organizations are fulfilling user needs appropriately.

According to Torres and Pina (2003), the quantitative nature of financial reportingcould be located on the first ladder (fiscal accountability) as it provides relevantinformation reflecting the entity’s current financial strength as well as futuresustainability[16]. The other three accountability levels (process, programme andpolicy) could also be examined through financial reporting activities which providethe necessary qualitative information disclosure. Therefore, both quantitative andqualitative dimensions of financial reporting effectively facilitate the assessment ofvarious accountability levels in awqaf institutions. We adopt Stewart’s (1984) publicaccountability framework for at least two specific reasons. First, it accommodates ouraims of analyzing mutawalli’s accountability by further cascading accountability intofour different identifiable dimensions (fiscal, process, programme and policy). Second,the identifiable dimensions are also arguably supportive of our developed frameworklinking accounting, reporting and accountability (Figure 1) whereby it also reflectsmutawalli’s multiple accountability traits.

We take cognizant of the fact that Stewart’s (1984) framework falls short of directlylocating mutawalli’s primary accountability. Nevertheless, we consider mutawalli’sobservance of secondary accountability as tantamount to simultaneously observing


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his/her accountability towards Allah as Muslims are commanded to take care of both theirrelationship with other fellow humans as well as with Allah (Quran, 3:112). In this regardsand in the specific context of awqaf arrangement, discharging accountability towardswaqifs and beneficiaries is considered as means for mutawalli to observe accountabilitytowards Allah since the worldly activities of properly managing awqaf assets areeffectively an act of worship by virtue of the Tawheedic concept. Thus, Stewart’s (1984)framework provides indirect assessment of mutawalli’s primary accountability.

5. Research findings5.1 The cash awqaf: legal, administrative and operational backgroundThe existence, operations, administration, accounting and reporting aspects of bothnormal and cash awqaf are governed by the State’s Awqaf Share Act (1998) (hereafter“the Act”) gazetted on 12 March 1998[17]. The cash awqaf which began its operation in2000 effectively forms an integral part of the SIRC’s normal awqaf system (illiquidassets), allowing Muslims without physical assets to participate in such philanthropicactivities. The administrative aspect of the cash awqaf unit is consistent with theprovisions in the Act (1998)[18] and is currently managed by a division within the SIRCwhereby the state’s Sultan is the SIRC’s head and all administrative matters includingthat of planning, implementation and managing of cash awqaf fund are under theresponsibility of the Timbalan Yang Dipertua (Deputy Head), assisted by one“Economic Officer” (EO) with four support staffs.

In the case of cash awqaf, the Act allows the SIRC to accept awqaf participation interms of cash based on pre-agreed purposes of either “to finance the maintenance anddevelopment of awqaf properties managed by the SIRC” (Section IV, Rule 9(1)[a])and/or “to finance any projects or development activities approved by the SIRC”(Section IV, Rule 9(1)[c]). These effectively form the distribution channels throughwhich the collected cash awqaf monies could be utilized. Table II presents the inflowand outflow of fund.

It can be seen that the receipts of fund are mainly from the public. In terms ofdisbursements, the amount and the recipients/beneficiaries vary each year. The reasonfor the variation was due to the SIRC having to prioritize the disbursements accordingto the critical needs of the ummah as explained by the EO:

We focus on critical areas where the ummah needs most, such as education, health and theupkeep of Muslims’ places of worships including the Mosques and suraus.

As part of cash awqaf operations, the Act further allows the SIRC to invest certainportion of the cash awqaf collected with the aim of further strengthening the cashawqaf fund. Table III presents the investment activities by the SIRC. It can be seen thatsubstantial portions of cash awqaf fund is held in fixed deposits or investmentaccounts (Mudharabah) while the remaining unutilized fund is held as bank deposits inlocal Islamic banks.

5.2 Accounting and reporting practicesThe financial management, accounting and reporting practices of the SIRC’s cash awqafunit are guided by Section IV of the Act (Rules 13 [1-5]). It states that the SIRC mustprepare and maintain “complete and correct” accounts of all awqaf monies collected.

