Cleanliness and Good Governance

During the lockdown, as we spent more time at home, many of the home chores have become part of our routine. One routine, I always had even before the lockdown, is emptying the kitchen waste and recycling bins. Yes, we recycle and I actually breakdown the carbon waste and separate the plastics, no matter how insignificant it may seem. I don’t want any tiny fish stuck in any plastic that I use.

The bins fill up quickly and I take them out to the large council bins and every week the bin man with the lorries come and take all the waste. Each time, I bring the empty bins back into the garden, I feel a sense of accomplishment and then look forward to the next cycle.

You must be confused by now as to why I am talking about this rubbish. Well, this weekly routine very much relates to and reminds me of my day to day professional job. I work as financial governance expert helping many organisations, large and small, improve their governance and finances.


As humans, organisations also accumulate rubbish – this is in the form of bad practice, bad relations, inefficiencies and bad impact. This is not necessarily generated through bad intentions but sometimes the most sincere actions result in these consequences. Exactly like, the food we consume, we need the energy and pleasure, however this generates waste and unintended consequences.


Like our homes, the rubbish that organisations generate also needs disposing otherwise with time, this gives a bad odour and can result in “unwanted rodents” and harm. I have seen this too many times with damaged HR relationships, loss of funds, bad accounting and financial control, reputational damage, legal issues and conflicts in Boards.


Like our homes, this is only possible when organisations regularly clean themselves by self-audits, self-accountability and regular external scrutiny. Recognizing the reality of this generated unintended rubbish / risks, is the utmost skill required for those that run organisations i.e. Executives and Trustees.


No organisation regardless of size and wealth is immune from the accumulating rubbish and those organisation that take rubbish seriously are the ones that are the most clean and have the biggest impact with an intact clean image and reputation.


As I work with many of my clients improving their accounts, governance and performance, I always get the same satisfaction, if not more, like when I return the bins to their location, ready for the next challenge and cycle.

Let Your Numbers Talk

Good Governance requires charities to use good quality financial information for decision making and accountability. The year-end financial statements prepared by charities provide the following minimum benefits:

  • An annual feedback on use of reserves and financial activities. This is often a year old and may not represent the current state.

  • If audited, then independent certification to confirm whether the financial data held by the Charity is materially ‘true and fair’ – meaning there are no ‘big problems’ in the accounts.

  • The Executive and Trustees can be held accountable for income and spend.

  • A discipline is enforced for keeping records and maintaining audit trails of income and spends.

 

In addition to the above, charities that aspire to improve their governance should use their financial statements as effective tools to improve control, inform strategy and achieve transparency, for example:

 

  • The financial statements should make sense to trustees and those charged with governance. They should inform decision making and strategy otherwise there is a risk that decisions may not reflect ground reality. This could potentially lead to disastrous consequences or waste of resources.

  • Charities should use the year-end process to take stock of their financial controls. Financial controls and financial statements are interlinked. Late or poor quality financial statements are often as a result of inadequate financial controls.

  • The financial statements must be user friendly, reflecting the nature of the charity. This raises the charities profile and credibility among its donors and external bodies such as banks, institutional funders and regulators.

By Nasir Rafiq (Founder and Principal Dua Governance)

 

An Expert in Governance and Internal Control

Islamic Schools the Untold Story of Governance

I recently visited an Islamic school that had not prepared its last 3 years of annual accounts. The Charity Commission had threatened to take them over, so in response they sought my help. After giving the Chairman a roasting for not giving financial accountability the due importance demanded by the regulators and Islam, I discussed the underlying reasons and explored solutions.

 

This is not the first time, I have come across a private Islamic school in financial difficulty. The same story repeats itself. Having worked as a senior Auditor in the Education sector with KPMG, I have a good understanding on how good governance looks like in the Education sector.

 

With Islamic schools there is an often an untold story – they are criticised when things go wrong but nobody tries to actually understands the underlying issues, never mind coming up with solutions.

