Official PDF , 67 pages

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 84958-SO

PROJECT PAPER

FOR

SMALL TRUST FUND GRANT

(US$ 4.5 MILLION EQUIVALENT)

TO THE

.

FEDERAL REPUBLIC OF SOMALIA

.

FOR A

PUBLIC FINANCIAL MANAGEMENT CAPACITY STRENGTHENING PROJECT

AFTME

This document has a restricted distribution and may be used by recipients only in the

performance of their official duties. Its contents may not otherwise be disclosed without World

Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective 7/5/2013)

Currency Unit = Somalia Shilling (SOS)

15,000 SOS = US$1

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AAA

ACCA

AfDB

AFR

AGD

Analytic and Advisory Activities

Association of Chartered Certified Accountants

African Development Bank

Africa

Accountant General’s Department

AWP

BE

BECPAR

CD

CBS

CGG

CIT

COA

COPM

CPI

DA

DAD

DP

DPKO

EAFS

EFO

FATF

FCS

FMA

FMIS

FR

FRS

GoSL

HESPI

ICT

Annual Work Plan Bank Executed

Budgeting, Expenditure Control, Procurement, Accounting and Reporting Country Director

Central Bank of Somalia

Campaign for Good Governance

Component Implementation Team

Chart of Accountants

Comprehensive Operating Procedure Manual

Corruption Perception Index

Designated Account

Development Assistance Database

Development Partners

Department of Peace Keeping Organizations

External Assistance Fiduciary Section

Externally Financed Output

Financial Action Task Force

Fragile and Conflict-Affected States

Financial Management Agency

Financial Management Information System

Financial Regulations

Federal Republic of Somalia

Government of Somaliland

Horn Economic and Social Policy Institute

Information and Communication

IDA

IEC

IFRS

IMF

IPSAS

International Development Association

Information, Education and Communication

International Financial Reporting Standards

International Monetary Fund

International Public Sector Accounting Standards

IR

ISN

ISO

IST

JFMB

JNA

KPIs

LAN

LECAP

MDTF

NSA

NSSP

OAG

ODL

OPM

Intermediate Results

Interim Strategy Note

International Standards Organization

Implementation Support Team

Joint Financial Management Board

Joint Needs Assessment

Key Performance Indicators

Local Area Network

Liberia Expenditure Control and Accounting Program

Multi-Donor Trust Fund

Non-State Actors

National Security and Stabilization Plan

Office of the Accountant General

Online Distance Learning

Office of the Prime Minister

ORAF

OROLSI

PDO

PETs

PFM

PFMRCU

PFMRO

PFMU

PMI

PMP

PoE

PRINCE

PSGs

PwC

RE

ROC

RVP

SAI

SCD

SDF

SDG

SDLC

SFMIS

SHRM

SLA

SME

SMEGA

SOUR

SPF

SSADM

SS-PFMR

Operational Risk Assessment Framework

Office of Rule of Law and Security Institutions

Project Development Objective

Public Expenditure Tracking Surveys

Public Financial Management

Public Financial Management Reform Coordinating Unit

Public Financial Management Reform Oversight

Public Finance Management Unit

Project Management Institute

Project Management Professional

Pool of Experts

PRojects In Controlled Environments

Peace-Building and State-Building Goals

PriceWaterhouseCoopers

Recepient Executed

Reform Oversight Committee

Regional Vice Presidency

Supreme Audit Institution

Staff Capacity Development

Somaliland Development Fund

Somalia Donor Group

System Development Life Cycle

Somali Financial Management Information System

Strategic Human Resource Management

Service Legal Agreements

Subject Matter Expert

Small and Medium-sized Entities Guidelines on Accounting

Statement of User Requirement

State and Peace-Building Fund

Structured System Analysis and Design methodology

Security Sector Public Financial Management Review

SSR

SSS

TA

TFG

TOKTEN

ToT

TSA

TSC

TTL

UN

UNCTAD

UNDP

USAID

VPN

WB

WBI

WDR

Security Sector Reform

Single Source Selection

Technical Assistance

Transitional Federal Government

Transfer of Knowledge Through Expatriate Nationals

Training of Trainers

Treasury Single Account

Technical Steering Committee

Task Team Leader

United Nations

United Nations Conference onTrade and Development

United Nations Develpment Program

United States Agency for International Development

Virtual Private Network

World Bank

World Bank Institute

World Development Report

Regional Vice President: Maktar Diop

Country Director: Bella Bird

Sector Director: Edward Olowo-okere

Sector Manager: Patricia Mc Kenzie

Task Team Leader: Winston Percy Onipede Cole

SOMALIA


TABLE OF CONTENTS

Page

I. STRATEGIC CONTEXT ...............................................................................................11

A. Country Context .......................................................................................................... 11

B. Situations of Urgent Need of Assistance or Capacity Constraints ............................. 12

C. Sectoral and Institutional Context ............................................................................... 12

D. Higher Level Objectives to which the Project Contributes ........................................ 16

II. PROJECT DEVELOPMENT OBJECTIVE (PDO) ....................................................18

A. Project Development Objective .................................................................................. 18

B. Project Beneficiaries ................................................................................................... 18

C. PDO Level Results Indicators ..................................................................................... 19

III. PROJECT DESCRIPTION ............................................................................................20

A. Project Components .................................................................................................... 20

B. Project Financing ........................................................................................................ 23

C. Project Cost and Financing ......................................................................................... 23

D. Lessons Learned and Reflected in the Project Design ................................................ 23

IV. IMPLEMENTATION .....................................................................................................25

A. Institutional and Implementation Arrangements ........................................................ 25

B. Results Monitoring and Evaluation ............................................................................ 26

C. Sustainability............................................................................................................... 26

V. KEY RISKS AND MITIGATION MEASURES ..........................................................27

A. Risk Ratings Summary Table ..................................................................................... 28

B. Overall Risk Rating Explanation ................................................................................ 28

VI. APPRAISAL SUMMARY ..............................................................................................28

A. Economic and Financial Analysis ............................................................................... 28

B. Technical ..................................................................................................................... 29

C. Financial Management ................................................................................................ 29

D. Procurement ................................................................................................................ 30

E. Environmental (including Safeguards) ....................................................................... 30

F. Social........................................................................................................................... 31

Annex 1: Results Framework and Monitoring .........................................................................32

Annex 2: Detailed Project Description .......................................................................................35

Annex 3: Implementation Arrangements ..................................................................................46

Annex 4: Operational Risk Assessment Framework (ORAF) .................................................60

Annex 5: Implementation Support Plan ....................................................................................64

DATA SHEET

Federal Republic of Somalia


Small Trust Fund Grant Project Paper .

Region: AFR

Sector Unit: AFTME

.

Basic Information

Date: Sectors: General Public Administration

Country Director: Bella Bird Themes: Public Financial Management and Accountability

Sector Manager/Director: Patricia Mc Kenzie/

Edward Olowo-okere

EA Category: C

Project ID: P146006

Instrument: State and Peace Building Fund

(SPF)

Team Leader: Winston Percy Onipede Cole

.

Recipient: Federal Republic of Somalia (FRS)

Executing Agency 1: Ministry of Finance and Planning, Villa Somalia, Mogadishu

Contact: Mohamud Hassan Suleiman Title: Minister of Finance and Planning

Telephone No.: +252699032222 / 252615966631 Email: [email protected] .

Project Implementation Period: Start Date: December 2013 End

Date:

March 2016

Expected Effectiveness Date: December 20, 2013

Expected Closing Date: March 31, 2016 .

Project Financing Data(US$M)

[ ] Loan [ X ] Grant [] Other

[ ] Credit [ ] Guarantee

For Loans/Credits/Others

Total Project Cost : US$4.5 million Total Bank Financing : US$4.5 million

Total Cofinancing :

Financing Gap :

.

mailto:[email protected]

Financing Source Amount(US$M)

BORROWER/RECIPIENT Ministry of Finance and Planning, Villa Somalia, Mogadishu Responsible

Agency: Ministry of Finance and Planning

Contact Person: Mohamud Hassan Suleiman, Ministry of Finance and Planning

Tel No.: +252699032222 / 252615966631

IBRD

IDA: New

IDA: Recommitted

Others (State and Peace Building Fund: SPF) 4.5 million USD

Financing Gap

Total 4.5 million USD .

Expected Disbursements (in USD Million)

Fiscal Year FY13 FY14 FY15 FY16

Annual 287,000 2,004,000 1,587,000 623,000

Cumulative 287,000 2,291,000 3,877,000 4,500,000 .

Project Development Objective(s)

The Project Development Objective (PDO) is “to establish systems for more transparent and accountable management and use of public funds in Somalia”. .

Components

Component 1: Public Financial Management Reform Oversight This component will be implemented by the Ministry of Finance and Planning and will fund the professional fees for the Public Financial

Management Reform Coordinating Unit and Technical Assistants; the information, education and communication campaigns and the operating

costs of the oversight, coordination and implementation arrangements. The reform oversight and implementation structure will provide policy

directions for strengthening the PFM systems and take periodic stock of progress by ensuring that key milestones in the PFM reform strategy

are on track and take concrete action where required. Pooling of all support within a unified PFM reform program will enhance coordination

and provide a forum for structured dialogue with development partners.

As a cross-cutting theme; this component will support a PFM Education and Training program that will produce a cohort of suitably qualified

PFM practitioners who will contribute to improving PFM performance. The design of the training program demonstrates good practice

principles to ensure sustainability by putting in place a mechanism to gradually build internal capacity to take over functional responsibility

from expatriate consultants.

Component 2: Somalia Financial Management Information System (SFMIS) The system will be user-friendly, robust and secured. It will focus on capturing budget, treasury functions, payroll, tax collection and financial

reporting. This will be preceded by business process reviews and development and implementation will be through an inter-ministerial task

force that will own the Statement of User Requirements including a Standard Chart of Accounts. The SFMIS will provide a system with

adequate audit trails to identify administrative accountability in processing transactions. Improved timeliness and accuracy of transaction

processing together with comprehensiveness of financial reports with the adoption of Treasury Single Account will also improve management

decision and make key fiscal data available to the public to hold government accountable for the use of public funds.

Component 3: Expenditure Control, Procurement, Accounting and Reporting (ECPAR) The objective of this component is to strengthen controls needed for fiscal discipline and promote transparency and accountability. The

evolving business processes for budgeting, commitment controls, procurement, internal controls, internal audit, accounting and reporting will

initially be issued as Treasury Circulars or Ministerial Orders and later codified in Financial Regulations (FR) and a Comprehensive Operating

Procedures Manuals (COPM) to translate the PFM Laws, financial policies and standards into actual practice.

.

Compliance

Policy

Does the project depart from the CAS in content or in other significant respects? Yes [ ] N

o

[X]

.

Does the project require any exceptions from Bank policies? Yes [ ] N

o

[X ]

Have these been approved by Bank management? Yes [ ] N

o [

]

Is approval for any policy exception sought from the Board? Yes [ ] N

o

[ X ]

Does the project meet the Regional criteria for readiness for implementation? Yes [X ] N

o

[ ]

.

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 X

Natural Habitats OP/BP 4.04 X

Forests OP/BP 4.36 X

Pest Management OP 4.09 X

Physical Cultural Resources OP/BP 4.11 X

Indigenous Peoples OP/BP 4.10 X

Involuntary Resettlement OP/BP 4.12 X

Safety of Dams OP/BP 4.37 X

Projects on International Waters OP/BP 7.50 X

Projects in Disputed Areas OP/BP 7.60 X

.

Legal Covenants

Name Recurrent Due Date Frequency

Project Implementation Manual - December 31, 2013

Description of Covenant

The Recipient has adopted a Project Implementation Manual - containing detailed guidelines and procedures for the

implementation of the Project, including in the areas of monitoring and evaluation, procurement, coordination,

financial, administrative and accounting procedures, corruption and fraud mitigation measures and such other

arrangements and procedures as shall be required for the Project; and thereafter adopt and carry out the Project in

accordance with such Project Implementation Manual as shall have been approved by the World Bank.

.

Team Composition

Bank Staff

Name Title Specialization Unit UPI

1. Winston Percy Onipede Cole Sr. Financial Management

Specialist (Task Team

Leader)

Public Financial Management AFTME 327985

2. Stephen Mugendi Mukaindo Counsel Legal LEGAM

3. Adenike Sherifat Oyeyiola Sr. Financial Management

Specialist

Financial Management AFTME

4. Henry Amuguni

Sr. Financial Management

Specialist

Financial Management AFTME

5. Tesfaye Ayele Sr. Procurement Specialist Procurement AFTPE

6. Hugh Riddell Sr. Operations Officer Operations OPSFN

7. Ikechi B. Okorie Sr. Operations Officer Operations AFTME

8. Alireza Abdollah Zadeh Somalia Country Economist Economic Management AFTP2

9. Geoff Handley Consultant Economic Management AFTP2

10. Wolfhart Pohl Senior Environmental

Specialist

Environmental Safeguards AFTSG

11. Tim Kelly ICT Specialist ICT Policy TWICT

12. Caroline Nelima Wambugu Team Assistant Administration

Non-Bank Staff

Name Title Office Phone City

.

Locations

Country First Administrative

Division

Location Planned Actual Comments

.

11

I. STRATEGIC CONTEXT

A. Country Context

1.1 For the first time since the collapse of the state in 1991, Somalia has a sovereign, federal

government in place in Mogadishu and a leadership committed to inclusive governance,

reconciliation, and peace based on a provisional constitution. Many observers hail the transition as a

genuine break with the past, and the best opportunity for stability the fragmented country has had in

the last two decades. In early consultations with the World Bank, the new Somali President has

stressed the normalization of relations and resumption of IDA financing as key priorities for his

government, and is seeking World Bank technical support for a program of institutional and

economic governance reform focusing on immediate support in public finance management.

1.2 The last 20 years have seen numerous failed attempts to establish peace and undertake national

reconciliation – prospects for the new dispensation are promising but depend on a sensitive process

of political negotiation. State-building has always been a problematic conceptual framework for

Somalia and has in the past resulted in the establishment of extractive, non-inclusive and Mogadishu-

centric politics and institutions. Consensus on a national vision, incorporating settlements relating to

political representation, power and wealth-sharing, has never been reached. In the coming four years,

as it finalizes a permanent constitution and prepares for national elections in 2016, Somalia is likely

to face continued instability as new stresses emerge, mainly resulting from the process of political

negotiation between federal authorities in Mogadishu and regional administrations. The country in

reality is divided into three different operational environments1, which are:

(i) Puntland, in the northeast, a semi-autonomous administration since 1998 with a zonal

government that has limited control over localized conflicts, militia groups, and piracy.

(ii) Somaliland, in the northwest, an area of gradual improvement governed by a democratically-

elected government that claimed independence in 1991 but without international recognition. It

has an elected central government and a weak but functioning system of local government. In

June 2010 it held presidential elections for the second time and power was peacefully transferred

to the opposition. Local elections were held in November 2012. (iii) South-Central, an area of prolonged crisis. The mandate of the Transitional Federal Government

(TFG) ended in August 2012 and a new Parliament has been established with His Excellency

Professor Jawari Mohammad Osman elected as Speaker of the new Federal Parliament of

Somalia. Parliament also on 10th September 2012 elected President Hassan Sheikh Mohamud as

the new President of the Federal Republic of Somalia (FRS). A lean Cabinet of ten ministries

with two women ministers has been established. Security in Mogadishu has improved markedly

since 2011 after AU and Somali government troops pushed Al-Shabaab insurgents out of the

capital. The Government has committed to hold democratic elections in 2016.

1.3 The political and security context for re-engagement in southern Somalia remains fluid and its

trajectory will be the key determinant of the scope and depth of the Bank’s work over the ISN period.

The Bank will continue to expand its engagement in the northern regions of the country where there

is relative stability and where the Bank already has a program in place. The rationale for the Bank to

re-engage in southern Somalia is based on the assessment that southern Somalia’s political and

1 Also, Galmudug, officially Galmudug State, is an autonomous region in central Somalia. It is bordered to the north by the Puntland region, to

the west by Ethiopia, and to the south by other regions of Somalia

12

security conditions have changed sufficiently in the last 24 months to give the country a genuine

opportunity for peace and state building. Conversely, a failed transition poses the risk for wider

instability in the region and the recent attack on the UN Common Compound is of great concern.

Since the transition in August 2012, the Bank has initiated a cautious but increasingly responsive re-

engagement with Mogadishu.

B. Situations of Urgent Need of Assistance or Capacity Constraints

1.4 Under the existing exceptional circumstances of acute institutional capacity constraints, pursuant

to OP/BP 10.0, this project is being processed as an emergency operation under paragraph 11. The

State and Peace Building Fund will catalyse the PFM strengthening efforts over a two and half years

implementation period whilst a longer-term Multi-Donor Trust Fund is being developed.

C. Sectoral and Institutional Context

1.5 The Joint Needs Assessment (JNA) of PFM systems in Puntland, Somaliland and South Central

Regions done by UNDP, DFID and World Bank in 2006-2007 at the request of the Somali authorities

and the international community revealed that the “systems that manage public resources are very

weak”. The JNA led the UN and World Bank to put together the Somali Reconstruction and

Development Program (RDP) with three main pillars to: (i) deepen peace, improve security and

establish good governance; (ii) strengthen basic social services (especially education, health and

water supply); and (iii) rebuild infrastructure, together with other actions, to expand economic

opportunities, employment and incomes. However, long-term impactful reforms are yet to be

undertaken across the regions since the JNA. Somalia ranks last the Transparency International

Corruption Perceptions Index (CPI) for the recent three years2.