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The SIRC is also expected to publish in “gazette form”, “soonest possible” after the yearend, three types of statements (Rules 13[3]), namely:

(1) a statement detailing all activities undertaken during the year;

(2) a revenue and expenses account for the year; and

(3) the cash awqaf fund’s balance sheet.

The Act further requires the SIRC to have all the above financial statements auditedby the Federal Government’s Auditor General Department (Rules 13[5]). Currently,the above accounting and reporting responsibilities are assumed by the EO underthe supervision of the Deputy Head. At the SIRC level, the accountant (a certifiedpracticing accountant) advises the SIRC’s head on matters related to financialmanagement, accounting and reporting for both awqaf operations.

2000 2001 2002 2003 2004 2005 Total

1. Bank deposits 69,680 54,632 342,162 74,689 146,324 278,601 966,0882. Mudharabah account

(investment)(a) BIMB – 200,000 200,000 200,000 200,000 200,000 1,000,000(b) Bank Rakyat – 100,000 100,000 500,000 500,000 500,000 1,700,000

69,680 354,632 642,162 774,689 846,324 978,601 3,666,088

Source: SIRC’s Annual Reports 2000-2005Table III.

Cash awqaf investments

2000 2001 2002 2003 2004 2005

1. Cash awqaf collection(a) Public 69,830 73,712 287,797 110,882 100,171 134,669(b) State government – 100,000 100,000 100,000 – –(c) Private organization – 113,000 – – – –Total cash awqaf income 69,830 286,712 387,797 210,882 100,171 134,6692. Cash Awqaf investment income – 4,279 15,335 22,811 22,964 21,608Total cash awqaf income 69,830 290,991 403,132 233,693 123,135 156,277Accumulated cash awqaf income 69,830 360,821 763,953 997,646 1,120,781 1,277,0583. Disbursements(a) Mosques/Surau – 6,000 15,000 18,000 39,500 21,000(b) Health – – 84,602 71,166 4,000 –(c) Education – – 16,000 12,000 8,000 3,000(d) Others 150 39 – – – –Total 150 6,039 115,602 101,166 51,500 24,000Surplus 69,830 284,952 287,530 132,527 71,635 132,277Accumulated surplus 69,830 354,632 642,162 774,689 846,324 978,6014. Percentage of changes in(a) Cash awqaf collected (%) – 319 35 246 253 34(b) Cash awqaf investment income (%) – 194 258 49 0.7 26(c) Disbursements (%) – 3,926 1,814 212 249 253

Source: SIRC’s Annual Reports 2000-2005

Table II.Cash awqaf receipts,

expenditures anddisbursements


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Based on annual reports review and interviews with EO, several important featuresof accounting and reporting practices for cash awqaf transactions were observed. TheSIRC prepares and maintains separate financial statements for each type of awqaf,with accounting treatments on the transactions conforming to the relevant Malaysianfinancial reporting standards issued by the Malaysian Accounting Standard Board(n.d.) for corporate (for-profit) organizations. However, the reporting formats areself-designed. The use of self-designed reporting format was explained by the EO:

Our main problem associated with reporting lies on the absence of established reportingstandards for adoption. Accordingly, we self-designed the reporting format.

The recording of all accounting transactions for cash awqaf is done manually sinceinvestment in a computerized accounting system is still under consideration by theSIRC. This has prompted the SIRC to practice segregation of duties as part of itsinternal control system. The EO explained:

We segregate critical accounting and reporting duties among our support staffs because wewant to ensure strong internal control is in place. This is important as we are working in thenon-computerized environment.

The cash awqaf financial statements are noted to be very basic, reflecting thenon-voluminous nature of its transactions. It consists of the normal “profit and lossaccount” and a “balance sheet”, supplemented with additional notes for furtherexplanations. These documents are prepared on a monthly and yearly basis with theyearly documents being audited by the Government’s Auditor General Departmentand subsequently tabled at the annual SIRC general meeting for endorsement. Thecash awqaf collection is labelled “total cash awqaf income” in the financial statementand the sources of reduction in cash awqaf fund are in the form of disbursementsconsisting of four major types (Table I). Interestingly, the salaries of staffs handlingcash awqaf administrative duties, other utilities and related overheads are notconsidered as “expenses” and hence not recorded as these are absorbed by the SIRCthrough fund provided by the government.