 

The reality

Islamic schools are often set up by someone passionate about Islamic education on a voluntarily basis and with the support of the community. Personal funds, donations and Qard-e-Hassan loans are the traditional funds that are used to purchase the building, employ teachers and for other upfront costs.

 

I am yet to find a school where student fees alone cover the running costs therefore reliance is placed on donations and ongoing Qard-e-Hassan loans.

 

The Governors are never fully remunerated from the School due to Charity Commission restrictions. They often dedicate their full time as Chief Executive and give personal guarantees on the personal loans for the school. Their reputation becomes intertwined with the school. The founding Governor is often consumed by the day to day operations and cash flow challenges.

 

It is surprising how some of these schools sometimes achieve good Ofsted reports on their academic achievements despite lack of resources. I put this down to the barakah placed by God due to the sincerity of the Governors, staff and parents.

 

So what does this mean?

These unique features of Islamic schools have some implications. These are symptoms from the issues highlighted earlier.

 

Qualified staff and teachers cannot be afforded by such schools – reliance is placed on staff working for religious reasons and not for money, volunteers, family friends or on inexperienced staff. This directly impacts on the overall governance and standards of the school. As staff gain experience, they often leave for better paid positions elsewhere.

 

Due to personal sacrifices by the founding Governors, it becomes difficult for the Governors to delegate authority to Management giving rise to internal conflict and high senior staff turnover.

 

Cash flow becomes a bigger priority over financial control and accountability due to the loss making situation of the school. Unrecorded debt, the reasons for losses, spend without invoices to avoid VAT is not challenged or addressed. This very attitude contributes to a culture of ambiguity and secrecy.

 

Those among the community that give significant donations or Qard-e-Hassan loans to the school ascertain a position where they start to influence student admissions and staff employment. This compromises quality and standards.

 

So what should be done?

In my view and based on my professional experience, some simple steps can significantly improve this dire situation.

 

1.Before embarking on setting up a school, always prepare a business plan – Good business plans help to explore eventualities, mitigate risk, assess financials at the outset and plan accordingly and helps to ensure stakeholders are engaged in a transparent manner.

 

2.The school must be self-sustaining. If student fees alone cannot help to breakeven then the school must be supported by other reoccurring income i.e. trading activities, grants. Again this should be explored through business planning. Donations and Loans should not be used to fund core activities. This poses financial uncertainty.

 

3.As a Governor the following financial KPIs must not be ignored:

a. Bank reconciliations – never underestimate the importance of this. The Governors should ensure it regularly happens and must be aware of the implications. Bank reconciliations are the back bone of financial control.

b. Always be backed by a good Independent Accountant – Volunteers or sympathisers as Accountants may not be forthcoming in making sure issues are highlighted.

c. Ensure the annual accounts preparing process takes place. This provides a good opportunity to assess the financial health to plan for future.

 

4. It is not sufficient for Management / staff of schools to demand one way delegation – Management / staff should also introduce sufficient checks and balances to provide independent assurance to Governors that delegated authority is not abused.

 

5. Regular self-assessment against readily available checklists or by professional can help to high light issues before they are picked up by external regulators. These assessment should cover financial and non-financial aspects. Regular self-assessment is common feature among good governed organisations.

 

These simple steps can instantly make a difference and promote Good Governance in Islamic schools. There is no such thing as a perfect organisation.

 

In my view gaps are not issues as long as these gaps have action plans against them. Issues and Gaps are growing sins without action plans.

 

By Nasir Rafiq BA ACA – Governance Expert

 

Managing Director Dua Governance Chartered Accountants and Business Advisors

UK Muslim INGO sector and its challenges – commentary on the ODI report

I have reviewed the HPG working paper on UK humanitarian aid in the age of counter-terrorism: perceptions and reality by the Oversees Development Institute (ODI). The paper sets out the views of different stakeholders and makes some general recommendations. The paper lays bare some very important issues often ignored and hidden by the donating public and politicians, impacting and hurting beneficiaries on the ground. My views on the report are as follows:

 

I have no doubt and agree with Banks and the Charity Commission on the money laundering risk around Muslim NGOs due to the high risk areas they operate within to reach those that are effected.

