Edward Ireri

Received: 3 August 2016 Accepted: 11 August 2016 DOI: 10.1002/pa.1621 ACADEMIC PAPER Public finance management reforms in Somalia: a case study on Somalia’s finance professionals Mohammed Hersi Warsame1 | Edward Mugambi Ireri2 1 University of Sharjah, Sharjah, United Arab Emirates There is an unprecedented and pressing need for a major legislative public financial management 2 University of Kabianga, Kericho, Kenya reform in Somalia to bolster the technical and professional efforts of implementing a modern Correspondence Mohammed Hersi Warsame, University of Sharjah Box 27272, Sharjah, United Arab Emirates. Email:- system of public financial management across the country. Currently, there is no independent auditing authority to enable citizens to access information on the use of public resources. However, the success of any reform depends on establishing strong public budgeting systems as well as developing strong public finance training programs and policy linkage on financial management policies and procedures. K E Y W O RD S Public financial management, Public financial management reforms, Partial Least Squares (PLS) modeling, Somalia 1 | I N T RO D U CT I O N dates back to all previous governments in Somalia. However, the current government’s effort to improve public finance management Public financial management (PFM) systems facilitate the efficient such as the purchase of the biometric payroll system which automated usage of resources, advocate for the highest level of transparency the payment of the salary of the civil servants is a good step in the right and accountability and guarantee long‐term economic success. The direction. Furthermore, President Hassan government’s call for the need for the reform and transformation of public sector management positions of auditor and accountant general to be filled by competent in sub‐Sahara Africa has been motivated by the fact that state bureau- individuals who can meet the set criteria and the proposal to adopt cracies in Africa are corrupt and lack a sense of responsibility and the standards of the International Organization of Supreme Audit Insti- accountability (Goldsmith, 1999; Hope & Chikulo, 1999). tutions (INTOSAI) is praiseworthy. Published PFM studies have outlined the significance of effective While the initiative to promote and develop public finance PFM systems to service delivery, poverty reduction, and the achieve- management system in Somalia is welcomed, there has not been a ment of the millennium development goals. Although, a significant deliberate study to investigate its key success ingredients as well as amount of literature has been written on the topic of PFM reform in its economic and political stability implications in the country. This Sub‐Saharan Africa, no work has been carried out recently to synthe- study therefore intends to fill in this gap by interviewing Somali experts size its impact on the economic and political status of some countries in the field of financial management to give their opinion on the in this region, especially its impact on countries like Somalia where necessary ingredients for the success of the proposed public finance there has been a constant political and civil unrest. reform system in Somalia and the likelihood of achieving its objectives. Studies carried out by Mohamed and Sheikh‐Ali (2014), highlight the importance of upgrading internal controls and financial reporting systems in Somalia. Similarly, regular and timely publishing of budget 1.1 information to the public as well as the promotion of public participa- Despite the sizable investment in public finance management reform tion in the budget process is crucial for effective public finance (PFMR) in Somalia, the mechanisms of monitoring and evaluation have transparency and parliamentary oversight. been fragile. The assessment of PFMR has been troubled by the | Statement of the problem The authors also support the idea for an active role by the civil absence of performance‐based indicators Aziz (2003) and the unstable society organizations and donor agencies in promoting transparency political environment. Hence, the effect of this shaky PFMR structure and financial accountability. The prevalent corruption in Somalia is on the country’s economic and political stability is yet to be not a sudden phenomenon but rather has built over a long time and established. J Public Affairs. 