an empirical investigation into the accounting, accountability and effectiveness of waqf ...

414 Pages·2013·2.54 MB·English

AN EMPIRICAL INVESTIGATION INTO THE
ACCOUNTING, ACCOUNTABILITY AND
EFFECTIVENESS OF WAQF MANAGEMENT IN THE
STATE ISLAMIC RELIGIOUS COUNCILS (SIRCs) IN
MALAYSIA

By

SITI ALAWIAH SIRAJ
FCCA, CA (M)

Master of Science in Accounting (International Islamic University Malaysia)
Postgraduate Diploma in Social Science Research Method (Cardiff University)

A Thesis Submitted in Fulfilment of the Requirements for the Degree of Doctor of
Philosophy of Cardiff University

Accounting and Finance Section of Cardiff Business School
Cardiff University

September 2012
IN THE NAME OF ALLAH
MOST GRACIOUS
MOST MERCIFUL
ABSTRACT

Waqf and its management in Malaysia have been very much neglected by the
relevant authorities for a relatively long period of time. In Malaysia, waqf is
managed by State Islamic Religious Councils (SIRCs), which is the sole trustees for
waqf resources. The emergence of Islamic economics and the pressing demands for
greater accountability and better performance in the public sector organisations
provided an impetus for the waqf revival in Malaysia. Thus this study empirically
investigated the accounting, accountability and effectiveness of the waqf
management in Malaysia. A questionnaire survey examining the current practices
of the principal management activities including strategic planning, budgeting and
budgetary control, performance measurement and financial reporting was
distributed to thirteen SIRCs and two semi-autonomous baytulmal institutions, one
in Sabah and the other in Sarawak. Furthermore, a series of semi-structured
interviews was conducted on the senior and operational officers of
SIRCs/baytulmal institutions, the Department of Awqaf, Zakah and Hajj
(JAWHAR), the Malaysia Waqf Foundation (MWF) and the National Audit
Department (NAD).
Essentially, the study revealed a number of noticeable findings with regard to the
principal management activities in SIRCs/baytulmal institutions. Firstly, budgeting
in SIRCs/baytulmal institutions appeared to function mainly as planning and
control tools. The strict approach to budgetary control in these organisations was to
ensure the adherence of spending to the budgets while the efficiency and
effectiveness of resource consumption were less emphasised. Delegation of
authority and responsibility to operational managers was restricted to budgetary
control. Secondly, there were evidences of conspicuous discrepancies in the
financial reporting practice. This may have been attributed by the absence of
specific accounting framework for Islamic assets and funds held by
SIRCs/baytulmal institutions. The financial reporting practice in these organisations
had less focused on the stewardship/accountability dimension expected of the
public sector and non-profit organisations. Thirdly, performance measurement in
SIRCs/baytulmal institutions appeared to be focusing on enhancing the
administrative capacity of the organisations. Fourthly, the existence of strategic
planning in SIRCs/baytulmal institutions was very limited and mainly conditioned
on external requirements. Finally, the study also revealed the presence of inherent
challenges in the waqf management in SIRCs/baytulmal institutions, namely,
financial inadequacy, shortages of manpower, and limited administrative capacity.
The present practice of the principal management activities and the inherent
challenges had a profound impact on the extent of accountability and effectiveness
of the waqf management in Malaysia.
i
DEDICATION