 

Banks are private businesses that need convincing that INGOs behave responsibly and are able to “demonstrate” good control through good governance and internal control framework – often the lack of it and the inability to demonstrate it, raises the risk for the banks, resulting in transfers or accounts being blocked.

 

The Charity Commission regulation and inspection is lacking – the compliance standard bar is very low. This has an effect on charity behaviour of just complying with the minimum, always risking non-compliance. One great example is year-end accounts that need to be filed within 10 months after the year-end – The INGOs take 9 to 10 months to finalise these, meaning it is only after this period (9-10 months) the charity can determine its true and fair year-end income, spend and reserve position. The quality of accounts is another matter.

 

The ODI report has an omission – the external auditors of INGOs were not engaged for their views. These are the only independent checks the INGOs really have on their accounts. These audits take account of money laundering risks and the control environment and transfers to field offices. I am surprised the ODI report missed this – hence may present an incomplete picture.

 

With my audit experience of the Muslim INGO sector, in my view the issue is not of new guidance but complying with the existing. In my view and experience there appears to be an issue of complacency among INGOs trustees, inability of the Executive, poor capacity of organisations and a culture of taking risks.

 

I came across a lack of appetite to improve governance and control from the Trustee level beyond talk. The issue of control at Trustee level is often confusingly restricted to banking controls and appointment of officers. Accountability, Delegation, Internal Audit framework, Evaluations and Risk Management with the Muslim INGO sector is poor when compared to mainstream charities and standard practice, especially in the context of operating within high risk areas. This partly because of the inability and inexperience of management in understanding these controls and not being able to implement them.

 

The other issue is of capacity that is wrongly driven by donor behaviour – the issue of overhead creates an environment where INGOs start competing on low overheads, exposing themselves to risk and non-compliance as management and systems are starved – 100% donation policy within INGOs is wrong and must be discouraged.

 

For an INGO to operate responsibly with donor money as per “regulation” in the current climate, up to 15% – 20% support costs can be justified depending on INGO business model and life cycle. Donors should be focused on governance and how the money is spent – this is where quality of year accounts and trustee reports are vital and often ignored.

 

The issue of culture of taking risks among Muslim NGOs must also be addressed. The ability and confidence of saying “No” or pulling out when the it is clear that the “minimum” cannot be achieved in implementing controls in high risk areas. The culture of over-riding controls to reach beneficiaries compromises the true essence of risk management. Muslim INGOs operate in a very difficult environment, often delivering where governments with all their resources fail. The plight of those affected cannot hold back those that are inspired by faith – the current climate requires that in such circumstances a responsible risk management approach is adopted – Muslim INGOs need to learn to work with each other on the ground – meaning if you cant deliver as per regulation then give to the INGO that can – this is a bitter pill to swallow but a pill that may be required.

 

Lastly, the recommendations made by the ODI report are general and are of common sense nature. I would have expected them to go further. In my view an environment needs to be created where driven by donors and the Charity Commission, INGOs compete each other on improving governance with a star style system like that in the US. This needs to be introduced in consultation with the banking sector so that the banks can ignore noise and rely on something credible and tangible.

 

Despite the issues identified in the report and my observations, I have great admiration of those that work in this sector, often on low or no salaries, inspired by faith, at times risking their lives and comfort. They are the best of humanity and must be supported by all.

 

By Nasir Rafiq BA ACA – Governance Expert

Leadership – a fashionable term often a misunderstood concept

In recent times, I had a taste of leadership where I led and directed large teams in challenging circumstances.

 

Before this and in my professional capacity, I always critically analysed others on their leadership and this time having to implement what I had preached was a surreal experience. This experience not only confirmed many of my perceptions, but it also gave me new insights on real life challenges often ignored by external consultants.

Leadership is a misunderstood concept and there is no size or style that fits all. Circumstances, underlying issues and the character of those that are being led, all together dictate the style of leadership required.

