Unity FM Radio station talks to Nasir Rafiq
Unity FM Radio host Ahmed Bostan talks to Nasir Rafiq, Director Dua Governance about the Covid19 lockdown impact on Muslim charities in UK.
Unity FM Radio: The role of Government COVID19 support in saving local Businesses and Charities
Nasir Rafiq, Director Dua Governance talks to the Drive time special on the role of Government support in saving local businesses and charities. He talks about how Waqf projects can help Mosques, Madrassahs and Islamic schools. He suggests a collective effort national and local effort to re-skill those at risk of losing their jobs.
Unity FM Radio: Responding to Govt announcement on extending Furlough scheme to March 2021
Behind the Headlines Thursday 5 November 2020 Nasir Rafiq, Director Dua Governance Chartered Accountants and Business Advisors talks to Ahmed Bostan Presenter Unity FM Radio. Nasir responds to the Chancellor Rishi Sunaks announcement on extending the Furlough scheme to March 2021. He talks about is potential impact on jobs and businesses.
Govt support for Businesses and Charities
This paper sets out my summary thoughts focused on mosques, charities and small businesses like gyms and tuition centres. Please contact Dua Governance (details below) if any further information is required on this topic or advise on how to manage the challenging financial circumstances. Support through the Coronavirus Job Retention Scheme 1. All charities including mosques are eligible to claim this support. 2. The Govt will reimburse 80% of the salary of employees (those on payroll) up to a maximum of £2,500 per month – all Mosque employees will fall within this category. 3. This scheme applies to employees that would have been laid off as a result of the crisis. Mosques, tuition centres, gyms and leisure centres are all eligible. They had to shut due to Govt advise and now the employees in these establishments have no work – keeping them on payroll is not an option as the income that was funding their salaries is no longer available, for example no Friday prayers means no Friday cash collection, no evening schools, no fees. Same applied to gyms and tuition centres and similar businesses. Considerations 1. Employees on payroll will have to be formally sent on “leave of absence” as per their contracts. Many Establishments may not have employee contracts in place – this gap needs to be addressed urgently so that there are no issues of conflicts in the future. 2. The Govt is yet to work out the process of reimbursement – The Govt is expected to set up a online portal through which claims can be paid. 3. Once the online portal is made available, I expect teething issues and delays due to the volume of businesses applying and the limited HMRC capacity for responding – In the meantime, organisations may need to consider the Coronavirus Business Interruption Loan Scheme (see below). 4. The Govt will not be funding 100% of the salary – businesses, Mosques and charities will need to determine if they will fund the 20% gap – this will have to be negotiated between the employees and employers. No organisation is obliged to cover the 20% gap. 5. Unfortunately, the consultants (self-employed) will not be covered by this scheme. This is applicable to many mosques and charities where many workers are on consultancy contracts. Maybe these organisations need to consider placing such workers on payroll to retain their services – again this is a conversation many of these Establishments need to be having with workers on such consultancy arrangements. Support through the Coronavirus Business Interruption Loan Scheme 1. All mainstream banks will provide this and the Govt is providing a guarantee of 80% on each loan – This scheme will support loans of up to £5m. Banks will issue guidance shortly. 2. This is also applicable to all Mosques and charities and for the first 12 months – there is no interest rate charged as the Government will cover this. 3. There is a cap of income of £45m to be eligible, making all mosques and Muslim charities eligible expect for a few with annual income above £45m. 4. Many Mosques have ongoing construction projects that depend on qard-e-hassan. Due to Mosques closing, suddenly this option may no longer be available to Mosques. 5. I don’t envisage international relief charities to benefit from this unless they have committed costs and they are not able to raise the budgeted funds during Ramadan. They may want some cashflow support in the medium term and this is where this support becomes relevant. 6. Small businesses like gyms and tuition centres, may need cashflow support for various reasons to pay salaries, rent or other bills. This scheme then becomes relevant to them. Considerations 1. Banks will have their own eligibility criteria – this will focus on how the Mosque or charity intend to pay the loan back – historic numbers with good forecasts will be required. Many Mosques and charities can provide this as these are sustainable businesses. 2. How fast will the banks process the applications is also a question mark when their own staff are expected to be impacted by the virus. I expect some time lag between application and cash hitting the organisations bank account. In the meantime, organisations must prepare all the historic costs / accounts and potential forecasts need to be prepared for the bank applications. Business rates Councils should cover business rates for charities and mosques – normally they cover 80%, I can see the exemption being extended to 100%. The Govt will waive this for leisure businesses, gyms may fall into this category. Again, local councils will use the existing business rates system to cover this. Support for businesses that pay little or no business rates – mosques and charities that occupy a building can potentially qualify for this as they pay little or no business rate – the local council will be able to make a one off grant of £10,000. Again, local councils will manage this process. Grants Cash grants of £10k are available for small retail, hospitality and leisure businesses – this may include gyms – the local councils will introduce a process for this. Written by Nasir Rafiq, (BA, FCA)
The Camel and Muslim Charities – Risk Management
In a well-known saying Prophet Muhammad (PBUH) advised Muslims to tie their camels before placing trust in God for its protection. This concept has some very important lessons for Muslim charities: 1. Charities should recognise their risks like the risk of losing the Camel. Charities face the risk of fraud, loss of reputation; loss of income; loss of key staff, fines and penalties, litigation and most importantly the risk of not achieving the charity or fund objectives… to help those in need. The impact of these risks will depend on the nature and size of a charity; they nevertheless apply to all. 2. Recognised risks should be controlled. God will not protect the Camel unless it’s properly tied up. Trustees and Directors of Muslim charities should ensure that adequate and effective controls are introduced to mitigate risks. Application of these controls should be in the context of risk, for example, the Camel can be tied up with a metal chain (expensive and excessive) or a weak rope (camel will break free). Moderation and proportionate risk control is therefore the way forward, and those charged with governance should put in place the capability to allow them to exercise this role effectively. 3. Place your trust in God. No control is perfect to eliminate risks. According to the values of Islam, it is because of God’s mercy and blessings that charities are often protected and make a difference to their beneficiaries. It is important however not to abuse this beautiful concept by leaving risks unattended… like that Camel. By Nasir Rafiq (Founder and Principal Dua Governance) An Expert in Governance and Internal Control