Especially
for
my husband,
my parents,
my children
and
my family

ii
ACKNOWLEDGEMENT
My utmost praise is only to Him for His guidance and blessings throughout the long
journey in completing this study.
It is a pleasure to thank many special people around me as it would not have been
possible to undertake this study and write this thesis without their help and support.
Foremost, I would like to express my deepest gratitude to my principal supervisor, Dr
Yusuf Karbhari, Reader in Accounting at Cardiff Business School, whose sincere advice,
patience, insightful criticisms and continuous belief in my potential have made this thesis
possible. His knowledge and wide experience have indeed added significant value to the
study.
Next, I would like to acknowledge the financial assistance of the International Islamic
University Malaysia (IIUM) and the Ministry of Higher Education Malaysia (MOHE)
that made it possible for me to embark into this intellectual journey. The continuous
support from members of the Kulliyyah of Economics and Management Sciences
(KENMS), especially the Department of Accounting, is kindly acknowledged. I am also
grateful to all faculty members and staff of the Cardiff Business School, Cardiff
University for their commitment to provide the much needed environment and facilities
to accomplish the study.
Furthermore, the study may not be successful without the kind cooperation of various
officers and staff of all State Islamic Religious Councils (SIRCs), baytulmal institutions
of Sabah and Sarawak, the Department of Awqaf, Zakah and Hajj (JAWHAR), Malaysia
Waqf Foundation and the National Audit Department. Thus, they deserve my sincere
acknowledgement for making the data collection for the study possible.
I would also like to thank my fellow postgraduate colleagues in the Cardiff Business
School for the encouragement throughout my intellectual journey. The kindness and
friendship of all Malaysians in Cardiff are also sincerely acknowledged.
Also, I am dearly indebted to my parents, Haji Siraj Abdul Khanan and Hajjah Hunainah
Idris, for their prayers, understanding and greatest love throughout my life. Their struggle
in life taught me the meaning of perseverance and determination, which inspires me to
endeavour into the hardest possible venture in life. My siblings who have always lent
their support throughout my stay in Cardiff and my parents in-law who dearly missed
their son as he has to be the pillar of my struggle, especially my late mother-in-law who
endured the pain of being apart until her very last breath, indeed they deserve my deepest
gratitude.
Moreover, no words can possibly express my deepest gratitude to have my children as
my constant source of strength and joy. A massive thanks to Farhah, Muhaimin, ‘Izzah,
Hafiz as well as Mu’iz for making this journey colourful and cherished immensely.
Above all, I am very indebted to my husband for his endless support and prayers at all
times, for which my mere expression of thanks likewise does not suffice. Indeed your
love and patience have taught me the meaning of sacrifice and compromise in life.