1.6 On 21 May, 2011 Abdirazak Fartaag, the former Head of the Public Finance Management Unit

(PFMU) of the Office of the Prime Minister (OPM) in the Transitional Federal Government (TFG),

issued an “Audit Investigative Financial Report 2009-2010”. On 20 February 2012, he issued a

second “Audit Investigative Financial Report 2011”. These reports contain comparisons between the

PFM Unit, Office of the Accountant General (OAG) and TFG budgets, indicating significant

financial mismanagement, misappropriation, concealment and professional negligence. The reports

were not endorsed by the Transitional Federal Government (TFG) or any other TFI. The Bank has

taken a strong role in detecting and publicizing these reports.3

1.7 On 25th July 2012, in unanimously adopting resolution 2060 (20124) under Chapter VII of the

United Nations Charter, the Council recalled previous resolutions amongst others that

“misappropriating financial resources which undermine the ability of the Transitional Federal

Institutions and its successors to fulfil their obligations in delivering services” constituted engaging

in or supporting acts that threatened Somalia’s peace, security, or stability under the Djibouti Peace

Agreement of 18 August 2008”. Council also welcomed, “the recommendation of the Somalia and

Eritrea Monitoring Group to set up a Joint Financial Management Board (JFMB) to improve

financial management, transparency and accountability of Somalia’s public resources, reiterated its

call for the end of the misappropriation of financial funds and for full cooperation in the rapid setting

2 http://www.transparency.org/cpi2012/results- Somalia, North Korea and Afghanistan are last. 3 “Synthesis of Financial Diagnostic Assessment (The Fartaag Reports) of Audit Investigative Financial Report 2009-10” issued 30th May 2012;

http://www.fas.org/man/eprint/semg.pdf 4Security Council - 6814th Meeting (AM) Resolution 2060 (2012) Eases Measures Harmful to Humanitarian Aid Delivery

http://www.transparency.org/cpi2012/results-

http://www.fas.org/man/eprint/semg.pdf

13

up and effective operation of the Joint Financial Management Board, and noted the importance of

capacity-building of the relevant Somali institutions”.

1.8 Reliable and up-to-date macroeconomic data have not been consistently produced by the

Government authorities. The Bank and the AfDB will be providing support to MoFP on statistical

capacity building and debt reconciliation. Sweden is also funding an aid coordination expert. These

interventions will generate useful macro-economic baselines and projections. Somalia Economic Brief, February 2012

Main Issues

1. Limited Bank Involvement: Since 1991, Somalia has neither borrowed nor serviced its public debt.

In 2007, total external debt (public and publically guaranteed) was ~$3.3 billion (of which ~$2.6 billion was

in arrears) with 41% from multilaterals (including $527 million from the World Bank) and 59% from

bilaterals/commercial lending. As a result, Somalia is ineligible to receive IDA funds.

2. High dependency upon Remittances and Aid: Remittances (~$1 billion) and humanitarian and development

assistance (~$750 million, in 2009) drive consumption and economic activity. 2/3rds

of aid is humanitarian.

3. Poor Data Availability: Poor macro/socio economic data collection for two decades means many figures are

estimations. Extremely little regionally (South-Central, Puntland, Somaliland) disaggregated data.

Economy

1. GDP: Estimations vary greatly; latest is $2.6 billion ($284 GDP per capita)

2. Growth: Modest growth (an estimate of ~2% p.a. in last 15 years) has not led to development; poverty

remains high, GDP per capita remains low, and education and health indicators remain rock bottom

3. Population: ~9 million (though last census was in 1975)

4. Poverty: Population living on less than $1 per day (43%), Population living on less than $2 per day (73%)

Key Data Sources

1. WDI 2012 and Economist Intelligence Unit 2012 (macro); FSNAU (local price data)

2. UNDP and the World Bank Somalia Socio-Economic Survey (2002); Country Economic Memorandum

(2006), Interim Strategy Note (2007), UN Joint Needs Assessment (2008), TFG Financial Reports (2009-10)

PFM REFORM EFFORTS TO DATE

1.9 A number of external assistance has been provided to the FRS aimed at supporting PFM reform

in particular and the development of the Somali economy in general. Reform area Description

PFM Diagnostics Joint Needs Assessment (JNA) of PFM systems in Puntland, Somaliland and

South Central Regions done by UNDP, DFID and World Bank in 2006-2007.

The JNA analytical/diagnostic studies include the Interim PFM Support for

Somalia TFG carried out by PricewaterhouseCoopers and sponsored by

DFID; Reports on Need Assessments of Oversight Institutions to Monitor

Accountability and Transparency; Roadmap for PFM Process in Somalia;

Customs Assessment Report & Modernization and Reform Plan;

Procurement Assessment and Recommendations Report, Reports on Budget

Preparation, Execution and Monitoring; Report on the Options for Revenue

Systems & Administration for TFG Somalia, 2005; and Report on Somalia

Joint Needs Assessment Options for Macroeconomic Policy Framework and

Data Development Cluster, 2006.

PFM and financial sector legislation;

establishing key departments within

the Ministry of Finance and the

Central Bank of Somalia

The African Development Bank (AfDB) provided support for capacity

building in public financial management and financial institutions, since

August 2010. AfDB worked closely with the Ministry of Finance of the

Transitional Federal Government of Somalia through the implementing

agency the Horn Economic and Social Policy Institute (HESPI). The major

reforms implemented under this program included developing PFM and

financial sector legislation (Central Bank Act 2011 - passed; Financial

14

Institutions Bill; and PFM Bill); establishing key departments within the

Ministry of Finance and the Central Bank of Somalia; and developing best

practices, manuals, and procedures. In addition, the AfDB grant supported

strengthening human resource capacity through training of staff for the key

financial governance institutions.

Capacity building towards the

improvement of basic competence of

the Ministry of Finance and

Planning

United States of America International Development (USAID) channels most

of its aid through international and local NGOs. USAID recruited a team of

consultants for the Ministry of Finance and Planning to provide Technical

Assistance and capacity building towards the improvement of basic

competence of the Ministry of Finance and Planning in which nearly 40

employees were trained; the first phase of the national asset inventory set up;

hundreds of millions of dollars sitting outside Somalia traced and registered;

and one million dollar sitting in an offshore bank account repatriated.

Revenue collection, asset

registration, strategic planning and

aid coordination

UNDP has worked with the government in Mogadishu to improve revenue

collection, asset registration, strategic planning and aid coordination, by

providing technical advisors through QUESTS-MIDA (a diaspora assistance

programme), and hosting the Development Assistance Database. UNDP

supported the Transitional Federal Government (TFG) to improve inland and

customs revenue collection. QUESTS-MIDA advisors trained 17 Ministry

staff in accounting, financial and cash management procedures, and a further

36 staff on direct and indirect taxes and tax; additional training provided

included the roles and responsibilities of the customs department, and an

introduction to fiscal and monetary policy. UNDP sponsored 13 students,

based in Mogadishu, to study for ACCA qualifications. In partnership with

the Ministry of Finance, the Civil Service Commission and the Ministry of

Planning, UNDP supported an asset registration exercise in

August/September 2012. UNDP provided some support to the Central Bank

of Somalia, including a study tour to the Bank of Uganda in May 2011, and

between August and September 2011. Participants acquired practical

knowledge and skills in bank supervision, research, statistics, accounts,

finance, financial markets, currency and banking.

Somaliland - strengthening the PFM

legal and regulatory framework

1.10 The Public Financial Management (PFM) Capacity Building Project

funded by the LICUS TF094672 which closed in November 2011 supported

only the Government of Somaliland (GoSL) because there were security

concerns that restricted the Bank from engaging in South Central and

Puntland. The project supported GoSL to develop Bills5 for strengthening the

PFM legal and regulatory framework; standard bidding documents for goods,

works and consultancies; and the enabling regulations and operating

procedures manuals6. Also, organization reviews resulted in (i) proposed

organizational structure and roadmap for phased implementation towards

establishment of a Somaliland Revenue Authority; (ii) organizational

structure for the Public Procurement Authority/Units and position

competencies; (iii) transition arrangements from National Tender Board to

new Public Procurement System; and (iv) proposal for restructuring and

strengthening the Budget, Economic Affairs and Macro Department’s in the

Ministry of Finance. Dialogue on expansion of the tax base resulted in

increase in internally generated revenue. The country-owned PFM reform

strategy that is being formulated will provide a way forward for ensuring that

the PFM Bills are approved by Cabinet and submitted to Parliament for

enactment and also pave the way to embark on critical reforms.

5 Public Financial Management and Accountability Bill, Public Procurement Bill, National Audit Bill, Customs Bill and Revenue Bill 6 External Audit Manual, Internal Audit Manual (English and Somali version), Public Procurement General Manual, Procurement Regulations,

Accounting & Financial Reporting Policies and Guidelines, Customs Regulations, Tax Manual, Public Accounts Committee Guidelines for

reviewing Auditor-General’s Reports, Public Accounts Committee Rules of Procedure for House of Representatives, and Budget Rules of Procedure for House of Representatives.

15

Current Government response

1.11 The new Federal Republic of Somalia Legislature and the Presidency7 have prioritized security,

justice and PFM integrity at the top of the country’s development agenda. This is driven by improved

security, regaining of political legitimacy, and need to build citizens’ confidence and relationship

with Development Partners (DPs) that public funds will be managed in a transparent, equitable and

accountable manner. The President’s Foundations of New Beginning: “Six Pillar Policy” are in

line with the Peace-building and State-building Goals (PSGs) of the New Deal for Engagement in

Fragile States (the “New Deal”) particularly goal 5.

Box 1-1: New Deal Peace-building and State-building Goals (PSGs) (i) Legitimate Politics - Foster inclusive political settlements and conflict resolution

(ii) Security - Establish and strengthen people’s security

(iii) Justice - Address injustices and increase people’s access to justice

(iv) Economic Foundations - Generate employment and improve livelihoods

(v) Revenues & Services - Manage revenue and build capacity for accountable and fair service delivery

Relationship to Interim Strategy Note (ISN)

1.12 Against the backdrop of a fluid transition process, the World Bank is preparing a new country

strategy. The proposed aim of the Interim Strategy Note (ISN) for Somalia8 will be to contribute to

the international effort to support the country’s transition out of the cycle of fragility and conflict and

establish the foundations of peace, national reconciliation and development in the context of a new

national government. The program will draw on the experience of other countries emerging from

conflict and fragility, and in particular on the lessons of the World Development Report 2011 on

Conflict, Security and Development with regards to building coalitions and early confidence-building

measures in fragile transitions. It is also grounded in the principles of the g7+ New Deal.

1.13 The proposed ISN FY14 will address two key fragility dynamics: a dynamic of extractive and

non-inclusive political and economic institutions and a dynamic of economic exclusion and

vulnerability. While both areas are long-term challenges, the strategy proposes to deliver early

confidence building results as well as laying the foundation for longer-term programmatic work. The

first strategic objective is to build the basis for national and international trust in Somali public

institutions by providing technical support to core government functions, building a strong policy

dialogue through knowledge work and helping to facilitate the re-engagement process through a New

Deal framework and financial normalization. The second strategic objective will be to build a

platform for sustainable economic development or “resilience” by expanding the Bank’s ongoing

work with the private sector into livelihoods and infrastructure.

1.14 The situation in Somalia is evolving rapidly, the Government is new and still establishing its

legitimacy and authority across the country and capacity to deliver is limited. In this context, the

Bank will need to remain flexible to respond to opportunities as they emerge. The new authorities

have three over-riding priorities: security, justice and the accountable management of public

finances. This project is anchored on the first strategic objective of the ISN. Using bank-budget, an

7 His Excellency Professor Jawari, Mohammad Osman was elected Speaker of the new Federal Parliament of Somalia whilst Parliament elected

President Hassan Sheikh Mohamud on 10th September 2012 8 http://data.worldbank.org/country/somalia.

http://www.so.undp.org/shdr/Somalia%20Human%20Development%20Report%202012.pdf

http://data.worldbank.org/country/somalia

16

assessment of the capability of key PFM institutions was conducted in Somaliland and South Central

to inform a country-owned PFM reform strategy.

1.15 The proposed activities will deliver timely assistance to support confidence building for the FRS

by supporting discrete aspects of the PFM reform action plans. Because of limited engagement in

Puntland so far; if requested, activities in this region will be limited to supporting the government in

undertaking a self-assessment of its PFM system to provide up-to-date information for formulating a

Government PFM reform strategy and action plan.

D. Higher Level Objectives to which the Project Contributes

1.16 The Federal Republic of Somalia PFM self-assessment noted that long-term impactful reforms

are yet to be undertaken since the JNA and revealed a generally weak PFM system. The key

difference between the JNA-RDP process and the current PFM self-assessment is the Government’s

ownership of the process and genuine commitment to PFM reform. The Minister of Finance and

Planning presented the PFM self-assessment report and proposed PFM strengthening initiative

(2013-2016) to Development Partners on April 4 2013 - http://mofep.gov.so/wp-

content/uploads/2013/04/Somalia-PFM-self-assessment-report-strategy.pdf. The self-assessment

report revealed the following key weakness: inadequate controls for revenue management; absence

of long term planning and policy analysis to underpin annual budget formulation; budget execution

and procurement processes lack adequate transparency and efficiency; inadequate banking

supervision mechanisms by the Central Bank; lack of comprehensive reporting on the use of state

resources; weak Parliamentary oversight over PFM functions; absence of a truly independent Auditor

General; the existing PFM legal framework is inadequate and requires modernization; and Human

resource and logistics challenges.

1.17 The overall PFM reform objective of the Government is “to improve the efficiency and

effectiveness of public financial management processes, and systems in order to provide timely,

transparent and accurate financial information across the public sector to underpin policy

formulation and inform Government decision making in support of service delivery”. In addition to

achieving the expected budgetary outcomes of (i) aggregate fiscal discipline; (ii) strategic allocation

and use of public resources; and (iii) efficiency of service delivery and probity; the reforms

specifically aim to: improve transparency and openness of the national budget process; enhance fiscal

discipline through internal and external controls; focus public expenditure on priority areas of

Government programs; enhance efficiency and effectiveness of public expenditures; and strengthen

overall financial management and accountability.

1.18 The Somalia ‘PFM Reform Architecture’ in Figure 1-1 is underpinned by the Government’s

“Foundations of New Beginning: Six Pillar Policy”; particularly pillar one that deals with good

governance. The PFM reforms are anchored on four platforms: (i) instituting PFM fundamentals for

budget credibility; (ii) effective budget execution and financial accountability; (iii) improved policy

formulation, planning and budget preparation; and (iv) institutional structures; Strategic Human

Resource Management (SHRM); Financial Management Information Systems (FMIS); and cross-

cutting issues. The cross-cutting platform provides the beam that holds the whole reform platforms

together in order to meet the overall PFM reform objectives. This strategy was endorsed by the

Council of Ministers and submitted to the National Assembly; thereby receiving the strong political

ownership.

http://mofep.gov.so/wp-content/uploads/2013/04/Somalia-PFM-self-assessment-report-strategy.pdf

http://mofep.gov.so/wp-content/uploads/2013/04/Somalia-PFM-self-assessment-report-strategy.pdf

17

Figure 1-1: PFM Reform Architecture

1.19 Key Performance Indicators (KPIs) for the reform platform objectives will be used by the PFM

reform steering committee to monitor and evaluate implementation of the action plan. Yearly targets

will be set at the reform component level and this will guide the preparation of Annual Work Plans

(AWP) and budgets. Consistent with the TRUST principles in the ‘New Deal’, instead of creating

parallel requirements for external assistance; Development Partners can align with the Government

key performance indicators below. Figure 1-2: Government PFM Reform Key Performance Indicators (KPIs)

18

II. PROJECT DEVELOPMENT OBJECTIVE (PDO)

A. Project Development Objective

2.1 The Project Development Objective (PDO) is “to establish systems for more transparent

and accountable management and use of public funds in Somalia”.

2.2 The PDO will contribute to 4 SPF Fund-level Results and the State-building result 2.1 in

particular.

Table 2-1: Contributions to State and Peace Building Fund (SPF) Results SPF Outcome PFM Capacity Strengthening Project Contribution

SPF Fund-level Results

1.2 Partnerships are strengthened - this project is part of broader PFM support effort by development

partners around a common Government-owned reform agenda; some

project components will be undertaken with UN-DPKO and UNDP.

- PFM reforms will enable increased donor coordination under the

government’s lead

1.4: Timely support provided for early

confidence building

- the proposed activities directly support the ‘quick-wins’ needed for

early confidence building and lay the foundation for longer-term

programmatic work

1.5: SPF programs are catalytic with the

potential to be scaled up and/or

replicated to ensure sustained support

for institution building

- support provided through the project will help develop key systems

necessary for roll out of larger scale financing instruments being

developed; will be key in enabling development partners to move towards

use of country systems for support; grant is also bringing in pooled

funding from other developing partners.

1.6 Contributes to knowledge and

learning that improves WB operations

in FCS

- generation of critical macro-economic data through surveys;

- supports in-depth analysis of sub-sectors in order to prepare specific

strategic improvement plans (e.g. the Central Bank, Ports Authority and

Office of Auditor General;

SPF State-Building Results

State-building result 2.1: More

effective, transparent and accountable

collection, management and use of

public resources that builds citizen

confidence

The SFMIS will support accurate and timely publication on collection

and use of public finances. Ministerial Orders will reduce discretion and

curb opportunities for corruption.

2.3 The interventions of this project together with those of other DPs will also have a positive

impact on Somalia’s Post Conflict Performance Indicators particularly in the areas of economic

management and governance.

B. Project Beneficiaries

2.4 The direct project beneficiary is the Ministry of Finance and Planning and the Somali people.

However, it is important to recognize that the PFM reforms will involve changes that will affect the

interests of other key stakeholders9; and understanding their relative power and influence as shown in the

example below will help in reconciling their claims on the project.

9 A ‘Stakeholder’ is “any group or individual who can affect or is affected by the achievement of an organisation’s objectives”

(Freeman 1984:46).

19

Table 2-2: Stakeholder interest, power and influence Stakeholders Interest Power and influence

i. Citizens / Taxpayers Effectiveness and efficiency in service

delivery

The Ballot

ii. The Executive: The

President, Prime Minister

and Council of Ministers

(especially the Ministry of

Finance and Planning)

Political Legitimacy

A sound PFM system that supports

efficient and effective service delivery in a

transparent manner.