Overheads in Charities – Good Governance
Overheads are support and administration costs that Charities incur in delivering their charitable objectives. In a small organisation this may be borne by Trustees with no impact on charity accounts whereas in large charities this cost becomes unavoidable. Overhead costs and activities either incurred by the charity or by the donors directly are important, as without these costs or activities, it is impossible to deliver charitable objectives. Trustees and Directors have a legal duty to ensure that charity funds are spent wisely, properly and according to charity objectives. Consequently, robust administration of funds becomes a necessity for Muslim charities and the wider charity sector generally. Support costs however can be rationalised, if charities are able to effectively capture, control and plan their support costs, for example: The business case for support costs should be reviewed against the risk management and accountability needs of charities. Consistent good financial controls and robust year end reporting of support costs through the annual accounts and internal reports; Effective budget monitoring of support costs through out the year; and Smart business planning to reduce the impact of support costs on public donations, for example the use of trading income, specific business donors. 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
The Barakah of Consultation (Shoora)
Consultation (Shoora) within Islamic tradition is a noble act and reflects the way of the Prophet (pbuh) and his companions (RA). Shoora should be an important aspect of Muslim organisations, be it within business or the charity sector. The benefits of shoora or consultation are immense. It helps to arrive at good and strong decisions, promotes consensus and when done with God and the Prophets seerah (pbuh) in mind, then such decisions include the barakah of God. Another well-known aspect of shoora in a life of a Muslim is the concept of Istikhara, where a Muslim directly consults God to clear any indecisions in a person’s life. I sometimes come across organisation within the Muslim sector where despite prolonged time spent consultation / shoora, the decision making process is not effective and unfortunately this results in conflict among decision makers and sometime loss in time and resources. Having spent considerable time reviewing governance within the UK Government sector and the Corporate FTSE 100 sector, I feel something that the Muslim world should have adopted, it is ironic that the West understands and benefits from. The following are some of the common issues with consultation in organisations with solutions – lets not waste the barakah and benefit that comes from a good and effective consultation: Why wait for meetings Consultation or shoora is sometimes intertwined with formal meetings – this delays the decision making and prolongs the consultation unnecessarily. Consultation should not be conditional on holding meetings. Solution: The decision making process should be broken down and should start well before the meeting where formal decisions are to be made. The process of decision making and consultations should be separated. I know it all Depending on the decision required, the consultation should include professional input. A mind-set that already portrays ‘We are perfect and know it all’ can never benefit from consultation – it becomes a useless exercise. The Prophet (pbuh) valued this, lets not undermine it. Solution: Consultations should be conducted with respect and an open mind and with the overall objective in view. Scatter gun often shoots the wrong target The aim of the consultation should be to manage risk, explore opportunities and to plan – when emotions take over then instead of addressing these aims, it becomes a process in which point of views are aired with no clear output – often the case. Solutions: A framework should be agreed for consultations to ensure it does not deviate from its initial objectives. There are many well developed, tried and tested techniques and tools available to support good consultations i.e. six thinking hats is one technique, I endorse. By Nasir Rafiq BA ACA – Governance Expert
Who Controls?
I work with Boards and the CEOs of many large charities and NGOs and I often come across this dilemma between Trustees and CEOs. I was once asked in Board meeting of a large NGO by a Trustee that sometimes, the Board is too controlling and sometimes it is the CEO – how can we find a balance? I feel this is a wrong question and therefore any answer to this question will be a wrong one. At Board and Executive level, the issue of “Control” should be third in line and should be discussed in the context of two greater issues. Objectives and Risks. Charities are charities and Trustees become trustees because of the stated “Objectives” of the charity / NGO they belong to – the CEO is appointed to help the Trustees achieve these corporate objectives. The utmost priority has to be to achieve the “Objectives” – any activity that harms this, should be considered a “Risk” to the charity. Once the “Objectives” and the “Risks” are clear, it should THEN be about “Control” – for example how are the risks controlled. If the “Controls” requires CEO to take the lead, then be it and if it requires the Trustees to take a lead then be it. As long as the “Controls” reduce the “risks” and helps to achieve the “Objectives”. Outside the above context, the issue of “Control” between Trustees and CEOs becomes an issue of mistrust or ego and therefore will never result in a compromise and positive outcome. So how do we find the balance? In the above battle and contrary to what many think, I often find the CEOs on the wrong side. The Trustees were involved in setting up many of the large charities and work voluntarily, having made many sacrifices. Naturally they have “control”. The CEOs often complain that Trustees do not give them control – The question that is often ignored by the CEOs is “What will the CEO give in return to the Trustees for that control?” The solution to all issues in my experience hides in how “effective, compelling and professional” the answer is. By Nasir Rafiq BA ACA – Governance Expert