My view has always been that leadership is all and only about achieving organisational objectives and strategy. If this does not happen then there is no leadership, it is just mere representation and title.

A good leader will have an idea, end goal, strategy. This can only come with relevant knowledge and experience. Leadership is about making those that are led, believe in this idea and vision. They all then work together towards that goal. Performance, priority, and consultation is based on this. Firm and difficult decisions are made in this context. Patience and consistency are required from the leader despite the odds and resistance.

Another effective attribute of a leader is identifying own weaknesses and limitations. This again should be in the context of the end goal and vision. Once the weakness is recognised, only then the leader can do something about it. Leaders that fail to recognise their own weakness and its potential in holding back the end goal are not strong leaders no matter how much they pretend they are.

 

Those that profess that they lead but lack a vision and idea of their own, just enjoy the limelight and respect of the title. Defending their own image becomes a big issue and when they lose the title, it is devastating to them. They are not leaders; they just represent those they lead and merely ride on their success until they can.

Success and downfall of organisations can depend on who leads them. You can have the best team and resources; a bad leader will make a mess out if it. On the other hand, a good leader can make success out of weak teams with little resource.

This is why, for those charged with governance, the biggest test of their ability is on how they choose their leader. When organisations choose leaders based on who best can represent them because of culture, friendship or nepotism rather than who is the best for achieving the end goal, vision and strategy then don’t blame the leader when it all goes to pot. In such organisations, it is often found that issues are not resolved, difficult decision are not taken, risk is not managed, the organisation does not become stronger, goals and strategy are not clear or achieved, staff are not developed and a vacuum is left when the chosen one leaves.

Webinar: Discretionary Grants Online application

 

In this webinar hosted by Waqar Altaf, (Governance Manager), Nasir Rafiq talks through the online application process for discretionary grants at Birmingham City Council. He focuses on Mosque charities and on the expected general approach of Councils.

 

Webinar Speaker

Nasir Rafiq BA, FCA (@Dua Governance)

Nasir Rafiq is a widely experienced Chartered Accountant and a Charity Financial Governance Expert. He is the Founder and Director of Dua Governance – a professional firm that provides a wide range of accountancy and advisory services to many charities (www.duagovernance.com).

 

During the lock-down crisis, Nasir has been helping Mosques and charities by writing blogs at www.duathoughts.com and by holding webinars. Recently and on behalf on many Mosques he has now engaged Birmingham City Council to address specific concerns they have around grants.

Unity FM Radio: Local Councils approach for making Covid19 support grants to Mosques

 

Lockdown Special Edition

4th June 2020, 5:30pm

Unity FM presenter Ahmed Bostan talks to Nasir Rafiq (Chartered Accountant and Charity Finance Expert) about Birmingham City Councils approach towards Mosques in relation to Covid19 support grants. The current approach of the Council is making it hard for Mosques to apply despite being heavily financially effected by the lock down.

Covid19 – Abysmal Government support to UK Mosques

Mosques are hard hit during the Covid19 lockdown crisis. All Mosques across all sects and cities adhered to the Government guidance immediately and shut their doors to daily worship.

This was a difficult and painful decision for Mosque management, daily and Friday worshipers and for parents who sent their school children to study Quran every evening in the Mosque. This pain was aggravated as the busiest period for Mosques, the holy month of Ramadan fell in this period.

 

Govt support has done little to bridge the gap

 

Underlying the spiritual deprivation was the financial costs, as around 75% of Mosques income relied upon the donations collected each Friday, education fees and special donations raised during the month of Ramadan – unfortunately, the Govt support has done little to bridge the gap.

 

Furlough scheme – not fit for purpose

 

The only meaningful Govt support has been the job retention scheme which required to furlough staff, meaning sending staff on leave. This was difficult for Mosques to utilise as the paid Imam position is crucial for fundraising, not just for leading the prayers and delivering sermons. This also created a situation where an Imam who is not able to do his job properly and fully, however because of online sermons (religious obligation) technically does not qualify for the job retention scheme.

