by Rasna Warah
July 28, 2012 (TSR) – Successive Somali governments have not accounted for nearly $238 million, the bulk of which constituted bilateral assistance, according to an audit report made available exclusively to The EastAfrican.
The report shows that over the period 2000-2011, the first Somali Transitional National Government and the subsequent Transitional Federal Government received bilateral aid totalling $308 million, that was given mainly by Arab countries including Saudi Arabia, Sudan, Libya, Kuwait, Oman, Qatar and the United Arab Emirates. (This figure does not include funds that came through the Arab League. It also does not cover multilateral assistance to Somalia, which is managed entirely by the United Nations Development Programme.)
In a Nutshell: Fund misappropriation
- Another report released by the World Bank in late May, claims that the TFG did not account for $130 million in revenues and donations it received in 2009 and 2010.
- The Istanbul conference supported the establishment of a Joint Financial Management Board, comprising donors and the government, to stem irregularities. However, the current government has resisted the idea of the board.
- The report shows how large amounts of money intended for economic and social development were personalised by various top government officials, with the Central Bank of Somalia and the Mogadishu port often being used as personal ATM machines.
- One former warlord was paid a whopping $8 million for “reconciliation” in 2007 (during the administration of president Abdullahi Yussuf and prime minister Ali Ghedi), and one MP, who later become a minister, was paid $330,000, also for “reconciliation.”
- Skewed allocation of funding to some regions at the expense of others was rampant during this period.
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Only $53 million was raised domestically during this period, mainly through the Mogadishu port and airport.
However, successive governments have only been able to account for $124 million — or one-third — of the total bilateral and domestic funds they received.
The author of the report, Abdirazak Fartaag, who was head of Somalia’s Public Finance Unit in prime minister Omar Abdirashid Sharmarke’s office from May 2009 to September 2010, and prime minister Mohamed Abdullahi Farmaajo’s office from December 2010 to May 2011, claims that various Somali administrations misappropriated and mismanaged millions of dollars in donor assistance and domestic revenue by under-reporting the amounts received and by utilising funds on personal and other non-government expenses.
The Public Finance Unit was initiated by Prime Minister Sharmarke in 2009, in order to enhance the financial reporting of the Transitional Federal Government and to co-ordinate the central bank and the auditor general’s and accountant general’s offices. The unit was disbanded by prime minister Farmaajo in May 2011.
Fartaag’s report (which has not yet been released, but was made available to The EastAfrican) comes in the wake of another damning report released by the World Bank in late May, that claims that the TFG did not account for $130 million in revenues and donations it received in 2009 and 2010.
The report’s author, Joakim Gundel, said auditors found that the government had collected at least $94 million in revenue in 2009, but only reported $11 million.
The report states that in 2010, the government collected $70 million in revenues, but reported just $22 million.
A leaked copy of the 2012 report of the Monitoring Group on Somalia and Eritrea — a group mandated by the UN Security Council to monitor arms embargo violations — shows similar gross under-reporting of finances by the Somali government. (The report is expected to be presented to the UN Security Council sometime this month.)
The Group’s own investigations show that an additional $40 million of potential revenue may have gone uncollected or unaccounted for in 2011.
President Sheikh Sharif Ahmed is quoted saying that the money may have never reached Somalia, and was “perhaps in the pockets of other people.”
The report further states that one quarter of the funds that can be accounted for are channelled through the offices of the president, prime minister and speaker of parliament.
In 2011, these three offices spent more than $12.6 million, representing almost 23 per cent of total government expenditure — almost as much as was spent on the TFG security forces ($13.4 million), or the expenditure of all the ministries combined ($15.4 million).
The report further states that the TFG leaders have generally shunned a funding mechanism managed by PricewaterhouseCoopers, that was established with donor support as a confidence-building measure.
It says that the fundamental problem with the Transitional Federal Institutions is that “their leaders have successfully marketed the government’s weakness, fragility and possible collapse as a lure to attract more assistance.”
As a result, “corruption, embezzlement and fraud are no longer symptoms of mismanagement, but have in fact become a system of management.”
Fartaag compares the funds that Somalia’s various administrations and the auditor general’s office reported the country had received and spent between 2000 and 2011 with his own findings, which reveal huge discrepancies between money received and money declared.
From 2000 to 2008, except 2007 when $32 million from Saudi Arabia was recorded by the Office of the Prime Minister, the Somali government did not account for any of the funds it received.
The auditor general’s office, which was established in 2000, only started reporting revenue and expenditure in 2009. There are vast discrepancies between Fartaag’s findings and figures reported by the auditor general’s office.
Fartaag alleges, for instance, that in 2011, more than $122 million of donor support was received by the government, but the auditor general’s office reported only $35 million; $87 million remains unaccounted for.
The World Bank report says that not all revenues are deposited in the Central Bank of Somalia, and that there is a lack of proper accounting of how money is being spent.
The report was released when Somalia’s top leadership and civil society representatives had gathered at the second conference on Somalia in Istanbul.
This led to hasty denials by President Ahmed, who was quoted on the Somali website raxanreeb.com as saying: “It is simple to claim allegations, but you (the World Bank) must make it clear and tangible. Where the money has gone is what we want to know also.”
President Ahmed, along with the current Prime Minister Abdiweli Mohamed Ali and former prime minister Abdullahi Farmaajo are contending for the presidential nominations that will take place when a new parliament is constituted in Somalia later this month.