Significant legitimate power

Reward power

iii. The Legislature Citizen representative

Political Legitimacy

Budgetary appropriation

Oversight and sanctions

iv. The Civil Service Administrative compliance

Service delivery

Managerial control

Work to rule: passive aggression

v. Chamber of Commerce,

Labour Unions

Clear and fair enabling environment for

business transactions

Open competition

Fair and transparent tax regime

Private sector growth

Tax dependency

Job creation

Strikes

vi. Non-state Actors (NSA) Transparency and accountability Advocacy

vii. Development Partners Poverty reduction, transparency and

accountability

Convening power, technical advice

and aid

2.5 Broad consensus for the reforms will ensure durability noting that all stakeholders are important but

different stakeholders must be managed differently. Depending on their relative power, importance and

influence, the PFM Reform Coordinator (‘transition manager’) will seek to build a coalition of change

agents by adopting various communication and participation methods: inform, consult, involve,

collaborate or empower. However, there will be ‘win–lose’ situations, where the vested interests of

respective parties are incompatible, or where other stakeholders cannot or will not accept a common

position. In circumstances of significant conflicts of interest, the PFM Reform Oversight Committee will

draw on political power from the Presidency to deal with the resistance to change. Over-ambitious change

plans tend to fail; therefore, the reform will be incremental and gradual so that stakeholders are not

overwhelmed.

C. PDO Level Results Indicators

(i) time taken to publish annual financial statements

(ii) % decrease in difference between budgeted and actual aggregate expenditure

Key Intermediate Results and Indicators:

Intermediate Result (IR) 1: Increased capacity for a structured approach to PFM institutional capacity

strengthening.

Sub-component 1.1 Public Financial Management Reform Coordinating Unit (PFMRCU)

1.1.1 Annual Work Plan on track

1.1.2 Comprehensive Operating Procedures Manual (COPM)

Sub-component 1.2 PFM Education and Training

1.2.1 Number of staff with certificate, diploma and professional qualification

20

Intermediate Result (IR) 2: Improved technical capacity to handle PFM processes in an efficient

manner.

Sub-component 2.1 Somalia Financial Management Information System (SFMIS)

2.1.1 Timeliness of bank reconciliation

2.1.2 Multi-dimensional chart of accounts (CoA)

2.1.3 % value of central government budget executed through SFMIS

Intermediate Result (IR) 3: Strengthened controls for fiscal discipline, transparency and

accountability.

Sub-component 3.1 Strengthening expenditure controls, procurement systems and practices

3.1.1 Treasury Single Account (TSA)

3.1.2 Transparency, comprehensiveness and competition in the legal and regulatory framework

Sub-component 3.2 Accounting and financial reporting

3.2.1 Time taken to publish quarterly unaudited reports

III. PROJECT DESCRIPTION

A. Project Components

3.1 Cognizant of existing human resource capacity challenges, support for the Government PFM reform

action plan through this project has been prioritized to first get the basics right and establish the PFM

foundations. Implementation will follow appropriate change management strategies by seizing

opportunities in the ‘reform space’ as they emerge10

. The project therefore has three broad areas of focus:

(i) establishing a Public Financial Management Reform Oversight and implementation structure; (ii)

implementation of Somalia Financial Management Information System (SFMIS); and (iii) Expenditure

Control, Procurement, Accounting and Reporting (ECPAR).

3.2 The OECD Principles for Good International Engagement in Fragile States (April 2007) guides the

design of this project and in particular DPs have agreed on practical coordination mechanisms through the

Government PFM Reform Oversight Structure. Also, the PFM Donor Group Steering Committee actively

engaged with Government during the PFM self-assessment and aligned its support around the

Government-owned reform action plan by agreeing on the division of labour in Table 3-1 to form a

coherent set of mutually reinforcing projects.

3.3 Applying selectivity, the SPF will support discrete aspects under themes 1, 3, 7 and 9. Also, a

common set of performance indicators will be used BY Government and Development Partners to

monitor progress in implementing the reform activities and also as criteria for other forms of

program/project, direct budget support and debt relief/arrears clearance.

10

Andrews M (2008:5), Creating Space for Effective Political Engagement in Development, John F. Kennedy School of Government – Harvard

University. Ultimately, we aren't going to wake up and find that the shoemaker's elves have built Somalia a state-of-the-art PFM system overnight - http://www.guardian.co.uk/global-development/2013/apr/19/somalia-yardstick-new-deal-conflict-countries

http://www.guardian.co.uk/global-development/2013/apr/19/somalia-yardstick-new-deal-conflict-countries

21

Table 3-1: Division of labour by Development Partners

Thematic PFM reform

area

Development

Partner

Remarks

1. Policy analysis,

economic planning

and budget

preparation

IMF

AfDB

UNDP- SIDP11

Sweden

World Bank-DFID

EC

Macro-fiscal framework to be led by IMF

Statistical capacity led by AfDB

Development Assistance Database (DAD)

Aid coordination expert

Classification of budget

Support to Policy Unit (President's office), New Deal process

(lead donor, support also via focal point and UNDP)

2. Resource

mobilization

WCO

UNDP-SIDP

IMF

Customs diagnostics, UN container control, advice on improving

valuation, advice on updating tax laws and training

The IMF plans to provide technical assistance (TA) in the area of

tax policy and tax administration 3. Budget execution,

accounting reporting,

and financial

Management

Information System

World Bank-DFID

World Bank SPF

DANIDA and

Sweden

IMF

FMIS Conceptual Design, CoA upgrade

FMIS Proof of concept

FMIS hardware and equipment

Payment System - Treasury Single Account in Central Bank

Public Expenditure Tracking Surveys (PETS)

IMF TA in data compilation and reporting systems, including in

fiscal area.

4. Central Bank IMF

AfDB

UNDP-SIDP

Organizational structure, monetary policies

Financial Institutions Bill, National Payment System; licensing

and supervision of financial institutions; capacity development,;

research and statistic, compilation of macroeconomic and

monitoring indicators and balance of payments

5. Procurement UNDP-SIDP World Bank will do the legal framework only

6. External scrutiny and

audit, non-state actors

UNDP-SIDP

USAID

Parliamentary strengthening

DFID and EC support the UN on Parliament work

7. PFM Staff Capacity

Development (PFM-

SCD)

World Bank-DFID

UNDP-SIDP

PFM Academy within a university

8. Legal framework AfDB Continuation of previous support by HESPI

9. PFM reform

coordination,

Monitoring and

Evaluation

World Bank-DFID

Norway SFF

Chair of PFM-DG

PFM Technical Assistants in Subject Matter Expert roles

Strategic communication, public outreach

10. Civil Service UNDP-SIDP

USAID

HR policies, functional reviews, training needs assessment, pay

and grade, employee verifications (biometric), Anti-corruption

11. Sub-national PFM UN-JPLG Policy analysis, economic planning and budget preparation

(development of decentralization policy roadmap with special

focus on fiscal decentralization); budget execution, accounting

reporting, and financial Management Information; developing

and providing capacity development in public procurement at the

district level to be coordinated with Nation procurement system;

and local revenue generation

11

Funded by EC and Sweden

22

3.4 Meanwhile, the Bank’s technical assistance in partnership with DFID has supported the

government to register the following ‘quick-wins’.

Public disclosure of the 2013 approved budget12

to further signal the new government’s strong commitment towards transparency for the use of

public funds, the 2012 annual financial including receipts and payments controlled by external

third parties was published13 and the audit report14 prepared by the Office of Auditor through

technical assistance from Ernst & Young (an independent firm of auditors) was submitted to

Parliament by the Minister of Finance on June 28, 2013

double entry accounting has been introduced through an interim financial management

information system (FMIS) with an expanded chart of accounts, embedded budget controls,

Treasury Single Account to improve cash management, and audit trails. The FMIS will improve

the timeliness of information for decision-making and increase transparency through timely

publication of fiscal

an External Assistance Fiduciary Section is being established to allow for increased use of

country systems in line with the New Deal principles.

an Audit Bill is being developed to strengthen the independence

of the Office of Auditor General.

recruitment of professionally qualified Accountant General and Auditor General is on-going

providing technical assistance for (i) hands-on support to the Parliamentary Finance Committee

for conducting public hearing on the 2012 audit report and preparation of a procedures manual to

do this on a consistent basis; and (ii) organizational structure and job description Accountant

General's Department including scheme of service and establishment of the External Affairs

Fiduciary Section and development of operations manual and training. UNDP will be supporting

the long-term reforms for external oversight.

12

http://mofep.gov.so/wp-content/uploads/2013/04/Buget-Figures-2013.pdf 13

http://mofep.gov.so/the-federal-government-of-somalia-financial-statements-for-the-year-ended-31-december-2012/ 14

Disclaimer opinion - because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraphs in the audit report,

the Auditor General was not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. A Management Letter was issued to address control weaknesses.

http://mofep.gov.so/wp-content/uploads/2013/04/Buget-Figures-2013.pdf

http://mofep.gov.so/the-federal-government-of-somalia-financial-statements-for-the-year-ended-31-december-2012/

23

B. Project Financing

Instrument 3.5 So far Bank budget

15 has covered the PFM dialogue and facilitation of the PFM reform strategy

formulation for the Federal Republic of Somalia and also for the Somaliland region. The project will be

financed by the State and Peace Building Fund (SPF) Grant equivalent to US$4.5 million..

C. Project Cost and Financing

3.6 The table below sets out the expenditure categories and percentages to be financed out of the grant

proceeds of $4.5.

Table 3-2: Summary project cost

Project Components

Amount of the

Grant Allocated

(USD)

Percentage of

Expenditure to be

Financed

(inclusive of Taxes)

Component 1: Public Financial Management Reform Oversight

Goods, works and consultants’ services

Component 2: Somalia Financial Management Information

System (SFMIS)


Component 3: Expenditure Control, Procurement, Accounting

and Reporting (ECPAR)


3,450,000

540,000

510,000

100%

100%

100%

Total Project Costs

Total Financing Required

SPF

4.500,000

4,500,000

4,500,000

100%

D. Lessons Learned and Reflected in the Project Design

World Development Report 2011

3.7 The principles for “reforming internal agency systems to support rapid action to restore confidence

and long-term institution building”16

are adopted in the design of this operation. Considering the

prevailing reality of the absence of security, institutional capacity, and fully competitive markets;

individual consultants with proven track record in working effectively in fragile states will be directly

shortlisted and evaluated for deployment as Technical Assistants to work closely with government

officials. Diaspora Somalis will be encouraged to join the government reform implementation team to

mitigate against the brain drain of local skills overseas. A clear exit strategy will be developed to ensure a

smooth transfer of skills over the medium-term. Firms will be identified as independent financial

monitoring agents to provide additional assurance that project funds are used for the intended purpose. A

joint reform oversight mechanism including broad government stakeholders and development partners

has been established to encourage mutual accountability and will be by tracking funding of the reforms

through government reporting and accountability systems and using a common set of performance

indicators.

15 TA-P130665-TAS-BB - $150,000 bank budget 16

WDR 2011:277

24

PFM reforms in Fragile and Conflict-Affected States (FCS)17

3.8 With due consideration for the Somalia specific situation the implications and recommendations that

emerged from the study by Overseas Development Institute and Centre for Aid and Public Expenditure

sponsored by the Bank on PFM reforms in Fragile and Conflict-Affected States (FCS) in eight countries18

were applied in the design of this projects as shown in the table below.

Table 3-1: Lessons learnt from PFM reforms in Fragile and Conflict-Affected States

Implications and recommendations Related SPF design features i. Consider country context (and existing incentives

for local stakeholders) systematically in deciding if

and how to intervene on strengthening PFM

systems.

The political class and civil servants are desirous of

embarking on PFM reforms which is a top priority in the

President’s six pillar policy.

ii. Development partners have an opportunity to use

aid allocations and aid modalities in ways that

incentivize sustained PFM improvements and can

also make a fundamental contribution to reducing

fragmentation of public finances.

The Special Financing Facility (FCC) funded by Norway

and the Somaliland Development Fund (SDF) funded by

DFID and DANIDA both provide opportunities to

incentivize PFM reforms. Other sector specific aid could

also be released by tranches linked to progress in PFM

reforms. iii. Developing clear reform plans based on emerging

analysis and the periodic updating of such plans will

help ensure that approaches to PFM reforms and the

provision of support are strategic and focused.

Both South-Central and Somaliland embarked on a PFM

self-assessment and developed a country-owned PFM

reform strategy and action that underpins this project. In

South-Central, the Council of Ministers deliberated on and

endorsed the PFM reform action plan on May 2nd

, 201319

;

the plan was also submitted to the Parliamentary Financial

Treasury Committee of the Parliament for their attention. iv. There are distinct reform challenges and

opportunities across the three key phases of the

budget cycle (budget planning, execution, and

accountability).

The project activities respond distinctively to the specific

challenges identified in the budget cycle during the self-

assessments. The stakeholder analysis also identifies the

major entry points and the change path. v. Legal and institutional reforms are an integral part

of strengthening PFM systems in post-conflict

environments, but there is less of a need to front-

load these reforms than has been suggested by

previous analysis.

Somaliland and South Central have PFM Bills in place and

this project will assist in securing their enactment. In the

interim assistance will be provided in issuing Ministerial

Orders or Treasury Circulars.

vi. Strengthening capacity development requires a

phased and layered approach that includes

addressing capacity constraints in the short term as

well as pursuing longer-term improvements.

The reform action plan follows a platform approach with

specific objectives of each phase in an incremental

manner. ‘Quick-wins’ are identified to be implemented to

demonstrate the benefits of the reforms. The PFM

Education and Training Component are deliberately

included to address the human resource capability issues. vii. Development partners and governments should

consider monitoring tools that complement PEFA

reports to provide a stronger focus on results chains

and on the impact of strengthened PFM systems on

service delivery and state building.

PEFA is planned as part of the mid-term review of the

action plans. The ‘New Deal’ Peace-building and State-

building Goals (PSGs) particularly goal 5 are aligned with

the overall government recovery agenda. Criteria for debt

relief will also be aligned with the PFM reform indicators.

17 http://www-

wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2012/06/15/000356161_20120615033527/Rendered/PDF/699

640WP0P1206070023B0PFM0Web0Final.pdf 18 The eight countries are Sierra Leone, Liberia, Afghanistan, Cambodia, Democratic Republic of Congo, Kosovo, Tajikistan and

West Bank and Gaza. The lessons learnt have also been included in a Synthesis Report on PFM Reforms in Post Conflict States

authored by Verena Fritz. 19 http://www.midnimo.com/2013/05/02/somali-government-adopts-new-public-finance-management-policy/

http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2012/06/15/000356161_20120615033527/Rendered/PDF/699640WP0P1206070023B0PFM0Web0Final.pdf



http://www.midnimo.com/2013/05/02/somali-government-adopts-new-public-finance-management-policy/

25

viii. A more structured inclusion of sectors and

subnational levels—going beyond a focus on

ministries of finance—should be emphasized to

ensure impact of efforts at strengthening PFM

systems.

Work undertaken by UN-JPLG is part of the

comprehensive reform program. Considering the generally

weak PFM capacity, the approach adopted is to first

strengthen the centre through central operations especially

at Villa Somalia in Mogadishu before decentralizing

operations to line ministries. ix. As emphasized in the 2011 WDR, institutional

transformations require a time horizon of at least 20

years, underlining the long-term support needed for

achieving and consolidating strengthened PFM

systems.

A sequenced approach is adopted for the reforms.

Considering the political environment, the first phase

(2013-2016) is synchronized with the life of the current

government before elections are due. A comprehensive

review of the PFM reform efforts will be undertaken to

develop the next generation of reforms. x. The reasons for the lack of a clearer link between

the level and pace of PFM improvements and

service delivery improvements need to be better

understood to enable more targeted engagement.

Improvements in budget classification as part of the

‘quick-wins’ of the project will provide basis for strategic

allocation of resources for service delivery. Publication of

disaggregated financial statements by projects and regions

will also allow citizens to provide feedback on service

delivery and improve transparency and accountability.

Rebuilding Fiscal Institutions in Post-conflict Countries20

3.9 The preferred strategy for rebuilding fiscal institutions in the wake of conflict as highlighted by the

International Monetary Fund (IMF) was considered in designing the overall DP support by incorporating

the recommended three basic steps: (i) creating a proper legal and regulatory framework for fiscal policy;

(ii) establishing a central fiscal authority and a mechanism for coordinating foreign assistance; and (iii)

implementing priority changes in revenue and expenditure policies, along with simple arrangements in

revenue administration and public expenditure management that effectively leverage scarce human

resources.

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

4.1 The project will be Recipient-executed (RE) to ensure ownership and sustainability. Under the

existing exceptional circumstances of acute institutional capacity constraints, the State and Peace

Building Fund will catalyse the PFM strengthening efforts over the implementation period whilst a

longer-term Multi-Donor Trust Fund is being developed. Using the flexibility in preparation and

implementation provided by the new OP 10.0021

, the team, in close consultations with fiduciary and

safeguards colleagues, is taking advantage of the flexibility provided to fragile and capacity-constrained

countries like Somalia. This provides the opportunity to conduct more efficient and better-quality

preparation by deferring fiduciary, environmental, and social safeguards to the first year of

implementation of the Project.

4.2 The PFM Reform Oversight Committee (ROC) chaired by the Prime Minister represents at

managerial level the key stakeholders. The ROC has authority because they are the decision makers and

responsible for the commitment of human and financial resources needed to implement the strategy

20

International Monetary Fund Washington DC 2005:8 21

The fiduciary and environmental and social requirements set out in OP/BP 4.01, OP/BP 4.10, OP/BP 4.11, OP/BP 4.12, BP

10.00, and OP/BP 11.00 that are applicable during the Project preparation phase may be deferred to the Project implementation

phase.

http://intranet.worldbank.org/WBSITE/INTRANET/OPSMANUAL/0,,contentMDK:20064724~menuPK:51457355~pagePK:51457169~piPK:51457175~theSitePK:210385~isCURL:Y,00.html












26

successfully. The ROC will report to the Office of the President that sets the political tone for the broad

governance reform agenda and manage any resistance to the reforms.

4.3 The Technical Steering Committee (TSC) members comprising of Heads of the various PFM

institutions and line ministries representing key front-line service delivery will be accountable for the

success of projects to implement the reform strategy. The TSC will be responsible for providing technical

guidance for meeting the reform objectives and ensuring cohesion and coordination of the various

components by reviewing and endorsing annual work plans and budgets.

4.4 A Public Financial Management Reform Coordinating Unit (PFMRCU) in the Ministry of Finance

and Planning will anchor the reform and capacity building efforts. A Government PFM Reform

Coordinator will be responsible for day-to-day coordination of the reform activities and serve as the key

interlocutor for the Component Implementation Teams (CIT) and ensuring proper sequencing of activities

expected to be funded by various donors. The CITs will be led by the functional heads responsible for the

PFM subject matter with sub-groups of inter-departmental members formed to deal with specific issues.