 

Misjudged guidance on volunteering

 

The Governments advise on placing restrictions on volunteers misjudged the importance and the role of volunteers within the faith sector specifically – much of the volunteering is driven by spiritual reasons which followers of the faith consider obligatory on themselves. Placing restrictions on volunteering within the business sector made sense, however the faith sector should have been exempt to it.

 

Last hope – Council grants did not work

 

After the Job retention scheme, the Mosques hoped to apply for the coronavirus grant from the local council as the business loans options was not considered suitable or viable for Mosques. All Mosques operate from buildings and due to Government advise these buildings were closed immediately to the public.

 

The Government had decided to use the local council business rates system and the date of 11th March 2020 to issue grants using rateable value (RV) and the awarded discounts under two schemes, mainly the small business discount and the expanded retail discount. In my view this was a sensible approach, however as it turns out, this discriminated against charities that did not have retail or trading operations, despite operating from a building and being subject to similar levels of business rate discounts similar to businesses.

 

Government guidance and its interpretation

 

Government guidance for Coronavirus RHL Grant Fund dated 1 April 2020 under the section ‘Properties covered by the fund’ stated that Eligible charities which have received charitable rate relief or discretionary relief can still get the grant. Local councils interpreted this guidance only relevant to charities with trading operations. This is despite the published Government guidance not explicitly excluding charities without trading operations in the guidance dated 1 April 2020.

 

Many professionals working in the charity sector understood this to cover charities already receiving discounts on their business rates with RV below £51,000.

 

Online applications not charity friendly

 

The local Government online grant applications were designed in a way that only limited companies or those that were self-employed with a UTR number could apply – Charitable Trusts often the structure for small Mosques, were left out. As a result of the local council interpretation of the guidance, charities missed out on the grants, especially Mosques during their most critical time of the year. Vast majority of applications made by Mosque charities are rejected by the local councils.

 

The use of discretionary funds – issues

 

The Government has issued new guidance on Local Authority Discretionary Grants Fund, dated 29 May 2020. Local councils are now using this guidance to consider making grants to charities without trading operations (i.e. Mosques). Local councils will now introduce a new online application in June 2020. Therein lies the issues:

  1. The new guidance gives an option to the local council for giving grants less than £10,000 – this was not the case for businesses. Local councils may use this to save monies available for grants. Mosques often run in buildings, not in rooms – even the £10,000 one off grant is often not sufficient.

  2. The additional option for granting less than £10,000 adds another consideration for local council staff, potentially delaying the grant that is already significantly delayed.

  3. All charities will have to reapply online for the discretionary funds. When the initial grants were introduced in April 2020 – On average the Councils took 3-4 weeks to process them. This means Mosques may have to wait for another 4-8 weeks before cash can hit their bank accounts.

Although the Govt moved fast to support small businesses, the approach towards supporting small charities, especially within the faith sector (i.e. Mosques) has been lacking and of a frustration.

 

My recommendations

  1. Muslims representation bodies and Councillors should lobby local councils to expedite grants to Mosques and other faith institutions – during the lock down crisis, many Mosques and other faith institutions became community hubs to distribute food to the vulnerable and NHS staff. They play a vital role in the community and for promoting the spiritual and mental well-being.

  2. Local councils must understand the impact of Ramadan lock down on Mosques.

  3. Central Government should be lobbied to make Imams and faith leaders exempt from the volunteering restriction within the job retention scheme.

  4. Large Muslim charities should consider partnerships with Mosques to help them with their immediate financial issues. Many of the donors to Muslim charities not only use these Mosques, it is the sermons and reminders delivered through the Mosque that encourage many to donate in the first place.

Corona virus, UK Mosques and Financial impact

Mosques in UK play a vital role for the Muslim community. They open every day for the five daily prayers and for the evening school. They hold large gatherings of worship every Friday and every night of Ramadan. Many large Mosques provide funeral and wedding services.

Due to Government advice, Mosques across the UK have closed. Ramadan this year will fall during the lockdown which normally is the busiest period for Mosques. This Ramadan, they will fall silent with doors shut to thousands of worshippers that flocked to them every day and night – this is a devastating loss to those who planned to visit their local Mosque during this Ramadan.