The communiqué emanating from the Istanbul conference, like that of the London conference that preceded it, supported the establishment of a Joint Financial Management Board, comprising donors and the government, to stem irregularities.
The Board, spearheaded by Britain and other European countries, along with the World Bank, aims to improve transparency and accountability in the use of public resources, and ensure that these funds go towards improved security and economic and social development.
Britain’s ambassador to Somalia, Matt Baugh, has stated that the Board will provide a facility whereby the Somali government and its partners can demonstrate that the money it is receiving from a variety of sources is being put to good public use.
However, the current government has resisted the idea of the Board. Former government spokesman Abdirahman Omar Osman Yarisow told the Somali website shabelle.net that the current government had rejected the idea of the board, adding that the government would not allow itself to be financially managed by outsiders, and that this suggestion needed to be revisited.
Fartaag’s report paints a grim picture of Somalia’s financial management systems.
The report shows how large amounts of money intended for economic and social development were personalised by various top government officials, with the Central Bank of Somalia and the Mogadishu port often being used as personal ATM machines.
He says misappropriation of donor funds by senior government officials was made easier by the fact that the biggest Arab donors usually paid their contributions in hard cash to individual politicians, rather than depositing it in national financial institutions.
These politicians, in turn, often deposited a fraction of the donor funds into the Central Bank, and did not account for the rest.
Also, the Mogadishu port is under the control of the president, who can decide how revenue raised from the port is to be allocated.
This has created huge opportunities for corruption. In 2009, for instance, the port generated $24 million, according to Fartaag, but the office of the auditor general only registered $6.2 million of it.
In 2010, the port generated $30 million but only $12 million was reported; of this, more than half went to the Office of the President for expenditures that have yet to be disclosed.
In addition, blurred lines of authority and poor accounting practices have led to situations where decisions regarding how funds are to be spent are often made unilaterally by the president, the prime minister, the speaker and the minister of finance, without the consent of parliament and quite often without informing key ministries.
“This informality in the management of public funds made it easy for past and present political leaders to personalise these funds, and has, unfortunately, become the model for future leaders,” says Fartaag.
“Public funds often bypass financial institutions; even when they go through them, they are manipulated for personal gain.”
Official documents seen by The EastAfrican show that one former warlord was paid a whopping $8 million for “reconciliation” in 2007 (during the administration of president Abdullahi Yussuf and prime minister Ali Ghedi), and one MP, who later become a minister, was paid $330,000, also for “reconciliation.” Thousands of dollars were also spent on hiring private jets.
Skewed allocation of funding to some regions at the expense of others was also rampant during this period.
Fartaag found that nearly 14 per cent of Somalia’s budget was allocated to Puntland, compared with 0.13 per cent to Lower Shebelle and 0.07 per cent to Lower Juba, with the Banadir region (where Mogadishu is located) getting less than 2 per cent.
Some regions, such as Galgadud, South Mudug, Hiraan, Bay and Bakol, Gedo and Middle Juba did not receive a single cent, despite being the most conflict-ridden areas in the country.
However, says Fartaag, it’s not clear whether the allocations were actually disbursed to any of the regions, including Puntland.
During his tenure in prime ministers Sharmake and Farmaajo’s offices, his attempts to rein in the finances and demand greater transparency led to his eventual (verbal) dismissal.
He says that while corruption was widespread in the Somali administration during his tenure, successive administrations have continued with the trend.
In 2011, when he was still the head of the Public Finance Unit, Fartaag alerted prime minister Farmaajo to gross irregularities, but he was discouraged from investigating them further.
After his dismissal, he continued with his investigations, which were published in the media. The government dismissed them as a smear campaign.
However, Fartaag was vindicated in May by the World Bank, which conducted its own preliminary investigations that also showed inconsistencies and irregularities in the financial affairs of the transitional federal institutions.
Potential to earn money
Fartaag says Somalia’s potential to generate domestic revenue remains underexploited, largely because the economy remains unregulated.
His audit report for 2009/10 showed that Somalia could generate $48 million a year in taxes from the three largest telecommunications providers, whose annual turnover is conservatively estimated to be over $540 million.
Remittances from Somalis abroad — estimated to be around $1.5 billion a year — could generate $45 million, while taxes from the Mogadishu port alone could bring in another $35 million a year.
With more credible financial institutions in place and a better regulatory framework, the government would also be in a better position to earn revenue from other sources, such as VAT, income tax and licence fees, which are currently non-existent.
This could also help make the country less reliant on external assistance, and ensure that revenue collected benefits the people of Somalia.
When asked why he had chosen to release the findings of his audit report now, in light of a new (hopefully, more transparent) government set to be installed in Somalia in August, Fartaag said: “I am trying to show through my audit that every single government that Somalia has had since 2000 has consistently mismanaged public funds.
“If the money that was mismanaged and misappropriated was used to build schools and hospitals and to rehabilitate government buildings, Somalia would not be in its current dire predicament. I did the report because I want the personalisation of public funds to stop.
“I feel that the people of Somalia deserve a better government that uses public funds properly. But in order to do this, Somalia needs the help of the international community; we should not expect the future government to reverse the trend on its own and suddenly become more accountable to its citizens.
“The establishment of the Joint Financial Management Board is therefore a step in the right direction. The politicians who are resisting the Board in the name of sovereignty are only playing to the domestic gallery.”
First published in The East African.