2017;17:e1621. https://doi.org/10.1002/pa.1621 wileyonlinelibrary.com/journal/pa Copyright © 2016 John Wiley & Sons, Ltd. 1 of 9 2 of 9 WARSAME AND IRERI Conspicuously, donors in most cases opt to offer technical assis- Many African countries influenced by donors have also adopted tance, neglecting the impact, the relevance, and the sustainability of some NPM type reforms, although in most cases with little real the reform. This study therefore seeks to establish the likelihood of progress. Donor(s) have somehow succeeded on influencing majority this reform’s success, expected gains, possible shortfalls at the imple- of African states in adopting some NPM reforms, though with mentation stage, and the trends of the PFMR system in Somalia with diminutive real improvement. The fact that other African countries the objective of correlating it to the current economic and political have tried and benefited from it, suggests that it can help Somalia, stability of the country. however, little the achieved improvement may be. 2 LITERATURE REVIEW | 2.2 | The platform approach This model was designed to counter the hitches identified as the most Throughout the 70s and 80s, the organization for Economic Co‐ obvious reasons for the absence of progress on PFM reforms, which operation and Development (OECD) countries and some developing included the facilitation of genuine government leadership, politically countries stated to review the management of their public sector. The acceptable speed of change, donor harmonization, and greater levels New Public Management (NPM) model emphasized on managerial of trust (Martin & Hinds, 2005). Upon the definition of the platforms, accountability that led to the incorporation of the financial manage- the sequences of the interactive steps are adopted in the action plan ment measures that saw the beginning of a model known as the New together with prior accomplishments for subsequent platforms. Public Financial Management (NPFM). Systematic review studies on The platform approach model had been adopted by majority of OECD nation states confirmed that PFM reforms were swayed by the countries in Asia, Europe, and Africa, though the reforms are at their individual country’s social heritage and politics. primary stages. During the mid‐90s, transferring PFM ideas to developing countries Initial lessons learned from these countries suggest that in order for using a blueprint approach was not viable leading to the acceptance of the platform approach model to be successful, the donors need to give context with “the basic rights” for each country’s state of affairs. government(s) a leading role in the reforms with realistic timescales, In early 2000, developing nations’ governments had achieved approach the reforms with openness and honesty, and the willingness limited success with regard to PFM which prompted to the following to do away with unsuitable projects (Martin & Hinds, 2005). The assumptions: First, budget is more of a political process than a authors of this paper are of the view that, in Somalia’s case, addressing technical process. Secondly, the need for a country to own the reform these issues is the heart of the success of the proposed PMR. programs and its political pledge to sustain them, and third, donor coordination. These assumptions led to the development of three different models on PFM reform. In the coming sections, we will look 2.3 at these models with the objective of examining their major contribu- The Public Expenditure and Financial Accountability (PEFA) initiative tions as well as their relevance to our study. was established in 2001 with the objective of improving PFM systems. | Strengthened approach to PFM reform The PEFA program commissioned a study in 2003 to develop a coordi- 2.1 | New public financial management nated and an effective approach of evaluating and restructuring PFM in developing countries, especially the ones in receipt of significant exter- PM incorporated diverse financial management tools and techniques that nal assistance (Allen, Schiavo‐Campo, & Garrity, 2004). The authors are central in running public services. Extensive public criticism of the identified three hitches with the strengthened approach: first the focus public service led to the introduction of NPM. Manning (2001) explains on diagnostics with countries being over‐diagnosed in terms of PFM that NPM enables managers to manage and ensures that they are reforms; second, lack of country ownership in the PFM reform process; accountable. This system seems to be the most relevant one to Somalia’s and third, most PFM reform projects were often uncoordinated, public finance management system as the implementation of its objec- occasionally competing, and repeatedly overtaxing government tives could greatly enhance Somalia’s public finance management. officials charged with the task of implementing the PFM reforms. NPFM’s goals allows a management culture to be precise cus- Betley (2008) study on the impact of the Strengthened Manage- tomer and results focused. It promotes decentralization of authority ment Approach concluded: first, that the PEFA assessments had an and thus separates policy making from service delivery. The adoption impact on both governments and donors; second, the PEFA assessments of this system could hugely improve the public finance management have led to a direct change in governments’ PFM reform programs in system in Somalia and it could tackle the federal budgetary confusion some scenarios; and third, stakeholders had been provided with the pros that is regularly debated in Somalia. and cons of a broad and evidence‐based view of PFM reform programs. NPFM reforms in OECD countries are influenced by the social, organizational, and political matters that in turn have an influence on the public sector accounting and management. 