The spiritual loss of collective worship is clear but with this there is also a significant income drop that these Mosques now face. Friday collections, evening school fees and special donations raised during the month of Ramadan are all in jeopardy. Mosques are free with no entry fees; all donations are voluntary, and these donations are used to fund the daily running costs of the Mosques. Their closure means their access to cash and donations has suddenly stopped.

The impact in numbers

Friday collections and evening schools’ fees make around 75% of the total yearly income of the Mosques. In large Mosques, this part is still significant being around at least 50% of the yearly income. A three-month closure of the Mosque will drop the yearly income by at least 20% and this is without the Ramadan donation effect. The closure during Ramadan will eat away a big opportunity to raise funds – often for Mosque expansions.

The payroll costs of Mosques represent around 50% of the total yearly costs with some staff on self employed contracts. The true staff cost (payroll plus self-employed) could reach up to 75% of the total yearly costs. During the closure, there are some costs Mosques will save but I don’t expect this to be significant. We are in summer months so gas and electricity usage will not be high.

The closure has stopped the income leaving Mosques with costs to bear. The Government Job retention scheme will fund 80% of the salaries, bearing in mind that a vast majority of Mosque employees are either on national minimum wage or not far from it. The Government is yet to set up a portal for the claims and once set up there may be delays before the money hits the Mosque bank account. This will pose a cashflow challenge.

Action plan

In these challenges time, the following are some of the actions Mosques should consider:

  1. Payroll: Continue processing the payroll for furloughed employees even if you don’t have the cash to pay the employees. The Government will compensate 80%, back dating to 1 March 2020. If the employees are not on the payroll then there is no compensation. I expect the Government to extend the period of this scheme if the situation does not improve.

  2. Self Employed: There is no support from Government to fund Mosques for the self-employed who provide services to the Mosque – The Mosque may be able to immediately stop their service or reduce their payments. If the Self Employed are depended on the Mosque income and there declared income is not enough then they should apply for Universal Credit.

  3. Online: Switch to online solutions for teaching children to compensate the evening school income. This is a sudden requirement and many Mosque staff may not be trained or tech savvy. National member organisations (I.e. MCB, MINAB) should urgently set up working groups or platforms that can provide volunteers, guidance or vet suppliers that Mosques may choose to provide this service.

  4. Databases: Those Mosques that had created donor databases should use this database to encourage donors to set up monthly or weekly direct debits, focusing on Friday collections and sadqa. Those Mosques that do not have a donor database, they should immediately start compiling one. The lock down may continue for a longer period if the NHS capacity is breached or not controlled as expected by Government. Mosques must act now and not assume this will be over soon.

  5. Ramadan: Develop fund raising campaigns for Ramadan that may involve social media (Facebook, YouTube channels) and donation boxes at homes of regular worshippers.

  6. Restricted funds: Majority of the Mosques don’t have restricted funds given the nature of the general use of Mosques by worshippers. If a Mosque does hold restricted funds, these are for either Mosque construction or for various International appeals focused on poverty. Restricted funds can only be spent on the purpose they were given for. However, the Charity Commission has released guidance on using restricted funds to fund or cope with an unexpected event like the one unfolding at present – this should be the last resort and the Commission has encouraged taking professional advice.

  7. Qard-e-hassan: Raise qard-e-hassan to cope with the closures – Unlike many other businesses, Mosques have a sustainable business model. As soon as the lock down is over and Friday prayers and evening schools start – the cash generation will start immediately. Mosques will always have a mechanism to pay back the raised qard-e-hassan, same may take longer as a result of this crisis.

  8. Reduce costs: The impact of a three-month closure of Mosques and Business will have a financial impact that will last for years to come. This is the time when Mosques should start to streamline their costs and explore long term savings that can be made. Once the lock down is over, it is most likely the donors will have less to donate. This may impact many of the planned Mosque expansion projects and the funding of ongoing costs.