The Financial Oversight and Accountability Report from January – August 2018.

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MOL Exclusively received the English version of the  Financial Oversight and accountability report from January – August 2018.

Here is the full report:

THE FEDERAL REPUBLIC OF SOMALIA

The Budget, Finance, Planning, and Accountability Committee of the house of the people.

Introduction:

The Budget, Finance and Planning and Accountability Committee of the house of the people, pursuant to Articles 2, 68 and 70 of the Rules of the House of the People and Article 7 of the of resolution passed on 14/11/2018 by the house of the people and art. 2 of 1961 of financial regulations law, the Committee carried out its constitutional mandate for the country’s financial oversight, maintaining the accountability of public institutions reviewed the implementation of the 2018 Budget, from January to August 2018. The committee received audited and unaudited financial information from the following offices

  • Office of the Accountant General
  • Office of the Auditor General
  • Central Bank

The Committee has prioritized the oversight of budget execution for  two areas

  • The collection revenues and the management of the government expenditure
  • Implementation of the resolution enshrined in the appropriation bill of the act of 2018 by the House of the People of the Federal Parliament and compliance with the financial laws and regulations.
  1. INCOME AND EXPENDITURE

The Committee recognizes the importance to ensure the budget execution to be in line with the budget act approved by the House of the People of the parliament and to ensure the credible revenue collection system according to the act and financial regulation of the state.

The Committee considered to meet its mandate undertook a financial oversight of the government institutions and received various reports from the following agencies:

  • Ministry of Finance
  • Accountant General
  • Audit General

As it is outlined in the 2018 revenue budget in Annex 1 of the Income, there was a slight increase in some areas such as Hotel sales taxes and private employees taxes, and there is also a decrease in some other sectors like the miraa (khat) taxes, salaries of the government employees which is not still fixed, and also there are forecasted sources of revenue as shown in the budget projection but there is no any income received from the period between January and August 2018, such as the remittances, the private banks, energy, and water companies.

Also, there are shortfalls of the direct expected budget support from different countries like Saudi Arabia, Qatar paid $3 million only which is equal to 30% of the budget support pledge, while the Turkish government paid all its budget support pledge of $20 million.

As shown in the table below, the first 8 months of this year the revenue amounted to $ 156,717,203.52 equivalent to 57%, out of $ 183,086,794 that expected to be collected within this 8 months period, and there is an observable gap of $ 26,369,590.48 which is 14 %.

Therefore, the total of $117,912,987.48 to be collected which is 43% to meet the required revenue of the budget of 2018 with a total of $ 274,630,191.00. and due to the remaining very short period, it indicates that the ministry may not able to collect the required revenues.

  1. The Expenditure of 2018 budget from January to August

The Expenses of the 2018 budget from January to August as shown in Appendix 2, the committee analyzed financial and audit reports from the Accountant General and the Auditor General and reviewed and evaluated according to the budget allocations and the committee recognized the following:

  1. The Ministry for Finance has executed the budget 2018 differently according to the budget approved by the house of the people same as the budget of 2017 as indicates the closing of accounts of 2017 received by the committee.
  2. The most of the government institutions don’t receive regularly the running Costs except the presidency, the office of the prime minister and the house of the people which can result in a slowdown of the other institutions’ activities, and it may also result from the diversion of the revenue collects the government institutions and it may not regularly have deposited in a single Treasury Account as some institutions have done according to the Audit Report.
  3. The committee has realized that there is revenue collected illegally and disbursed improperly as well by the minister of finance, these revenues collected from private financial institutions (Hawala & Banks), according the letter signed by the Minister of Finance ordered the financial institutions to pay a contributions to the Financial Reporting Center (FRC) which is a government institution and have public fund allocated in the budget of 2018, and this seems a huge conflict of interest since the mandate of FRC is to oversight the financial institutions and  prevent the money laundering and terrorism financing as pre-defined under (AML / CTF) act and more importantly  this revenue is deposited into a private account of the Ministry of Finance in the Central Bank as ordered by the Minister rather than depositing into Single treasury account (STA) at the central bank which is clear violation of country’s the financial regulations,
  4. The committee also recognized that the private financial initiations have not been taxed legally up to now, while it is been emphasized and strongly ordered to pay such contribution which contradicts the financial regulations and resolutions mentioned in the budget
  5. The Federal government received $50 million in 2017 from Saudi Arabia as a budget support, and the government spent $30 million in the same year. While the Ministry of Finance reported to the Committee that the balance of $20 million will be carried forward to 2018 budget, but that is not reflected either as a balance forward or in the government’s revenues between January and August 2018 and, it’s not clear whether that amount of money deposited or spent.
  6. The Ministry of finance transferred from sub-head of arrears amount of $3 million dollars specifically allocated for unpaid salaries of the civil servant, members of 9th parliament and committed military expenditures as individual rights and the ministry spent against the budget act approved by the House of the People.
  7. Capital: There are different sub-heads with the allocation capital funds for investing in capital or development projects of the 2018 budget which was approved by the House of people, but that fund spent against article 4, session 8 of T in the budget act.
  8. Federal member states and Benadir Region: As shown in section 8 of Article 4 the House demanded from  the Ministry of Finance to submit an explanation the lump-sum budget of the federal Member states  and Banadir regional administration in the budget of 2018 to the Committee before 30 of April 2018, but still the ministry has not yet presented it to the Committee.
  9. According to the report of the Auditor General, the Treasury of Banadir administration was deposited $15,281,181 from January to June 2018 with previous balance $ 1,911,464.42 which makes the total revenue of Banadir Regional Administration $ 16,556,504.75 from January to June 2018. Banadir administration received $ 8,575,343.24 which is part of the above-mentioned amount of revenue within the period mentioned above which was expended during the same period, but there is not enough supporting documents on how the revenue mentioned above was used and this indicates widespread financial mismanagement in Banadir Regional Administration and here is not only but including the key mismanaged areas
  10. The local government of Banadir region does not have an annual budget with revenue and expenditure allocations approved by the authorized institution.
  11. There are other institutions and individuals regularly receives funds from the local government of Banadir without any written agreement with the local authority of Banadir administration and the reason is not clear.
  12. The account of Banadir administration at the central bank withdrew $ 5,972,0852.82 by the administration cashier from January to June 2018 and it is not clear how that money was managed.
  13. The bids and contracts of Benadir administration have not been practiced in a transparent and competitive process which has encouraged corruption, nepotism, poor management and theft of public funds which is highly violation for the financial regulations.
  14. All Benadir local government employee’s salaries are deducted 30% commission illegally while there are much more money goes to individuals who are paid as consultants without any written terms of references (TOR) with Banadir administration.
  15. The Banadir Regional Administration has received extra revenue from the Federal government which is not part of the budget allocations between January and August 2018. This is clearly a misappropriation of the budget act and this violation is responsible by the ministry of finance
  16. The execution of the House resolution of the budget allocation of 2018