Perhaps, the most notable feature of the SIRC’s cash awqaf reporting is its lack ofdisclosure on important qualitative information. Specifically, there was no furtherdisclosure on details related to “expenditures and disbursements” items which variousstakeholders particularly the waqifs (current and potential) would be interested toknow. Periodical statements informing the ummah on the position and movement ofcash awqaf fund are also unavailable for public scrutiny.

5.3 Extant of accountability5.3.1 Input-output ratio or collection-disbursement ratio. Our first indicator formeasuring and locating mutawalli’s accountability in terms of efficiency is representedby ratio of output to input, indirectly reflecting cash awqaf fund retention ratio. Theratio effectively indicates the extent to which cash awqaf fund collected had been spentor disbursed according to what Shari’ah has prescribed and waqifs have agreed to.As mutawallis are entrusted to manage the cash awqaf fund, measuring how well thecollected fund is being managed, specifically in terms of its distributionand disbursement methods, helps in directly assessing mutawalli’s accountability.Table IV presents our analysis on the SIRC’s efficiency.

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It can be seen that the output-input ratios fluctuated considerably across thesix-year period. The retention ratios are observed to be high during the first two years(2000 and 2001), reflecting the newly established status of the SIRC’s cash awqaf unit.A reasonable period is required to identify target recipients and streamliningdistribution mechanisms as the same recipients could also become asnafs under thezakah system. This is explained by the EO:

Our first two years of operations involve streamlining the distribution channels and mechanismsas recipients could also benefit from other charitable vehicles such as zakah. We want to fullyoptimize the usage of awqaf fund so that all sections of the ummah could get the benefits.

The disbursement ratios further indicate that distributions never exceeded half of theamount collected to ensure the sustainability of the cash awqaf fund. Moreover, theSIRC adopts an investment policy whereby all remaining cash awqaf fund is to beinvested in Islamic investment accounts to generate reasonable returns to furthermaximize the fund. This effectively requires the SIRC to draw appropriate dividinglines between disbursing the amounts collected to meet the pressing economic, socialand religious needs of the ummah and the equivalently important mission of ensuringsustainability with respect to cash awqaf system. The EO explained:

While we focus on optimizing the usage of awqaf fund in meeting the ummah’s criticaleconomic, social and religious needs, we also ensure that this sacred system could besustainable and viable in the long run.

5.3.2 Return on investment. Our second measure of mutawalli’s accountability is therate of returns on invested cash awqaf fund. This simple but widely used performancemeasure in investment performance studies provide indirect indications with regardsto mutawalli’s accountability premising on the fact that the investment objectives ofcash awqaf fund should be that of maximizing the managed fund and hence, the rate ofreturns on investments should also be their main consideration besides Shari’ahrequirements.

Table V presents the return on investments (ROI) over the five-year period.Information on invested amount was derived from Table III and the investments

2000 2001 2002 2003 2004 2005

Input 69,830 290,991 403,132 233,693 123,135 156,277Output 150 6,039 115,602 101,166 51,500 24,000Ratio (%) (output /input) 0.2 2 29 43 42 15

Source: SIRC’s Annual Reports 2000-2005

Table IV.Results on cash awqaf

efficiency analysis

2000 2001 2002 2003 2004 2005

Investment returns – 4,279 15,335 22,811 22,964 21,608Invested amount – 300,000 300,000 700,000 700,000 700,000ROI (%) – 1.4 5.1 3.3 3.3 3.1

Source: SIRC’s Annual Reports 2000-2005Table V.

Cash awqaf ROI


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undertaken by the SIRC are all within Shari’ah boundary as only Islamic deposits andinvestment accounts are selected for investments of the cash awqaf fund. It furtherreveals that the invested amount increased by more than 100 percent from 2003onwards, indicating the strengthening of cash awqaf fund. Indirectly, this reflects theincrease in cash awqaf fund available for purposes of distributions as well asinvestments. The calculated ROIs are noted to be reasonable and stable across thesix-year period. This may be attributed to the nature of Islamic investment accountswhich are relatively safer with low risk attached and hence, gives relatively lowerreturns compared to other higher risk investment channels like equity markets.