2.4 | Post‐conflict financial reforms NPFM reforms in Northern Europe have been poles apart Post‐conflict environments have complex challenges with regard to compared with Southern Europe. Newberry and Pallot (2005), PFM reforms, though there are opportunities to improve some of acknowledged some progress, though the expectations were far below these states as they have rich resources. Establishing financial from the initial anticipations. management institutions of governance and solving the basic causes WARSAME 3 of 9 AND IRERI of conflict forms the direct path towards sustainable peace and the Ministry in this respect such as the absence of parliamentary economic growth (Gallagher, 2007). oversight and the lack of comprehensive reporting on the use of International Monetary Fund has alternative approach to PFM public resources were articulated. Whether and how this contributes reform in post conflict countries. According to Gupta, Tareq, Clements, to the current economic state of Somalia is the mainstream subject Sugura‐Ubiergo, and Bhattacharya (2004). The IMF’s alternative matter of this study. approach is based on a three‐step process namely: first, developing a proper legal framework for fiscal management; second, establishing a central fiscal authority and a mechanism for harmonizing foreign assistance; and third, designing and passing appropriate tax policies. Lienert 3 | R ES E A RC H D ES I GN A N D A N A LY T I CA L METHODOLOGY (2005) argues that simple and clear rules can expedite the whole reconstruction process as a government cannot function without resources. The purpose of this study was to examine if the current PFMR system Gupta et al. (2004) advocated for the need for political support, can succeed in Somalia. Purposive random sampling was conducted donor coordination, a flexible approach, and longer time horizons for among Somali finance professionals with specific knowledge and capacity building on the three‐step approach, though Lienert (2005) experiences of the current public finance management system as well argues that the three‐step approach has no alternative solution at ini- the proposed reform to the system. tial phase of postconflict. The three‐step approach is relevant to Soma- A survey questionnaire using a 5‐point scale was designed to mea- lia and in our opinion, addressing the issues stated above are crucial sure the variables in study. The PFMR success factors, the PFMR suc- before the intended fruits of the proposed PFMRs could be realized. cess likelihood, and the expectations of the public finance professionals’ were chosen as the direct measures. The PFMR success 2.5 | Public finance management (PFM) in the contemporary Somalia One of the most obvious indicators of the existence of a good public factors was assessed using four items, the PFMR success likelihood was assessed using four items, while expectations was assessed using two items. They survey instrument did not capture any demographic variables. finance management reporting regime is the robustness of the internal The questionnaire was designed with 10 items as outlined on control systems in detecting fraudulent transitions that violate the insti- Table 1. The questionnaire link on Survey monkey was emailed to gated rules and regulations (Sahgal & Chakrapani, 2000). Apparently, 115 identified Somalis’ finance professionals in the diaspora and in good public finance management requires strong executive support Somalia. We were able to receive 87 complete questionnaires that and parliamentary approval as the highest authority in the land (Interna- were included in the final analysis and the response rate was 75.7%. tional Budget Partnership, 2012). However, establishing solid internal The item characteristics are outlined on Table 2. and external auditing functions is necessary for the day‐to‐day man- This research had three main research objectives as follows: agement of the public finances (Gendron, Cooper, & Townley, 2001). A robust financial reporting system can help a government dis- 1. To find out if Somalis finance professionals think that PFMR can charge its fiduciary responsibilities to the public, the absence of which succeed in Somalia under the current political and economic will no doubt breed corruption and financial malpractice (Wilson, Reck, climate (Success likelihood). & Kattelus, 2010). Subsequently, any accountable government should 2. To examine what Somalis finance professionals perceive are have firm internal control procedures that can document the various the critical success factors of the existing PFMR (Success phases of the budget and facilitate the production of timely financial factors). reports to ensure the budget met its target and any deviation from the norm is properly investigated (United States Government Account- 3. To investigate what Somalis finance professionals think of the expected economic and political stability with respect to the ability Office, 2005). existing PFMR. (Expectations). This study assesses the public financial management in the federal government of Somalia with the objective of understanding the existing public finance management arrangements in light of the concepts discussed in previous sections. The public finance management