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TABLE OF CONTENTS

CONTENTS PAGE
ABSTRACT………… .................................................................................................. i
DEDICATION……… ................................................................................................. ii
ACKNOWLEDGEMENT ......................................................................................... iii
TABLE OF CONTENTS ........................................................................................... iv
LIST OF TABLES….. ................................................................................................ x
LIST OF FIGURES… .............................................................................................. xii
GLOSSARY………… .............................................................................................. xiii
ABBREVIATION….................................................................................................. xv
CHAPTER ONE: INTRODUCTION ........................................................................ 1
1.1 Background to the study .................................................................................. 1
1.2 Purpose of the Study ....................................................................................... 4
1.3 Scope of the Study .......................................................................................... 5
1.4 Methodology ................................................................................................... 5
1.5 Contribution of the Study ................................................................................ 6
1.6 The Structure of the Thesis.............................................................................. 7
CHAPTER TWO: AN OVERVIEW OF WAQF AND THE PAST AND
THE PRESENT WAQF EXPERIENCES IN
SELECTED MUSLIM COUNTRIES .................................. 11
2.1 Introduction .................................................................................................. 11
2.2 An Overview of Waqf ................................................................................... 11
2.2.1 The Classification of Waqf ..................................................................... 13
2.2.2 The Legal Framework of Waqf ............................................................... 15
2.2.2.1 The Validity of Waqf ...................................................................... 16
2.2.2.2 Restrictions in Waqf ........................................................................ 18
2.2.2.3 The Ibdal (Sale) or Istibdal (Exchange) of a Waqf........................... 20
2.2.2.4 The Cash Waqf................................................................................ 21
2.2.3 The Objectives and Importance of Waqf ................................................. 24
2.2.3.1 The Objectives of Waqf ................................................................... 24
2.2.3.2 The Importance of Waqf.................................................................. 25
2.2.4 The Management of Waqf....................................................................... 30
2.3 The Waqf Management Experiences in the Muslim World ............................ 32
2.3.1 The Ottoman Empire .............................................................................. 33
2.3.2 The Colonisation of Muslim Countries by the Europeans ....................... 37
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2.3.3 The Revival of Waqf Management .......................................................... 40
2.3.3.1 Republic of Turkey ......................................................................... 41
2.3.3.2 The African and Gulf Countries ...................................................... 43
2.3.3.3 The Indian Sub-Continent ............................................................... 46
2.3.3.4 Southeast Asia ................................................................................ 50
2.4 Summary ..................................................................................................... 52
CHAPTER THREE: AN OVERVIEW OF THE ADMINISTRATION
OF ISLAMIC AFFAIRS AND WAQF
MANAGEMENT IN MALAYSIA ........................................ 53
3.1 Introduction .................................................................................................. 53
3.2 An Overview of the Malaysian Government Administration ......................... 54
3.2.1 Administrative Structure ......................................................................... 54
3.2.2 Governance Structure ............................................................................. 56
3.2.2.1 Legislative Authority ...................................................................... 57
3.2.2.2 The Executive Authority ................................................................. 59
3.3 The Rulers and Governors ............................................................................. 59
3.4 The Administration of Islamic Affairs in the Malaysian Government ............ 61
3.4.1 Historical Perspectives of Islam and Its Related Affairs in
Malaysia ................................................................................................. 61
3.4.2 The Present Administration of Islam and Its Affairs in Malaysia ............ 65
3.4.2.1 Federal Government Level .............................................................. 67
3.4.2.2 State Government Level .................................................................. 69
3.5 Islam and the Malaysian Government............................................................ 70
3.6 Islamic Institutions and the Economic Development Policies in
Malaysia ....................................................................................................... 74
3.7 The Waqf Management in Malaysia .............................................................. 82
3.7.1 The Historical Perspectives of Waqf Management .................................. 82
3.7.2 The Present Management of Waqf .......................................................... 85
3.7.2.1 SIRCs as the Sole Waqf Trustees .................................................... 86
3.7.2.2 Coordination of Waqf Management at the Federal
Government Level .......................................................................... 91
3.8 Summary ...................................................................................................... 94
CHAPTER FOUR: ACCOUNTABILITY AND THE NEW PUBLIC
MANAGEMENT ................................................................... 96
4.1 Introduction .................................................................................................. 96
4.2 The Accountability Framework ..................................................................... 96
4.2.1 The Concept of Accountability ............................................................... 97
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4.2.2 Autonomy and Accountability .............................................................. 102
4.2.3 Accountability from the Islamic Perspective ......................................... 103
4.2.4 The Institutional Accountability Framework of
SIRCs/Baytulmal Institutions ................................................................ 107
4.3 The Public Sector Reforms .......................................................................... 110
4.3.1 Theoretical Underpinning of Public Sector Reforms ............................. 113
4.3.1.1 Managerialism .............................................................................. 113
4.3.1.2 The New Institutional Economics ................................................ 114
4.3.2 Public Sector Reforms in the Developing Countries.............................. 115
4.3.3 Public Sector Reforms in Malaysia ....................................................... 116
4.3.3.1 Public Sector Reforms in Malaysia (1981-2000) ........................... 118
4.3.3.2 Public Sector Reforms in Malaysia (Post-2000) ............................ 122
4.4 Accountability and the Public Sector Reform .............................................. 124
4.5 Accounting and Accountability ................................................................... 126
4.6 Accountability and Performance ................................................................. 127
4.7 Summary .................................................................................................... 129
CHAPTER FIVE: RESEARCH METHODOLOGY ............................................ 130
5.1 Introduction ................................................................................................ 130
5.2 An Overview of the Study ........................................................................... 130
