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TFG Corruption: An Exclusive Report
Part II: Of Budgets and Briefcase Ministries
By JAY BAHADUR 02/27/2012

Welcome to Part II of Somalia Report's three-part series exposing financial corruption and mismanagement within the Somali Transitional Federal Government (TFG). The findings presented here are sourced from a recently issued report, Audit Investigative Report-2011, by the former head of the TFG's Public Finance Management Unit, Abdirazak Fartaag.

In Part I, Somalia Report revealed how the Somali Central Bank operates as a virtual ATM for TFG ministries, issuing unaccounted for cash withdrawals in amounts as high as $800,000.

In Part II, we take a look at the TFG’s makeshift annual budget, its revenue shortfalls, and its "briefcase ministries."

One of the main themes of Abdirazak Fartaag’s report is the Somali government’s woeful inefficiency at collecting its own revenue, relying on international donors to fund 70% of its annual budget (see below).

© Abdirazak Fartaag

At the beginning of 2011, the TFG presented its preliminary budget, which laid out its expected revenues and expenditures for the year.

TFG preliminary budget January-June
© Abdirazak Fartaag
TFG preliminary budget January-June

TFG preliminary budget July-December
© Abdirazak Fartaag
TFG preliminary budget July-December

Over the first six months of the year, Fartaag’s audit reveals, revenue collection fell almost $18 million short of the predicted $49 million. From July to December, $23 million short. In total, the TFG’s actual revenue stood at $58 million, almost $42 million less than the amount predicted going into 2011.

A large proportion of this shortfall was due to the $26 million in bilateral aid from the United Arab Emirates and Sudanese governments that simply disappeared, as detailed in Part I.

Another pipe draining the bucket was the gap in expected taxes collected through Mogadishu port and Aden Adde international airport, which represents virtually all of the domestic revenue generated by the TFG. While the preliminary budget predicted $27 million in port and airport revenue, the final amount raised over the course of 2011 stood at just $17 million (oddly, although the preliminary budget categorizes port/airport taxes as “tax revenue,” in subsequent records the revenue is tabulated as “non-tax revenue”). Fartaag suspects that much of the tax revenue levied at Mogadishu’s port and airport failed to reach the Central Bank of Somalia, though his report supplies no proof in this regard. But the TFG's own internal records indicate that at least some of the money was miscounted, as evidenced by an internal audit of port and airport revenue (see below left).

Port revenues and police audit, January to June 2011
Port revenues and police audit, January to June 2011

While Ministry of Finance and Somali Central Bank accounting records $12.6 million in taxes collected from January to June, an independent police audit shows $8.4 million raised over the same period. As far as Somalia Report is aware, no internal inquiry has been undertaken to address the $4.2 million discrepancy between the two accounts.

Stranger still is the fact that the audit was conducted by a police agency and not, say, the Auditor General. Interestingly, the police audit includes a stream of revenue entirely omitted from the Central Bank/Ministry of Finance tally: $30,485 collected from the Mogadishu's KM50 airport. Given that the airport was located squarely in Shabaabistan until the Islamist group’s August withdrawal from the capital, precisely how the facility managed to generate income for the TFG is somewhat of a mystery.

One possible (if speculative) explanation may lie in the fact that KM50 is reportedly administered by a private interest based in Nairobi, which operated the facility under al-Shabaab and continues to do so under the TFG administration.

The same party allegedly pays SoSh 1 billion (approximately $30,000) per month to the TFG for the rights to collect revenue, according to information provided to Somalia Report. This kickback, not surprisingly, does not show up in the police audit.

Although Fartaag supplies no hard evidence of the misappropriation of port revenues, a quick comparison with two of Somalia’s other major ports suggests that the Mogadishu facility generates far less than its potential.

Bosaso port, which does not even possess Mogadishu’s deep water capability, generates nearly all of the Puntland government’s annual revenue (typically between $15-$20 million). Somaliland’s Berbera deep water port reportedly earns around twice that figure.

That Mogadishu’s port managed to raise tax revenues of only $17 million in 2011 should raise more than a few suspicions.

Port/airport revenue July-December
© Abdirazak Fartaag
Port/airport revenue July-December

Perhaps as a result of the budgetary shortfall, civil servant salaries were not paid for the last three months of 2011—which is somewhat understandable, since bureaucrat salaries are not so much as earmarked in the budget.

Although the TFG has come along since President Sheikh Sharif Ahmed's cronies reputedly scrawled out Somalia’s 2009 budget on the back of a luxury hotel napkin, the 2011 version is not yet quite up to international specs.

The TFG's "Secret" Military Budget

A major omission in both the TFG budget as well as in Fartaag’s audit is the Pricewaterhouse Coopers (PwC) account, a procurement and management fund set up to manage US monetary aid to Somalia. $25 million has passed through the fund since its inception in June 2009, according to a source close to the government.

The PwC fund represents Somalia’s military budget, paying the $100 per month salaries of the approximately 7,000 militiamen on the TFG payroll, as well as funding pro-government Radio Mogadishu, Somalia TV, and capacity training for the Ministry of Finance.