of the current Federal govern- We used Partial Least Squares (PLS) modeling using SmartPLS software by Ringle, Wende, and Becker (2015) to examine and investigate the three objectives. ment of Somalia suffers from a number of public finance malpractices as it has been declared as one of the most corrupt countries in the world and was ranked the eighth in the world (Transparency Interna- 3.1 | The structural model tional, 2015). Corruption is among the major problems that hinders The coefficient of determination for PFMR success likelihood in progressive development in Somalia (Warsame & Ireri, 2016). Aziz Somalia was 0.395. The endogenous variables with values of 0.67, (2003) stated that assessment of PFM reform progress in Somalia 0.33, or 0.19 are described as substantial, moderate, or weak, had been troubled by absence of performance‐based indicators and respectively (Chin, 1998). Therefore, the coefficient of determination the unstable political environment. However, it is positive that the moderately explained 39.5% of the variance on the Somalis’ Finance government itself admitted this in its self‐assessment report compiled professionals’ expectation on the PFMR success factors in PFMR by the Ministry of planning in 2013 where many of the problems facing success likelihood in Somalia. 4 of 9 WARSAME TABLE 1 AND IRERI Questions for indicator variables and their average weighted scores Expectations on PFMR 1. Planning—There is a planning and implementation deficiencies of the proposed public finance management reform in Somalia (4.64). 2. Transparency—An independent auditing authority system should be established and the public should have more access to information on the use of public resources be established (4.46). 3. Customs administrations—The internal control mechanisms of the customs administrations are not strong enough to prevent the misuse of public resources (4.18). 4. Donor commitment—More donor involvement and domestic capacity building is necessary to ensure the success of the public financial management across Somalia (4.07). PFMR success factors in Somalia 5. Effective strategic use—Effective and strategic use of public resources in development strategies, transparent, and accountable utilization of public resources has enhanced public trust in Somalia’s government (2.22). 6. Strength technical skills—the current parliament in Somalia has the strength and technical skills to drive the public finance management reforms in Somalia (1.89). 7. Accountability—Financial management, budget execution, accounting, and reporting processes are currently good in Somalia (1.59). 8. Oversight—there is an active oversight on public financial management and procurement by parliament, civil society, NGOs, the private sector (1.61). PFMR success likelihood in Somalia 9. Budgeting—the levels of public information on budget intentions or outcomes are strong in Somalia (1.62). 10. Policies Linkage—there are strong policy linkage on financial management policies and procedures in Somalia (2.25). Note: 5‐point Likert Scale; 1 = Strongly Disagree, 2 = Disagree, 3 = Neutral, 4 = Agree, 5 = Strongly Agree. 3.2 Path coefficients | The PFMR success factors in Somalia had the strongest effect on the PFMR success likelihood in Somalia with a path coefficient of the inner model (0.610), while Somalis’ finance professionals’ expectations had the least effect (0.057). The hypothesized path relationships between PFMR success factors and success likelihood in Somalia were statisti- level should be 0.4, though 0.7 is the preferred value (Wong, 2013). Literature by Henseler, Ringle, and Sinkovics (2009) advocates that that a latent variable should explain at least 50% of the variance. The indicator reliabilities of the final model are shown in Table 3. 3.3.3 | Convergent validity testing cally significant. The same findings were revealed between PFMR The convergent validity of the finding was supported by the fact that success factors and Somalis’ finance professionals’ expectations. Thus, the Average Variance Extracted (AVE) had achieved the minimum 0.5 we concluded that PFMR success factors in Somalia was a moderate acceptable threshold. A convergent validity of 0.5 is acceptable for strong predictor of PFMR success likelihood in Somalia. The hypothe- validity testing (Bagozzi & Yi, 1988; Götz, Liehr‐Gobbers, & Krafft, sized path relationships between Somalis’ finance professionals’ 2009; see Table 3). expectations and PFMR success likelihood in Somalia was not statistically significant, meaning expectations was a very poor 3.3.4 predictor of PFMR success likelihood in Somalia. See Figure 1 for the The discriminant validity was well demonstrated as the square roots of R2 values inside the circles and the path coefficients on arrows. AVE’s were greater than the correlations of the latent variables as | Discriminant validity testing Fornell and Larcker (1981) suggests. The discriminant values are 3.3 | Indicators reliability and validity of the structural model 3.3.1 | Internal consistency reliability testing highlighted in bold (see Table 4). 