The Committee reconsidered the implementation of the regulation passed by the house in the budget act of 2018, and figured out that the ministry of finance violated the following points;

1) The article 2.4 of session 1 of transfers/variation among the offices that were applied without respecting the procedures of which the House passed, as indicated the variations that the committee received such that transfer of the arrears of USD 3 million which against the resolution passed by the house.

2) Section 2.5 of the 1st and 2nd articles relate to the transfer records of the contingency indicates a huge violation undertook by the ministry of finance according to the budget of 2018 act.

3) Article 3.1 relates to the government expenditure priorities are not implemented in line with the 2018 budget allocation policy

4) The article 3.2 relates to the monthly financial statement of which must be submitted to the committee on the 10th of every month but that was not fulfilled in accordance with the resolutions of the House. The Committee has not received yet any monthly report other than that which the committee demanded and takes time to be delivered.

5)  Article 4 of the house resolution demanded the Ministry of Finance submitted to the House The Revenue Bill before April 30, 2018, but until now it has not received from the Ministry.

6) The House ordered the Ministry that revenues and expenditures shall not collect and expended unless it is allocated in the budget and with legal procedure, but the Ministry did not comply with the 2018 budget allocation policy and the financial regulations laws since the ministry collected revenue and spent it out of the budget of 2018 illegally as indicates under Section 1.2, paragraph 3 in this report

7) The House directed the Ministry of Defense to register all the Military personnel (SNA) before June 30 of 2018, but the House was only given a list 5, 400 soldiers while many other soldiers are not registered. The House also ordered the Ministry of Finance to add USD 50 dollar to each of the registered soldiers who are not given allowances in accordance with their grade but the Ministry of Finance did not fulfill that pay rise without reasons.

8) The House ordered the Ministry of Finance to submit to the House a detailed list of internal loans of the government before April 30, 2018, but the House is yet to receive the list.

9) The House ordered the Ministry all salaries or allowances to either civil servants, security forces or legislators be channeled through personal bank accounts but that has not been implemented yet especially with SNA.

  1. Lastly, as indicated in the 2018 budget resolution, $8.4 million which was specifically allocated for the allowances and salaries of the civil servant, security personnel and 9th parliament MPs but this funds were used for different purposes.
  2. Conclusions and Recommendations of the committee.

Thus, the finance Committee presents the following observations and recommendations;

  1. The Ministry of Finance failed to act within the law and in line with resolutions passed by the house in the 2018 budget act. Therefore, it is necessary that the Minister of Finance should present himself to parliament and explain why the budget of 2018 has not been executed according to the Appropriation Act, and at the same time not implemented in line with the resolutions passed by the house.
  2. The finance minister should table in Parliament plenary what financial law he followed in his order to collect taxes from financial institutions and deposit in the Ministry of Finance private account instead of the Single treasury account in the Central Bank.
  3. The Auditor General should investigate and bring a complete report about the unlawful revenue collections by the Minister of finance and how it was spent, and if there is a balance of unused should be transferred to single treasury account.
  4. The Ministry of finance should answer where and how it spent/kept the USD 20 million from Saudi Arabia government of which the Ministry of Finance previously informed to the committee that it would be part of the budget of 2018, and yet so far that amount has not appeared in the budget and the financial statement of 2018 that the committee received.
  5. To suspend the budget of the institutions received more funds than allocated from January to August 2018 such as Ministry of Finance and Banadir Regional Administration until the reason is explained. The Auditor General and Accountant General should verify and report back to the Committee which will then share the findings with the House.

6) The Auditor General should investigate the $20 Millions of budget support from Saudi Arabia that is missing as indicated above and all those funds that the committee expressed its doubts of misappropriated and noted in the committee report which was not used in accordance to the appropriation act of the Fiscal year 2018.

 

Annexes 1 & 2

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