The operation, as Somalia Report has detailed in depth, is not a smooth one; after each pay cycle the payroll is revised and updated, an arduous process, and salaries are routinely paid months late.

It is perhaps understandable that the preliminary TFG budget would ignore the PwC fund, as the money is not managed through the Central Bank and TFG ministries.

Why, then, is $18.7 million in multilateral aid included in the preliminary budget?

Fartaag assumes in his report (perhaps incorrectly) that the money represents funding for the United Nations Development Program’s (UNDP) police training initiative, primarily paid for by the Japanese, although according to Somalia Report’s own reporting only $10 million was donated by the Japanese government in 2011 to cover police training.

If at least over half of multilateral assistance consists of UNDP—and thus is distributed through UN channels, not Somali government institutions—then it is conspicuously inconsistent that the preliminary budget would include this item yet omit the PwC purse.

Briefcase Ministries

TFG ministries, as Fartaag's report portrays them, barely generate any revenues, provide virtually no services, and collect transfer payments through a seemingly random pattern of cash handouts paid to individuals, as detailed in Part I of this series.

“Every one of our ministers is a briefcase minister,” Fartaag told Somalia Report. “They exist to collect their per diems and then go stay in the best hotels in Nairobi.”

“Then they play to the international galleries, saying ‘We can’t do anything because the international community isn’t doing its job.’”

Herein lies an obvious criticism of Fartaag’s report, namely his expectation of TFG ministries to have delivered services back when their employees were more occupied with dodging al-Shabaab mortars during the better part of their waking hours.

For most of last year, TFG ministers were more concerned about being pushed into the sea by the Islamist group—then in control of most of the capital—than about providing pregnancy screenings or free textbooks. How were ministries supposed to collect revenue, let alone provide services, under these circumstances?

To their credit, TFG ministries are attempting to fill in some of the space left by the retreating militants. Drawing on $1.8 million earmarked by the Danish government, the TFG has plans to reoccupy and refurbish five buildings previously owned by the former Somali government, including three hospitals. Though the money has not yet been spent, forced mass evictions have already been carried out in preparation, leaving hundreds of families homeless, some of whom had been living in the abandoned buildings for decades.

But given that a total of just over $1 million was spent on providing social services in 2011 (see below), it takes a healthy dose of optimism to envision how the Ministry of Health will be able to staff and fund the operation of even three hospitals once the modest Danish seed money is expended.

A quick glance at budget expenditures reveals how little was available for provision of services. Administrative costs—salaries, travel, office supplies—made up by far the largest drain on the TFG budget, over $46 million ($23,646,838 from January to June; $22,278,003 from July-December) out of the total budget of around $58 million.

That’s a lot of pen and pencils.

By contrast, social services—encompassing the ministries of education, health, and women’s services—received a total allocation of $1.07 million over the course of the year (and government records do not reveal what even this negligible sum was spent on).

Expenditure on social services, January to June 2011
© Abdirazak Fartaag
Expenditure on social services, January to June 2011

Expenditure on social services, July to December 2011
© Abdirazak Fartaag
Expenditure on social services, July to December 2011

According to information obtained by Somalia Report, each ministry is supposed to be allocated a boilerplate monthly transfer payment of $12,000 to cover salaries and expenses. Beyond this, additional funds are dispersed on an arbitrary, case-by-case basis, handed over in cash to sundry clerks sent with letters signed by the prime minister, finance minister, or other high ranking officials.

In January, for instance, the Ministry of Education received $2,000 in cash handovers from the Central Bank. In March, $33,348. Why the ministry's expenditures would vary by over a factor of 15 from month to month is not explained through any official policy.

Requests for comment from the TFG prime minister and finance minister have not been returned.

Start Small

The United Nations Children’s Fund (UNICEF) estimates that only about one in five school age children in Somalia receive primary schooling, with education exclusively provided by NGOs and religious organizations.

While it is not practical in the near future for the Ministry of Education to construct, fund, and staff state-owned schools, financing the the expansion of NGO-administered schools would be a quick and simple way for the TFG to begin performing the semblance of the functions of a national government.

Of course, funding would necessitate raising revenues, far more than the $13,440 collected by the ministry over the course of the entire year. Sources of potential revenue collection will be addressed in Part III of this series, to follow.

If the ultimate goal is to sell the concept of democracy and good central government to the Somali people (the UN roadmap on ending the transition speaks, with blithely naïve optimism, of possibly holding direct elections within a four year time frame), then holding the TFG responsible for providing some kind of services—in Mogadishu, at the very least—to its supposed constituents might be a good first step towards establishing its legitimacy.

“We’re given money to build schools, hospitals. Who is stopping us from building them?” Fartaag told Somalia Report. “Why can’t we revamp our airport? Just look at it!”

The Somali people might well be asking the same questions.

For the full audit report, please click here: Audit_Investigative_Report___2011_Consolidatedx.pdf

Note: Abdirazak Fartaag is funded by various relatives living in Kenya and the United States, who have requested that their anonymity be preserved.