THE FEDERAL GOVERNMENT OF SOMALIA PROJECT NAME: SOMALIA CAPACITY INJECTION PROJECT IMPLEMENTING ENTITY: OFFICE OF THE PRIME MINISTER PROJECT NUMBER: P149971 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 PREPARED IN ACCORDANCE WITH THE CASH BASIS OF ACCOUNTING IN INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS (IPSAS), 2019 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 TABLE OF CONTENTS ACRONYMS AND ABBREVIATIONS ............................................................................................ 3 1. PROJECT INFORMATION AND OVERALL PERFORMANCE ................................................... 4 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES ........................................... 12 3. REPORT OF AUDITOR GENERAL ........................................................................................ 14 4. STATEMENT OF RECEIPTS AND PAYMENTS ...................................................................... 19 5. STATEMENT OF FINANCIAL ASSETS .................................................................................. 20 6. STATEMENT OF CASH FLOWS ........................................................................................... 21 7. STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNTS.............................. 22 8. STATEMENT OF USES AND APPLICATION OF FUNDS BY COMPONENTS .......................... 23 9. ACCOUNTING POLICIES TO THE FINANCIAL STATEMENTS ............................................... 24 10. EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS ................................................. 30 2 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 ACRONYMS AND ABBREVIATIONS DA - Designated Assistance DCCGIF - Developing the Capacity for Cross Cutting Government Institutional Functions EAFS - External Assistance Fiduciary Section EUR - Euro FY - Financial Year GBP - British Pound IESBA - International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants IPSAS - International Public Sector Accounting Standards MPF - Multi-Partner Fund PMC - Project Management and Coordination SOS - Somali Shilling SPMCMCCG - Strengthening Policy Management, Coordination and Monitoring Capabilities at the Centre of Government SPPCSM - Strengthening the policies and procedures for civil service Management USD - United States of America Dollars 3 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 1. PROJECT INFORMATION AND OVERALL PERFORMANCE 1.1 Name and registered office Name Somalia Capacity Injection Project. Project number P149971 Objectives The Project Development Objective is to strengthen the staffing and institutional capacity of selected line Ministries and Central Agencies to perform core government functions. Address Office of Prime Minister, Villa Somalia Mogadishu Somalia Contact Telephone: (252) 6128470236 E-mail: hassan.d@opm.gov.so Website: www.cip.gov.so 1.2 Project Information Project Start Date: The Project start date is 13 October 2015 Project End Date: The Project end date is 31 December 2022 Project Coordinator: Hassan A. Dirie Osman Project Sponsor: The Project sponsor is World Bank Group 4 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 1. PROJECT INFORMATION AND OVERALL PERFORMANCE (Continued) 1.3 Project Overview Line Ministry / The Project is under the supervision of the Office of Prime Department Minister, Federal Government of Somalia. Project number P149971 Strategic goals of The Project objective is to strengthen the staffing and the Project institutional capacity of selected line Ministries and Central Agencies to perform core government functions. Achievement of The Project Management aims to achieve the Project objective strategic goals. through the following means: a) Component 1: Developing capacity for key cross - cutting Government functions: i) Establishment of merit - based recruitment guidelines and tools. Recruitments of Capacity Injection Mechanism staff to perform key cross- cutting government functions. ii) Procurement and supplies of office Property and Equipment to the beneficiary institution. iii) The Project Coordination Unit procured office furniture to the beneficiary institutions including; Ministry of Labour and Social Affairs, National Civil Service Commission, Office of Prime Minister, Ministry of Planning, Investment, and Economic Development and Ministry of Public Works. The Project Coordination Unit also procured Information and Communication Technology equipment and delivered to School of Management and Public Administration / Somalia National University. iv) Establishment of civil service training institute. v) Provisions of short-term specialized training to the government civil servants at Federal Government of Somalia. vi) Developing and implementation of training programs for the civil service of the government. vii) Supporting employee biometric attendance systems and strengthening the records and archives Management system of the targeted Ministries, Departments and Agencies. 