Sharia Audit in Zakat Institutions: Mechanisms and Challenges in Indonesia

Abstract

Monitoring Sharia compliance for religious institutions such as zakat institutions is crucial because non-compliance can result in significant legal and reputational issues, potentially damaging the institutions' image. Therefore, this paper investigates the monitoring mechanisms employed by zakat authorities to ensure zakat institutions adhere to Islamic principles. Semi-structured interviews were conducted with various stakeholders, including representatives from the Ministry of Religious Affairs, sharia auditors, and practitioners from both state (BAZNAS) and non-state (LAZ) zakat institutions in Indonesia. Sharia compliance monitoring systems are implemented by both internal and external parties, including internal sharia supervisors and external sharia auditors from the Ministry of Religious Affairs. However, the concept of sharia auditing is still evolving, leading to unclear boundaries between financial audits and sharia audits, making it challenging to distinguish between the two. The concept of sharia auditing is not yet well-established. Therefore, further studies are needed to ensure that sharia compliance monitoring has a substantial impact on improving sharia compliance rather than merely serving as an administrative requirement. This study contributes to the academic discourse, particularly in the context of sharia auditing in zakat institutions, as previous research has primarily focused on sharia auditing or compliance in the Islamic banking sector.