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.
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