5 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 1. PROJECT INFORMATION AND OVERALL PERFORMANCE (Continued) 1.3 Project Overview (Continued) Achievement of b) Component 2: Strengthening the policies and procedures strategic goals for civil service management. (Continued) i) Completion of organizational re-structuring of 48 Ministries, Departments and Agencies at Federal Government of Somalia. Procuring and delivery of 6 vehicles for supporting the functions of planning, coordination, monitoring and performance of the government (2 vehicles to Ministry of Planning, Investment and Economic Development and 3 vehicles to Office of Prime Minister and 1 vehicles National Civil Service Commission. ii) Completion of the development of basic human resource / civil service management policies at Federal Government of Somalia. iii) Completion of Human Resource Audit and new biometric registration of civil servants at Federal Government of Somalia. iv) Completion of development of civil service code of conduct for strengthening the ethical foundations of the civil servants. v) Supporting the development of Pay and Grade Policy and Structure for the civil service. vi) Supporting the development of Administrative Regulations and Procedures for the implementation of Civil Service Law Bill (Civil Service Law no. 11). vii) Supporting the consolidation of the human resource policies for the civil service management: Pension policy and pension bill, a proposal for the implementation of past service liability and pension fund scheme establishment and implementation plan, supporting the draft of a Public Service Policy and Public Service Bill, and the review and amendment of Civil Service Commission Law no. 10; viii) Supporting the establishment of credible Personnel Data Management System and Human Resource Management Information System. 6 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 1. PROJECT INFORMATION AND OVERALL PERFORMANCE (Continued) 1.3 Project Overview (Continued) Achievement of ix) Supporting the consolidation implementation of strategic goals change Management plans for the re-structured (Continued). Ministries, Departments and Agencies. c) Component 3: Strengthening policy Management, coordination and monitoring capabilities at the centre of Government. i) The establishment of Policy planning, Monitoring and Evaluation and Statistics units at targeted institutions with staffing both at Federal Government of Somalia. ii) Supporting to strengthening the Monitoring and Evaluation and planning functions and capabilities of Ministry of Planning, Investment and Economic Development to track the implementation of the National Development Plan. iii) Supporting the policy and strategy development, performance and delivery at the centre of government and businesses such as: the cabinet business for public policy management, performance and delivery system and Strategic plans of targeted Ministries, Departments and Agencies. iv) Facilitation high-level review or retreat sessions at top-level of the government to build trust and consensus on priority reforms, strengthen a focus on results and resolve issues between agencies across government. d) Component 4: Project Management and Coordination. i) The Project coordination unit had organized and coordinated Joint Federal Government of Somalia / World Bank / Development Partners, World Bank and Government teams for both Federal Government of Somalia and Puntland. ii) The Project Coordination Unit has also organized the coordination of Troika Project meeting. iii) The Project coordination unit in consultation with the World Bank’s Task Team, supported the Project’s operational logistics such as office stationery supplies, fuel and basic maintenances of the Project vehicles through World Bank’s quarterly approved budget. 7 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 1. PROJECT INFORMATION AND OVERALL PERFORMANCE (Continued) 1.3 Project Overview (Continued) Achievement of iv) Facilitations all meetings of government technical strategic goals reform committee by the Ministry of Labour and (Continued). Social Affairs. v) The Project coordination unit submits the Project’s quarterly financial and narrative Reports as well as Somalia Capacity Injection Project Quarterly bulletin. Other important In reference to the Somali Compact in 2013, the Federal background Government of Somalia had requested World Bank and United information of the Nations Development Programme to re-build the government Project. institutions in the areas of public sector capacity developments. Under this Somali Compact, World Bank and United Nations Development Programme in collaboration with the Federal Government of Somalia had developed an initiative to address the dire needs of institutional capacity development for the Federal Government of Somalia. The initiative is called Somalia Capacity Injection Project and was officially launched in October 2013. The higher level objectives of the Project, responds to the strategic objective of the New Deal Compact to strengthen basic sectoral and core government functions in support of the establishment of a responsive, inclusive and accountable public sector’ at the federal level. The Project has four components. These are: a) Developing capacity for key cross-cutting government functions. b) Strengthening the policies and procedures for civil service management; c) Strengthening Policy Management, Coordination and Capabilities at the Centre of Government; and d) Project Management. Each of these components has sub-components. The Project components aim at: rendering support to the recruitment and placement of a small number of highly qualified advisors and civil servants; strengthening the government’s framework for civil servants; and developing management capacities at the centre of government to strengthen policy coordination and development and monitoring. 