Financial management practices and performances in zakat institution

Abstract

Since the 1990s, cases of misappropriation of funds in Western church institutions have been an issue. In 2012, such rumors spread to involve other religious organizations as well (The Star Daily, 2012; News Karnataka.com, 2014). Conditions are becoming more complex as people start to question and demand transparency and accountability. In Malaysia, rumors of mismanagement in Zakat institution have led to public demand for clarification as to how Zakat money is managed. Concerns regarding goal achievement of these organizations have been raised. Therefore, Zakat management has reflected these concerns by moving towards greater transparency in order to show their accountability. Thus, this study examines current practices of financial management and performances in Zakat institutions. The six elements of the Financial Management Accountability Index (FMAI), i.e. organizational management, budget, receipts, expenditures, assets and reporting were used as a benchmark. The suggestions of Said, Ghani, Zawawi and Yusuf (2012) and Berry, Parasuraman and Zeithaml (1994) were employed as indicators to examine performance. The study also attempted to find a relationship between financial performance index (FPI) and financial management practices (FMP). Further, the study employed the census sampling method for 14 Zakat institutions, and a sample of 140 employees and 140 customers. Empirical data were collected mainly through three sets of questionnaires. The data were coded and analyzed using Statistical Package for the Social Sciences (SPSS) software. Descriptive analysis and Correlation Bivariates were employed. The findings show that receipts, disbursements and asset management are the most crucial areas reflecting ‘good’ level practices by Zakat institutions. Furthermore, there is a positive relationship between financial management and performance. Thorough and detailed analysis found that certain indicators and practices also have a significant relationship. This research is significant as it gives Zakat institutions opportunities to find areas of improvement and determine particular areas which can be enhanced. The benchmark produced will help Zakat institutions discharge greater transparency and accountability towards the public in future. This will improve confidence and trust, as well as reduce confusion in Muslim society.