Cental Bank Somalia, pricewaterhousecooper and khaki envelopes

[Naxar Nugaaleed]

Exclusive: Somalia Central Bank a 'slush fund' for private payments - U.N.

 

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Reuters

Michelle Nichols and Louis Charbonneau 13 hours ago PoliticsCentral bank

People walk outside Somalia's central Bank in Hamarwayne district, south of capital Mogadishu

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People walk outside Somalia's central Bank in Hamarwayne district, south of capital Mogadishu May 16, …

 

By Michelle Nichols and Louis Charbonneau

 

UNITED NATIONS (Reuters) - Money at the Central Bank of Somalia is not used to run government institutions in the war-torn Horn of Africa country, with an average 80 percent of withdrawals made for private purposes, according to a U.N. report seen by Reuters on Monday.

 

The confidential report by the U.N. Group of Experts to the Security Council's Somalia and Eritrea sanctions committee blamed a patronage system - dubbed the "khaki envelope" practice after the color of the stationery carried to the Ministry of Finance - for preventing the creation of state institutions.

 

"In this context, the fiduciary agency managed by PricewaterhouseCoopers was reduced to a transfer agent that could not ensure accountability of funds once they reached the Somali government," the report said.

 

"Indeed of $16.9 million transferred by PWC to the Central Bank, $12 million could not be traced," it said. "Key to these irregularities has been the current governor of the Central Bank, Abdusalam Omer."

 

PricewaterhouseCoopers, Omer and the Somalia U.N. mission did not immediately respond to requests for comment.

 

Omer, 59, is a dual Somali-U.S. national who left Somalia at age 16 and returned in January to become governor of the Central Bank in a country with a shattered economy and broken financial system.

 

The overthrow of a dictator in 1991 plunged Somalia into two decades of violent turmoil, first at the hands of clan warlords and then Islamist militants, who have steadily lost ground since 2011 under pressure from an African Union military offensive.

 

Somalia was virtually lawless and unable to assert authority until a Western-leaning government was elected last year.

 

The U.N. report said all bank decisions were made by Omer because there were no board members in place and the bank does not operate as a government body subject to policy decisions or oversight from integrity institutions and parliament.

 

"On average, some 80 percent of withdrawals from the Central Bank are made for private purposes and not for the running of government, representing a patronage system and a set of social relations that defy institutionalization of the state," it said.

 

The experts said Somali Finance Minister Mohamud Hassan Suleiman had tried to reduce the scale of the patronage system, but "it is so pervasive as to be beyond his control without a fundamental restructuring of the system."

 

CENTRAL BANK A "SLUSH FUND"

 

Under the patronage system, a person can ask Somali leaders for a private payment "that cannot be resisted for personal or other reasons," the U.N. report said. A senior politician signs a note authorizing the payment, which is honored either directly at the Ministry of Finance or the Central Bank, the report said.

 

"This custom is also called the 'khaki envelope' procedure on account of the color of the envelopes seen carried to the Ministry of Finance," it said. "Since banks in Somalia, including the Central Bank, cannot make electronic transfers internally or externally, all transactions are made in cash."

 

The report found that between September, when the new government of President Hassan Sheikh Mohamud came to power, and April, almost three-quarters of withdrawals from the Central Bank were made for private individuals.

 

"Such statistics indicate that the CBS has effectively functioned as a 'slush fund' for the (patronage) system rather than as a financing mechanism for government expenditures," the U.N. experts said.

 

The report noted that Mohamud's government "cannot necessarily be faulted for the continuing patterns of corruption per se, but it can be held responsible for the appointment of individuals involved in past or present corruption."

 

According to Central Bank accounts, a cashier at the Ministry of Finance, Ahir Axmed Jumcaale, was responsible for withdrawing the greatest amount of funds.

 

The report said that between 2010 and 2013 Jumcaale withdrew $20.5 million in his name, which was then used for individual payments under the patronage system by successive finance ministers or finance officials.

 

An individual named Colonel Abdiqaadir Moalin Nuur took out $4.7 million between 2010 and 2013, the second largest amount of money, according to the report, which said there was no explanation for his withdrawals.

 

The International Monetary Fund officially recognized the Somali government in April, ending a 22-year hiatus, and last week offered technical support and advice, a first step in efforts to secure debt relief for the country.