8 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 1. PROJECT INFORMATION AND OVERALL PERFORMANCE (Continued) 1.3 Project Overview (Continued) Current situation The Project was formed to intervene in the following areas: that the Project was a) Component 1: Developing the capacity for cross cutting formed to intervene government institutional functions (DCCGIF). b) Component 2: Strengthening the policies and procedures for civil service Management (SPPCSM). c) Component 3: Strengthening Policy Management, Coordination and Monitoring Capabilities at the Centre of Government (SPMCMCCG). d) Component 4: Project Management and Coordination (PMC). The primary beneficiaries are the institutions of the Federal Government of Somalia performing core government functions. For this initial stage, the Project will directly benefit to the following ten Federal Government Institutions: a) Office of the President; b) Office of the Prime Minister; c) National Civil Service Commission; d) Ministry of Planning and International Cooperation; e) Ministry of Finance; f) Ministry of Labour and Social Affairs; g) Ministry of Agriculture; h) Ministry of Energy and Water Resources; i) Ministry of Public Works and Reconstruction; and j) Central Bank of Somalia. Project duration The Project’s initial period was 5 years from July 2015 to 31 June 2020. The closure date of the Project was extended to 31 December 2022. 1.4 Bankers The Central Bank of Somalia is the sole banker of the Project. 1.5 Auditors The Project is audited by the Office of the Auditor General, Federal Government of Somalia. 9 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 1. PROJECT INFORMATION AND OVERALL PERFORMANCE (Continued) 1.6 Roles and Responsibilities Name Title designation Role / Responsibilities Mohamed Abukar Zubeyr Permanent Secretary Accounting Officer Abdirhman M. Anas Accountant General Finance Management Saleiman S. Umar Director General- Ministry of Finance Finance Management Ahmed Abdi Adam (Iraad) Director of Budget Department Budgeting Tasks Hassan A. Dirie Osman Project Coordinator Project Coordinator Mohamud Abdulkadir Arale Director of External Assistance Fiduciary Section (EAFS) Finance Management and payments responsibility Abdimajid Omar Abuhadi Financial Management Specialist Financial Consulting Mohamed Gulled Procurement Specialist Procurement Tasks Mowliid Mohamed Ali Head of EAFS Accounts Section Accountant 10 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 1. PROJECT INFORMATION AND OVERALL PERFORMANCE (Continued) 1.7 Funding summary The Project was for a duration of 7 years from 2015 to 2022 with an approved budget of United States of America Dollars (USD) 17,417,000 as highlighted in the table below: Source of funds Amount Undrawn received balance to Donor to 31 31 commitment December December 2022 2022 USD USD USD (A) (B) (A)-(B) Grants Somalia Multi-Partner Fund (MPF) – World Bank 17,417,000 15,004,393 2,412,607 17,417,000 15,004,393 2,412,607 1.8 Summary of overall Project performance The total budget for the grant under audit was USD 17,417,000. The Project activities were implemented as per the work plans and budget in the agreement signed by both International Development Association and the Federal Government of Somalia. From inception of the Project to the end of the financial year, the Project has received a total amount of USD 15,004,393 leaving an undrawn balance of USD 2,412,607. 1.9 Summary of Project compliance There are no issues of non - compliance with applicable laws and regulations and the Financing Agreement. 11 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES The Accountant General, the Director General (Authorizing Officer) for the Ministry of Finance and the Project Coordinator for the Somalia Capacity Injection Project are responsible for the preparation and presentation of the Project’s Financial Statements, which give a true and fair view of the state of affairs of the Project as at the end of the financial year ended 31 December 2022. This responsibility includes: a) Maintaining adequate financial management arrangements and ensuring that these continue to be effective throughout the reporting year; b) Maintaining proper accounting records, which disclose with reasonable accuracy at any time the financial transactions of the Project; c) Designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the Financial Statements, and ensuring that they are free from material misstatements, whether due to error or fraud; d) Safeguarding the assets of the Project; e) Selecting and applying appropriate accounting policies; and f) Making accounting estimates that are reasonable in the circumstances. The Accountant General, the Director General (Authorizing Officer) for the Ministry of Finance and the Project Coordinator for Somalia Capacity Injection Project accept responsibility for the Project’s Financial Statements, which have been prepared in accordance with Cash Basis of accounting in International Public Sector Accounting Standards (IPSAS) 2019, as required by the Accountant General. The Accountant General, the Director General (Authorizing Officer) for the Ministry of Finance and the Project Coordinator for Somalia Capacity Injection Project are of the opinion that the Project’s Financial Statements give a true and fair view of the state of Project’s transactions during the financial year ended 31 December 2022 