THE FEDERAL GOVERNMENT OF SOMALIA

PUBLIC FINANCIAL MANAGEMENT CAPACITYSTRENGTHENING PROJECT (P146006, TF016181)

PROJECT FINANCIAL STATEMENTSFOR THE 7 MONTHS ENDED 31 July 2016

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Table of ContentsI STATEMENT OF PROJECT MANAGEMENT'S PageRESPONSIBILITIES............................2

2 Key Project Information...3

2.1 Project at Glance..................................3

2.2 Project Overview.................. .............. 32.3 Registered office ............... ................. 32.4 Banker.

4.***- ---... .. .........................2.5 Auditor ...................... .................. 42.6 Roles and Responsibilities................ .... ....-.--- ..-.................... 4

3 Project Highlight..................... ............-.---. *-...--............ .............. 53.1 Project Progress Report (Highlights)...........-.--.-.--....--.......................53.2 Funding summary .................................. 7

Report of the Auditor General ---.. ......................... 84. Financial Statements ....-.... ........................ 9

4.1 Statement of Cash Receipts and Payments.................................... 94.2 Financial Position .................................. 10

5. Statement of comparison of budget and actual amounts..................116. Statement of sources and uses of funds by sub-component (activities) ... 127. Notes to the financial statements...........................138 Trial Balance.......................................................

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1 STATEMENT OF PROJECT MANAGEMENT'S RESPONSIBILITIESThe Project Management is responsible to ascertain that the financial statements of theProject for the 7 months ended 31 July 2016 are prepared, in all material respects, inaccordance with the basis of preparation and accounting policies set out in Note 3 to thefinancial statements. In preparing these financial statements, the Project Management isrequired to select suitable accounting policies and then apply them consistently inconformity with Cash Basis International Public Sector Accounting Standard (Cash BasisIPSAS) and the requirements of Financial and Accounting procedure of the State, 1961 asamended.

The Project Management is responsible for ensuring that proper accounting records arekept which enable the financial statements to be prepared in compliance with the basis ofpreparation and accounting policies set out in Note 3 to the financial statements as well asin accordance with the terms of the financing agreement for the State and Peace BuildingFund Grant Agreement Number TFO 16181 between the Federal Republic of Somalia andthe International Development Association. The Project Management is also responsiblefor safeguarding the assets of the Project, and for taking reasonable steps for theprevention and detection of fraud and other irregularities.

The Project Management assumes the responsibility to provide, and has provided, theAuditor General with all accounting records, supporting and other documents, minutes,and any other pertinent information and explanations, either orally or in writing,necessary for the audit.

Signed on behalf of the Project Management:

...............................Ahmed Yusuf Muumin (Siraaji)Accountant Gener

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2 Key Project Information2.1 Project at Glance

Project Name: Public Financia Management Capacity Strengthening2Project

Project ID: P46006

IDA Credit/Grant No.: TFO016181

Implementing Agency: Ministry of Finance and Economic PlanningEffeci veness Date: 17 January 2014

Closing Date: 3 t July 2016

Credit/Grant Amount: US$ 4c5 mill on

Program Duration 2 years and 3 months

Disbursed Amount: US$ 4,497,941

2.2 Project Overview

Line Ministry of The project is under the supervision of the Ministry of

iti Fhprove thptcniaocpciyeohadetF

Ject Finance

Strategic goals of the The strategic goal of the project is "to establish systems forproject more transparent and accountable management and use of

public funds in Somalia". Underlying this project developmentobjective are the following intermediate objectives:(i) Increase capacity for a structured approach to PFM

institutional capacity strengthening.(ii) Improve the technical capacity to handle PFM

processes in an efficient manner.(iii) Strengthen controls for fiscal discipline, transparency

and accountability.

2.3 Registered officeThe entity is domiciled in Mogadishu, Somalia. The address of its registered office isVilla Somalia, Mogadishu, Somalia.

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2.4 BankerThe Project maintained and operated one bank account as a Treasury Single Account sub-account at the Central Bank of Somalia.

2.5 AuditorThe project shall be audited by the Auditor General in accordance with Article 10 ofSomalia Law No. 34 of 14 - 4 - 1972, Law on the Magistrate of Accounts.