This will ensure broad understanding, consensus and ownership during implementation. This approach

puts the core government functionaries at the centre of the implementation to engender skills transfer and

sustainability.

4.5 The Bank project team is multi-disciplinary to ensure successful implementation and monitoring of

this project. The team will be led by a Task Team Leader (TTL) with hands-on experience of leading

similar PFM reforms as a Government PFM practitioner and also in designing and supporting similar

reforms in fragile-state environment. The Fragile and Conflict States Hub has created an FCS

Implementation Support Team (IST) with a mandate to gather and disseminate best practices in response

to the unique implementation challenges in FCS and bring those lessons “straight to the doorstep” of task

teams.

B. Results Monitoring and Evaluation

4.6 The PDO level indicators are kept to a reasonable number for which the expected outputs are

directly arise from the component activities. The intermediate outcome indicators and other

targets/outputs collectively contribute to the PDO.

4.7 Monitoring and evaluation of the project will occur at two levels: (i) The PFM Reform

Oversight Committee will carry out the monitoring and evaluation at the policy level by relying on

reports from the PFM Reform Coordinating Unit. Component Implementation Team members will

be involved in compilation of progress reports complemented by the additional data and surveys

obtained from the PETS. The annual PFM forum will also provide an opportunity to obtain citizens’

perception of PFM performance; and (ii) the Bank will also monitor the project through its

supervision and implementation support missions. Reliance will also be placed on the independent

fiduciary agents.

C. Sustainability

4.8 The project design provides reasonable assurances regarding the sustainability of the activities

supported and outcomes expected. The project components are based on formal request from the

authorities as part of the key priorities in the Government-owned PFM reform strategy. The high

degree of ownership of the reform package at the technical and managerial level and the

determination form the political leadership are indications for successful and sustained

implementation of the reform agenda.

27

4.9 Capacity substitution is avoided as far as possible with alternative arrangements of capacity

supplementation through subject matter experts who will be providing technical assistance with

rigorous hand-holding for skills transfer. The design of the training program demonstrates good

practice principles to ensure sustainability by putting in place a mechanism to gradually build

internal capacity to take over functional responsibility from expatriate consultants.

4.10 PFM in Somalia is receiving high visibility by the internal community as demonstrated by the

May 7 London Conference22 where various development partners pledged their support to the

government reform agenda. Also, as part of the ‘New Deal’ 'focus' in engaging in fragile states, the

Government-owned PFM reform strategy provides "One vision-one plan" to form a compact that will

be used in ensuring harmonization and donor coordination, reducing duplication, fragmentation and

programme proliferation. Furthermore, the PFM dialogue will be sustained as part of the debt

relief/arrears clearance. The nascent Civil Society and vibrant new Parliament also provide an

opportunity for continuous state-society engagement.

Box 4-1: Excerpt from May 7 London Conference Communique

The Federal Government set out its determination to tackle corruption, and fund public services. We welcomed the

Government’s three-year plan to establish transparent and effective public financial management systems. We

encouraged the Federal Government to establish more robust controls through the Ministry of Finance’s operations

including public reporting of budgets, expenditure and audits. We committed to coordinate assistance using the

structure set out by the Government and work towards establishing a basket fund. We welcomed the Federal

Government’s intention to begin preparations to join the Extractive Industries Transparency Initiative.

In line with the outcomes of the G8 Foreign Ministers’ meeting, we welcomed the re-engagement of the

International Financial Institutions (the World Bank, the African Development Bank, and the International Monetary

Fund), including IMF recognition of the Federal Government and progress made at the Spring Meetings.

The Federal Government appealed to its international partners to rationalise funding for Somali national plans. The

Federal Government asked partners to channel funding through the Special Financing Facility, the UNDP Rule of

Law Fund, and the Stability Fund wherever possible, while also expressing its appreciation for bilateral support

aligned behind its plans. Further work should be done on joint funding mechanisms for the New Deal in advance of

the Brussels Conference. We welcomed the evolution of the Stability Fund to ensure cooperation between the

Federal Government and local administrations in support of mutually agreed priorities. We looked forward to

development of a longer term sustainable financing architecture for Somalia including a World Bank Multi-Donor

Trust Fund which will be a vital element of financing the New Deal Compact and important on the path to

normalisation of Somalia’s financial relationship with the International Financial Institutions.

The Conference agreed that Somalia had made significant progress. We congratulated all who had made that

possible, notably the Somali people, Federal Government, Members of Parliament, civil society and diaspora. We

commended the sustained commitment of Somalia’s international partners, and urged continued support. We

recognised the need to consolidate progress quickly and reiterated our determination to support Somalia over the

long-term.

V. KEY RISKS AND MITIGATION MEASURES

5.1 Considering the current institutional capacity challenges, some degree of failure is expected but

this will be mitigated by the phased incremental approach that allows adaptation during

implementation. The lack of perfectly competitive markets is exacerbated by practice of trying to

22

The Somalia Conference took place at Lancaster House on 7 May 2013, co-hosted by the UK and Somalia, and attended by

fifty-five friends and partners of Somalia.

28

ensure clan23 balance in allocation of resources. These risks will be mitigated by independent

fiduciary agents to give additional reasonable assurance that the project funds are used for the

intended purposes.

A. Risk Ratings Summary Table Risk Rating

Stakeholder Risk High

Implementing Agency Risk

- Capacity High

- Governance High

Project Risk

- Design Substantial

- Social and Environmental High

- Program and Donor Substantial

- Delivery Monitoring and Sustainability High

- (Other risks) - security High

Overall Implementation Risk High

B. Overall Risk Rating Explanation

5.2 The overall risk rating for the project is high. The government is unfamiliar with the World

Bank fiduciary requirements and has weak capacity to manage projects. The history of bad

governance and corruption risks are high but the new government has so far expressed desire that

going forward it will not be “business as usual”. Attempts to strengthen and use country systems

rather than bypass will be more developmental. The international community is also committed to

seize this new window of opportunity to support the reforms in a coordinated manner behind ‘one

vision-one plan”. Therefore, despite the constraints on implementation and supervision as a result of

security risks, the risks of action with supplemented independent monitoring and the mitigation

measures outweigh the risks of inaction.

VI. APPRAISAL SUMMARY

A. Economic and Financial Analysis

6.1 Over the medium to long term, strengthening of the public financial management system will

lead to efficiency and effectiveness in government operations. This will provide more fiscal space to

direct scarce resources more strategically. Openness in budget information will also provide signals

to the private sector to plan better for supplying goods and services for public service delivery.

Improved transparency in the use of public finance will increase public confidence and willingness to

pay taxes in return for public services.

23

TFG tried to give fair representation to each of Somalia’s clans through the so-called “4.5 formula”. The four major clans—

Darood, Hawiye, Dir, and Digil-Mirifle—all received sixty-one parliament seats, while the remaining groups together received

thirty-one seats. For the new Parliament, lawmakers were chosen by a group of 135 traditional elders ratified by a "technical

selection committee".

29

6.2 Although security has improved since the new Government came into office, recent suicide

bombings in Mogadishu, some close to Villa Somalia targeting Government officials, will discourage

good consultants to accept assignments unless at premium rates. Security costs will significantly

increase the overall cost of administering the project.

B. Technical

6.3 Past “reform failures” needs scrutiny; if the development process is one of experiment, then

“failures” can, with an appropriate learning mechanism, contribute to knowledge and influence the

path taken in search of further improvement24. Therefore, the speed of the reforms is incremental and

thinking ‘out of the box’ with flexibility of ‘learning-by-dong’ with appropriate controls25. The

project concept and the design is based on tested and successful models drawn from similar fragile

states circumstances but contextualized from the findings of the PFM self-assessment and responsive

to the reform strategy.

6.4 The proposed PFM Education and Training program is grounded on what worked in the past but

with additional built in sustainability arrangement for the qualification to be part of the civil service

scheme of service for the PFM job family to create a cohort of competent PFM professionals with a

polyvalence of skills to perform a broad range of PFM tasks.

C. Financial Management

6.5 The financial management risk is rated as high. This is confirmed in the JNA-RDP and the

PFM Needs Assessment which recognizes that systems that manage public resources are very weak.

While recognizing this, the Bank would work closely with the government to support the use of

country systems without creating parallel arrangements and hence live up to the ‘New Deal’

promises of using and strengthening country systems and capacities to allow for greater levels of

funding that are jointly administered and which flow through pooled facilities. Individual FM

consultant(s) would provide direct support within the EAFS government structure with clear TOR on

capacity building and transfer of knowledge to local staff. The EAFS would also include national

staff in the Office of the Accountant General with responsibilities for accounting for Donor funds.

6.6 Accounting and reporting on the project will be done using an excel spreadsheet until the

government Beskope financial management information system which is being installed is fully

operational. The system is expected to be able to account for and generate the necessary reports for

project purposes. The draft fiduciary procedures manual26 for external assistance will be updated and

finalized during the first three months of project effectiveness.

6.7 As part of the capacity strengthening of the Office of Auditor General, and in line with the use

of country systems, the Auditor General would have the responsibility for carrying out the audit of

the project. However, due to the current capacity constraint, an external audit firm acceptable to the

Bank will be selected to work jointly with the staff of the Office of the Auditor General in carrying

out the audit of the project financial statements as well as necessary capacity and institutional

24 Edward Olowo-Okere and Cyril Tomkins (1998:327), “Understanding the evolution of government financial control systems”, Accounting,

Auditing & Accountability Journal, Vol. 11 No. 3, 1998, pp. 309-331 25 Dean attributed many of the failed financial control reforms in developing countries to the failure to identify clearly what control system features were appropriate to the country’s stage of development. He calls such a lack of match an “anachronism” - Dean, P.N. (1988),

“Government financial management systems in developing countries”, in Chan, J.L. and Jones, R.H. (Eds), Government Accounting and

Auditing: International Comparisons, Routledge, London, pp. 149-74. 26 Guided by http://intresources.worldbank.org/INTOPCS/Resources/380831-1228944816870/Small_TF-FM_Guidelines1.pdf

http://intresources.worldbank.org/INTOPCS/Resources/380831-1228944816870/Small_TF-FM_Guidelines1.pdf

30

building. In line with OP 10.00, a more detailed assessment of the FM systems will be carried out

during project implementation and arrangements updated to reflect the emerging systems.

D. Procurement

6.8 For the recipient executed activities, the PFMRCU will apply the Bank's Guidelines as follows:

Guidelines for Procurement of Goods Works and non-consulting services under IBRD Loans and

IDA Credits and Grants by World Band Bank Borrowers January 2011; and (ii) Guidelines for

Selection and Employment of Consultants IBRD Loans and IDA Credits and Grants by World Band

Bank Borrowers January 2011. Bank executed activities will be subject to AMS 15.01 of November

2011. The bidding and contract documents used will be those acceptable to the Bank.

E. Environmental (including Safeguards)

6.9 The project will be carried out with Somali counterpart institutions in the Capital Mogadishu.

The only physical activities that are foreseen are the procurement of electronic hardware (computer

terminals, serves) and small scale, indoor works to refurbish and retrofit office space and server

rooms to accommodate the hardware. This project does not warrant a separate dialogue on

safeguards, as the anticipated impacts are negligible. However, to sensitize the counterpart towards

good practice, and create an example for subsequent projects with potentially more significant

impacts, a short, checklist type Environmental Management Plan will be supplied during the

implementation phase with tender and contract documents to provide guidance, and establish

contractual leverage on good housekeeping, waste management, and workplace and community

health and safety.

6.10 The counterpart’s capacity in planning, implementing and supervising any due diligence

measures (environmental, technical, overall quality) is currently deemed very low, and the team sees

this project without any formal requirements and no actual issues as a good platform to familiarize

Somali agencies with basic quality management practice.

6.11 The project will not be implemented in an area that is disputed between two or more Bank

members. Somaliland and Puntland are territories of a member country, i.e, Somalia since 1962. For

purposes of OP 7.60, no third State has recognized the independence of Somaliland and the Bank has

no position on this.

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment (OP/BP/GP 4.01) [X] []

Natural Habitats (OP/BP 4.04) [] [X]

Pest Management (OP 4.09) [] [X]

Forests (OP/BP 4.36) [] [X]

Cultural Property (OPN 11.03, being revised as OP 4.11) [] [X]

Involuntary Resettlement (OP/BP 4.12) [] [X]

Indigenous Peoples (OD 4.20, being revised as OP 4.10) [] [X]

Safety of Dams (OP/BP 4.37) [] [X]

International Waterways (OP/BP/GP 7.60) [] [X]

Projects in Disputed Areas (OP/BP/GP 7.60) [] [X]

http://www.worldbank.org/environmentalassessment

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/9367A2A9D9DAEED38525672C007D0972?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/C4241D657823FD818525672C007D096E?OpenDocument

http://lnweb18.worldbank.org/ESSD/envext.nsf/47ByDocName/EnvironmentalAssessment

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/71432937FA0B753F8525672C007D07AA?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/62B0042EF3FBA64D8525672C007D0773?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/665DA6CA847982168525672C007D07A3?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/71432937FA0B753F8525672C007D07AA?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/62B0042EF3FBA64D8525672C007D0773?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/tocall/55FA484A98BC2E68852567CC005BCBDB?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/bytype/AA37778A8BCF64A585256B1800645AC5?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/bytype/383197ED73D421A385256B180072D46D?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/bytype/0F7D6F3F04DD70398525672C007D08ED?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/C12766B6C9D109548525672C007D07B9?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/D3448207C94C92628525672C007D0733?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/5F511C57E7F3A3DD8525672C007D07A2?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/47D35C1186367F338525672C007D07AE?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/GPraw/CC209CF484469D2C8525672C007D07EE?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/OPolw/72CC6840FC533D508525672C007D076B?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/BProw/5DB8B30312AD33108525672C007D0788?OpenDocument

http://wbln0011.worldbank.org/Institutional/Manuals/OpManual.nsf/GPraw/C6B0F62BE7A10B338525672C007D078B?OpenDocument

31

F. Social

6.12 The project is expected to have positive social impacts through improved public confidence in

Government in the management of public funds in a transparent and accountable manner. However,

in attempting to tackle malfeasance in the Somalia context, stakeholders need to be mindful of

ingrained socio-cultural norms and the ‘contiguity effect’ of personal relationships at the local level

which affects arm’s length transactions with public interest often put in the back seat. Similarly, the

‘theory-practice congruity gap’ suggests that expectations should be well managed because financial

resources (including conditionality) and legal structures, though necessary, are not sufficient;

“supportive social and political context” with strong leadership that provides space for citizen

participation to demand accountability are critical. Complementary reforms in the judicial sector, rule

of law and wider public sector reforms will be required.

Milestones

6.13 Milestones for processing are provided in the table below.

Milestones Planned Actual

AIS Sign-off 05/24/2013 05/24/2013

Concept Review 05/31/2013 04/17/2013

First Grant Funding Request Approval 11/29/2013 12/04/2013

Grant Agreement Signing 12/10/2013 12/12/2013

Effectiveness 12/31/2013 01/17/2014

32

Annex 1: Results Framework and Monitoring

COUNTRY: Somalia Public Financial Management Capacity Strengthening Project

The Project Development Objective (PDO) is “to establish systems for more transparent and accountable management and use of public funds in Somalia”.

PDO Level Results

Indicators Co

re

Unit of

Measure

Baseline

(2013)

Cumulative Target Values

Frequency

Data

Source/

Methodolog

y

Responsibility

for Data

Collection

Description

(indicator

definition

etc.) 2014 2015 2016

Indicator One Time taken to publish Annual

Financial Statements

Number

(months)

More than 12

months and

not published

4 3 3 Annually PEFA PI :25 Acct Gen’s

Dept

Transparency

to public

Indicator Two

% decrease in difference

between budgeted and actual

aggregate expenditure

%

70% (2012 Annual

Financial

Statement)

25 15 10 Annually PEFA PI :1 Acct Gen’s

Dept

Aggregate

fiscal

discipline

INTERMEDIATE RESULTS

Intermediate Result (Component One): Component 1: Public Financial Management Reform Oversight (PFMRO)

Increased capacity for a structured approach to PFM institutional capacity strengthening.

Intermediate Result indicator

One

Annual Work Plan on track

% NA 25% 50% 90 % Annually PFM

progress

reports

prepared by

PFM

Reform

Coordinatin

g Unit

PFM Reform

Oversight

Committee

PFM reform

implementatio

n progress


two

Comprehensive Operating

Procedures Manual (COPM)

Number Inadequate

guidelines on

PFM business

processes

Ministerial

Orders /

Treasury

Circulars

issued

Financial

Instructions

Comprehensive

Operating

Procedures

Manual

(COPM)

Annually Ministerial

Orders /

Treasury

Circulars

MoFP Clarity of

business

processes

Intermediate Results indicator

three

Number of PFM accredited

Number

(persons)

Paucity of

professional

PFM

10

Certificate

stage

20

Diploma

stage

50

Professional

stage

Annually PFM

Academy

PFM Academy PFM

competence.

Targets to be

33

staff practitioners split between

the

participating

universities

from the

regions

Intermediate Result (Component Two): Somalia Financial Management Information System (SFMIS)

Improved the technical capacity to handle PFM processes in an efficient manner.


One

Timeliness of bank

reconciliation

Number

Days

Bank

reconciliation

not done

30 15 7 Annually Monthly

bank

reconciliatio

n reports

Accountant

General’s

Dept.

Completeness

and accuracy


Two

Multi-dimensional chart of

accounts produced and used

for planning, budget

execution, accounting and

reporting

-

Organization

and economic

segments only

Fund segment

introduced and

economic and

administrative

segments

expanded

Geographic

segmented

implemented

Function

(program)

segment

implemented

Annually Approved

budget and

financial

statements

CoA manual

Classificatio

n of the

budget

(PEFA PI:5)

MoFP Comprehensiv

eness

IMF-GFMS

2001

compliant


Three

% value of central government

budget executed through

SFMIS

%

Manual book-

keeping prone

to errors and

lack of audit

trails

50% 75% 100% Annually GL reports Accountant

General’s

Dept.

Level of actual

use compared

to installed

modules

Intermediate Result (Component Three): Expenditure Control, Procurement, Accounting and Reporting (ECPAR)

Strengthen controls for fiscal discipline, transparency and accountability.