and of the Project’s financial position as at that date. The Accountant General, the Director General (Authorizing Officer) for Ministry of Finance and the Project Coordinator for Somalia Capacity Injection Project further confirm the completeness of the accounting records maintained for the Project, which have been relied upon in the preparation of the Project’s Financial Statements as well as the adequacy of the systems of internal financial control. The Accountant General, the Director General (Authorizing Officer) for Ministry of Finance and the Project Coordinator for Somali Capacity Injection Project confirm that the Project has complied fully with applicable laws, regulations, procedures and the terms of external financing covenants, and that the Project’s funds received during the year under audit were used for the eligible purposes for which they were intended and were properly accounted for. 12 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 2. STATEMENT OF PROJECT MANAGEMENT RESPONSIBILITIES Approval of the Project Financial Statements The Project Financial Statements were approved and signed by the Accountant General, the Director General (Authorizing Officer) for Ministry of Finance and the Project Coordinator for Somalia Capacity Injection Project on ____________________ 2024 and signed by them as here below: Project Coordinator Authorizing officer Accountant General Hassan A. Dirie Osman Mohammed Abukar Zubeyr Fatuma Osman 13 3. REPORT OF AUDITOR GENERAL INDEPENDENT AUDITOR’S REPORT TO THE PROJECT IMPLEMENTATION UNIT FOR SOMALIA CAPACITY INJECTION PROJECT GRANT / CREDIT NUMBER: TF0A0415, TF0A5472 and TF0B0692 Unmodified Opinion I have audited the accompanying Financial Statements of Somalia Capacity Injection Project set out on pages 18 to 36, which comprise the Statement of Receipts and Payments, Statement of Financial Assets as at 31 December 2022, Statement of Cash Flows and Statement of Budget Comparison with Actual amounts for the year then ended, and a summary of significant accounting policies and other explanatory notes. In our opinion, the accompanying Financial Statements present fairly the cash and receipts and payments of the Project during the year ended 31 December 2022 in accordance with Cash Basis of accounting in International Public Sector Accounting Standards and in accordance with the accounting policies described in Note 9.1 to the Financial Statements and comply with the related Financing Agreement. Basis for Opinion I conducted our audit in accordance with International Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s responsibilities for Audit of the Financial Statements section of our Report. I am independent of the Project in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA) Code together with the ethical requirements that are relevant to our audit of the Financial Statements, and I have fulfilled our ethical responsibilities in accordance with these requirements and the IESBA Code. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter – Basis of Accounting and Restriction on Distribution and Use Without modifying our opinion, I draw your attention to Note 9.1 of the Financial Statements, which describes the basis of accounting. The Financial Statements are prepared to assist Federal Republic of Somalia comply with the specific financial reporting requirements of the International Development Association. As a result, the Financial Statements may not be suitable for any other purpose. 14 Our Report is intended solely for the information, distribution and use by the International Development Association and Federal Government of Somalia. 15 3. REPORT OF AUDITOR GENERAL (Continued) Other Information The Management of the Project are responsible for the Other Information. The other information comprises Project Information and Overall Performance included in the Report but does not include the Financial Statements and our Auditor’s Report thereon. Our opinion on the Financial Statements does not cover the other information and I do not express any form of assurance conclusion thereon. In connection with our audit of the Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Financial Statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work I have performed on the other information that I obtained prior to the date of this Auditor’s Report, I conclude that there is a material misstatement of this other information, I am required to report that fact. I have nothing to report in this regard. Responsibilities of Management and those charged with governance for the Financial Statements Management is responsible for the preparation and fair presentation of the Financial Statements in accordance with Cash Basis of accounting in the International Public Sector Accounting Standards 2019 and for such internal control as Management considers is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the financial reporting process. 16 3. REPORT OF AUDITOR GENERAL (Continued) Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements. As part of an audit in accordance with International Standards on Auditing, I exercise professional judgment and maintain professional scepticism throughout the audit. I also: a) Identify and assess the risks of material misstatement of the Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. b) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's internal control. c) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. d) Evaluate the overall presentation, structure and content of the Financial Statements, including the disclosures, and whether the Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation. 