Control Environment and Financial Reporting Reliability in Islamic Philanthropic Organizations: Evidence from Indonesia
Abstract
The gap between Indonesia’s zakat potential and actual collection underscores the need for greater public trust through enhanced governance. This study addresses the increasing demand for accountability and transparency in zakat management, which highlights the importance of reliable financial information in maintaining stakeholder trust and supporting organizational sustainability. The objective of this study is to examine the influence of the control environment on financial reporting reliability within an Islamic philanthropic organization in Indonesia. Drawing on Agency Theory and the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control Framework, this research investigates how organizational integrity, ethical values, governance structures, accountability mechanisms, and employee competence contribute to financial reporting reliability. A quantitative explanatory approach was employed using survey data collected from 171 employees of Rumah Zakat, one of Indonesia’s leading National Zakat Institutions. The collected data were examined through Partial Least Squares Structural Equation Modeling (PLS-SEM). The results indicate that the control environment has a positive and significant effect on financial reporting reliability, with a path coefficient of 0.668 (t-statistic= 15.926), explaining 44.6% of the variance in financial reporting reliability (R²= 0.446). The analysis points out that organizations characterized by strong ethical cultures, effective oversight, clear authority structures, and competent personnel are more likely to produce accurate, relevant, understandable, and comparable financial information. The implications of this study suggest that strengthening the control environment through enhanced ethical values, governance structures, employee competence, and accountability mechanisms can improve financial reporting reliability and reinforce public trust in Islamic philanthropic organizations.