2.6 Roles and ResponsibilitiesThe following are the key financial management staffs that were involved with theproject activities during the year:

Name Role Position Contact InformationAhmed Chief Accountant General booseey05rhotnail.comYusuf AccountingMumin Officer(siraaji)

Nur Faarah Issue of audit Auditor General oaoag.gov.soWarrants (F16)

Amina Accounting Director General aaminasheekh@hotmail.comSheikh Officer/Finance Ministry of Finance

Management

Farahan Ali Project Project farahanmohaMoud4gmail.comMohamud Coordination Manager/Coordinator

Axmed Budgeting Director of Budget iradabdi(aotmal.comAbdi Adam Department(Iraad)

Mohamud Finance Director of External afkaxaaji@hotmail.comAbdulkadir management Assistance FiduciaryArale SectionMowliid Accountant Head of EAFS dhoofcade(.hotnmail.conMohamed Accounts SectionAli

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3 Project Highlight3.1 Project Progress Report (Highlights)'Overall, the progress made so far towards achieving of the PDO appears satisfactory aselaborated in the sections that follow:

PDO Level Results IndicatorsMeasure Unit of BaselIne 2015 Remarks

Measu (2014) targetre

More 4 quarters Signiftcantly AchievedTime taken to Per than 6 were Though Government website haspublish Annual quarte months published been down for months, it is nowFinancial r and not active and live.Statements published% decrease in % 64.1% 25 Partially Achieveddifferencebetween A summary of the budget variancebudgeted and over the last eighteen months. Theactual estimated supplementary budget foragregate the FY 2015 Is $199,033,838 and the

actual expenses for the year Is$135,420,557. The budget variancerate for the year is 32%. Compared tothe year 2014, the variance ratedecreased 52%.

Increase/201 (Decrease

2014 5 )BudgetVarlance (%) 66 32 (52)Intermediate Result (Component One): Component 1: Public Financial ManagementReform Oversight (PFMRO)

Increased capacity for a structured approach to PFM institutional capacitystrengthening.Intermediate Numb Paucity of 10 AchievedResults er profession Certificateindicator three (perso al PFM stage Impressive 37 students haveNumber of ns) practition passed the CIPFA certificate levelPFM ers on the June and November 2015accredited exams.

Details of the progress made by the project can be found in the project's annual report 2015 and I"Quarter of 2016

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PDO Level Results IndicatorsMeasure Unit of Baseline 2015 Remarks

Measu (2014) targetre

staffIntermediate Result (Component Two): Somalia Financial Management InformationSystem (SFMIS)Improved the technical capacity to handle PFM processes in an efficient manner.Timeliness of Days Bank 30 achievedbank reconciliatreconciliation ion not Transactions are recorded on time

done to allow timely reconciliation.Transactions are processed throughthe SFMIS on a real time basis.

The Bank auto-reconciliationfunctionality that has beenimplemented in the SFMIS andused by the end users.

Transparency, -Low Governme Achievedcomprehensive public nt websiteness and access to upgraded The RFPs were posted to thecompetition in complete, to post government website in April andthe legal and reliable procurem May. The website was down brieflyregulatory and timely ent and info on procurement is postedframework procurem opportuni regularly.

ent ties andopportuni awardsties andawardinformation

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3.2 Funding summaryThe Project is for duration of 2 years and 3 months from 17 January 2014 to 31 March2016 with an approved budget of US$ 4,500,000 as highlighted in the table below:

Source of funds Donor Amount UndrawnCommitment received up to balance up to

31 July 2016 31 July 2016

US$ US$ US$

(A) (B) (A)-(B)

State and Peace Bui-lding Fund 4,500,000 4,497,941 2,059(SPF) - World Bank

Total 4,500 l '1,000', l l , 4,497,94Il1 2,059

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Report of the Independent AuditorTo: The Project ManagementReport on the financial statements

We have audited the accompanying financial statements of Public Financial Management CapacityStrengthening Project ("the Project"), funded by the International Development Association ("IDA") underthe Grant Agreement No TF016181, which comprise the statement of financial position as at 31 July 2016and the statement of receipts and payments for the year then ended, and the notes thereto ("the financialstatements") as set out on pages 9 to 17. The financial statements have been prepared by ProjectManagement in accordance with the accounting policies as described in the Note 3 to the financialstatements.