17 3. REPORT OF AUDITOR GENERAL (Continued) I communicate with Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during our audit. H.E. Avv. Ahmed Isse Gutale Auditor General Federal Republic of Somalia Mogadishu, Somalia 29 March, 2024 18 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 4. STATEMENT OF RECEIPTS AND PAYMENTS Cumulative from Project inception up to Notes 31 December 31 December 31 December 31 December 2022 2021 2022 2021 USD USD USD USD A B C=A+D D Receipts External assistance grants 10.2 2,614,908 1,925,149 15,004,393 12,389,485 Other cash receipts 10.3 - - 5,991 5,991 Total receipts 2,614,908 1,925,149 15,010,384 12,395,476 Payments Capital expenditure 10.6 197,575 302,000 2,171,679 1,974,104 Compensation of employees 10.4 151,275 205,180 971,571 820,296 Use of goods and services 10.5 2,570,633 1,247,078 11,867,134 9,296,501 Total payments 2,919,483 1,754,258 15,010,384 12,090,901 (Deficit) / surplus for the year (304,575) 170,891 - 304,575 19 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 5. STATEMENT OF FINANCIAL ASSETS 31 December 31 December Notes 2022 2021 USD USD Financial assets Cash and cash equivalents 10.7 - 304,575 Total financial assets - 304,575 Financial liabilities Payables - - Total liabilities - - Net financial assets - 304,575 Represented by: Accumulated surplus from the previous years 10.8 304,575 133,684 Net (deficit) / surplus for current year 10.8 (304,575) 170,891 Fund balance 10.8 - 304,575 The Project Financial Statements were approved by the Project Management on _________________ 2024 and signed on its behalf by: Project Coordinator Authorizing officer Accountant General Hassan A. Dirie Osman Mohammed Abukar Zubeyr Fatuma Osman The accounting policies and explanatory notes to these Financial Statements on pages 23 to 36 form an integral part of the Financial Statements. 20 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 6. STATEMENT OF CASH FLOWS 31 31 Note December December s 2022 2021 USD USD Cash flow from operating activities Receipts External assistance grants 10.2 2,614,908 1,925,149 Total receipts 2,614,908 1,925,149 Expenses Compensation of employees 10.4 (151,275) (205,180) Use of goods and services 10.5 (2,570,633) (1,247,078) Total expenses (2,721,908) (1,452,258) Net cash flows from operating activities (107,000) 472,891 Cash flows from investing activities Acquisition of Property and Equipment 10.6 (197,575) (302,000) Net cash flows from investing activities (197,575) (302,000) Net (decrease) / increase in cash and cash equivalents (304,575) 170,891 Cash and cash equivalents at beginning of year 10.7 304,575 133,684 Cash and cash equivalents at end of year 10.7 - 304,575 21 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 7. STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNTS Note Original Final Actual Budget Percentage Revisions budget budget outturn variance variance USD USD USD USD USD % A B C=A+B D E=C-D F=E/C*100 Receipts External assistance grants 10.2 4,650,605 (720,000) 3,930,605 2,919,483 1,011,122 26% Total cash receipts 4,650,605 (720,000) 3,930,605 2,919,483 1,011,122 26% Recurrent expenses Compensation of employees 10.4 207,360 - 207,360 151,275 56,085 27% Use of goods and services 10.5 4,273,245 (765,000) 3,508,245 2,570,633 937,612 27% Total recurrent expenditure 4,480,605 (765,000) 3,715,605 2,721,908 993,697 27% Capital expenditure Capital expenditure 10.6 170,000 45,000 215,000 197,575 17,425 8% Total capital expenditure 170,000 45,000 215,000 197,575 17,425 8% Total expenditure 4,650,605 (720,000) 3,930,605 2,919,483 1,011,122 26% Surplus - - - - - 22 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 8. STATEMENT OF USES AND APPLICATION OF FUNDS BY COMPONENTS FY 2022 FY 2022 Current Cumulative Previous previous reporting FY 2022 inception to years up to 2021 quarters quarter (4) cumulative date USD USD USD USD USD A B C D=B+C E=A+D Sources of funds Somalia MPF 12,389,485 1,056,568 1,558,339 2,614,907 15,004,392 Other cash receipts 5,991 - - - 5,991 Total sources of funds 12,395,476 1,056,568 1,558,339 2,614,907 15,010,383 Expenditure by components Component 1: DCCGIF 2,690,870 558,159 306,974 865,133 3,556,003 Component 2: SPPCSM 3,558,796 19,800 767,434 787,234 4,346,030 Component 3: SPMCMCCG 515,862 - 99,369 99,369 615,231 Component 4: PMC 5,325,373 456,259 711,487 1,167,746 6,493,119 Total payments 12,090,901 1,034,218 1,885,264 2,919,482 15,010,383 Surplus / (deficit) for the year 304,575 22,350 (326,925) (304,575) - 23 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 9. ACCOUNTING POLICIES TO THE FINANCIAL STATEMENTS 9.1 Significant accounting policies These are the specific principles, bases, conventions, rules and practices adopted by the Project in preparing and presenting the Financial Statements. The principal accounting policies adopted in the preparation of these Financial Statements are set out below. These policies have been consistently applied to all transactions unless otherwise stated. The specific policies applied are described in the notes below. 