3.3.5 | Structural path significance in bootstrapping The significance of the path coefficients was examined by applying High levels of internal consistency were demonstrated among Somalis’ bootstrapping to approximate the normality of the data. A T‐statistic finance professionals expectations (0.61), PFMR success factors (0.76), greater than 1.96 indicates a significant path coefficient (Wong, and PFMR success likelihood in Somalia (0.83) reflective latent vari- 2013). The bootstrapping findings revealed that the T‐statistics in our ables. The internal consistency reliability of 0.6 or higher is acceptable, path coefficients for success factors → success likelihood, and success whereas a value below 0.6 indicates a lack of reliability (Bagozzi & Yi, factors → Somalis expectations were greater than 1.96 and thus were 1988; Hair, Sarstedt, Ringle, & Mena, 2012; Nunnally & Bernstein, statistically significant (see Table 5). The success factors had significant 1994). Thus, the research questions had high internal consistency results on the success likelihood (t = 4.35; p < .001), and Somali finance values. The reliabilities of each of the reflective indicators in the study expectations (t = 3.38; p = .001). However, Somali finance expectations are shown on Table 3. had no direct significant impact towards the PFM success likelihood (t = .83; p = .408). 3.3.2 | Indicator reliability testing The indicator variables customs administrations, donor(s) commitment, 3.3.6 and accountability were excluded from the final model because their We accessed collinearity in the model by running the linear regression indicator reliability values were less than 0.4. The minimum acceptable analysis of the latent variable scores using SPSS version 22 (IBM Corp, | Multicollinearity assessment testing WARSAME 5 of 9 AND IRERI 2013). The PFMR success factors and Somalis’ finance professionals’ TABLE 2 expectations were configured as the independent predictor latent vari- The characteristics of the survey instrument ables, while the PFRM success likelihood was configured as the depenBudgeting Frequency Percent Strongly Disagree 51 58.6 problem (Hair, Ringle, & Sarstedt, 2011). Thus, the data were free of Disagree 27 31 multicolinearity issues (see Table 6). Neutral 3 3.4 Agree 3 3.4 Strongly Agree 3 3.4 3 3.4 Agree 18 20.7 Strongly Agree 66 75.9 Planning Strongly Disagree dent variable. A VIF of 5 or lower is allowed to avoid the collinearity 3.3.7 | Assessment of the effect size Cohen’s f2 The effect size was calculated using Cohen’s (1988) f2 test. The effect size of 0.02, 0.15, and 0.35 indicates small, medium, and large effect, respectively (Wong, 2013). The Cohen’s f2 value of 0.49 demonstrated that success factors had a large effect on the PFMR success likelihood on Somalis’ finance professionals with regard to the PFMRs being under- Policies Linkage taken by the government of Somalia. In summary, possession of techni- Strongly Disagree 30 34.5 Disagree 33 37.9 Agree 21 24.1 3 3.4 Strongly Disagree 3 3.4 Disagree 9 10.3 Agree 30 34.5 In this survey, we found that majority of Somalia’ finance professionals Strongly Agree 45 51.7 cared much about Planning and Transparency with loadings of 0.751 Strongly Disagree 48 55.2 Disagree 36 41.4 The PFMR success factors had good indicators with loadings of 3 3.4 (0.910) on strength of technical skills and (0.727) on effective strategic Frequency Percent use of public resources in development strategies, while (0.849) on lack Strongly Disagree 48 55.2 of an active oversight on public financial management and procurement Disagree 33 37.9 by parliament, civil society, NGOs, the private sector. The PFRM success’ Neutral 3 3.4 likelihood also had good indicators with loadings of (0.902) on levels of Strongly Agree 3 3.4 public information on budget intentions or outcomes and (0.772) on pol- 9 10.3 Strongly Agree cal skills on PFM, effective strategic use of public resources, an active parliamentary oversight, and accountability were found to have a large impact on the success likelihood of the current PFM reforms in Somalia. Customs administrations Accountability Strongly Agree Oversight Agree | DISCUSSI ON OF THE R ES ULTS and 0.900, respectively. These were good indicators of Somali finance professionals’ expectations on PFMRs. icy linkage on financial management policies and procedures in Somalia. Transparency Strongly Disagree 4 9 10.3 69 79.3 Strongly Disagree 3 3.4 4.1 | What the Somalis finance professionals think about the PFMR success in Somalia under the current political and economic climate (success likelihood) Disagree 6 6.9 In the main model (Figure 1), the PFM reform success likelihood in Neutral 6 6.9 Somalia was being directly influenced by the success factors and the Agree 39 44.8 expectations of the Somali public finance professionals. However, only Strongly Agree 33 37.9 success factors had a significant and positive effect towards the likeli- Strongly Disagree 24 27.6 current PFMR succeeding in Somalia greatly depends on the posses- Disagree 42 48.3 sion of technical skills on PFM by government officials, effective Neutral 9 10.3 strategic use of public resources, having an active parliamentary Agree 3 3.4 Strongly Agree 9 10.3 The weighted scores on budgeting and policies linkage were (1.62) Strongly Disagree 30 34.5 (58.6%) strongly disagreed that the levels of public information on bud- Disagree 42 48.3 get intentions or outcomes were strong in Somalia. These findings were Neutral 12 13.8 similar to Mohamed and Sheikh‐Ali (2014) that highlighted the need for 3 3.4 Somalia in advocating for regular and timely publishing of budget infor- Strongly Agree Donor commitment Effective strategic use hood of PFMR succeeding in Somalia. Thus, the likelihood of the Strength technical skills Strongly Agree oversight body and accountability. and (2.25), respectively. Majority of the Somalis’ finance professionals Notes: The survey instrument was designed using a 5‐point scale. 