Economics and Business

Internal Control Systems in West Malaysia’s State Mosques

Abstract : The embezzlement of funds from religious organizations, particularly in western church institutions, is becoming more common. Such scandals have raised concerns about their internal control systems. Despite the lack of any reported financial scandals in mosques, there is a growing concern as to whether they experience the same deficiencies as other religious institutions do. Our study examines the internal control procedures related to the receiving income and disbursing funds in West Malaysia’s state mosques. A questionnaire survey and informal interviews were used to collect the data. The results indicate that these mosques have a strong internal control system vis-à-vis these two activities. This study also reveals that their practice of several basic control activities (e.g., segregating duties, recording financial transactions, and authorizing particular activities) is satisfactory. Though this is an exploratory study, the results may provide a benchmark for further studies examining internal control practices in religious organizations.


Recent reports on the mismanagement of church funds have called into question the internal control system found in religious organizations.1 In this article, an internal control system is defined as the policies and procedures put in place to ensure the protection of an organization’s assets and the reliability of financial reporting. Implementing a proper system will help the organization’s operations become more effective and efficient.2 Studies examining the internal control systems of churches in the West have concluded that the lack of such a system may be attributed to accounting (and thus internal controls) being regarded as “secular” support activities.3 More specifically, R. Laughlin argues that the Church of England regards accounting as an activity that

… should not interfere with the more important spiritual endeavours of the Church of England. They are allowed to exist to assist the created internal resourcing units, but their role is clearly limited. Thus, parish accounting systems are rudimentary, precisely because they actually have no part to play in this clearly demarcated spiritual unit.4

Accordingly, it is no surprise that the church, more often than not, views internal controls as unnecessary and irrelevant.5 While there has been an increase in the number of studies examining churches’ internal control systems, there has been a paucity of studies examining the same issue in mosques. Given that Islam, at least theoretically, does not separate what is secular and what is sacred, it would be interesting to determine if the lax internal controls present in churches also exist in mosques. More specifically, the two research questions of interest are as follows:

RQ1: Do state mosques in West Malaysia have adequate systems of internal control on the receipt of income?

RQ 2: Do state mosques in West Malaysia have adequate systems of internal control on the disbursement of funds?

This paper is part of a larger study examining the financial management practices of Malaysia’s state mosques. Our article contributes to the existing literature in several important respects. First, as indicated earlier, previous studies on accounting and internal control systems in religious organizations have focused largely on churches in theWest.6 Our study, which examines the internal control systems ofMalaysia’s state mosques, attempts to redress this. Second, in the case of western church institutions, the belief that human activities can be divided into the “sacred” and the “profane” was found to have contributed to lax accounting practices. Church members resist accounting, because they do not think that it helps preserve their church’s transcendental identity.

However, the same may not be true for mosques, since Islam (and therefore Islamic organizations) has no sacred-profane divide.7 Accordingly, the accounting practices and internal control systems prevailing in mosques may differ from those found in western churches. The results of this study may illuminate this issue to some extent. Finally, state mosques receive the bulk of their funds from the Malaysian government. Given this, it is expected that they will strictly follow the procedures laid down in the treasury instructions (TI [Malay: arahan perbendaharaan]) pertaining to custody of assets belonging to the state government. Whether this is actually happening in practice is a subject for empirical testing.

The remainder of the paper is structured as follows: Section 2 provides a background on Malaysia and how it administers Islamic affairs, section 3 describes mosques and their administration as well as the Islamic concept of accountability, section 4 discusses the research method, section 5 presents the results, and section 6 concludes the study.

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