9.1.1 Statement of compliance and basis of preparation of the accounts The Financial Statements have been prepared in accordance with Public Financial Management Act (2019), Public Financial Management Regulations (2020) and related legal framework and Cash Basis of accounting in IPSAS 2019. Pursuant to Paragraph (1) and in accordance with Article (43) (2) of the Public Financial Management Act (2019) and Article 94 (1), (2) and (a) and (h) of the Public Financial Management Regulations (2020), the Financial Statements have been prepared using IPSAS, financial reporting under the Cash Basis of accounting in IPSAS 2019 (as issued by the International Public Sector of Accounting Standards Board of the International Federation of Accountants) as set out in the accounting policy note below. The Cash Basis of accounting has been supplemented with appropriate disclosures as required under Article 103 (2) of the Public Financial Management Regulations (2020). The Accounting policies adopted have been applied consistently throughout. 9.1.2 Reporting entity These Financial Statements are for Somalia Capacity Injection Project under the Federal Government of Somalia and encompass the reporting entity as specified in the Public Financial Management Act (2019) and Appropriation Act, 2020. 9.1.3 Reporting currency The functional currency of the Federal Government of Somalia is the USD because: a) Government revenues and expenditures are made in that currency; b) Most of the financing is provided in that currency; and c) Bank transactions and balances are principally in USD. 24 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 9. ACCOUNTING POLICIES TO THE FINANCIAL STATEMENTS (Continued) 9.1.4 Reporting year The Somalia Capacity Injection Project financial year runs from 1 January to 31 December, the calendar year. These Financial Statements are for the year 1 January 2022 to 31 December 2022. 9.1.5 Payment by third parties The Somalia Capacity Injection Project may also benefit from goods and services purchased on its behalf as a result of cash payments made to third parties during the year. Requests for third party payments are processed through the use of country systems, and at the request of the entity, the donor makes payment directly to a third party (for example; supplier, contractor, and consultant) for eligible expenditures. Direct payments are processed by the World Bank upon requests from the Project which are formally advised and verified by the Project and are included in the Financial Statements. On the other hand, and through direct execution, third parties including donors may make payments to external suppliers outside the country systems and provide goods and services including in-kind donations for example food aid, big contract of works, vehicles, equipment, technical assistance or personnel services. The payments made by the third parties outside the country systems do not constitute cash receipts or payments managed by the Somalia Capacity Injection Project even though the entity does benefit from such payments. Such payments are therefore not included in the Statement of Receipts and Payments but are reported and disclosed where the financial value of the goods and services received can be reliably verified and determined by Somalia Capacity Injection Project. 9.1.6 Recognition of receipts The Project recognizes all receipts from the various sources when the event occurs and the related cash has actually been received by the Government. a) Transfers from the treasury and other general government units / entities Where transfers are received from the treasury and / or other general government units / entities, these are recognized in the Project books of account when cash is received. Cash is considered as received when payment instruction is issued to the bank and notified to the receiving entity (Project). 25 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 9. ACCOUNTING POLICIES TO THE FINANCIAL STATEMENTS (Continued) 9.1.6 Recognition of receipts (Continued) b) Other receipts These include receipts such as proceeds from disposal of assets and refunds. These are recognized in the Financial Statements the time associated cash is received. c) External assistance External assistance is received through grants and loans from multilateral and bilateral development partners. Donations and grants Grants and donations shall be recognized in the books of account when cash is received. Cash is considered as received when a payment advice is received by the recipient entity (Project) or by the beneficiary. In case of grant/donation in - kind, such grants are recorded upon receipt of the grant item and upon determination of the value. The date of the transaction is the value date indicated on the payment advice. Proceeds from borrowing Includes external loans acquired by the Project and is treated on cash basis and recognized as a receipt during the year they were received. Undrawn external assistance These are loans and grants at reporting date as specified in a binding agreement and relate to funding for the Project currently under development where conditions have been satisfied or their ongoing satisfaction is highly likely and the Project is anticipated to continue to completion. An analysis of the Project’s undrawn external assistance is shown in the funding summary and in Note 10.2 of these Financial Statements. d) Other assistance Relates to resources received from Non - Governmental Organizations and other assistance that is voluntarily provided by, for example, individuals, private entities and charitable and other organizations. 