 

Also last month, the Central Bank of Somalia published its first annual report since civil war erupted in 1991, putting the total debt at $3.2 billion. To win debt relief offered to poor nations, it has to draw up a financial management plan.

[Naxar Nugaaleed]

correct me if am wrong peeps but isn't preventing this exactly the reason pricewaterhousecooper was hired for

[xiinfaniin]

According to Central Bank accounts, a cashier at the Ministry of Finance, Ahir Axmed Jumcaale, was responsible for withdrawing the greatest amount of funds.

 

The report said that between 2010 and 2013 Jumcaale withdrew $20.5 million in his name, which was then used for individual payments under the patronage system by successive finance ministers or finance officials

 

An individual named Colonel Abdiqaadir Moalin Nuur took out $4.7 million between 2010 and 2013, the second largest amount of money, according to the report, which said there was no explanation for his withdrawals.

[YoniZ]

Naxar Nugaaleed;966055 wrote:

correct me if am wrong peeps but isn't preventing this exactly the reason pricewaterhousecooper was hired for

Nope, I guess the position of PWC is to monitor proper procedures were followed when recording such payments and publish annual audit reports. Does that justify the Millions PWC earn to carry such work? Probably not.

Can any system stop people pick-pocketing themselves? Not really, unless dadka iska daayaan inay waraabe hilib ku rartaan.

[Naxar Nugaaleed]

@yoniz, you would think monitoring would entail alerting both the Government, donators and other relevant entities

[Naxar Nugaaleed]

Unless am remembering wrong, PWC was brought during Yususf's administration in order to curb curroption

[ElPunto]

^PWC does audits - it can't curb corruption - that is for the administration. Somalis always like to blame others for their own misdeeds. Usually audits are done yearly - not sure why this is only coming out now

[Naxar Nugaaleed]

Elpunto, its not about blaming others. We know Somali officials are corrupt, they were supposed at the very least be part of the solution. The report coming out today paints a picture of astounding failure on their part. here is an article that describes what they were hired for:

 

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Somalia hires PwC to monitor aid

 

By Barney Jopson in Nairobi

 

PwC, the world’s biggest accountancy firm, is making a move into the world’s worst failed state. Somalia’s interim government has asked PwC to bring bookkeeping discipline to a country where lawlessness has reigned for nearly two decades.

 

At the demand of international donors, the besieged government has asked PwC to set up money tracking systems to ensure that aid sent to Somalia, including $67m (€48m, £41m) pledged in April, is spent as intended and not stolen by corrupt officials.

 

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Somalia is in the latest phase of an 18-year civil war as Islamist insurgents, including some allegedly linked to al-Qaeda, seek to topple the western-backed government. Shoot outs, mortar attacks and suicide bombings have become so intense that aid agencies and the United Nations no longer base foreign staff in the country.

 

Abdulrahman Adan Ibrahim, Somalia’s first deputy prime minister, said his government’s efforts to tackle the Islamists and piracy had been constrained by the slow delivery of funds from donors nervous about their money going astray in the absence of a formal banking system.

 

“We want to be different from other African countries. We want to show the world that the money given to us will be going to where they want it, to be used in a transparent way,” he said.

 

PwC has undertaken similar work monitoring donor payments in Afghanistan and Sudan. It declined to discuss details of the Somalia project, citing client confidentiality and security issues.

 

Abdusalam Omer, a senior adviser at Somalia’s finance ministry, said PwC would set up and act as the trustee of an account in Mogadishu, the capital, for donor funds, most of which are intended for security, health and education.

 

He said the mechanism to be set up by PwC should speed up the arrival of the $67m pledged by donors, including the US and the European Union, to strengthen security forces. It was part of a broader $213m package that included funds for a 4,300-strong African Union peacekeeping force. A little less than half has been disbursed, partly because the alternative disbursement mechanisms – via a UN trust fund or the central bank of Djibouti – are considered by some donors as too slow or too leaky.

 

Mr Omer said he expected PwC to send staff to Mogadishu from Nairobi, capital of neighbouring Kenya. But it is likely that the only people on the project to be based permanently in Somalia will be local agents who deliver small cash payments and record them in electronic ledgers.

 

The process will begin with PwC informing the relevant ministries when funds arrive. It will verify that their spending plans match donor objectives, release funds and ensure they get into the hands of intended recipients.