One

Treasury Single Account

(TSA)

Days Multiple bank

accounts not

consolidated

Monthly Weekly Daily Annually Report on

consolidated

cash balances

in all

government

bank accounts

PEFA PI:17

(ii)

Accountant

General’s

Dept

Improved cash

management

and

expenditure

control


Two

-

Low public

access to

Government

website

Publication of

procurement

Simplified

procurement

Annually Transparency,

competition

MoFP

(Tender

Public

confidence in

34

Transparency,

comprehensiveness and

competition in the legal and

regulatory framework

complete,

reliable and

timely

procurement

opportunities

and award

information

upgraded to

post

procurement

opportunities

and awards

opportunities

and awards in

widely

circulated

local

newspapers

and on

government

website

processed

adopted

and complaints

mechanisms in

procurement

(PEFA PI:19)

Board) transparency

of

procurement

processes and

systems


Three

Time taken to publish

quarterly unaudited reports

Number

(days)

In-year budget

performance

reports not

published

30 20 7

Quarterly Quality and

timeliness of

in-year budget

reports

(PEFA PI:24)

government

gazette and

website

Accountant

General’s

Dept.

Information

for desicin

making to

‘bring-in’ the

budget. Open

Budget

Initiative

(OBI)

principles

35

Annex 2: Detailed Project Description

COUNTRY: Somalia Public Financial Management Capacity Strengthening Project 1. Detailed project work packages will be developed by the Component Implementation Teams

for the various activities.

Component 1: Public Financial Management Reform Oversight (US$3,450,000)

The objective of this component is to provide a mechanism for a structured approach to PFM institutional

capacity strengthening.

Sub-component 1.1 Public Financial Management Reform Coordinating Unit (PFMRCU)

(US$1,291,000)

2. PFM reforms deliver results when three conditions coincide: when there is a strong political

commitment to their implementation; when reform designs and implementation models are well

tailored to the institutional and capacity context; and when strong coordination arrangements – led by

government officials – are in place to monitor and guide reforms27. A Public Financial Management

Reform Coordinating Unit (PFMRCU) in the Ministry of Finance and Planning will anchor the

reform and capacity building efforts. A Government PFM Reform Coordinator who will be trained

on Project Management28 will be responsible for day-to-day coordination of the reform activities and

serve as the key interlocutor for the Component Implementation Teams (CIT) and ensuring proper

sequencing of activities expected to be funded by various donors. Consistent with the ‘New Deal’

TRUST principles, this structure will substantially reduce program implementation units per

institution and will coordinate the use of external technical assistance, ensuring that they report

through the relevant national authorities.

3. With the depletion of PFM capacity over the past two decades; PFM Subject Matter Experts

(SMEs) will provide technical assistance29 services with a clear capacity building and exit strategy

with skills transfer arrangements (hand-holding approach) by embedding the arrangements within

government structures for the SMEs to work closely with the CITs that will be led by Heads of the

key PFM institutions. An adaptive leadership approach with a suitable change management path

based on the Somalia context will help in distinguishing technical problems from the political

economy of such institutional reforms. Annual public PFM Forums will be organized as part of the

Information Education and Communication (IEC) strategy to solicit a change of mind set and garner

support for the PFM reforms to be transformative.

4. As noted in the self-assessment report, the extant PFM legal framework is outdated and can

no longer support the envisaged modernization of PFM practices. Whilst the main PFM legal

framework is being updated (supported by AfDB), in the interim, Ministerial Orders / Treasury

Circulars will be issued to start strengthening controls and improving transparency and

accountability.

27 Lawson, A. (2012) ‘Evaluation of Public Financial Management Reform, Burkina Faso, Ghana, Malawi 2001-2010, final synthesis report’

SIDA, Danida and AfDB. 28 Project Management Body of Knowledge (PMBoK): e.g. PRojects IN Controlled Environments (PRINCE2) is a project management

method accredited by APMG-International (http://www.apmg-international.com/home/Home.asp) and covers the management, control and

organisation of a project. Project Management Professional (PMP) is a credential offered by the Project Management Institute (PMI). 29 Similar to the Transfer of Knowledge Through Expatriate Nationals Project (TOKTEN) diaspora scheme in Liberia

http://en.wikipedia.org/wiki/Project_management

http://en.wikipedia.org/wiki/Method

http://www.apmg-international.com/home/Home.asp

http://en.wikipedia.org/wiki/Project_Management_Institute

36

5. The Institutional Support for Economic and Financial Governance Project (EFGP) supported

by AfDB ($3.8m indicative budget for January 2014 - January 2016) will be providing technical

assistance to strengthen the PFMRCU. The project has three mutually reinforcing components

including: (i) enhancing policy, planning and economic analysis; (ii) strengthening of the budget

process; and (iii) PFM capacity building. Component (iii) will support the other two components and

will also include a training module on procurement, TA to enhance project management and the

provision of office equipment and ICT.

Public Financial Management diagnostics

6. To complement the PFM self-assessment, certain PFM sub-sectors will benefit from in-depth

analysis in order to prepare specific strategic improvement plans (e.g. the Central Bank, Ports

Authority and Office of Auditor General). As the reforms progress and in anticipation of spending on

social services, Public Expenditure Tracking Surveys (PETS) could be undertaken. Advocacy

networks for Campaign for Good Governance (CGG) comprising of relevant non-sate actors are

critical elements of the integrity pillar and will be engaged for undertaking independent policy and

budget analysis, revenue watch and expenditure tracking. The results of the PETS will form part of

the annual PFM forum.

7. In collaboration with other DPs outreach events will help in bridging the gap between the

technical reforms and the realities for service delivery – tools such as the ‘Afrobarometer’ could be

customized and applied to form part of the information used to judge public perceptions about PFM

performance.

Implementation

8. This sub-component will be implemented by the Ministry of Finance and Planning and will

fund the professional fees (rate harmonized with SFF pay scales) for the PFM Reform Coordinator

and the SFMIS subject matter expert, the IEC campaigns and the operating costs of the oversight,

coordination and implementation arrangements, PFM diagnostic work, training, study tour, exchange

visits, annual PFM Forum, Fiduciary Monitoring Agent and logistics/security agency. The overall

PFM training will be coordinated by this sub-component.

Expected results

9. The reform oversight and implementation structure will provide policy directions for

strengthening the PFM systems and take periodic stock of progress by ensuring that key milestones

in the PFM reform strategy are on track and take concrete action where required. Pooling of all

support within a unified PFM reform program will enhance coordination and provide a forum for

structured dialogue with development partners. Also, the PFM diagnostics will provide a set of useful

analysis and data with recommendations that will provide policy options for Government to consider

in improving specific sectors. The PETS will open space for active citizen participation in PFM

dialogue.

Sub-component 1.2 PFM Education and Training Program (US$2,159,000)

10. Beyond availability of good laws and institutional structures, PFM improvement requires

capability at the level of individual PFM practitioners. The PFM Education and Training Program

37

will build capacity at the individual level to obtain the required capability30: knowledge, skills,

abilities and other characteristics (values, integrity etc.). To portray the right public service ethos,

change management efforts encompassing attitudinal and behavioural change will be required to

complement the main output of a cohort of technically skilled PFM practitioners to achieve the

expected outcome of improved PFM performance. The main targeted participants are planning and

budget officials, procurement officers, accountants and internal and external auditors. 11. In 2006, under a joint project by the Bank and UNDP, the International Management

Consultants Ltd. which is now WYG in collaboration with University of Fort Hare (UFH) and the

BPP Professional Education (United Kingdom), developed an online distance learning (ODL)

course31. Students had to obtain a pass mark of 50% for each of the five units to successfully

complete the course and receive certification. The course and re-sit examinations were completed in

December 2007. Results were issued in April 2008, with certificates issued in June 2008. Out of the

196 students who participated; 118 successfully graduated – this represents a 60% overall student

completion. However, it is difficult to trace these graduates within the current government structures

possibly because the course was not entirely dedicated to PFM. Other lessons learned from the

previous program include: need for more training of trainers; the website and e-learning were

valuable but constrained by problems of internet access; there was limited access to training and

reference material at most Universities.

12. Lessons learnt will be reflected in re-designing this course to make it directly PFM focused

and included in the scheme of service (including job descriptions, qualification, experience etc) for

the PFM cadre. Young graduates will be attracted to the civil service and will be enrolled in the

training program. These graduates will complement the current staff and together will be transformed

into the professional PFM cadre. The web‐based approach would be developed to be more

effective by making increased use of new internet tools, making teaching and learning materials

available electronically and including student management systems. To ensure sustainability, the

education program will be constituted as a PFM Academy within local universities that now have

capacity to deliver in-county lectures. Accreditation and issue of certificates/diploma will be a joint-

award by the participating universities and CIPFA - the mechanisms will be developed as part of this

sub-component.

13. Deciding on how to build PFM staff capacity requires an understanding of the essential

competencies required across the full range of PFM functional disciplines, including fiscal policy

analysis, budgeting, accounting, treasury & cash management, procurement and internal and external

auditing. Therefore, the PFM Education and Training Program will be geared to ensure learning to

cover the PFM Process Architecture: Elements and Components according to the Chartered Institute

of Public Finance and Accountancy (CIPFA) ‘PFM\ a whole system approach’ to public sector

financial management32. Procurement will be included as a stream at the final level with relevant

30 Learning outcomes - professional skills (e.g., intellectual, technical, non-technical, organizational, personal, interpersonal) & professional

values, ethics, and attitudes (e.g., ethical values, professional manner, commitment to high technical standards, skeptical attitude, commitment to continual improvement and life-long learning, appreciation of public interest and social responsibility) 31 The course was run at six Centres across Somalia over 10 months with two examination periods. Students also received face-to-face tutorial

support from tutors at the six Somali participating Universities: Puntland State University (Puntland); East Africa University (Puntland); University Of Hargeisa (Somaliland); Amoud University (Somaliland); Somali Institute of Management and Administration Development

SIMAD (Somalia); and Mogadishu University (Somalia)

32CIPFA) ‘PFM\ a whole system approach’ (Vol 1 p.18) - http://www.cipfa.org/Policy-and-Guidance/Reports/Whole-System-Approach-Volume-1. CIPFA is one of the professional accountancy organisations in the UK and the only major specialist in the world devoted to excellence

in public sector governance and financial management. It is responsible for the education and training of professional accountants and for their

regulation through setting and monitoring professional standards. Uniquely among the professional accountancy bodies in the UK, CIPFA has responsibility for setting accounting standards for local government, a significant part of the economy.

http://www.cipfa.org/Policy-and-Guidance/Reports/Whole-System-Approach-Volume-1

http://www.cipfa.org/Policy-and-Guidance/Reports/Whole-System-Approach-Volume-1

38

modules at the other levels by collaborating with the Chartered Institute of Purchasing and Supplies

(CIPS) and/or the International Training Centre of the International Labour Organization (ITC-

ILO33). Whilst the curriculum and learning modules will comply with internationally acceptable

standards, the design will respond to region-specific applicable legal frameworks. However, in the

interest of economy and efficiency, a common platform and quality assurance mechanism will be

implemented. Face-to-face lectures will be supplemented by mentorship and on-the-job learning; a

training technique in which technical skills and professional skills are not acquired in the classroom

but through observation of and gradual participation in practice through mentoring arrangements to

ensure attainment of the desired competencies34.

14. To allow for allow take-off of this training program, the 2006 model will be re-designed by

contracting the previous providers. Focused PFM courses will be run whilst the full program is being

developed for roll-out and accreditation. As with the former course examination papers would be set

by and taken in the participating universities in accordance with strict prescribed procedures and

quality assurance by external examiners. By learning from the previous program, it is now likely to

have course administrators in each of the regions within Somalia. 15. A structured coordination process between the Ministry of Finance and Planning, the course

providers and participating universities would be established and administration would be locally

based to facilitate efficient communication. An electronic library of reference materials would be

provided on the website supplemented by CDs for each participating university. The former website

would be further developed as a learning, course and student management system. The improved

security situation should allow for a greater element of Training of Trainers (ToT) in Somalia but the

extent to which this is feasible would need to be assessed.

Implementation

16. This component will be implemented by the Ministry of Finance and Planning in

collaboration with local participating universities and will fund development of curriculum and

production of teaching and learning materials; re-developing the online distance learning platform

including hosting and support; training of faculty; registration and examination fees to professional

bodies; management and administration of the program; and supporting the National Civil Service

Commission in formulating a scheme of service for the PFM cadre.

Expected results

17. The activities will produce a cohort of suitably qualified PFM practitioners who will

contribute to improving PFM performance. The design of the training program demonstrates good

practice principles to ensure sustainability by putting in place a mechanism to gradually build

internal capacity to take over functional responsibility from expatriate consultants.

33

http://www.itcilo.org/en - ITC-ILO in Turin–Italy is a world-class provider of procurement management training and a pioneer in

developing procurement management training curricula for the UN, World Bank, European Union and OECD -

http://masterpublicprocurement.itcilo.org/ 34 Performance outcomes - relating to practice standards (e.g., functional, managerial, and inter-personal) & behavioral standards (e.g., ethical and professional conduct, demonstrating appropriate skepticism, performance in relation to professional development)

http://www.itcilo.org/en

http://masterpublicprocurement.itcilo.org/

39

Component 2 Somalia Financial Management Information System (SFMIS) (US$540,000)

The objective of this component is to progressively improve the technical capacity to handle PFM

processes in an efficient manner.

18. Key to realizing Somalia’s development objectives is the establishment of adequate

procedural and control systems that will ensure the legality, accuracy and timelines of fiscal

information in the areas of planning, budgeting accounting, reporting and auditing. Currently there is

no comprehensive automated financial management information system in place. The SFMIS is a

computer based software that facilitates the management of financial information. It is operated from

computer terminals (to be procured) that are connected to software and databases housed on a

number of servers (to be procured). The system will be housed in the premises of MoFP where a

building/floor/wing will be rehabilitated and equipped with the required infrastructure (cables,

electricity, light, new windows) to accommodate the servers, and fitting of air conditioned, dust-free

rooms with access control.

19. Establishing fundamentals for fiscal discipline through robust mechanisms for

comprehensive revenue forecasting to promote realism of the budget and tightening controls for

revenue collection and payments will require a robust financial management information system. The

Somalia Financial Management Information System (SFMIS) will be an instrument for confidence

building by enabling transparency of public finance information but a wholesome approach including

institutional and legal reforms are required for the SFMIS to be a force multiplier in the fight against

extreme poverty. The approach will be to first embark on a proof of concept of the required secured

Information and Communication Technology (ICT) and the various basic applications before roll-out

after proper testing and training. This approach draws from the Liberia Expenditure Control and

Accounting Program (LECAP) system that provided an opportunity to gradually introduce IFMIS

and immediately allowed the government to prepare useful management reports and online posting of

revenue collection35.

20. The SFMIS envisaged is cognizant of the Somalia context and avoids the ‘big-bang’ IFMIS

implementation that is causing concerns. The conceptual model for the SFMIS architecture will be

one that establishes a ‘fit-for-purpose’ bespoke solution to support the federal government treasury

operations as a centralized processing system in the first instance and set the stage for future

implementation of a packaged Computer of the Shelf (COTS). After this learning phase and

rehabilitation of government offices and with a cohort of graduates from the PFM education and

training program, a full IFMIS implementation will be conceptualized solution to cover the full PFM

cycle with gradual modular roll-out to line ministries.

21. The Systems Development Life Cycle (SDLC) for the SFMIS will adopt the Structured

Systems Analysis and Design Methodology (SSADM) and will analyse, design, implement and

support the system using the COBIT® Framework36 throughout the IT Service Management lifecycle

by considering the people, process and information technology elements. The implications of the full

model of information systems in Public Sector Organizations37 which considers people, processes

and institutional politics will be considered right through the implementation. Change management

35http://mof.gov.lr/doc/PUBLISHED%20FISCAL%20OUTTURNS%20FOR%20QUARTER%20ONE-FY200910-FINAL.pdf

http://www.gemap-liberia.org/doc/success_stories/National%20Budget%20Process%20Reformed%20at%20the%20Ministry%20of%20Finance.pdf

36 Control Objectives for Information and related Technology (CobiT®): A Business Framework for the Governance and Management of

Enterprise IT 37 Heeks, R (2006) Implementing and Managing eGovernment – An International Text, London: Sage Publications Limited

http://mof.gov.lr/doc/PUBLISHED%20FISCAL%20OUTTURNS%20FOR%20QUARTER%20ONE-FY200910-FINAL.pdf



40

will be central to the whole implementation approach and the business process re-engineering under

component three will ensure re-orientation of the current business practices, otherwise if the PFM

actors are unable to follow the old practices that have been identified as weak or bad; the ‘system’

will be wrongly blamed.

22. Following the guidelines for the Management of IT Security published by the International

Organization for Standardization (ISO); identified risks: “the potential that a given threat will exploit

vulnerabilities of an asset or group of assets and thereby cause harm to the organization38”; will

inform the development of an information security policy for the SFMIS; detailed operating

procedures manual; and strategy and procedures for business continuity and disaster recovery plans

based on incident and impact analysis to determine the required detective, preventive and corrective

controls. Information will be protected from improper access and use through key controls:

Authentication - who am I? Authorization - what can I do? Administration – who governance and

cost of administering the controls?

23. The SFMIS will be user-friendly with executive dashboards of revenue and expenditure

performance diced in clear to understand graphics, robust and secured, and will focus on core PFM

functions of capturing the budget, treasury management, payroll processing, tax collection and

financial reporting. Interoperability with other related systems39 will be ensured. Users will be

provided with access privileges based on their respective level of authority to maintain internal

controls. This will be preceded by business process reviews and development and implementation

will be through an inter-ministerial task force that will own the Statement of User Requirements

(SOUR) including a Standard Chart of Accounts (SCoA). Training will be workplace based using

real transactions to ensure practical/hands-on use of the system by end-users.

24. A detailed needs assessment has been undertaken with the following outputs (i) Statement Of

User Requirements (SOUR) – hardware and applications; (ii) Conceptual Design covering the re-

engineered business processes with process maps with description of the processes and flow charts;

(iii) System Design Document including conceptual diagram of the SFMIS architecture with key

functional components of the proposed solution; (iv) upgraded SCoA for 2013 budget execution; (iv)

Change management and training plan; and (v) an interim bespoke SFMIS40 for Treasury

Management with user guide. The next phase which this project will support includes converting the

interim system to a web-based and MySQL database system with additional modules based on the

tentative plan below.