5.4 Locating mutawalli’s accountability based on Stewart’s “accountability ladder”Based on Stewart’s (1984) ladder of accountability framework, we present in Table VIour assessments on the extent of mutawalli’s accountability based on the variousdimensions specified by the framework. Arguably, all accountability dimensions havebeen achieved by the SIRC’s cash awqaf unit based on the identified activities.Existence of the observable secondary accountability in different dimensions acrossthe SIRC’s cash awqaf operations indirectly suggests that primary accountability toAllah has been accordingly observed.

6. Discussions and suggestionsBased on the findings reported in the previous section, we highlight two specific issueswarranting further discussions as we consider them as important in view of their closeconnection with the SIRC’s accountability role as the mutawalli managing significantcash fund. The inability on the part of the SIRC and other stakeholders (e.g. thefinancial reporting regulatory authority) to address these issues, in our opinion, wouldexpose this sacred Shari’ah based economic vehicle at the risk of being unsustainablein the long run. We further provide suggestions for future public policy formulation.

6.1 Issue I: accounting and reporting6.1.1 Financial reporting framework, the nature of cash awqaf collections and expenses.As argued earlier in Section 3.2.1, applying corporate (for-profit) financial reportingframework to charity entities is inappropriate and does not reflect the reality of awqaftransactions. Our documentation review and in-depth interview exercises reveal thatthe SIRC currently applies the corporate (for-profit) financial reporting framework toits awqaf operations with cash awqaf collected considered as “income” to the SIRCbeing the mutawalli (Section 5.2). Additionally, associated expenses are also notrecognized and hence, reported. The question of whether a portion of cash awqaf fundcould be used to absorb the associated administrative costs needs to be properlyaddressed from the Shari’ah perspective.

The SIRC currently treats all related expenses associated with its cash awqaf asbeing “subsidized items”, thereby neglecting the matching concept in expensesrecognition. It is recommended that if the practice of “subsidized expenses” is toremain, a separate note reflecting the treatment of associated expenses at unit level(Cash awqaf unit) should be included with all relevant costs items being properlydisclosed. This would better reflect the real financial position of its cash awqaf fund.Indeed, the absence of specific accounting and reporting standard for awqaf effectivelyleaves the SIRC to opt for accounting and reporting techniques inconsistent with

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its underlying altruistic reality. Hence, the financial reporting regulatory authority,specifically in Malaysia, needs to expedite the process of developing specific standardsfor mutawallis’ guidance.

6.1.2 Issues in reporting. The transparency in awqaf reporting is vital due to itscharity-based status. The quality of awqaf reporting essentially determines its survivalbecause if stakeholders’ transparency demand can be fulfilled, there is high likelihoodthat it will continue to receive endowments. Informative (non) financial disclosure ofawqaf transactions effectively enhances waqifs’ (current and potential) confidence inboth, the awqaf practices and the institutions managing it. Unfortunately, the existinglegislative enactment is rather weak in enforcing the mutawalli to make public disclosureof its awqaf activities. The subjective wording in the Act (“soonest possible”) with

Ladder Accountability dimensions Relevant activities identified

1 Fiscal: ensuring cash awqafcollected was used (spent/disbursed) as planned

The cash awqaf fund was used according to its plannedobjectives of:Disbursement. Distributed to areas permitted byShari’ah and agreed by waqifsInvestment. A portion of cash awqaf fund was investedin investment channels permitted by Shari’ah, aims atstrengthening fund’s value

2 Process: adherence to stipulatedprocedures

Disbursement and investment. The cash awqafoperations have complied with:SIRC’s internal operational disbursement proceduresa

and Shari’ah requirements (in permissible areas);SIRC’s internal investment procedures and Shari’ahrequirements (on permissible channels)Accounting and reportingCompliance with the act’s provisions with respect toaccounting and reporting and preparing the necessarystatements

3 Programme: whether activitiesconducted have achieved theintended results

The achievement of both planned objectives:Awqaf operations. Relevant beneficiaries have benefitedfrom awqaf assistanceb

Investment. The fund value has strengthened over theyears with positive investment returns yearly (Table V)

