Financial indiscipline: Auditors say Zakat system vulnerable to corruption

Central Zakat Administration allegedly involved in embezzlement.

ISLAMABAD:

Pakistan is no stranger to corruption, but the one part of the government that federal auditors have identified as the most vulnerable to corruption and embezzlement is the Central Zakat Administration (CZA), responsible for collecting zakat and distributing it to the poor.

In the Auditor General of Pakistan’s annual report for fiscal year 2014, auditors point out that not only are there severe discrepancies in the record-keeping of the CZA regarding collections and disbursements which totalled Rs3,952 million during fiscal 2013, but the CZA has persisted in having those discrepancies every year and has failed to implement any of the AGP’s recommendations on financial prudence. Auditors found problems in virtually every area of the CZA that they looked.

A key problem identified by the AGP’s office is the fact that the CZA still uses cash disbursements, paying out millions of rupees every year in hard currency rather than following government rules that demand all payments be made through a cheque.

On the collection side, the CZA appears to not keep records of its collections, resulting in Rs3,983 million being irreconcilable with other accounts. By law, the CZA is supposed to provide data every month on their collections, which is then supposed to be compared against data provided by the State Bank of Pakistan on collections. Yet because the Zakat Collection and Controlling Agencies (ZCCAs) fail to provide any records, no reconciliation of the data sets is possible. The only records that exist are those provided by the State Bank and hence auditors cannot be sure that the amounts listed on CZA accounts are accurate.

When it is not handing out cash without keeping any records, the CZA allegedly also misuses Zakat funds in other ways, investing Rs216 million into the Investment Corporation of Pakistan during fiscal year 1996, an investment that has yet to be divested. The CZA is not an endowment and hence investments are against its mandate, and in this case, actually caused a loss to the zakat department.

In addition, federal auditors found unusual expenditures totalling Rs219 million that officials from the CZA had no explanation for, despite at least two requests by the AGP’s office for records.

One of the reasons why the CZA has been so brazen in ignoring the AGP’s recommendations is the fact that the Public Accounts Committee, the apex financial watchdog in the government, has yet to examine any of the AGP’s reports for the fiscal years 2009 through 2013.

The government’s intervention in the zakat system, which had previously been private charity, was introduced through the Zakat and Ushr Ordinance of 1980, as part of General Ziaul Haq’s Islamisation campaign. Individuals are still free to make voluntary donations elsewhere and some even make it to the Central Zakat Fund, but the bulk of zakat collection is made through mandatory collections from people’s bank accounts on the first of Ramazan every year. It is these collections that form the backbone of the collections that the CZA is then supposed to disburse amongst the poor.

CZA determines the size of disbursements of its annual budget on a territorial and programmatic basis. Expenses related to zakat disbursement are capped at 10% of the budget. Zakat is allocation to each district on the country on the basis of its population, not on the basis of how many eligible recipients it has.

In addition, the CZA provides some funds to other allocations, such as the Health and Welfare Committees of state-owned hospitals, educational stipends for poor students, donations for natural calamities/emergency relief, and Eid grants.

Published in The Express Tribune, April 1^st, 2015.