1 = Strongly Disagree, 2 = Disagree, 3 = Neutral, 4 = Agree, 5 = Strongly Agree. mation to the public and the need for promoting Somalis’ public participation in the budget process. Literatures by Killick (2005); Rakner (2004); 6 of 9 FIGURE 1 TABLE 3 WARSAME AND IRERI Path coefficients indicated on the arrows and R squared value inside the circles (E = 0.395) The results summary for reflective final outer models Latent variable Loadings (L) Indicator reliability (L2) Composite reliability AVE Expectations on PFRM Planning Transparency Indicators - - 0.821 0.702 PFRM success factors Effective strategic use Strength technical skills Oversight - - 0.871 0.694 PFRM success likelihood Budgeting Policies linkage - - 0.826 0.704 Notes: AVE means Average Variance Extracted. TABLE 4 TABLE 5 Discriminant validity test PFRM success PFRM success Somalis Factors Likelihood Expectations PFRM success factors 0.833 PFRM success likelihood 0.622 0.839 Somalis expectations 0.279 0.23 Structural path significance in bootstrapping T‐statistics and p values 0.838 Notes: The discriminant values are highlighted in bold and are greater than the correlations of the latent variables not in bold. Hodges and Tibana (2004) demonstrates that the political economy of the budget process is undermined by inadequate flow of information. Thus, we recommend more public information awareness on budget CIBC Variables interactions T‐statistics 1p values 2.5% 97.5% Success factors → Success likelihood 4.346 <0.01 0.274 0.823 Success factors → Somalis expectations 3.376 0.001 0.163 0.428 Somalis expectations → Success likelihood 0.828 0.408 −0.043 0.227 Notes: CIBC = confidence interval bias corrected. WARSAME TABLE 6 7 of 9 AND IRERI Linear regression unstandardized coefficients and collinearity. Coefficientsa UCoeff. t SCoeff. p CI CS B SE (Constant) .066 .163 .408 .686 −.265 .398 Success factors .509 .176 .460 2.888 .007 .150 Expectations .099 .180 .087 .549 .587 −.268 Model Beta LB UB Tol VIF .868 .938 1.066 .466 .938 1.066 a Dependent Variable: Success likelihood. Notes: CI = 95% confidence interval for B, LB = lower bound, UB = upper bound, SE = standard error, CS = collinearity statistics, Tol = tolerance, UCoeff = unstandardized coefficients, SCoeff = standardized coefficients. intentions or outcomes in order to increase the levels of confidence on In as much as customs administrations and donors’ commitment the PFMR process in Somalia. Meanwhile 35.7% strongly disagreed that were dropped from the final model due to lack of a minimum accept- there were strong policy linkage on financial management policies and able level (0.4) of the indicator reliability, it was worthwhile to note procedures in Somalia. These finding agree with Mohamed and Sheikh‐ that 50% of Somalia’s finance professionals in the study strongly Ali (2014) that emphasized on the need for strengthening the parliamen- agreed that the internal control mechanisms of the customs adminis- tary committee for finance and planning in order to have strong policy trations were not strong enough to monitor or effectively prevent linkage on financial management policies and procedures in Somalia. the involvement of customs officials in aiding custom evasion and Thus, we state that the current policy linkage on financial management fraud. The finding was similar to Mohamed and Sheikh‐Ali (2014) that policies and procedures in Somalia needs some improvement in order Somalia needs to upgrade its internal controls and financial reporting to have credible PFM reforms. systems. Literatures by Sahgal and Chakrapani (2000); United States Government Accountability Office (2005) states that the existence of 4.2 | What Somali finance professionals think of the expected economic and political stability with respect to the existing PFMR (expectations) Expectation was assigned four indicators namely Planning, Transparency, a good public finance management reporting regime depicts the robustness of the internal control systems in detecting fraudulent transitions. Gendron et al. (2001) noted that establishment of a solid internal and external auditing functions is necessary for the day‐to‐day management of the public finances. Customs administrations, and Donor(s) commitment which had weighted Meanwhile, 40.7% strongly agreed that the public financial man- scores of (4.64), (4.46), (4.18), and (4.07) respectively. The expectations agement across Somalia would require a