Project Management's responsibility for the financial statementsProject Management is responsible for the preparation of the financial statements in accordance with theaccounting policies as described in Note 3 to the financial statements and for such internal control as ProjectManagement determines is necessary to enable the preparation of the financial statements that are free frommaterial misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an independent opinion on these financial statements based on our audit. Weconducted our audit in accordance with International Standards on Auditing. Those standards require that wecomply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether thefinancial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditor's judgment, including the assessment ofthe risk of material misstatement of the financial statements, whether due to fraud or error. In making thoserisk assessments, the auditor considers internal control relevant to the entity's preparation and fairpresentation of the financial statements in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internalcontrol. An audit also includes evaluating the appropriateness of accounting policies used and thereasonableness of accounting estimates made by management, as well as evaluating the overall presentationof the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouraudit opinion.

Opinion

In our opinion, the financial statements present fairly the cash receipts and payments of the project duringthe year ended 31 July 2016 in accordance with Cash Basis International Public Sector AccountingStandards issued by the Public Sector Committee of the International Federation of Accountants, and inaccordance with the accounting policies as described in Note 3 to the financial statements and comply withthe related grant agreement

Emphasis of Matter

Without qualifying our opinion, we draw your attention to the significant control deficiencies as well asinstances of non-compliance which we have provided in a separate management letter. Our auditengagement required an assessment of the controls and procedures applied on the project as well ascompliance with the contractual conditions. We have detailed deficiencies identified in this regard on aseparate management letter as required by our terms of reference.Yours faithfully,

Dr Nur FarahAuditor General, Federal Government of ma '(FGS) .4 Villa SomaliaDate Mogadishu

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4. Financial Statements4.1 Statement of Cash Receipts and Payments

7mnths ended YearendedNotes 31 July 2016 3 1Deember

2015US USRECEIPTS

State and Peace Building Fund Grant 8 175,312 2,395,455TOTAL RECEIPTS 175,312 2,395,455PAYMENTS17,2 2,945

Use of goods and services 9 521,727 2,301,053Capital expenditure 1 ,7TOA AMNS10 - 6,179

521,728 2,307,232

Surplul(Deficit) - SPBF Grant (4,1)8,2.(346,416) 88,2232015 Refunds treated as receipts in 20162,8260 2,983 2,600Fund balance at beginning of the year34,32561 343,433 252,610Fund balance at end of the year - 343,433

The notes set out on pages 1 1 to 19 form an integral part of these financial statements.

...........................

Ahmed Yusuf Muumin, (Siraaji)Accountant G ral

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4.2 Financial Position

7mnths ended Year ended 31Notes 31 July 2016 Dec. 2015

____ US$ US$ASSETS

CURRENT ASSETSCash and cash equivalents 11 343,433

TOTAL ASSETS - 343,433

REPRESENTED BY:

FUND BALANCE 12 343,433

The notes set out on pages I I to 19 form an integral part of these financial statements.

Ahmed Yusuf M umin (Siraaji)Accountant Gejal

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5. Statement of comparison of budget and actual amounts

FINAL ACTUAL BUDGET PERCENTAGEBUDGET OUTTURN VARIANCE VARIANCE

NOTE

RECEIPTS US$ US$ USS %MultilateralSources 3 177,371 175,312 (2.059) (1%)

Total ExternalAssistance 177,371 175,312 (2,059) (1%)

Total Receipts 177,731 175,312 (2,059) (1%)

RecurrentExpenses

Use of goods andservices 5 598,400 521,72S 76,672 13%Total RecurrentExpenditure 598,400 521,728 76,672 13%CapitalExpenditure

Capital 6Total CapitalExpenditure

TotalExpenditure 598,400 521,728 76,672 13%

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7. Notes to the financial statements