 

“If the money is for salaries it will be transferred to the Somali employees and PwC will get receipts and signatures to show they got it,” Mr Omer said. The money flows will be recorded in a new computer system and reports sent back to donors every 15 days. “The bottom line has to add up,” he said.

 

PwC is not being paid a retainer but will receive a commission of between 2 per cent and 4 per cent on all funds that reach their intended destination, Mr Omer said.

 

In common with most accountancy firms, PwC is renowned for its extreme aversion to litigation risk in developed markets. In Somalia it will face physical risk. Many non-Somali diplomats and aid workers who go to the country restrict their visits to a day or two and travel in armoured vehicles with Somali guards carrying machineguns.

 

“We need to make people confident the money will not be used to buy a house in the UK,” said Ahmedou Ould Abdullah, UN envoy to Somalia, alluding to the UK connections of many senior Somali officials.

 

Somalia has not had an effective central government since 1991. The interim administration controls only a few blocks of the capital, which are defended by AU peacekeepers. Islamist insurgents *surround it led by a group called al-Shabaab, which the US says has ties to al-Qaeda.

 

The US has admitted to supporting the interim government by supplying it with 40 tonnes of arms and munitions in the past two months.

 

Pirate-hunting coastguard planned

 

Somalia’s interim government plans to use a portion of funds pledged by foreign donors to launch a pirate-hunting coastguard service off the country’s coast, the deputy prime minister has said, writes Robert Wright.

 

Abdulrahim Adan Ibrahim, fisheries and marine resources minister, insisted that, even though the government controlled only parts of Mogadishu, the capital, it could have the service running by the end of the Indian Ocean monsoon next month. Pirate activity is expected to surge after the monsoon.

 

But it will need foreign funding, Prof Ibrahim said on a visit to London.

 

“Starting from July 26, if we have the kind of support we want from the international community, we will patrol the whole coastline of Somalia,” he said.

 

It will also require the co-operation of the semi-autonomous governments of Puntland and Somaliland in central and northern Somalia. Some senior politicians in Puntland have financial links to the pirates.

 

There were 61 attacks on merchant ships off the country’s coast in the first three months of this year. Unlike the foreign navies now patrolling off Somalia, the coastguard would also seek out pirates on land, Prof Ibrahim said.

 

“The problem is not coming from the sea. It’s coming from land,” he said.

 

He added that a coastguard would tackle the illegal fishing by foreign fleets widely blamed for driving Somali fishermen out of work and into piracy.

 

Hundreds of young men were already training as coastguards, the minister said.

[ElPunto]

The process will begin with PwC informing the relevant ministries when funds arrive. It will verify that their spending plans match donor objectives, release funds and ensure they get into the hands of intended recipients.

 

“If the money is for salaries it will be transferred to the Somali employees and PwC will get receipts and signatures to show they got it,” Mr Omer said. The money flows will be recorded in a new computer system and reports sent back to donors every 15 days. “The bottom line has to add up,” he said.

 

PwC is not being paid a retainer but will receive a commission of between 2 per cent and 4 per cent on all funds that reach their intended destination, Mr Omer said.

 

OK - good point - clearly no one holds them accountable.

[Naxar Nugaaleed]

Bank governor denies UN charges

 

Somali central bank governor denies U.N. charges over funds

 

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Reuters

Edmund Blair 8 minutes ago PoliticsCentral bank

 

By Edmund Blair

 

NAIROBI (Reuters) - The governor of the Central Bank of Somalia denied on Tuesday allegations in a U.N. report linking him to irregularities regarding millions of dollars withdrawn from the bank, saying the charges were malicious and baseless.

 

Somalia, under a Western-backed government that took office last year, is trying to rebuild after 20 years of war in which the nation was carved up into fiefdoms by warlords and then ruled by Islamist militants. Its public institutions remain feeble.

 

The U.N. Group of Experts to the Security Council's Somalia and Eritrea sanctions committee said that of $16.9 million of international aid transferred by fiduciary agent PricewaterhouseCoopers (PWC) to the central bank, about $12 million could not be traced.

 

The confidential report seen by Reuters said the current bank governor, Abdusalam Omer, was "key to these irregularities". Omer was appointed to the post in January and the allegations include a period before that, when he acted as adviser to the Finance Ministry.

 

"This is an attempt to discredit me as the governor of the central bank and to discredit the embryonic financial institutions of the country," Omer told Reuters by telephone from Mogadishu. "This is malicious and this is wrong."