38 (ISO/IEC PDTR 13335-1) 39

Examples: The Development Assistance Database (DAD) is a widely used Aid Information Management System (AIMS) developed by

Synergy International Systems, Inc.; the Central Bank payment systems; Revenue management systes (ASYCUDA); Commonwealth Secretariat

Debt Recording and Management System (CS-DRMS) etc. 40

http://mofep.gov.so/sfmis-generated-summary-of-the-government-revenue-and-expenditure-as-of-june-2013/

http://mofep.gov.so/wp-content/uploads/2013/10/Budget-Utilization-Report-as-of-June-2013.pdf

http://mofep.gov.so/sfmis-generated-summary-of-the-government-revenue-and-expenditure-as-of-june-2013/

http://mofep.gov.so/wp-content/uploads/2013/10/Budget-Utilization-Report-as-of-June-2013.pdf

41

25. Except for any proprietary software that is used; the design schemas, operational and

technical documentation, and source code will be regulated by a Software Escrow Agreement to

manage the relationship (administrative, financial, material, legal, etc) between the Government and

the SFMIS developers for the post-implementation support period41. Post-implementation support

and maintenance will require development of suitable Service Level Agreements (SLA) informed by

the characteristics/classification of the various applications (critical e.g. the general ledger and

payment module; vital e.g. the reporting function; sensitive e.g. budgeting; and non-sensitive) of the

SFMIS services and the recovery time and point objectives.

26. Other Development Partners (DPs) particularly DANIDA have expressed commitment to

fund critical Information and Communication Technology (ICT) equipment (servers, desktops,

printers, routers etc) and other necessary furniture. Power supply will be a major challenge that will

require the purchase of generators with adequate operating budget for fuel and maintenance.

Implementation

27. This component will be implemented by the Ministry of Finance and Planning and will fund

the following activities to build on the interim bespoke solution: (i) design, test and deploy IT

Infrastructure and post-implementation support; (ii) SFMIS web-based applications design and

testing, configure upgraded SCOA & setup TSA; and (iii) deploy web-based SFMIS applications

with adequate training and post implementation support. The Component Implementation Team

(CIT) will comprise of members drawn from the key PFM institutions and selected end-users from

line ministries.

41

http://www.softwareescrowguide.com/ - this is similar to the arrangement for developing the Single Registry for the Kenya

Social Protection Safety Net P4R

http://www.softwareescrowguide.com/

42

SFMIS Management Team

1) Application Use and

Management

2) Application Support 3) IT/IS Support

Business End Users Application Support roles IT Support Function or Facilities

Management

Budget & Transaction data

input: Budgets, Releases,

Warrants, Commitments,

Expenditure, Revenue,

Journals etc

General ledger & bank

reconciliation

Processing of non-report

outputs (Cheques, salary PVs,

audit trails etc).

Production of pre-defined and

ad hoc reports using standard

tools.

Application System set-up and

maintenance.

Maintenance of Budget

Classification/Chart of

Accounts.

User administration.

User training.

User support & application

problem resolution.

Application Quality Control:

Internal Audit

Rollout of Application to new

users.

Data Centre Management

Database Administration

Network Administration

Security Administration

Hardware

Support/Maintenance

Wan/LAN Maintenance

Technical Application

Support- development,

interfaces, upgrades etc.

HELP DESK:

Central and in MDAs with on-line support to end-users

Configuration Librarian

Expected results

28. SFMIS will provide a system with adequate audit trails to identify administrative

accountability in processing transactions. Improved timeliness and accuracy of transaction processing

together with comprehensiveness of financial reports and the adoption of TSA will also improve

management decision making and make key fiscal data available to the public (through Open

Government Data42) to hold government accountable for the use of public funds.

Component 3 Expenditure Control, Procurement, Accounting and Reporting (ECPAR)

(US$ 510,000)

The objective of this component is to strengthen controls needed for fiscal discipline and

promote transparency and accountability.

Sub-component 3.1 Strengthening expenditure controls, procurement systems and practices (US$180,000) 29. Business processes will be re-engineered to strengthen existing processes such as budget

controls, requisitioning, purchase orders, invoicing, payment authorization/approval, accounting and

reporting. Improved business processes could for example increase total tax revenue without

necessarily increasing the tax rate by collecting actual tax payable efficiently. The mix of forms in

Italian, English and Somali will be reviewed and consolidated to prepare a revised standardized set of

budgeting/accounting documents that will support the new business processes. Controls including

policies, procedures and practices (tasks and activities) will be established to provide reasonable

42

Open Government Data” (OGD) - datasets that governments generate, collect, and possess. The term “open data” refers to

non-proprietary and machine-readable data that anyone is free to use, reuse, manipulate, and disseminate without legal or

technical restrictions.

43

assurance of achieving the specific ministerial objectives. The evolving business processes for

planning, budget execution, commitment controls, procurement, internal controls, internal audit,

accounting and reporting will initially be issued as Treasury Circulars or Ministerial Orders (see

component 1) and later codified in Financial Regulations (FR) and a Comprehensive Operating

Procedures Manuals (COPM43) to translate the PFM Laws (supported by AfDB), financial policies

and standards into actual practice.

30. Establishing a Treasury Single Account (TSA) in the Central Bank through which all revenue

collections and authorized payments are made with regular bank reconciliation will lend credibility to

the completeness and accuracy of financial reports for decision making and accountability. The TSA

will support the extent of consolidation of government cash balances (including those for extra-

budgetary funds and external assistance controlled by third-parties) and this will further improve the

predictability in the availability of funds for commitment of expenditures and general cash

management by avoiding the situation of piling up debts or borrowing whilst there are idle cash

balances. Cash handling which pose high risk of leakages will be avoided through direct ‘bank’

transactions. Other DPs are supporting the Central Bank to be SWIFT compliant, providing banking

software and other institutional capacity building.

31. Budget and commitment controls will be introduced to curb build-up of arrears through

embedded system control features of the SFMIS. The business process re-engineering will introduce

linking of procurement plans with budget, work plans and disbursement schedules to ensure

availability of funds to support the award and payments of contracts in ensuring effective

implementation of the budget.

32. Public Procurement regulatory framework and Stores Regulations are outdated with no well-

functioning procurement system in place. There is currently a director of procurement and national

assets whose responsibilities include overseeing procurement processes that are yet to be established.

The objective is to put in place a modern but appropriate institutional and legal framework based on

the current Somalia context that will increase value for money in the use of public resources and

allow broader participation of the private sector and transparency in the procurement process.

Initially, emphasis will be placed on linking of procurement plans with budget, work plans, and

disbursement schedules to ensure availability of funds to support the award and payments of

contracts in ensuring effective implementation of the budget. 33. This sub-component will specifically fund the following activities: (i) issuing interim

instruction as a base for regulating public procurement until a procurement law is in place and

providing orientation and training to the users; (ii) drafting of a public procurement bill that meets

international best practice based on the UNCITRAL model law and development of regulations; and

(iii) hiring of a procurement consultant to provide technical assistance for bid documents

preparation, bid evaluation, contract management, reporting and capacity building. These activities

will pave way for long term public procurement reform initiatives that will be taken care of by

UNDP-SIDP and improve the overall public sector management task of the government.

43

Standards & Law - define mandatory requirements. Guidelines - provide guidance in applying standards and should be

considered in determining how to achieve implementation of the standards for which professional judgment is required in its

application with justification for any departure. Procedures Manual provide further information on how to comply with set

standards in performing certain tasks in day-to-day work.

44

Implementation

34. This sub-component will be implemented by the MoFP. As centralized operations are

envisaged whilst line ministries capacity is being built; this sub-component will be technically

coordinated by the Accountant General’s Department, the Budget Directorate and the procurement

and national assets department and will fund consultancy services, training and printing of manuals

and other training material.

Expected results

35. Strengthening controls, streamlining business processes and applying internationally

acceptable standards and practices will improve fiscal discipline and predictability in availability of

funds to undertake service delivery functions and promote transparency and accountability.

36. Improved national public procurement system that increases the confidence of both the

citizens and the business community in the public sector management of the Government. The

existence of robust public procurement system, in turn, ensures that public funds are used for the

intended purpose with due attention to economy and efficiency, and mitigating chances of misuse,

without regard to political and other non-economic influences or considerations.

Sub-component 3.2 Accounting and financial reporting (US$330,000)

37. Good quality in-year financial reports and annual financial statements are not produced. This

sub-component seeks to provide a system of accounting that reflects accurately and in accordance

with internationally acceptable accounting standards, the flow of transactions and the year-end

position of financial resources of the FGS in a timely manner and serves as a key instrument for

management decision making. Simple accounting procedures manual will be prepared to guide the

preparation of annual financial statements in accordance with the ‘Financial Reporting Under The

Cash Basis of Accounting44’ standard issued by the International Public Sector Accounting Standards

Board (IPSASB). Practical training will be conducted for recognition and measurement of elements

of financial statements and preparation of prescribed financial statements and the relevant disclosure

notes. Tools will also be prepared to support the upload of in-year budget reports and annual

financial statements in government websites in a format that is user-friendly for public consumption.

38. To ensure consistency in arriving at correct tax obligations and weighing the costs/benefits of

applying International Financial Reporting Standards (IFRS) and considering the number of owner-

managed business, the MoFP will work closely with the Chamber of Commerce to adopt the Small

and Medium-sized Entities Guidelines on Accounting (SMEGA) Level 3 issued by the United

Nations Conference on Trade and Development (UNCTAD45). Instead of an audit report that will

increase the cost burden of small businesses, the tax authorities will consider relying on an

‘Accountant Report’ for businesses with a certain level of turnover to be determined after due

consultation with relevant stakeholders. As security improves and with more establishment of

Significant Public Interest Entities46 and Other Public Interest Entities47, mechanisms for application

of IFRS and ensuring compliance will be developed.

44

Part 1 is mandatory. It sets out the requirements which are applicable to all entities preparing general purpose financial statements under the

cash basis of accounting. Part 2 is not mandatory. It identifies additional accounting policies and disclosures that an entity is encouraged to adopt

to enhance its financial accountability and the transparency of its financial statements. 45 http://unctad.org/en/Docs/iteteb20036_en.pdf

46 Significant Public Interest Entities - this means government business entities, all entities that have their equities or debt instruments listed and

traded in a public market (a domestic or foreign Stock Exchange or an Over the Counter market, including local and regional market), and such other organisations, though unquoted, that are required by law to file returns with regulatory authorities and this excludes private companies that

http://unctad.org/en/Docs/iteteb20036_en.pdf

45

Implementation

39. This sub-component will be implemented under the technical coordination of the Accountant

General’s Department (AGD).

Expected results

40. Timely preparation of high-quality in-year budget performance reports will provide

opportunity for early action by MDAs to ‘bring in the budget’ and for MoFP to have a

comprehensive overview for fiscal policy management. Publication of annual financial statements

will improve transparency. To ensure accountability this should be followed by independent audit

and follow-up to ensure implementation of recommendations arising from audit observations and

queries (external audit capacity building is provided by UNDP). Good-quality financial statements

from the private sector will increase reliability for assessment of tax obligations.

could be required to routinely file returns only with regulatory authorities. Examples of entities meeting these criteria include financial and other

credit institutions and insurance companies. 47 Other Public Interest Entities - this refers to those entities, other than listed entities (unquoted, private companies), which are of significant

public interest because of their nature of business, size, or number of employees or their corporate status which require wide range of

stakeholders. Examples of entities meeting these criteria are large not for profit entities such as charities and pension funds and may include publicly owned entities and other entities where there is a potentially significant effect on financial stability.

46

Annex 3: Implementation Arrangements


Project Institutional and Implementation Arrangements

1. In applying lessons learnt from similar reforms in FCSs, a deliberate attempt is made up-front to

use country systems instead of creating parallel Project Implementation Unit (PIU). A Public

Financial Management Reform Coordinating Unit (PFMRCU) in the Ministry of Finance and

Planning will anchor the reform and capacity building efforts. A Government PFM Reform

Coordinator will be responsible for day-to-day coordination of the reform activities and serve as the

key interlocutor for the Component Implementation Teams (CIT) and ensuring proper sequencing of

activities expected to be funded by various donors. The Technical Assistants will be shadowed by

government counterparts in the Component Implementation Teams (CIT) for skills transfer. The CIT

leaders will be the core civil servants to be determined depending on functional aspects of the

component and will be directly responsible for day-to-day management of implementation and

accountable for the reform outcomes. The Director General Ministry of Finance and Planning will

use the convening power of the ministry to provide strategic guidance for the reforms. 2. The PFM Reform Oversight Committee (ROC) chaired by the Prime Minister represents at

managerial level the key stakeholders. The ROC has authority because they are the decision makers

and responsible for the commitment of human and financial resources needed to implement the

strategy successfully. The ROC will report to the Office of the President that set the political tone

for the broad governance reform agenda and manage any resistance to the reforms.

3. The Technical Steering Committee (TSC) members comprising of Heads of the various PFM

institutions and line ministries representing key front-line service delivery will be accountable for the

success of projects to implement the reform strategy. Their responsibilities will be in addition to their

normal work, it is important that they direct the project by ‘management by exceptions’, keeping

regularly informed by the Component Implementation Teams but only asking for joint decision

making at key points in the project.

Figure 1: PFM Reform Institutional and implementation Arrangements

47

4. The project administration mechanisms are explained in the governance framework in the table

below.

Roles and responsibilities for the PFM reforms governance framework

Institutions Strategic orientation /

Roles and responsibilities

Composition

Office of

President

Sets the political tone for the broad governance

reform agenda and manage resistance.

Address linkages with wider aid management

issues and impact on overall development agenda.

Manage relationships with development partners

and the international community

Chair: The President

Co-chair: Somalia Donor Group (SDG)

Development Partners’ representative.

Prime Minister, Minister of Finance and

Planning, Minister of international

relations.

Office of Prime

Minister

PFM Reform Oversight Committee (ROC)

Using institutional convening power; guides

and presents PFM issues at cabinet level, the

highest decision making organ in Government

to get the political support required to drive

the PFM reform agenda.

The ROC shall meet at least quarterly to

evaluate progress of the reforms.

Commitment of human and financial resources

and approve Annual Work Plans (AWP) to

underpin the reform budget and provide

framework for monitoring of the reform

activities.

Chair: Prime Minister

Heads of the various PFM institutions.

Governor of Central Bank of Somalia

Co-opted chairpersons of Parliamentary

Committees on Planning, Budget, Finance

and oversight.

Chair of PFM Donor Group (PFM-DG)

Chamber of Commerce

Representative of Non-state actors

Ministry of

Finance and

Planning

Technical Steering Committee (TSC)

The TSC will be responsible for providing

technical guidance for meeting the platform

objectives and ensuring cohesion and

coordination of the various components.

Reviews and endorses component AWPs and

budgets.

The TSC shall meet at least monthly to

evaluate progress of the reforms.

Chair: Minister of Finance and Planning

Heads of the various PFM institutions and

line ministries representing key front-line

service delivery.

Director of Banking, CBS

PFM Donor Group (PFM-DG) – will meet

monthly separately and hold joint meeting

with Government in Mogadishu at least

quarterly.

Public Financial

Management

Reform

Coordinating

Unit (PFMRCU)

Component Implementation Teams (CIT)

Responsible for day-to-day coordination of the

reform activities and serve as key interlocutors

to consultants in ensuring proper sequencing

of activities.

Director General Ministry of Finance and

Planning will provide strategic guidance

The CITs shall meet at least weekly to review

work packages.

Prepares component AWPs and budgets.

Responsible for submitting quarterly progress

reports to the TSC.

Chairs: To be determined depending on

functional aspects of the component.

Subject Matter Experts from various

departments

Technical Assistants (TA) - mix of

individual consultants and/or firms

48

5. The FRS has entered into a framework contract with PricewaterhouseCoopers (PwC) for

Financial Management Agency (FMA) services for funds from the US, UNPOS, UNSOA, DANIDA,

and AfDB. Lessons drawn from this arrangement is reflected in the funds flow arrangement for this

project. PwC has also been selected through a Norwegian procurement process as the Financial

Management Agent for the Special Financing Facility (SFF). Efforts will be made to harmonize the

fiduciary arrangements for all external assistance.

6. The idea to setup an EAFS that looks beyond this specific project is part of the strengthening of

the country systems to handle all external assistance and treat them as Somali public funds and not

‘donor-funds’ per se. An independent monitoring agent where required will be responsible for

physical verification of expected outputs beyond just reviewing payment vouchers for compliance

with procedures.

Financial Management, Disbursements and Procurement

Financial Management

1. The financial management risk is assessed as High. Financial management capacity challenges that

are likely to affect the project exist. This includes lack of key financial management competencies and

internal controls, reliance on consultants, lack of regulatory framework for key PFM aspects amongst

others. Various mitigating measures are designed both specific to the project and as part of other

Bank/Donor engagements in the country. Given the consideration for Use of Country Systems (UCS), the

project would also adopt the UCS in various aspects of the projects financial management including for

accounting and reporting, banking, oversight arrangements with the Office of the Auditor General and

staffing. This will be supported by Technical Assistance (TA) with clear requirement for knowledge

transfer incorporated in the Term of Reference of the TA. The project would also focus on developing

financial management capacity as part of the project activities. The Project Financial Management

Reform Coordinating Unit (PFMRCU) will be made up of key project staff including a team of

professionals and national accountants and finance officers in the External Assistance Fiduciary Section

(EAFS) with relevant and adequate qualification and experience acceptable to the Bank.

Country Issues

2. A key PFM finding of the 2006-2007 Joint Needs Assessment (JNA) of PFM systems in

Puntland, Somaliland and South Central Regions48

was that ‘systems that manage public resources are

weak’. Similarly, the April 2013 PFM self-assessment which focused mainly on the central government

PFM activities revealed serious capacity weaknesses similar to those identified by the JNA. However, in

furtherance to the Paris Declaration on Aid Effectiveness (2005), the Principles for Good International

Engagement in Fragile States and Situations (2007), the Accra Agenda for Action (2008), and the Busan

Partnership for Effective Development Co-operation (July 2012), there is deliberate effort as part of the

New Deal 'FOCUS' and 'TRUST' principles to use country systems. The underlying principle is ‘country-

ownership’ anchored in the “strengthened PFM approach” – a common framework that has been widely

agreed among the Bank and development partners, and is in line with the Bank’s overall approach to

strengthening its PFM work.