7.1 General InformationThe principal address of the reporting entity is as detailed below:

Ministry of FinanceVilla SomaliaMogadishuSomalia

7.2 Basis of preparationThese special purpose financial statements have been prepared in accordance with Cash BasisIPSAS Financial Reporting under The Cash Basis of Accounting issued by Public SectorCommittee of the International Federation of Accountants (IFAC-PSC). They are presented inUnited States Dollar (US$). The measurement basis used is the historical cost basis except whereotherwise stated in the accounting policies below.7.3 Significant Accounting PoliciesThe principal accounting policies adopted in the preparation of these financial statements are setout below. These policies have been consistently applied during year, unless otherwise stated(a) Reporting entityThe financial statements are for the Public Financial Management Capacity StrengtheningProject (P146006, TF016181) implemented by the Federal Government of Somalia throughThe Ministry of Finance. The transactions captured are only those that are controlled by thereporting entity and those controlled by third parties for and on behalf of the reporting entity. Forpurposes of these financial statements there were no third party transactions reported in respectof the project activities.

(b) Reporting currency and translation of foreign currenciesThe functional and reporting currency is the United States Dollar (US$), which is accepted aslegal tender in the Federal Government of Somalia. Items included in the financial statements aremeasured in the currency of the primary economic environment in which the entity operates.W Reporting PeriodThe reporting period for these financial statements is the 2016 financial year of the Government,which runs from I January 2016 to 31 December 2016. The project was closed at end of March2016 and in that regard its reporting period was in respect of the January to July 2016.2

2 Thoughthe project closed at the end of March2016, the Bank rules allowed a grace period up to3l' July 2016during which time all project closure arrangements including settlement of invoices in connection with servicesdelivered during the project period can be processed and settled.23 1 P a g e

(d) Payments by Third PartiesDuring the year ended, the project did not benefit from any goods and services as reported tohave been purchased on its behalf as a result of cash payments made by third parties during theyear.

(e) Direct paymentsDirect payments represent payments made by the World Bank directly to the third party supplierson behalf of the project.

(1) ReceiptsReceipts represent cash received by the Public Financial Management Capacity StrengtheningProject (P146006, TF016181) during the financial year and comprise: External Assistancethrough both cash disbursements and direct payments. The cash disbursements have beenrecognized as receipts and included in the financial statements when disbursements are receivedfrom the World Bank. Direct payments are recorded as receipts and payments when they are paidby World Bank into the project Designated Account (DA) which was operated as a holdingaccount to the main Treasury Single Account (TSA). The closing balance on the DA was alsoincluded as unutilized balance of receipts from the World Bank. The direct payments arerccorded and recognized as receipts when the associated payments are duly authorized andsubmitted to the World Bank for payment.

(g) ExpensesExpenditure represents outlays of cash made by the project or other agencies for and on behalf ofthe project. The expenses comprise both of recurrent and capital expenditure and in general theyare included in the financial statements when cash is paid out.

(h) Capital items/Non-current assetsCapital items or Non-current assets principally comprises, motor vehicle, computer equipment,furniture, fittings and equipment and any other capital assets controlled by the project. Under thegovernment's cash basis of accounting, capital items have been fully expensed in the year ofpurchase. However, these assets are recorded in the Fixed Asset Registers at historical cost as amemorandum record with effect from 1 January 2014.

(i) Comparative figures for previous yearThe project became effective and commenced operations in January 2014, and the relatedcomparative figures for the prior year (2015) are provided.

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(I) Foreign currency transactionsForeign currency transactions denominated in foreign currencies would be converted into UnitedStates Dollars (US$) at the exchange rate ruling on the date of the transaction; realized gains andlosses resulting from these transactions would be recognized in the Statement of Receipts andPayments. Monetary assets and liabilities denominated in foreign currency at the year-end wouldbe translated at the closing rate of exchange with the resulting exchange gains/ (losses) dealt withthrough the Statement of Receipts and Payments. However, for purposes of this accountingpolicy, there was no foreign currency transactions translated at the reporting date.(k) Cash and cash equivalentsFor the purposes of the statement of cash flows, cash and cash equivalents comprise of depositsheld at call with Central Bank of Somalia.

(1) Employee benefitsEmployee benefits include salaries, allowances and other related employment costs and these arerecognized in the financial statements only when actual payments are made. There were noemployee benefits paid under the project during the year ended.