4 Policy/priorities: fulfilling userneeds appropriately

Fund usage. SIRC’s policy on fund usage balances theummah’s needs (awqaf distribution) and the importanceof strengthening cash awqaf fund (investment) forfuture survival and sustainabilityDisbursement. SIRC’s disbursement policy prioritizesthree critical sectors (education, health and maintenanceof house of worships) of ummah’s current needsInvestment. SIRC’s investment policy prioritizesinvestment channels providing minimum risk exposureto cash awqaf fund while generating modest returns

Notes: aOur selected SIRC has established internal procedures for both disbursement and investmentactivities; bbeneficiaries were contacted to survey their view as to whether the cash awqaf receivedhad, at least lessen the financial burdens they were facing; all respondents contacted agreed that theawqaf assistance provided great relief to their financial burdens

Table VI.Locating mutawalli’s

accountability based onStewart’s (1984)

“accountability ladder”


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respect to the production of annual audited financial statements compromised thedemand for timely reporting. The limited availability of annual audited financialstatements for public scrutiny further reinforce the exclusivity of such documents,rendering mutawalli’s accountability and performance difficult to be consistentlymonitored and assessed. This potentially weakens mutawalli’s motivation fordemonstrating accountability through quality reporting.

Besides the above regulatory issue, the observed quality with regards tonon-financial disclosure by the SIRC equally requires further improvement as itwould strengthen the transparency construct (Stewart, 1984; Leat, 1990)[19] and hence,meeting the accountability demands by waqifs. For instance, comprehensive qualitativeinformation relating to the objectives (Gray, 1984)[20] and detailed target awqafrecipients would certainly enhance ummah’s understanding on awqaf practices andhence, their confidence in such sacred, religiously rooted activities.

Consistent with discussion in Section 3.2 earlier, we present our proposed templatesfor cash awqaf reporting called “Statement of Cash Awqaf Activities” (SOCAA) inTable VII and the Cash Awqaf Fund Balance Sheet in Table VIII. Developed based onfund accounting which records and monitors cash awqaf fund entrusted to mutawalli,

The SOCAA for the year ended 2010 Managed by: SIRC of PQRS2010 2009

No. Items Note RM RM RM RM

1 Cash awqaf collected XXX XXX2 Investment income XXX XXX3 Total cash awqaf fund available XXX XXX4 Disbursements (XXX) (XXX)5 Expensesa (XXX) (XXX)6 Net movement in cash awqaf fund XXX XXX7 Total cash awqaf fund brought forward XXX XXX8 Total cash awqaf fund carried forward XXX XXX

Note: aAssuming expenses are NOT absorbed by the SIRCTable VII.The SOCAA template

The cash awqaf fund balance sheet as at 31 December 2010 Managed by: SIRC of PQRS2010 2009

Items Note RM RM RM RM

Fixed assets: tangible XXX XXXCurrent assetsCash at bank and in hand XXX XXXInvestment deposits XXX XXXTotal current assets XXX XXXCurrent liabilities (XXX) (XXX)Net current assets XXX XXXNet assets XXX XXXThe cash awqaf funda XXX XXX

Note: aAs per item no. 8 in Table VII

Table VIII.The cash awqaf fundbalance sheet template

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it conceptually emphasizes accountability rather than profitability (Van-Staden andHeslop, 2009), consistent with the not-for-profit nature of awqaf institutions.

6.1.3 Computerized accounting and reporting system. While technologicaladvancement in accounting and reporting provides a push factor for thesystemization of accounting and reporting processes in many corporate and publicorganizations, the SIRC maintains the traditional manual approach of recording andreporting its cash awqaf transactions. This may be attributed to the non-voluminousnature of transactions involved. However, the systemization of accounting and reportingactivities will benefit the SIRC in terms of its internal control while improving efficiencyand effectiveness of all accounting and reporting activities (Borthick, 1996; Sutton,2000). It also lessens the SIRC’s reliance on human capital which could be betterchannelled to other critical areas such as promotional and educational activities.