48

jointly carried out by the Transitional Federal Government, the United Nations and the World Bank

http://intranet.worldbank.org/WBSITE/INTRANET/KIOSK/0,,contentMDK:20593356~menuPK:34897~pagePK:37626~piPK:37631~theSitePK:3664,00.html

http://intranet.worldbank.org/WBSITE/INTRANET/KIOSK/0,,contentMDK:20593356~menuPK:34897~pagePK:37626~piPK:37631~theSitePK:3664,00.html

49

Project Financial Management System

7. An External Assistance Fiduciary Section (EAFS) will be established in the Accountant General’s

Department, with support from the project, to ensure harmonization, donor co-ordination, reduce

duplication, fragmentation and proliferation of donor-specific financial management units. The EAFS

forms part of the Project Financial Management Reform Coordinating Unit (PFMRCU) with

responsibilities for day-to-day management and accountability for the project; and reporting to the

Technical Steering Committee (TSC).

8. The organizational structure for the EAFS takes into consideration the key areas of authority and

responsibility and appropriate lines of reporting. The basic functions of the EAFS will be planning,

budgeting, procurement, accounting and reporting of recipient-executed external assistance. The

recommended organizational chart is as depicted below.

Figure 2: External Assistance Fiduciary Section (EAFS) Organizational Chart

Budgeting Arrangements

9. The EAFS, working closely with each of the Component Implementing Teams (CIT) will

prepare the budget, work plan and cash flow forecast for each component and submit for the

necessary approvals from the PFMRCU and the TTL.

Accounting Arrangements

10. The project Operations Manual will be developed and would include the relevant accounting

procedures. The project accounting will be on a cash basis and will cover all project funds including

the SPF Grant and any other contributions. These will be supported with appropriate records and

documentation to track commitments and to safeguard assets. Accounting records will be maintained

in US$. The EAFS and each CIT will ensure that:

(i) All important business and financial processes are adhered to;

50

(ii) Adequate internal controls and procedures are in place;

(iii) Interim un-audited Financial Reports (IFRs) are prepared on a timely basis;

(iv) The financial statements are prepared on a timely basis and in accordance with

International Public Sector Accounting Standards (IPSAS);

(v) The external audit is completed on time and audit findings and recommendations are

implemented expeditiously.

11. The Chart of Accounts will facilitate the preparation of relevant reports and financial statements,

including information on total project expenditures; total expenditure on each project

component/activity, and analysis of that total expenditure into various categories of goods, training,

consultants and other procurement and disbursement categories. The project financial management

records will be maintained using the Bespoke Somalia Financial Management Information System

when it is fully developed and training conducted and until such time, an excel spreadsheet will be

used to record all transactions properly.

12. The Operations Manual will describe all requirements regarding accountability of all funds for

all components. Eligibility of expenditures will be based on the actual amount expended evidenced

by appropriate supporting documents.

Internal Control and Internal Auditing

13. The project Operations Manual will incorporate relevant internal control procedures and

acceptable control procedures for approval and payment processes. These procedures require that the

CIT certifies the completion and acceptance of goods or services before requesting for payment. The

EAFS will also ensure that the contracts are consistent with the invoices and payment request before

processing them. They will also monitor and report on the utilization of project funds, including the

fiduciary standards complied with and the reliability of the FM system. The Fixed Assets Register

relating to the project will be prepared by the project, regularly updated and physical

verification/count of assets carried out periodically. A Contracts Register will also be maintained in

respect of all contracts with consultants, contractors and suppliers. The EAFS will prepare Contract

Status Reports quarterly as part of the IFRs. Control procedures over fixed assets and contracts

management will be the responsibility of the PFMRCU.

14. An Internal Audit team will be set up in the Office of the Accountant General to review the

activities of the project and report quarterly to the PFMRCU, TSC, ROC and the Bank.

Financial Reporting Arrangements

15. Quarterly IFRs will be prepared by the EAFS and will cover all project funds for the purpose of

monitoring the implementation of the project and submitted to the PFMRCU, TSC, ROC and the

Bank and other participating donors within 45 days of the end of each fiscal quarter. This report must

cover all SPF funds received for the project as a whole as well as counterpart or government funds

received under the project if any. It includes a statement showing: period and cumulative inflows by

sources and outflows by main expenditure classifications; beginning and ending cash balances of the

project; and supporting schedules comparing actual and planned expenditures. Expenditures would

be classified by component and by category. Semi-annual cash forecast statement should also be

included. A template for this report will be agreed upon between MoF, EAFS and the Bank during

negotiations.

51

16. The EAFS is responsible for providing overall consolidated financial reports as defined in the

relevant covenants. The accounting system to be put in place will ensure that financial reports will be

designed to provide relevant and timely information to the project management, implementing

agencies, and various stakeholders monitoring the project’s performance. It is expected that all levels

of implementation will maintain adequate filing and archival system of all accounting and relevant

supporting documents for review by the Bank’s FM team during supervision mission and also for

audit purposes.

17. The EAFS would also prepare annual financial statements (AFS) for the entire project. The

content of the statements will be documented in the Audit ToRs agreed during project negotiation.

The AFS will be prepared in accordance with International Public Sector Accounting Standards

(IPSAS). The AFS shall include adequate notes and disclosures consistent with the cash basis of

financial reporting under the IPSAS.

Auditing

18. In order to enhance the Use of Country Systems, the Office of the Auditor General (OAuG)

would be responsible for the project audit. The project would support the in engaging an external

audit agent to work with the staff of the OAuG. The audited project annual financial statements

together with any additional information required will be submitted to the Bank within six months

after the end of the financial year. The audit would be in conformity with the Bank’s audit

requirements and in accordance with internationally recognized auditing standards. The auditor will

express an opinion on the Financial Statements in compliance with International Standards on

Auditing (ISA); and also prepare a Management Letter giving observations and comments, and

providing recommendations for improvements in accounting records, systems, controls and

compliance with financial covenants in the Grant Agreement.

Fraud and Corruption

19. Possibility of circumventing the internal control system with colluding practices as bribes, abuse

of administrative positions, mis-procurement etc., is a critical issue and may include: (a) late

submission of supporting documents; (b) poor filing and records; (c) lack of system integration; (d)

lack of budget discipline; (e) unauthorized commitment to suppliers, bypassing budget and expenses

vetting procedures; (f) unsecured safekeeping and transportation of funds. These are mitigated as

follows: (i) specific aspects on corruption auditing would be included in the external audit ToR; (ii)

FM Procedures (as part of Operations Manual) approved and in operation for the project (iii) strong

FM arrangements (including qualified Project Accountants in the EAFS, (iv) periodic IFRs including

budget execution and monitoring; and (v) measures to improve social accountability and

transparency are built into the project design by ensuring that project reports are available to the

public. Also, annual PFM forums will be held.

Flow of Funds and Banking Arrangements

20. There is a Central Bank of Somalia Act 2011 and a Financial Institutions Law No. 130 of 22

April, 2012 which is an Act to provide for the licensing, regulation and supervision of the business of

entities taking deposits from the public. The CBS has developed specifications for a National

Payment Systems and a strategic plan to address its capacity challenges. 2% is deducted from all

52

revenue deposited in CBS to fund its operations49. However, the CBS will not impose any charges or

commissions on Government for the SPF grant transactions.

21. The Central Bank Swift code is CBSOSOSM and the first successful SWIFT outward transfer of

USD 100,000 was executed on 16 August, 2013 into an account opened by the CBS at a Turkish

bank. CBS has also established five correspondent banks. A Designated Account (DA) will be

opened with the Central Bank of Somalia (CBS) which has been assessed as acceptable to the Bank50

by CTRLA. The project will make withdrawals from the DA and full records will be kept for audit

purposes as to for what purposes the funds are used. Figure 3 below depicts the funds flow

arrangements. Each disbursement from the DA will be initiated by an official request from an

authorized project official.

Figure 3: Funds Flow Chart

Banking arrangements

22. The EAFS will maintain:

(i) A Designated Account (DA) in US Dollar (USD) for the grant funds from the SPF in the Central

Bank of Somalia. The ceiling of the DA will be based first on Statement of Expenditure and

subsequently, after the Financial Management Information System has been fully installed and found

acceptable, based on request by Borrower, a Bank supervision and approval by TTL, a variable

forecast for two (2) quarters as provided in the quarterly IFRs to be reviewed and approved by the

Bank’s Financial Management Specialist (FMS) and Task Team Leader (TTL).

(ii) SPF funds will be transferred into the DA against an approved Withdrawal Application to be prepared

by the External Assistance Fiduciary Section. Subsequent withdrawals will be based on SOE and

49

As at end June 2013, CBS earned $795,993.92 from such deductions. 50

On terms and conditions in the World Bank Disbursement Guidelines for Projects (May 1, 2006:11).

Documents flow /instruction

Funds flow

PFM Reform Oversight

(Component 1)

USD Designated Account in Central Bank of Somalia Treasury Single Account (TSA)

SFMIS

(Component 2)

Expenditure Control,

Procurement, Accounting

& Reporting

(Component 3)

State & Peace Building Fund (SPF) Other donors

Goods, professional fees and other services

Managed by

External

Assistance

Fiduciary Section

(EAFS)

53

after the change to report-based disbursement, based on the actual amount expended with a forecast

of expenditure and cash flow needs for the next six months.

(iii) Detailed disbursement arrangements will be documented in the Disbursement Letter.

23. The Project bank account will be operated in a way similar to what operates in the country to

enhance the use of country systems. The signatories for the project bank transactions (Treasury

Cheque/Electronic Funds Transfer) and Withdrawal Applications will include at least two bank

account signatories (with each panel included in all transactions) in each of the following panels:

Signatories

Panel A: Director General of MoF (with Director of Administration as alternate)

Panel B: Accountant General (with Deputy Accountant General as alternate)

Payment Vouchers

24. In addition to this, the following internal control measures would be observed for all

processing of payment vouchers (PV):

Preparation: Finance Officer External Assistance Fiduciary Section (EAFS) for the

specific component

Authorization: Project Accountant in the EAFS responsible for this project. Before

submission to the Project Coordinator, the expenditure control TA will review PVs for

compliance with the procedures manual and initial as evidence of checking.

Approval: Project Coordinator

25. A payment listing will be sent under separate cover by the Accountant General to the Central

Bank as final authority to effect payments.

26. The FM Action Plan are as follows:

FM Action Plan

Action Responsibility Due Date

1. Appoint qualified and experienced Financial Management

Specialist at EAFS (as part of component 3 of the project)

MoFP Oct 30, 2013

(ToR done)

2. Designate government accountants and internal auditor to

support the project at EAFS as per the organizational chart in the

PAD

MoFP Oct 30, 2013

(Done)

3. Finalize fiduciary procedures manual for external assistance MoFP Not later than

Three

months after

effectiveness

54

4. Procure all necessary End User devices and ensure

operationalization of the SFMIS with adequate training of staff

- to also agree format of electronic bank statement to be

provided by CBS on request for auto-bank reconciliation

MoFP with

support from

DANIDA

($300,000)

January 2014

User Acceptance

Testing (UAT)

on-going

5. Agree banking arrangements and format of bank statement

from CBS to be provided to EAFS on monthly basis and on

request.

6. Open Designated Account.

MoFP Oct 30, 2013

(Done)

On effectiveness

6. Prepare TORs for the financial audit MoF On effectiveness

7. Support Office of Auditor General to engage External Audit

Firm to carry out Project Financial Audit with special reference

to ISA 800 (Auditor’s Report on Special Purpose Audit

Engagements), the auditor will pay special attention to the risks

of material misstatement of the financial statements due to fraud,

in line with ISA 240: "The auditor’s responsibilities relating to

fraud in an audit of financial statements")

MoF/OAG Dec 31,2013

8. Agree on IFR format and incorporate in SFMIS (a draft

template of IFR was provided to the country during the mission)

MoF Nov 30, 2013

(Done)

Conclusion and Supervision Plan

27. The financial management risk for the project is high. Given the consideration for use of

country systems (UCS) despite the capacity weaknesses identified in the assessment, there will be

intensive on-site visits in the first year of implementation with due consideration to the security

situation in the country, to ascertain continued adequacy of arrangements. This will be supplemented

by desk reviews of IFRs, monitoring reports and annual audit reports. The FM supervision mission

will be planned jointly with the general project supervision mission and the objectives will include

ensuring that strong financial management systems are maintained for the project throughout project

life. In adopting a risk-based approach to FM supervision, the key risk areas of focus will include

assessing the accuracy and reasonableness of budgets, their predictability and budget execution,

compliance with payment and fund disbursement arrangements.

Procurement

28. OP 11.00 paragraph 20 as well as the Guidance Note: Situations of Urgent Need of Assistance

or Capacity Constraints: Simplified Procurement Procedures will apply. The positive list of goods

which may be financed under a Loan covered by paragraph 11(b) of OP 10.00 must comprise goods

required for the Project activities in order to achieve the Development Objectives of the Project;

these Project activities are included in the Project Description.

29. In keeping with the Bank’s policy framework applicable in operations representing rapid

response to crises and emergencies (OP/BP 10 paragraph 11), and the need for flexibility, speed, and

effectiveness of the Bank’s emergency response, a list of “Pool of Experts (PoE)” consulting firms

and/or individuals is considered as an appropriate method for supporting the Recipient at various

steps of project execution. Such a method will remain consistent with QCBS, CQS, and/or the

Selection of Individual Consultants. The selection process would be conducted by the Grant

recipient for a series of assignments -- with standard TORs -- before grant effectiveness, and would

be subject to Bank prior reviews. During project execution, the Recipient would just have to pick-up

55

experts or firms from the list, based on their availability to carry out the assignment. Remuneration

and fees would be resolved, at time of pre-selection. For all contracts to be awarded following QCBS

and LCS, CQ, the Bank’s Standard Request for Proposals will be used. Sole sourcing of consulting

firms or individual consultants already working in the areas and which have a proven track record for

provisions of technical assistance, and the extension of contracts issued under existing projects for

similar activities through increase in their corresponding contract amounts would be explored on a

case by case basis and subjected to Bank non objection.

30. The overall procurement environment and capacity is weak and the risk in this aspect is rated

high. The Somalia public procurement legal framework and institutions are not yet in place.

Considering the context of the operational environment with serious capacity constraints because of

fragility or specific vulnerabilities; at the request of the beneficiary, the Bank may agree to specific

procurement arrangements as set forth in Situations of Urgent Need of Assistance or Capacity

Constraints: Simplified Procurement Procedures. Sub-component 3.1 of this project will support the

country in strengthening its procurement systems and practices.

Procurement environment

31. The Country has neither an institutional capacity nor legislative framework to handle robust

public procurement. The private sector and civil society have limited capacity or functionality (due

to total lack of regulatory law and business norms). The overall public sector management and

procurement environment is characterized by the following situations:

Prevalence of weak public sector governance;

Limited or no public procurement administrative structure;

Absence of legislative and regulatory regime leading to confusion or chaotic in public

procurement decision makings/implementation;

Lack of law and order for appeals, complaints and remedies system/mechanisms;

Lack of local expertise in procurement and contract supervision leading to poor contract

administration;

Lack of access to goods due to import and export challenges (no enforcement of Law &

order);

Restriction of movement due to security situation;

Contracting in a meager financial transactions and management environment with a weak

banking system often leading to payment difficulties;

Unavailability of contractors and consultants for competitive prices;

Limited quality of competition for provision of goods, works and services;

Lack of international interest in competing for goods, works and services (due to unsecure

business environment);

Limited supply chain due to prevailing political economy, and the clan and sectarian conflicts

that remain in the country;

Limited availability of media or national advertising mechanism; and

Lack of adequate logistical infrastructure.

32. The available procurement options to meet these challenges focuses on applying existing Bank

procurement policy in a manner that takes into consideration the special conditions often found in

fragile countries or small states. The focus of the option is on the need for flexible and streamlined

procurement in FCS/SS operations. The Bank’s guiding principles and objectives for rapid response

will therefore be applied and the above challenges that impact on the procurement environment

56

might be mitigated based on risk management approach. The success of procurement risk

management will be largely dependent on the extent to which capacity building measures can be

expedited and the level of ‘hands on’ procurement support and guidance to be provided to the

Implementing Agency’s staffs.

General Provisions

33. The Public Financial Management (PFM) Capacity Strengthening Project (P146006) would

be carried out in accordance with the latest revision of the World Bank’s “Guidelines:

Procurement under IBRD Loans and IDA Credits” dated January 2011; and “Guidelines:

Selection and Employment of Consultants by World Bank Borrowers” dated January 2011, that

facilitates dealing with the emergency and fragile situations in Bank-financed projects and

Recipient –Executed Trust Funds. Further to this, the project procurement implementation would

be carried out following the Bank’s Guiding Principle and considerations for Procurement in

Fragile and Conflict Situation and Small States, and the provisions stipulated in the Legal

Agreement. The general descriptions of various items under different expenditure category are

described below. For each contract to be financed by the SPF, the different procurement

methods or consultant selection methods, estimated costs, prior review requirements, and time

frame will be agreed between the Fund recipient and the Bank project team in the Procurement

Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual

project implementation needs and improvements in institutional capacity.

Project Procurement Implementation arrangement:

34. The Public Financial Management Reform Coordinating Unit and the supporting External

Assistance Fiduciary Section (EAFS) established in the Accountant General’s Department of the

Ministry of Finance and Planning (MoFP) will be the implementing unit of this project. The

EAFS ensures harmonization, donor co-ordination; reduce duplication, fragmentation and

proliferation of donor-specific financial management units. The EAFS will have a procurement

unit to carry out the procurement activities of the project. The procurement unit will be staffed

by a senior procurement specialist supported by procurement officers, both with suitable

qualification.

Project Components and scope of procurement:

35. The project has three broad areas of focus/components: (i) establishing a Public Financial

Management Reform Oversight and implementation structure; (ii) implementation of Somalia

Financial Management Information System (SFMIS); and (iii) Expenditure Control,

Procurement, Accounting and Reporting (ECPAR). The most important aspect during this

operation, considering the operating environment, is that maximum flexibility and risk taking

will be exercised in making decisions, and therefore all the procedures detailed below are just

guidance otherwise issues will be decided on a case by case approach with maximum flexibility.