(m) Project closing dateAccording to the Grant Agreement the closing date of the Project is 31 July 2016.(n) Authorisation dateThe financial statements were not yet authorized for publication by the Accountant General.7.5 Exchange rates

All monetary amounts in the financial statements are expressed in United States Dollars (USS). Theestimated US$ closing rates for maior currencies were:

2016 2015us$ USSSomali Shilling 22,500 22,500

Great Britain Pound 0.598812 0.598812

Euro 0.770698 0.770698

8. State and Peace Building Fund GrantThe grafns received from World Bank under the State and Peace Building Fund are not repayable infuture. The amounts in the Statement of Receipts and Payments are only recognized when received byand are under the control of the Federal Government of Somalia and attributed to the project. The amountof external assistance received for the project during the 7 months period ended 31 July 2016 is asdetailed below:

7MAths ended Year ende31 July. 2016 31 Dec. 2015

us$ usSMultilateral Sources--

State and Peace Building Fund (SPF) - World Bank 175,31 4,322,62Total Grant Received 1753

175,12 4.322

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9. Use of goods and servicesThe following expenditures detailed below have been included under the use of goods and services:

7miaths ended Year ended 3131 July 2016 Dec. 2015

USS . ITS3Travel expense 13,383 59,031Education expense 358,080 1,118,39Training expenses 5

- 55,714Office materials and other consumables

Consulting and professional fees 4,101 880,155

Finance Costs/Bank Commissions 45 0,60445 10,604

Fuel and lubricants 736 4,997Repairs and maintenance 3,048 4,870Total use of goods and services 521,728 2,301,053

10. Capital expenditure - Noncurrent assets (fixed or physical assets)

7 Mnths ended Year ended31 July 2016 31 Dec 2015

Other fixed assets 6,17-6,I79

T t.IC .ta x. ..........Total Capital expenditure expensed

11. Cash and cash equivalentsCash comprise of demand deposits. Demand deposits consists of year-end project bank balance held atCentral Bank of Somalia (CBS) and the project bank account is part of Treasury Single Account (TSA)as detailed in the below:

7Mnths ended 31 Year endedJuly 2016 31 Dec, 2015

!? US$ US$Project Designated Account No. 970 343,433Total cash and cash equivalents

- 343,433

The project designated bank account did not earn any interest income during the year.

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12. Accumulated FundsThe accumulated surplus as at the year-end is as detailed below:

July 2016 2015USS US$

At beginning of the year 343,433 252,610

Surplus/(deficit) for the period (343,433)- 90,823

At end of the year - 343,433

13. Designated Account (DA) Statement Reconciliation

2015USDOpening Balance as at Ist January 2016 343,433

Add:World Bank advances paid into the DA during the year .2015 Refunds paid into the DA during the year 2,983

Sub-Total 346,416Less:

Amount of eligible expenditures paid from the DA during the year 346,416Bank Charges deducted from WB Disbursements

Sub-Total 346,416

Balance per DA as at 3 1st July 2016

o The amount is net-off the 2015 refunds treated as receipt in 2016. (actual deficit for the period was $346,416 nef-off refunds during the period of S2,983)

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8 Trial Balance

Federal Government of SomaliaTrial Balance ibr the Fiscal Yar 2016

Period From 01 to 07Somalia PPM Capacity Strengthening Project

Code Descriptiom Debit Credit111102 Wags and salaries (Private Sector Employees)

114405 Other stamp duty

132404 WB - Public Financial Management 178.294.74

221301 Vehicles - Fuel and lubricants 736,00221406 Office buildings

3,047.80221501 Cleaning materials and services

221502 Stationery 2.335.00

221601 Local transport cost 4.O)00

221603 Overseas air ticket cost 9.383.00222101 Educational materials and supplies 87,634.0222103 Staff training (foreign)

143,334.40222106 Famination cos, membership fees to prof. bodies 69.807.50222107 Tutor fees for professional couses 57304.00223101 Otherprofessional fees 31,101.00223109 Other professional services 113,000.00224101 Commission on transfers

44.74311102 PPM ReformBank Ah

413202 Suppliers Control

511101 Bank & cash opening balance 343,43.70

Total S21,727.44 521,727.44

Wednesday, July 20,2016 10:42 AM age I of I

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