6.2 Issue II: operational-disbursements issueThe findings on cash awqaf disbursements reported in Table I (item 3) indicate theconcentration of distribution in three main sectors, namely health, education and themaintenance of mosques/surau. These sectors also received due attention throughthe Islamic instrument of zakah. Hence, instead of having both zakah and awqafinstitutions concentrating on the same sectors, the SIRC should further streamline itschoice of distributional sectors. Perhaps, it should focus its attention on areas which couldstimulate ummah’s economic activities. Prior awqaf practices in other Islamic countries(Section 2) include the channelling of cash awqaf fund into “capital fund” for businessstart-up financing (Cizakca, 1995), thereby lessening the burden of borrowing costsimposed by the for-profit banking institutions (Islamic or otherwise).

This could be an option to be considered as it has never been practiced in Malaysia.It effectively facilitates ummah’s efforts to earn a living, and consequently, changingtheir economic status from being recipients of charity or zakah into donors orendowers. Verily, Allah prefers Muslims to give more instead of receiving more (Quran,2:177). Alternatively, the pooled cash awqaf fund could also be used to buildmulti-purpose complex (one-stop-centre) including that for Islamic administrativeactivities, training, shelters for destitute and new converts, leisure, business centres aswell as centres for religious activities (Husain, 2007)[21]. These allow for the efficientadministration and streamlining of Islamic activities by having all related activities forthe betterment of the ummah under one roof.

7. Summary and conclusionReligiously rooted charity and not-for-profit organizations provide a vantage point instudying the intermingling issues of accounting, reporting and accountability. Thus,awqaf institution as an Islamic charity entity presents a unique setting worthy ofinvestigation. We studied one cash awqaf institution operating in Malaysia coveringthe areas of accounting, reporting and accountability over a period of six years. Thepractical imperative of our study lies on the fact that awqaf survives on ummah’sphilanthropic instincts, which is technically influenced by their confidence towardsawqaf practices itself and the institutions managing the awqaf fund. Hence, we arguethat the religious root of awqaf and the concern over its survival reinforce the practicalimperative of accountability and reporting transparency by mutawalli.


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Since accountability involves processes of giving account to specific authorities forone’s (in) actions or (mis) conducts (Roberts, 1991; Roberts and Scapens, 1985;Williams, 1987), we therefore considered the SIRC’s accounting practices and itssubsequent quality of reporting as the observable accountability devices reflecting itsaccountability level. In general, our empirical results, based on triangulation researchapproach, suggest that accountability does exist in different dimensions (based onStewart’s (1984) accountability framework) across the SIRC’s cash awqaf operations.However, we also identify several issues (Section 6) worthy of debate to which itpresents potential rooms for further refinement and improvement in the areas ofmanagement, accounting and reporting of cash awqaf. These we believe cannot beignored, for they represent the risks of negotiating non-accountability, with seriousrepercussions in both the temporal world and the everlasting hereafter.

We recognized that no study is without its limitations and we acknowledged thatour study also suffers from several limitations. First, we only focused on a singlemutawalli managing one aspect of awqaf operation – cash awqaf. Second, we adopt asingle accountability framework developed by Stewart (1984) in examining andlocating mutawalli’s accountability. While we recognize that these render our results tobe context specific and hence non-generalizable, we however believe that thesesystematically offer opportunities for future research. Overall, we consider our studyas important to the development of awqaf in the future which will greatly depend ongood governance and reporting transparency by awqaf institutions.

Notes

1. Muslims considered Qur’an (n.d.) as the word of Allah based on God’s proclamation in theQu’ran itself (Quran, 81:19).

2. An example of private awqaf institution is that in Singapore (see Husain, 2007), while NGOsled and government controlled awqaf institutions are common in Indonesia and Malaysia,respectively.

3. See Yayla (2011) for an excellent discussion on the definition, roles and the nature ofmutawalli’s appointment.

4. This accountability framework is based on the setting where waqifs are not managing assetsthey donated. Otherwise, the secondary accountability dimension is irrelevant andinapplicable.

5. Additionally, research on awqaf institutions is rather limited compared to the bayt-al-malinstitutions which have been extensively studied due to its closed connection with theIslamic institutions of zakah (or tithes) (e.g. Al-Qaradawi, 1999; Elsergany, 2010; Hamid, 2003;Iqbal, 2000; Mohammad-Akkhtar, 1983; Namazi, 2010). For discussions of research related tonon-Islamic charities, see among others Hyndman (1990), Hyndman and McDonnell (2009)and Sinclair et al. (2010).