36. No works contract procurement is envisaged. There will be few goods and non-consultancy

services contracts procurement under component one. The contracts under this category includes:

supply of Office equipment, website upgrading, printing services, and logistics securities service

etc. The size of these contracts is small and may not involve any ICBs. All, currently identified

packages will be procured following Shopping procedure. Selection of Consultancy Services:

57

Component one & two will have consultancy services contracts. Consultancy assignments will

include: long and short term Internal Consultant (IC) assignments; contracts with consulting

firms below US$300,000 equivalent (including taxes) may be procured using Consultants

Qualifications Selection (CQS) method. Majority of the planned assignments under this capacity

building project are ICs: selection for project coordinators, different TAs for capacity building

and system strengthening assignments. There will be one big consultancy assignment for PFM

Education and Training Program consortium for designing and developing curriculums for the

PFM training , including: governance/management structure, develop the courses, produce

course material, web based system for support and monitoring; and implementation of training of

trainers, examinations, assessment and support for Printing of teaching and learning materials

including CDs, including redeveloping the online distance learning and student management

platform. Due to the reality of the prevailing market conditions in the country and its

competitiveness and the country’s logistical infrastructure, the firm or institution for this

assignment may be selected on SSS basis.

37. Operational Costs: expenditures to be made for operational costs such as fuel and

stationery supplies, cost of operation and maintenance of equipment, communication charges,

transportation costs and travel allowances to carry out field supervision do not generally require

formal contracts to be entered between the parties and therefore may not be necessarily

considered as procurement item. However, these expenses need to follow acceptable procedures

including receipt and comparisons of quotations from minimum of three suppliers, where

possible, and single source contracting if the situation doesn’t allow comparison of quotation.

Records and documentation regarding the justification and procedures followed for acquisition

of these supplies shall be kept for future audits or review by the bank.

38. Training and workshops: Training and workshops will be based on capacity-building needs.

Venues for workshops and training as well as purchases of materials for training and workshops

will be done on the basis of comparisons of at least three quotations, whenever possible. The

selection of institutions for specialized training will be done on the basis of quality and therefore

will use the Qualifications Based Selection method. Annual training plans and budget shall be

prepared and approved by the World Bank in advance of the training and workshops.

39. Based on the above public procurement environment, the assessment recommends the

following actions:

Summary of Risk Management/Mitigation Matrix

(i) The project implementation unit (the External Assistance Fiduciary Section (EAFS) that will

be established in the Accountant General’s Department of the MoFP) shall have trainable,

computer applications skilled staffs so that quick basic procurement training will be provided

to them before the project effectiveness;

(ii) Advance selection and bringing on board of the procurement Technical Assistant consultant

who will support the Government in processing early procurement activities is absolutely

important and need to move faster. The Bank team will assist the Government in drafting the

ToR for the procurement Consultant selection;

(iii) Basic public procurement training, together with simplified working guidance/templates shall

be provided to the project team as a matter of priority

58

(iv) At the moment, since there is no any national public procurement system in place, use of the

Bank’s simplified procurement and consultant selection procedure for situation of urgent

need of assistance or capacity constraints will be mandatory. Implementation of procurement

activities should balance between capacity building and meeting basic transparency

requirements and also avoid capture by interest groups;

(v) For both this project and other public procurement activities, the Government may need to

issue interim guidance to ministries and departments on procurement which will also give

specific mandate to the Directorate of Procurement and National Assets to monitor and

oversight the proper use of public funds;

(vi) The Bank team will assist the Government in drafting the interim procurement guidance, the

interim procurement instruction may serve until such time that the new public procurement

law is enacted, subsequent directives, manuals and standard bidding documents are adopted

through the broader procurement reform activity to be supported by the UNDP, in line with

division of labor among the Development Partners participating in rebuilding Somalia;

(vii) The preparation of an initial Procurement Plan (covering the first 12 months) has been

discussed and will be finalized by the Government following the template provided during

the mission (the draft is as below); and (viii) A Technical Assistant will provide hand-holding support to the PFMRCU for bid documents

preparation, bid evaluation, contract management, reporting and capacity building.

Procurement Risk rating and Thresholds

40. The overall procurement risk for the project is rated high, and the thresholds for prior review

for international competitive bidding (ICB), including the maximum contract value for which the

shortlist may comprise exclusively Somalia firms in the selection of consultants, are presented in

the table below for purposes of the initial Procurement Plan. The procurement capacity of the

implementing agencies would be reviewed annually and the thresholds will be revised according

to the improvements or changes in procurement capacity.

Thresholds

Category Prior Review

Threshold (US$)

ICB

Threshold (US$)

National Shortlist

Maximum Value

(US$)

Works ≥5,000,000 ≥5,000,000 NA

Goods/non consultancy

Services

≥500,000 ≥500,000 NA

Consultants (Firms) ≥200,000 NA <200,000

Consultants (Individuals) ≥100,000 NA NA

41. It was further agreed that the first two (2) contracts of each procurement method,

irrespective of their amount, will be subject to IDA prior review in accordance with paragraphs 2

and 3 of Annex 1 of the World Bank’s Procurement Guidelines as part of risk mitigation

measures. All ICB contracts shall be subject to IDA prior review. All single-source selection and

all direct contracts, irrespective of the amount, will be subject to IDA prior review. All ToRs are

subject to IDA prior review and clearance.

59

Frequency of Procurement Supervision

42. In addition to the prior review supervision to be carried out from Bank offices, the capacity

assessment of the Implementing Agency has recommended two supervision missions to visit the

field to carry out post review of procurement actions.

Environmental and Social (including safeguards)

43. The works that might be carried out under this project are expected to have no or negligible

environmental or social implications and no negative impacts. They will be confined to existing

structures, be simple and non-hazardous in nature, restricted to very basic, small scale refurbishment,

painting, cabling and possibly the installation of new doors and windows in areas encompassing

several rooms only, within existing buildings in the property of, and used by the Somali Government.

No specific safeguards instruments would be required to manage or mitigate the anticipated impacts,

but the team will proactively manage the small works by helping the Borrower to prepare a simple

Environmental Management Plan.

Monitoring & Evaluation

44. Because successful reform of PFM systems tends to occur only over long time periods, and

involves political as well as technical challenges (OECD, 2009b; Allen, 2009; IEG, 2008)51, it is

probably not realistic to expect dramatic improvements in three years. The results framework and

monitoring in annex 1 will be used to closely monitor that the expected outputs are produced to

acceptable standards in order to meet the project development objectives. The Government is

committed to conducting a Public Expenditure and Financial Accountability (PEFA) review in 2015

by which time financial statements for 2012, 2013 and 2014 will be available to score the

quantitative performance indicators and monitor general progress on the reforms.

Role of Partners (if applicable)

45. Development Partners52 are encouraged to focus on wider civil service reforms as PFM cannot

operate optimally in a dysfunction civil service environment. Complementary reforms in the judicial

sector and rule of law will also be required. This project is limited to the central government

administration but lessons will be drawn from the UN Joint Programme on Local Governance and

Decentralized Service Delivery (UN-JPLG) that supported decentralization policy, community

participation, sub-national PFM and service delivery covering planning and budgeting, public

procurement, spatial planning and municipal finance, and elements of fiscal decentralization through

the Local Development Fund, accountability and reporting mechanisms.

51

Stephen Knack (2013), Building or Bypassing Recipient Country Systems: Are Donors Defying the Paris Declaration? The World Bank

Development Research GroupWPS6423 Public Policy Research Working Paper 6423, (2013:30) 52 DFID has allocated £90 million to improve governance and build peace in Somalia from 2011-2015. £38.3 million will be allocated to strengthen core state functions, £30m to the Stability Programme, and £12m to the Accountability Programme

60

Annex 4: Operational Risk Assessment Framework (ORAF)

AFRICA: Somalia PFM Capacity Strengthening Project

Stage: Preparation

1. Project Stakeholder Risks Rating High

Description:

According to the UN Strategy Review on Somalia,

undertaken in December 2012, the coming four years will

be a period of great uncertainty and potential volatility.

The new leadership has weak capacities and is politically

untested. Many stakeholders, including authorities in the

northern, semi-autonomous region of Puntland, the

breakaway region of Somaliland, and some of Somalia’s

regional neighbors, are deeply wary of the federal

authorities’ ability to fulfill their early promise. State-

building itself is likely to drive conflict, as stakeholders

struggle with the contentious issue of federal relations

between Somalia’s center and its regions.

The security situation will continue to evolve, potentially

becoming more complex as the weakening of Al-Shabab

opens space for the emergence of local armed actors.53

Multiple donor coordination challenges.

Risk Management:

The fragility assessment report will be used to dialogue with the authorities in the various

regions.

A robust Oversight Committee, Technical Steering Committee and Component Implementation

Teams will be established and supported by this project to coordinate the overall PFM reform

program around the PFM reform action (one vision-one plan).

Resp: World Bank

Due Date: Aug-30-2013

Status: Oversight and

implementation arrangements

established on November 7,

2013 with clear terms of

reference

53

This paragraph is taken directly from the UN Strategy Review, to which the Bank contributed.

61

2. Implementing Agency Risks (including fiduciary)

Capacity Rating: High

Description:

Institutional and individual human capacity are both

weak. In addition, political instability may further

undermine government ownership and leadership

Risk Management:

The PFM Education and Training program supported by this project will gradually improve

capability for the PFM functions. TAs key role will be mentoring and skills transfer through

coaching to ensure long-term sustainability of the reforms. Use of country systems (‘ab initio’)

rather than bypassing will be more developmental.

The reform approach will be participatory and will seek to build coalitions that can support

change and reform even if the political leadership changes. A good example will be the use of

PFM forums in mobilizing support for public finance transparency.

Resp: Client Due Date: Continuous Status: Ongoing

Governance (including Fraud & Corruption) Rating: High

Description:

Corruption and elite capture.

Lack of perfectly competitive markets.

Risk Management:

The Reform Oversight Committee (ROC) brings together the senior PFM actors to objectively

review progress reports and provide managerial direction with direct report to the Presidency.

Clear criteria for selection of PFMRCU staff and annual performance evaluation will ensure that

the right people are selected for the job. Participation at the ROC by the chair of PFM Donor

Group (PFM-DG), Chamber of Commerce and representative of Non-state actors will provide

an independent check on government.

Resp: Client Due Date: Aug-30-2013

Status: Oversight and

implementation arrangements

established on November 7,

2013 with clear terms of

reference

62

3. Project Risks

Design Rating: Substantial

Description:

Ambitious PFM reform agenda with multiple components

cutting across key institutions. Because of inter-

relatedness of the various PFM reform activities funded

by different DPs, delayed support or substandard outputs

will affect outcomes of specific objective and thus

leading to ‘blame-game’.

Risk Management:

Prioritization and sequencing of activities. CIT led by senior Govt officials supported by TAs

with skills transfer mandate. Close monitoring of work plans by the ROC.

Resp: Client (PFMRCU)


Status: Division of labor

agreed amongst DPs and

implementation monitored by

Joint DP-Govt Steering

Committee

Social & Environmental Rating: High

Description:

Clan sensitivities. Resistance from certain public officials

to maintain status quo of less-transparent systems and

procedures for personal gains.

The introduction of development resources into unstable

environments risks triggering local conflict. Political and

clan-based competition will also mean that procurement

and consultancy selections within government-oriented

technical assistance can be divisive and cause conflict.

Risk Management:

Clear criteria for selection of PFMRCU staff and annual performance evaluation. Open

procurement processes. Appropriate change management and information, education and

communication strategies will be adopted – public PFM forums. Quick-wins to demonstrate the

benefits of the reforms

Experience underlines the importance of broad consultation and participation ahead of decision-

making in Somalia. The Bank has retained a consultant with political knowledge in Somalia to

advise the country team on key decisions that may expose the Bank to political risk, or cause

disputes.

Resp: Bank


Status: Ongoing

External Assistance Fiduciary

Section (EAFS) staff assigned

based on performance on tests

administered after training on

the EAFS manual.

Delivery Monitoring Rating: High

Description:

Lack of perfectly competitive markets.

The integrity of Bank-funded project implementation will

require tailored solutions based on the requirements and

specifics of the project. Advisory & dialogue/reform

based projects require less monitoring, while projects

involving procurements may require third-party

Risk Management:

Considering the need for flexibility, speed, and effectiveness; a list of “pre-selected”

consulting firms and/or individuals is considered as an appropriate method for supporting

the Recipient at various steps of project execution. Such a method will remain consistent

with QCBS, CQS, and/or the Selection of Individual Consultants. The selection process

would be conducted by the Grant recipient for a series of assignments -- with standard

TORs -- before grant effectiveness, and would be subject to Bank prior reviews. Sole

sourcing of consulting firms or individual consultants already working in similar areas and

63

oversight. which have a proven track record for provisions of technical assistance will also be

considered.

Annual PFM Forum will provide outreach to Citizens to provide on implementation of the

project.

Resp: Client Due Date: Aug-30-2013 Status: Ongoing

Other Rating: High

Description:

Security is the major concern and challenge for

development and humanitarian assistance in Somalia.

Security poses a risk both for Bank staff security, as well

as for project implementation and sustainability. The

resulting access and movement restrictions – while

necessary – can constrain the ability for effective

overseeing of project implementation; increasing the risk

of project fund leakage, diversion, or capture.

Risk Management:

In implementing the strategy the Bank team will operate in close consultation with the corporate

security department in the Bank’s Goods and Services Department (GSD) and under the UN

umbrella provided by the Department of Safety and Security. GSD has already undertaken

assessment missions to the three regions and has issued advice which is being implemented and

a follow-up mission is under preparation by GSD to update the information, review what other

agencies are doing and assess prospects for longer-term presence on the ground.

An arrangement is under discussion with a third party firm to which risk can be transferred

when hiring Bank consultants. These arrangements are widely in place for other UN agencies.54

In addition, GSD is considering hiring a security agent to help manage the day to day missions

of World Bank staff to Mogadishu.

Resp: Client Due Date: Aug-30-2013

Status: Ongoing

Terms of reference for

Security/Logistics firm to be

hired under the PFMRCU.

4. Overall Risk Rating

Comments: The overall risk rating for the project is high. The government is unfamiliar with the World Bank fiduciary requirements and has weak capacity to manage

projects. The history of bad governance and corruption risks are high but the new government has so far expressed desire that going forward it will not be

“business as usual”.

54

Based on World Bank security guidance, Bank staff and consultants are currently permitted to travel to the airport in Mogadishu. Movement to Villa Somalia

is permitted on a case by case basis depending on mission criticality and the security situation at that time.

64

Annex 5: Implementation Support Plan


Strategy and Approach for Implementation Support

1. The strategy for implementation support has been developed based on the nature of the

program and its risk profile. The task team will aim at making implementation support to the client

flexible and efficient by focusing on monitoring of the risk mitigation measures defined in the

Operational Risk Assessment Framework (ORAF).

2. Formal implementation support missions will be carried out at least quarterly and will focus

on:

(a) Client Relations. The Task Team Leader will coordinate the Bank team to ensure

project implementation is consistent with Bank requirements, as specified in the legal

documents. He will meet with senior officials on a regular basis to keep them

acquainted of project progress and issues requiring resolution by the PFM Reform

Oversight Committee.

(b) Technical inputs. Members of the task team with various skills set will review terms

of reference and bid documents prepared by the client and during implementation

support will review outputs to ensure that they meet the required technical

specifications.

(c) Fiduciary requirements and inputs. Training will be provided to the External Affairs

Fiduciary Section to ensure compliance with the fiduciary covenants.

Implementation Support Plan

3. The main focus in terms of support to implementation would be as follows:

Time Focus Skills Needed Resource Estimate (Staff

Weeks/year)

First 12

months

Team Leadership Management, supervision, coordination Task Team Leader (TTL) 12

Technical PFM Specialist

Change Management Specialist

ICT Specialist

Component Subject Mater

Experts

6

Procurement Procurement experience, Banks procurement

norms knowledge, training

Procurement Specialists 6

Financial

Management

FM experience, knowledge of Bank FM norms,

training

FM Specialists 6

12-36 months Team Leadership Project management, supervision, coordination Task Team Leader 12

Technical PFM Specialist

Change Management Specialist

ICT Specialist

Component Subject Mater

Experts

6

Procurement Procurement reviews and supervision, training

as needed

Procurement Specialists 6

Financial

Management

FM reviews and supervision, training and

monitoring

FM Specialists 6

65

4. The following skills mix is required for implementation support:

Skills Needed Number of

Staff Weeks

Number of

Trips

Comments

1. Winston Cole, Sr. Financial Management Specialist

(Task Team Leader, AFTME)

12 Staff

Weeks/year

6/year Nairobi based

2. Stephen Mugendi Mukaindo Counsel (LEGAM) .5 Staff

Week/year


3. Adenike Sherifat Oyeyiola

Sr. Financial Management Specialist (AFTME)

2 Staff

Weeks/year

3year Juba based

4. Henry Amuguni

Sr. Financial Management Specialist (AFTME)

4 Staff

Weeks/year


5. Christiaan Johannes Nieuwoudt (CTRLA) 3 Staff

Week/year


6. Tesfaye Ayele

Sr. Procurement Specialist (AFTPE)

4 Staff

Weeks/year

3/year Addis Ababa

based

7. Hugh Riddell

Sr. Operations Officer (OPSFN)

1 Staff

Week/year


8. Alireza Abdollah Zadeh

Somalia Country Economist (AFTP2)

4 Staff

Weeks/year


9. Geoff Handley

Consultant (AFTP2)

4 Staff

Weeks/year


10. Wolfhart Pohl

Senior Environmental Specialist (AFTSG)

1 Staff

Week/year

1/year HQ based

11. Tim Kelly

ICT Specialist (TWICT)

1 Staff

Week/year

1/year HQ based

12. Caroline Nelima Wambugu

Team Assistant

2 Staff

Weeks/year


Partners

Name Institution/Country Role

Rowan Yamanaka United Kingdom Department for International Development

(DFID)

Economic Adviser,

DFID Somalia

Abduba Mollu Ido Royal Danish Embassy, Nairobi Program Manager

66

Annex 7: Project cost estimates

67

Annex 8: Map

Official PDF , 67 pages

Documents

Transcript of Official PDF , 67 pages