 

The U.N. report blamed a system of patronage, in which a person can ask Somali leaders for a private payment "that cannot be resisted for personal or other reasons", for undermining the establishment of an efficient state.

 

It said the central bank became a "slush fund" for the patronage system, with 80 percent of withdrawals for private purposes, not running the government.

 

Omer, a 59-year-old dual Somali-U.S. national, said he had proof that, of the $16.9 million, almost all of it was deposited in an account at the central bank run by the Finance Ministry. The remaining $940,000 went into an account set up by a former prime minister for "regional relations", he said.

 

"I made sure the money reached the Central Bank of Somalia, with the help of PWC, and the remittance company. Everybody signed for it," he said, referring to a period when he was advising the Finance Ministry from Nairobi after PWC set up an account in the Kenyan capital to send the funds to Somalia.

 

He said the $16.9 million was aid from a range of countries.

 

But Omer said he was not responsible for what happened to funds after withdrawal. "I did not sign for the account in any way, and I was never party to how the money is spent," he said.

 

Those comments were echoed in a letter from Omer to the U.N. experts, dated July 2, and obtained by Reuters.

 

"It is not in the mandate of the bank nor any of its statutory obligations to determine where expenditure is directed to or which ministry or public office should receive money from the government funds," he wrote.

 

"This is a budgetary issue of which the prerogative lays with the Ministry of Finance," he said, adding in the letter marked "formal complaint" that the process of investigation behind the report was "deeply flawed".

 

The report said Omer took all bank decisions as there was no board. Omer said he acted within a law giving the governor responsibility for decisions about mainly administrative matters, but was awaiting the appointment of a board for major decisions, such as printing a currency.

[Naxar Nugaaleed]

http://tinyurl.com/SomaliCB

Link

[YoniZ]

Naxar,

There is a big confusion about the real task PWC is doing there since July 2009. Somalis may think they are there to help form proper financial procedures but that is a wishful thinking.

 

If I'm not mistaken, they are external auditors and are there to inspect the government financial records and express an opinion as to whether records are presented fairly in accordance with the applicable accounting standards of the entity, such as GAAP or IFRS.

 

PWC give no monkey about preventing SFG fiddling the donor money. Instead they cleverly use their audit reports as a weapon to subjugate their client - the hapless SFG in this case. This validate their case of been reliable observer and the fat contract should be rolled over. If they are clean or honest, they would have left years ago as there is no improvement in Somali government financial dealings.

 

The real problem has cleverly been put in the article: “The experts said Somali Finance Minister Mohamud Hassan Suleiman had tried to reduce the scale of the patronage system, but "it is so pervasive as to be beyond his control without a fundamental restructuring of the system."

 

No matter how clean, any finance minister or even president can’t win this situation and will be labeled as thieve because of the imbalances in the equation. IT’S A WIN-WIN GAME FOR PWC vs LOOSE-LOOSE GAME FOR ANY SOMALI GOVERNMENT IN THAT POSITION.

 

The question no one answered in the report is if the money they are quoting have been used for legitimate government daily business or stolen.

 

I'm not in anyway here defending SFG , but we need to read between the lines and not allow been played by clean-cut trainee auditors in suits. Four years is more than enough for one Big Four fat *******s to lecture us. They should get replaced ASAP.

[Naxar Nugaaleed]

@Yoniz, you make these people sound a mom and pop accounting firm. even if we accept your attempt at side stepping the watchdogs being paid 2 percent of every dollar donated to starving Somalis as a hapless accounting firm, they most at the very least divulge were every penny went. The situation we have now is a central bank governor and a donor entity accusing each other. PWC is supposed give a report to donors every 15 days.

[OdaySomali]

^ PWC is no watchdog and I wouldnt say that it is uniquely placed to play the watchdog for a central bank either.

 

Just out of curiosity, is this PWC Kenya we are talking about?

[Naxar Nugaaleed]

^ I think it was with UK one, does it matter. Guys what are these people being paid to do. 100% sure this was how it was sold when they first signed up, monitor the Bank, alert Donor community. They were hire in 2009, its for years later now. mind you, another main objective was to speed up pledged aid. If am not wrong, well above the 300 million but some how what is now 17 million.

 

The Somali members have a lot to answer for: internal revenue from port Mogadishu and Aden Cade airport are completely unaccounted among others. we know this. thinking or asking these people to self monitor waa waali.