6. The only available literature specifically on awqaf financial reporting is the theoreticalpapers by Adnan et al. (2007) and Ihsan et al. (2006).

7. Based on definitions by renowned religious scholars, Sheikh Abu Zahra and Qadi Abu Yusuf.

8. Nevertheless, there has been literature that argues to the contrary. Quattrone (2004) in thecase of Christianity, and Jayasinghe and Soobaroyen (2009) in the case of Hinduism andBuddhism, provide evidence of the intertwined nature of financial reporting, accountabilityand religion in their respective theological beliefs.

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9. Worldly activities will become an act of worship in the presence of two elements:(1) if intention (niyyah) is purely for the sake of seeking the pleasure of Allah; and (2) ifworldly activities are conducted within the ambit of Shari’ah, i.e. permissible by the religion.See Hadith on “Actions are judged by intentions” narrated by Imam Bukhari and Muslim(e.g. Yaaqub, 2006).

10. This does not suggest that Muslims should take the worldly affairs lightly. Allah in factcommands Muslims to strive hard in attaining success in both worlds by leading a balancedlife of getting material comfort in this world and seeking happiness in the hereafter(Quran, 2:201; 28:77; 62:10).

11. Repeatedly mentioned in the Holy Qur’an in excess of eighty times (Askary and Clarke,1997).

12. We take cognizant of the fact that discussions on accounting and morality do exist inthe non-Islamic context (e.g. Briloff, 1986; Francis, 1990) but the arguments arecentred mainly on human to human relationship without spiritual attachment as in thecase of Islam.

13. We thank the first reviewer who pointed out that such accountability dimension is contextdependent whereby the framework is only applicable to situation where mutawalli is adifferent natural entity from waqifs, which are common and legally acceptable practices inMalaysia. In the case where the mutawalli is also a waqif, then the mutawalli is directlyaccountable to beneficiaries and Allah.

14. For example, the financial reporting guideline “Statement of Recommended Practices” oncharity in the UK and the relevant GAAP related to non-profit entities in the USA.

15. We have to observe the state’s anonymity despite earlier agreement to the contrary.Throughout the course of our negotiation, we consider this as an illustration of Abdul-Rahimand Goddard’s (1998) theorization that accounting and reporting in Malaysia’s SIRC isdeeply intertwined with the element of power. In our case, our study on elements ofaccounting, reporting and accountability in these institutions are also intermingled withpower and the struggle to maintain the reputation of those in power.

16. The relevant information includes sources of the entity’s resources and channels to which itwas used, as well as resources left for use in future period.

17. Act No. 208, (36/65): The Government Gazette, Islamic Administrative Enactment, Vol. 51No. 6, pp. 30-44.

18. Section IV, Rule No. 10(1&4).

19. In the context of Stewart’s (1984) “Accountability Ladder”, qualitative informationconceptually provides indications with regards to process and program accountability aswell as accountability for priorities (Leat, 1990).

20. Charities are in better position to provide quality qualitative reporting given the presence ofestablished specific aims which allows for the establishment of clear defined objectives andthe appropriate accountability measures (Gray, 1984).

21. One good example in this context could be found in Singapore, see Husain (2007).

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About the authorsHairul Suhaimi Nahar obtained his PhD from Universiti Putra Malaysia, Master of ScienceDegree in Accounting from the International Islamic University, Malaysia and a Bachelor Degreein Accounting and Finance from Lancaster University, UK. His research interests cover the areasof Takaful and Awqaf (operations, accounting and reporting), corporate governance andfinancial reporting quality. Hairul Suhaimi Nahar is the corresponding author and can becontacted at: [email protected]

Hisham Yaacob obtained his Master of Science Degree in Accounting from the InternationalIslamic University, Malaysia and a Bachelor Degree in Accounting from MARA University ofTechnology (UiTM), Malaysia. He is currently a PhD student at Malaysia Science University.His research interests are in the areas of operations, accounting and reporting for Awqaftransactions.


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