SOMALIA - TFG Begins Partnership with Price Waterhouse

UNCLAS SECTION 01 OF 03 NAIROBI 001460 SIPDIS SENSITIVE DEPT FOR AF/E AND A/S CARSON ACCRA PLEASE PASS TO A/S CARSON E.O. 12958: N/A TAGS: PGOV PREL ECON EAID SO SUBJECT: SOMALIA - TFG Begins Partnership with Price Waterhouse -------------- Summary -------------- ¶1. (SBU) On June 29, Somalia's Transitional Federal Government (TFG) signed a contract with PricewaterhouseCoopers Associates Africa (PWC) for financial management, tracking and monitoring of development donor funds, government procurement management, and to develop and implement a financial management capacity-building plan. The contract, which will begin July 29, will provide a mechanism for increased oversight and transparency by establishing standardized financial management systems for the TFG. The TFG has three months to attract donor funds to the mechanism, after which time the TFG will have to pay a maintenance fee to PWC to continue the program. While the agreement is only for the management of donor contributions, the Ministry of Finance plans to replicate the system for all internally-generated revenue. PWC has already identified a fourteen-member Kenyan team, and subcontracted with a Mogadishu business institute and a Somali-Canadian firm to contract trainers, verification staff, and other partners on the ground. The driving force behind the agreement between the TFG and PWC is an AmCit advisor to the Minister of Finance, Abdusalam Omer, who negotiated the agreement. This agreement represents an important step forward for much needed transparency and accountability that should translate to more resources for the TFG to use in key priority areas. End Summary. -------------- Comprehensive Financial Management Monitoring and Oversight Contract -------------- ¶2. (SBU) On June 29 PricewaterhouseCoopers Associates Africa signed an agreement with the TFG to provide financial management, tracking and monitoring of development partners funds. This contract also includes oversight of procurement processes and will have PWC develop and implement a capacity building plan. The contract includes objectives, activities, and outputs in each of these areas. A copy of the entire contract has been sent to AF/E. The key components of the agreement between the TFG and PWC follow. ¶3. (SBU) Financial Management of Development Partners Funds Key Activities: -- Establish administrative, procurement and financial systems and procedures within the TFG that allow for rapid but transparent procurement �0A;-- Develop an acceptable and efficient fund disbursement and timely reimbursement process -- Set up and monitor bank accounts -- Track the flow and usage of funds -- Prepare adequate documentation and justification for reimbursement of expenditures pre-financed by development partners -- Set procedures for review and approval of all reimbursement requests, with a covering note recommending or not recommending payment -- Review the budgets for these expenditures -- Develop a standard financial management system including an accounting manual containing instructions, policies, reporting timetable and procurement systems ¶4. (SBU) Procurement Management Key Activities: -- Devise transparent, competitive and cost effective procurement procedures -- Plan procurement based on a clear and concise procurement strategy that details the procurement methodology, schedule, time frame, logistics, inventory receipt, and hand over -- Conduct procurement by observing competitive bidding procedures -- Obtain confirmation of receipt of procured goods and services as per specification -- Ensure that valid contracts were executed between the TFG and suppliers of goods and services -- Ensure that strict procurement procedures and prompt payments were applied -- Ascertain that the contractors/service providers are not being rewarded for poor performance by being awarded more contracts -- Physically verify existence of tangible items procured -- Review the timeliness of supply of goods and services -- Monitor adherence to the procurement plan NAIROBI 00001460 002 OF 003 ¶5. (SBU) Tracking and Monitoring Funds Key Activities: -- Ensure disbursed funds are used effectively and efficiently for purposes in which they are intended -- Carry out monthly spot checks on all expenditure incurred, checking conformity of expenditure with approved budgets -- Review expenditures to ensure that payments are adequately supported, classified and authorized -- Review procurements to ensure value for money was obtained on all purchases -- Verify bank and cash transactions and balances -- Review the accuracy and completeness of financial reports -- Verify fixed assets -- Report and take immediate action where discrepancies are discovered ¶6. (SBU) Develop and Implement a Capacity Building Plan Key Activities: -- Develop a capacity building plan and program which identifies training needs and specifies how TFG staff will be trained -- Prepare and discuss the capacity building plan with the TFG, development partners and participating stakeholders -- Identify critical success factors necessary to implement the capacity building plan such as top management commitment, timely, structured and effective communication, availability of funds, transfer of skills, and timely availability of resources including required teams, feedback and documentation -- Deploy skilled and experienced resources to roll out a capacity building plan -- Provide on-the-job training on financial and procurement management and any other related issues -- Devise solutions that are value-adding, innovating and workable -- Prepare quarterly assessments based milestones in capacity-building plan -------------- Implementing Contract Terms -------------- ¶7. (SBU) The contract states that it will go into effect July 29. Although the contract is not yet officially in force, PWC has already begun certain activities. On June 30, the day after the agreement was signed, PWC opened a US Dollar bank account at the Nairobi branch of Standard Chartered Bank of Kenya Ltd. There are no TFG officials who are currently signatories on this account (much to the chagrin of several ministers). Both of the signatories are from PWC, but any disbursement must be requested with a signed letter from the Minister of Finance. PWC's comprehensive best practice accounting and procurement manuals are being translated into Somali and should be completed by the week of July 13. ¶8. (SBU) In order to implement the contract, PWC has identified a team of fourteen Kenyan staff (full bios are in the contract copy sent to the Department). When we told PWC team leader Alphan Njeru that the PWC staff should go into Mogadishu, he assured us that they will regularly travel into the country. In order to ensure daily fiscal oversight, PWC is negotiating a sub-contract with the Mogadishu-based Somali Institute of Management and Administration Development (SIMAD). (Note: We are very familiar with this institute which provides an excellent business and management courses.) PWC intends to build the capacity of SIMAD to be the core training center for all of the government administrators who have some financial management responsibilities. PWC is also negotiating a contract with a Somali-Canadian firm to provide verification and other services on the ground and to train the necessary PWC contract staff in Mogadishu. -------------- AmCit Advisor Driving Oversight -------------- ¶9. (SBU) In 2008 then Prime Minister Nur Hassan Hussein opened discussions with PWC to establish a financial management system. Current Prime Minister Omar Sharmarke has also prioritized re-establishing of credibility in the area of financial management. Both men have lamented to us that while the international community is in full support, this often does not translate to tangible operational funds due to lack of government financial transparency. NAIROBI 00001460 003 OF 003 The TFG's success in sealing the deal at this time can be largely attributed to the work of Abdusalam Omer, Senior Advisor to the Ministry of Finance. Dynamic, and with considerable financial and administration experience, Omer began working with the TFG only two months ago. In this short time, he successfully negotiated all of the contractual terms and persuaded both parties, each of which held serious reservations about the partnership. ¶10. (SBU) Omer told us PWC was willing to take the risk of working with the TFG at this time because of previous discussions with Embassy Nairobi about how to support the TFG. As payment for managing the program, PWC charges a percentage of the funds under management. PWC is charging a management fee of 4.0% for 1 to 100 million dollars, 3.5% from 100 million to 200 million dollars, and 3.0% above 200 million. (NOTE: the UN's Somalia Trust Fund management fee is 18%. End Note.) Importantly, Omer noted that if no funds come through the account within the first three months, PWC will require the TFG to pay a retainer to continue the project, and PWC may be less anxious to move as quickly as they already have. He requested that the United States quickly use the PWC mechanism to funnel assistance to the TFG. -------------- Comment -------------- ¶11. (SBU) This agreement is a major achievement for the TFG. By working with a reputable firm, the TFG has the opportunity to build the trust of the international community and all Somalis in its financial management. While building the capacity of the Ministry of Finance and other administrators throughout the government, it will also give the TFG some independence from UN and other agencies to deliver services in the country. We expect that the oversight system's initial stages will be rough, but if the Ministry of Finance and advisors like Omer remain committed, this program has the potential to greatly improve a core government function. We fully support any new USG funds to use the system. -------------- Biographical Note: Dr. Abdusalem Omer -------------- ¶12. (SBU) Abdusalam Omer was born in Northern Somalia, attended school in Mogadishu, and left Somalia as a teenager. He completed high school in Boston and then went to Brandeis University and completed a degree in Economics from Boston College. He began his career as a researcher at MIT then went to University of Oklahoma where he earned a Master's in Public Administration. He went on to the University of Tennessee where he earned a PhD in Public Administration and began teaching. Omer migrated to the DC area in the 1980s where he worked in the Budget Office of the VA Dept. of Transportation. He was attracted to the DC Public School system "to help the poorest in a land of riches" where he held various leadership positions in the offices of budget and planning. Omer eventually became the Budget Director and then Chief of Staff of former Mayor Anthony Williams. In 2001, Omer left Washington to work for UNDP with Somali remittance companies, and then for five years as the UNDP's Somalia program manager for governance and finance. During this time, he met Sharif Hassan who was serving as Speaker of Parliament. Omer returned to Washington to serve as the Chief Operating Officer of the DC Public School system and then went to the World Bank for a project in Bande Ache, Indonesia. After being selected as Deputy Prime Minister and Minister of Finance, Sharif Hassan contacted Omer and over the course of several months, persuaded him to become his Senior Advisor. SLUTZ