26 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 9. ACCOUNTING POLICIES TO THE FINANCIAL STATEMENTS (Continued) 9.1.7 Recognition of payments Payments represent outlays of cash made by the entity or other agencies for and on behalf of the Project. All payments are recognized and included in the Financial Statements when cash is paid out. a) Compensation of employees Salaries and wages, allowances, statutory contribution for employees are recognized in the year when the compensation is paid. b) Use of goods and services Goods and services are recognized as payments in the year when the goods / services are consumed and paid for. If not paid for during the year where goods / services are consumed, they are included in the Statement of Financial Assets as financial liabilities with supporting schedules. 9.1.8 Property, Plant and Equipment and other non-current assets Non-current assets comprise land, buildings, plant, vehicles, equipment, and any other capital assets controlled by the Somalia Capacity Injection Project. Purchases of property, plant, equipment and other non-current assets have been expensed fully in the year of purchase. However, these assets are recorded in Property and Equipment Registers at historical cost as a memorandum record. 9.1.9 Comparative figures for previous year Comparative figures are disclosed for all numerical information disclosed in these Financial Statements as required under IPSAS. 27 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 9. ACCOUNTING POLICIES TO THE FINANCIAL STATEMENTS (Continued) 9.1.10 Foreign currency transactions and foreign operations Foreign currency transactions denominated in foreign currencies would be recorded in USD and incorporated in the Statement of Receipts and Payments at the exchange rate ruling on the date of the transaction; Cash balances denominated in foreign currency at the year-end would be translated at the closing rate of exchange with the resulting exchange gains/(losses) dealt with as a reconciling item between the opening and closing cash balances for the financial year. 9.1.11 Cash and cash equivalents Cash and cash equivalents comprise of cash in bank. Bank account balances include amounts held at Central Bank of Somalia at the end of the financial year. 9.1.12 Refunds of previous year receipts and expenditures Receipts refunded from the previous years are recorded as expenditures in the current year. Expenditures refunded from previous years are recorded as receipts in the current year. 9.1.13 Employee benefits Employee benefits include salaries, allowances and other related employment costs and these have been recognized in the financial statements only when actual payments are made. 9.1.14 Contingencies Contingent liabilities are recorded and disclosed when the contingency becomes evident. Contingent assets are neither recognized nor disclosed. 28 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 9. ACCOUNTING POLICIES TO THE FIANANCIAL STATEMENTS (Continued) 9.1.15 Original and final approved budget and comparison of actual and budget amounts The approved budget is developed on the same accounting basis (cash basis), same classification basis (Government Finance Statistics, 2014 economic classification), and for the same year (1 January 2022 to 31 December 2022) as for the Financial Statements. The original budget of USD 4,650,605 was approved by Parliament on 30 June 2022. The original budget objectives and policies, the subsequent revisions and the material differences between the budget and actual amounts, are explained more under Section 1 on overall performance of the Project. A commitment control system is in place and is implemented through the Somalia Financial Management Information System with adequate system of controls to ensure that no expenditure can be incurred in excess of the approved budget as may be revised. 9.1.16 Subsequent events There have been no significant events after the reporting date to the date of signing these financial statements which have a material financial statement impact at 31 December 2022. 9.1.17 Authorization date The Financial Statements of the Somalia Capacity Injection Project were authorized for publication on ________________ 2024 by the Accountant General of the Federal Government of Somalia. 29 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 10. EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS 10.1 Exchange Rates All monetary amounts in the Financial Statements are expressed in USD, the transaction and Project reporting currency. Actual 31 Actual December 31 December 2022 2021 USD USD Somali Shilling (SOS/USD) 26,000 22,500 British Pound (GBP/USD) 0.641584 0.641584 Euro (EUR/USD) 0.825748 0.825748 30 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 10.2 External assistance grants External assistance grants was received in the form of loans and grants from multilateral and bilateral donor agencies under agreements specifying the purposes for which the assistance will be utilized. The amounts in the Statement of Receipts and Payments are only recognized when received by and are under the control of the Federal Government of Somalia. The amount of external assistance received in 2022 consists of the following: Cumulative balances FY 2022 – Year balances FY 2022 - (Project-to-date) current previous 31 December 31 December As at 31 As at31 reporting quarter 2022 2021 December