5.3 Purpose of the Study ................................................................................... 133
5.4 Study Population ......................................................................................... 135
5.5 Research Paradigm ...................................................................................... 136
5.6 Research Design ......................................................................................... 138
5.6.1 Data Collection: Questionnaire Survey ................................................. 142
5.6.1.1 Questionnaire Design and Development ........................................ 142
5.6.1.2 Types of Questions ....................................................................... 144
5.6.1.3 Piloting the Questionnaire ............................................................. 145
5.6.1.4 Questionnaire Rationale ................................................................ 147
5.6.1.5 Questionnaire Administration ....................................................... 161
5.6.1.6 Statistical Analysis Techniques for the Questionnaire
Survey .......................................................................................... 164
5.6.2 Data Collection: Semi-Structured Interviews ........................................ 167
5.6.2.1 Types of Interview Questions ........................................................ 168
5.6.2.2 Types of Interviewees ................................................................... 168
5.6.2.3 The Conduct of Interviews ............................................................ 171
5.6.2.4 Analysis of the Interview Data ...................................................... 171
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5.7 Summary .................................................................................................... 175
CHAPTER SIX: ANALYSIS OF THE QUESTIONNAIRE SURVEY ................ 176
6.1 Introduction ................................................................................................ 176
6.2 Organisational Background and Characteristics ........................................... 176
6.2.1 Background Information on SIRCs/Baytulmal Institutions .................... 177
6.2.2 Types of Funding ................................................................................. 178
6.2.3 Background Information of Waqf Management in
SIRCs/Baytulmal Institutions ................................................................ 180
6.3 Autonomy and Accountability ..................................................................... 182
6.3.1 Managerial Autonomy .......................................................................... 182
6.3.2 Autonomy of Waqf Management in SIRCs/Baytulmal
Institutions ........................................................................................... 187
6.3.3 Accountability Issues in SIRCs/Baytulmal Institutions ......................... 189
6.4.1 The Formulation of Strategic Planning ................................................. 200
6.4.2 The Implementation Stage of Strategic Planning................................... 202
6.4.3 The Monitoring Stage of Strategic Planning ......................................... 204
6.4.4 Strategic Planning of Waqf Management in SIRCs/Baytulmal
Institutions ........................................................................................... 205
6.5 Budgeting and Budgetary Control in SIRCs/Baytulmal Institutions ............. 206
6.5.1 Types and Roles of Budgets ................................................................. 208
6.5.2 Budgetary Culture and Preparation ....................................................... 209
6.5.3 Budgetary Control ................................................................................ 210
6.5.4 Budgeting of Waqf Activities in SIRCs/Baytulmal Institutions............. 216
6.6 Performance Measurement in SIRCs/Baytulmal Institutions ........................ 220
6.6.1 Performance Indicators ......................................................................... 220
6.7 Financial Reporting Practices ...................................................................... 229
6.7.1 Annual Reports..................................................................................... 229
6.7.2 Reporting Fundamental Financial Information ...................................... 235
6.7.3 Regulatory Framework for Accounting Operations ............................... 237
6.7.4 Financial Reporting Practices of Waqf .................................................. 240
6.8 External Consultants ................................................................................... 243
6.9 Collaboration and Corporatisation/Privatisation Policy in SIRCs/
Baytulmal Institutions ................................................................................. 246
6.9.1 Collaboration Policy in SIRCs/Baytulmal Institutions ........................... 246
6.9.2 Collaboration between SIRCs/Baytulmal Institutions and the
Malaysia Waqf Foundation ................................................................... 249
6.9.3 Corporatisation and Privatisation Policy ............................................... 254
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6.10 Summary .................................................................................................... 255
CHAPTER SEVEN: RESULTS AND ANALYSIS OF SEMI-
STRUCTURED INTERVIEWS ......................................... 261
7.1 Introduction ................................................................................................ 261
7.2 Background Information of SIRCs/Baytulmal Institutions ........................... 262
7.3 Autonomy and Accountability ........................................................................ 264
7.3.1 Managerial Autonomy .......................................................................... 264
7.3.2 Fiscal Autonomy .................................................................................. 266
7.3.3 Accountability Relationships in SIRCs/Baytulmal Institutions .............. 268
7.4 Strategic Planning in SIRCs/Baytulmal Institutions ......................................... 270
7.4.1 An Overview of Strategic Planning....................................................... 271
7.4.2 The Implementation of Strategic Planning ............................................ 272
7.4.2.1 Review of Strategic Planning ........................................................ 274
7.5 Budgeting and Budgetary Control in SIRCs/Baytulmal Institutions ............. 275
7.5.1 An Overview of Budgeting and Budgetary Control ............................... 275
7.5.2 Budget Culture ..................................................................................... 277
7.5.3 Budget Orientation ............................................................................... 279
7.5.4 Budget Allocation Framework .............................................................. 281
7.5.4.1 Basis of the Budget ....................................................................... 282
7.5.4.2 Budget Responsibility Centre ........................................................ 283
7.5.5 Budgetary Control ................................................................................ 290
7.5.5.1 Reporting of Budgetary Data ........................................................ 293
7.5.5.2 Budget Review ........................................................................... 294
7.6 Performance Measurement in SIRCs/Baytulmal Institutions ........................ 297
7.6.1 Overview of Performance Measurement ............................................... 297
7.6.2 Performance Indicators ......................................................................... 298
7.6.3 Key Performance Indicators (KPIs) ...................................................... 299
7.6.4 Quality Work Culture Initiative ............................................................ 301
7.6.5 Remuneration-related Performance Measurement ................................. 304
7.6.6 Performance Reporting ......................................................................... 305
7.7 Financial Reporting Practice in SIRCs/Baytulmal Institutions ..................... 307
7.7.1 An Overview of Financial Reporting Practice ....................................... 308
7.7.2 Accounting Operations ......................................................................... 309
7.7.3 Annual Reports..................................................................................... 311
7.7.4 Regulatory Framework for Accounting Operation in
SIRCs/Baytulmal Institutions ................................................................ 315
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