Somalia’s First Audit – The Search for Financial Transparency
On 8th October 2019, Somalia’s auditor general published the first ever audited Financial Statements for the public offices governed by the Federal Government of Somalia. In most countries, accounting regulations are a must, a common theme for accountability. In Somalia, this was the first occurrence, it may not have reflected the results wanted, but this shows progress in the right direction.
Globally, there are similar accounting standards followed, whether its IAS (International Accounting Standards) or IFRS (International Financial Reporting Standards), however governments and public offices can follow different standards. Somalia follows the International Standards of Supreme Audit Institutions (ISSAI), the standards for public offices, and the auditor general states this.
Overall, the financial statements shows on paper, what many people think; it is rife with corruption. From a regulation perspective, failure to reconcile or balance money and successfully account for large sums, draws many red flags. As stated by the AG (auditor general), there were many audit failures from the financial accounts for Jan 2018 to Dec 2018, but the preparation of this audit shows transparency and accountability, whatever the results may be.
AG identified $38m of funds reported on the financial statement for the year, acquired from various country sponsorships and other acquisitions. Of this $38m, only $19m was recorded, accounted for and successfully reconciled. This is a whooping 50% of funds that’s unable to be located. From an audit perception, this should have failed immediately with implications of investigations.
$19m of funds missing, and the Ministry of Finance is unable to locate these? It screams corruption right? Well look no further, because of that $19m:
- $3m relates to EU funds given to the government.
- $1m unaccountable revenue to different ministries of the government
- $13m of $20m given by Saudi Arabia has been located in an offshore account
- $700k from the UN unaccounted for
From a materiality perspective, 50% of funds should be questioned, but with the limited resources that the AG and audit team have, what can be done?
Revenue is how governments generated cash and/or cash equivalents, and from a public office perspective, this can be done in multiple ways such as tax, sale of public buildings, airport taxes etc. In 2018, the government reported $138m on Tax Revenues alone, which was mainly made up of Customs Tax ($86m) and Khat Tax ($13m), but barely any corporation tax paid by businesses and corporations operating in Somalia. Is there a market for corporation tax? Absolutely, but many businesses would be reluctant to pay corporation tax, as they are pressured by other organisations to pay tax (or bribe money/laaluush)
The most concerning part of this, is the corruption that is evident in the ministries. But also, the Office of the President and the Office of the Prime Ministers financial statements were not submitted for audit. If 50% of funds from Ministry of Finances financial statements which is distributed amongst the various ministries is missing, how much is missing from the President and PM? If $13m is in an offshore account from the Ministry of Finance, what about the PM and President? From a completeness perspective but also an accountability perspective – transparency would be required across all public offices, not just selected ones.
Overall, a lot of accounting policies followed is concerning, with evident room for improvement. For example, the Ministry of Defence, fails to correctly account for their Fixed Assets such as military vehicles, weapons and cars; it is not depreciated correctly, which implies that these fixed assets would never lose their value, when in fact, they probably would.
Financial accounts provide a stepping stone for transparency and accountability, but also helps to identify where improvements can be made. As a government, that is picking up the ravages of a long war, financial transparency and accountability is essential in moving forward, especially if they want to convince everyone Somalia is opened for business. How can Somalia be opened for business when the financial accounts are not up to standard? Where cash is missing? When revenue is limited to customs and khat tax? Where the President and PM’s office keeps their financial statements and doesn’t not allow access to the auditor general to quite frankly, do his job and audit.
The main takeaway point from this, is that local Horn of Africa countries reported x8 more revenue more than 8 years ago, so what is holding Somalia back? (Eritrea reported $838m revenue in 2012) Is Somalia understating their revenue, or are they just genuinely reliant on donations for now, even if more than half ends up in an offshore?
As of October 2019, Somalia’s Minister of Finance Dr Beileh disputed some of the figure, advising he was not aware of this nor did the AG approach him for confirmation of figures. But as an auditor (and as the AG’s report states) this has to signed off by the Minister.
The Auditor General, overall, has done a great job disclosing the financial (mis)Management of the public institutions, but transparency and accountancy, Somalia has a long way to go.
Link: http://oag.gov.so/audit-reports/