December quarter (4) 2022 2021 A B C=A+B E=C+D D USD USD USD USD USD USD Grants received during the year: Somalia MPF 9642 1,056,569 1,558,339 2,614,908 1,925,149 15,004,393 12,389,485 1,056,569 1,558,339 2,614,908 1,925,149 15,004,393 12,389,485 31 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 10. EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS 10.2 External assistance grants (Continued) Non – compliance with significant terms and conditions There have been no instances of non - compliance with terms and conditions with regard to loan or grant agreements or guarantees which have resulted in cancellation of the assistance or has given rise to an obligation to return the assistance previously given. Undrawn external assistance grants The undrawn grant facilities available to fund future operations under binding agreements and where the terms and conditions are to be met, consist of: 31 December 31 December 2022 2021 USD USD Somalia MPF – World Bank 2,412,607 5,027,515 2,412,607 5,027,515 Undrawn grant facilities relate to an amount of USD 2,412,607 to be disbursed by the World Bank under the Somalia MPF and is stipulated for use for development assistance towards increased access to basic digital financial and government services. There are no restrictions imposed on the undrawn grant facilities other than ensuring that the disbursements for any year are planned and budgeted for using country systems. 32 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 10. EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS (Continued) 10.3 Other cash receipts Other cash receipts represent any domestic (refund) revenues collected by the Project other than Transfers from other Government units. These comprise of the following: Current FY Cumulative balances Current FY Year balances 2022 – (Project-to-date) 2022 - current 31 December 31 December As at 31 As of 31 previous reporting 2022 2021 December December quarter quarter (4) 2022 2021 A B C=A+B E=C+D D USD USD USD USD USD USD Refund received during the year Refund - - - 5,991 5,991 5,991 - - - 5,991 5,991 5,991 33 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 10. EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS (Continued) 10.4 Compensation of employees Principally comprise: Current FY Cumulative balances (Project- Current FY Year balances 2022 – to-date) 2022 - current 31 December 31 December As at 31 As of 31 previous reporting 2022 2021 December December quarter quarter (4) 2022 2021 A B C=A+B E=C+D D USD USD USD USD USD USD Wages and salaries 106,395 44,880 151,275 205,180 971,571 820,296 106,395 44,880 151,275 205,180 971,571 820,296 34 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 10. EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS (Continued) 10.5 Use of goods and services These are mainly: Cumulative balances FY 2022 – Year balances FY 2022 - (Project-to-date) current previous 31 December 31 December As at 31 As of 31 reporting quarter 2022 2021 December December quarter 2022 2021 A B C=A+B E=C+D D USD USD USD USD USD USD Communications - - - - - - Consulting and professional 805,109 1,411,684 2,216,793 914,105 8,841,124 6,624,331 Education and training expense - 77,691 77,691 - 420,334 342,643 Financing costs 7,468 5,257 12,725 22,399 153,550 140,825 Fuel and lubricants 27,800 - 27,800 53,975 169,391 141,591 Maintenance and repairs - 28,860 28,860 4,301 34,714 5,854 Materials and supplies 70,354 62,909 133,263 64,576 903,427 770,164 Other general expenses 9,774 - 9,774 76,516 193,183 183,409 Pension for the services - - - - 306,060 306,060 Travel and conference expenses 1,318 50,409 51,727 105,206 749,927 698,200 Utilities 6,000 6,000 12,000 6,000 95,424 83,424 927,823 1,642,810 2,570,633 1,247,078 11,867,134 9,296,501 35 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 10. EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS (Continued) 10.6 Capital expenditure – consumption of non-current assets. As explained in the accounting polices all Non - current assets purchased during the year are expensed during the year of purchase. The value of capital expenditure acquired during the financial year and expensed comprise of: Current FY Cumulative balances (Project- Current FY Year balances 2022 – to-date) 2022 - current 31 December 31 December As at 31 As at 31 previous reporting 2022 2021 December December quarter quarter (4) 2022 2021 A B C=A+B E=C+D D USD USD USD USD USD USD Property and Equipment - 197,575 197,575 302,000 2,171,679 1,974,104 - 197,575 197,575 302,000 2,171,679 1,974,104 36 Federal Government of Somalia Somalia Capacity Injection Project Report and Financial Statements For the year ended 31 December 2022 10.7 Cash and cash equivalents Comprise cash and bank balances of all bank accounts operated by the Project. It includes bank balances held by the Project at the end of the financial year. Actual 31 Actual 31 December December 2022 2021 USD USD Central Bank of Somalia - XX90 - 304,575 - 304,575 The above amount is restricted to eligible expenditures of the Project in line with the Project Financing Agreement. 10.8 Accumulated funds (Fund balance / surplus) The accumulated surplus as at the year - end was as follows: Accumulated surplus Actual 31 Actual 31 December December 2022 2021 USD USD At beginning of the year 1 January 304,575 133,684 (Deficit) / Surplus for the year (304,575) 170,891 At end of the year 31 December 2022 - 304,575 37