substantial donor commit- of the Somali Public Finance professionals did not have any direct signif- ment to provide financial resources to fund the public finance icant effect towards the likelihood of PFMR success in Somalia. management system and build the domestic capacity necessary to The findings revealed that 75% of Somalis’ Finance professionals’ administer such a system. The finding was similar to Mohamed and strongly agreed that there was need for a major legislative effort to Sheikh‐Ali (2014) that advocated for an active role by donor agencies introduce new financial management architecture to accompany the in promoting transparency and financial accountability. technical and professional efforts of implementing a modern system of public financial management across Somalia. This finding agrees with Mohamed and Sheikh‐Ali (2014) on the need for strengthening the parliamentary committee for finance and planning. A report by International Budget Partnership (2012) affirms that Legislatures have 4.3 | Somalis finance professionals’ perception on the critical success factors of the existing PFMR (success factors) critical roles in management of public finances through budget deci- The PFRM success factors were assigned four indicators, namely, sion‐making responsibilities, approval of the national budget, and sub- effective strategic use, strength technical skills, accountability, and over- sequent provision of oversight as the executive implements the sight had weighted scores of (2.22), (1.89), (1.59), and (1.61) respec- budget. Chene (2012) reported that federal government of Somalia tively. The success factors had a positive and significant effect relies on external sources of funding with widespread misuse of public toward the PFMR success likelihood. Thus, in order for the current resources. Thus, the legislative assembly in Somalia should play their PFMR to succeed in Somalia, the possession of technical skills on part in the provision of an oversight and approval of the national bud- PFM by government officials, effective strategic use of public get. Also 78.6% strongly agreed that an independent auditing authority resources, having an active parliamentary oversight body and account- system needs to be put into practice and the rights of citizens to have ability must be prioritized. access to information on the use of public resources to be established. Majority of the Somalia’s finance professionals (44.4%), disagreed These findings were similar to Mohamed and Sheikh‐Ali (2014) that that effective and strategic use of public resources in development emphasized on the need of regular and timely publishing of budget strategies, transparent, and accountable utilization of public resources information to the public and the need for an effective auditor general. has restored popular trust in Somalia’s government. According to An inadequate flow of information, low public awareness can result to Wilson et al. (2010), financial accountability requires governments to an ineffective budget process in a political economy (Hodges & Tibana, justify the raising of public resources and the purposes for which they 2004; Killick, 2005; Rakner, 2004). are used. Thus, an effective and strategic use of public resources in 8 of 9 WARSAME AND IRERI development strategies, transparency, and accountable utilization of implementing a modern system of public financial management across public resources can restore popular trust in the Somalia’s government. Somalia. An independent auditing authority needs to be established in Meanwhile, 44.4% were in disagreement that the current parlia- Somalia to enable every Somali citizen to have access to information ment in Somalia has the strength and technical skills to drive the on the use of public resources. Finally, the research found that the PFMRs. The finding was similar to Mohamed and Sheikh‐Ali (2014) success of PFMR in Somalia largely depends on establishing strong that found the need for an effective auditor general in Somalia. The PFM systems on public budgeting as well as developing strong public same finding was documented by the ministry of finance and planning finance training programs and overall public finance fiduciary who revealed weak parliamentary oversight over public financial man- procedures. agement functions (Federal Republic of Somalia, 2013). Lack of capac- In summary, the likelihood of the success of the current PFMRs in ity can result to an ineffective budget process by the accountability Somalia largely depends on possession of the relevant technical skills institutions (Hodges & Tibana, 2004; Killick, 2005; Rakner, 2004). on PFM by government officials, effective strategic use of public Majority of the Somalias’ finance professionals (51.9%) strongly disagreed with the notion that the financial management, budget resources, having an active parliamentary oversight body and accountability. execution, accounting, and reporting processes were currently good in Somalia. Notably 53.6% strongly disagreed that there was an active oversight on public financial management and procurement by parliament, civil society, NGOs, and the private sector in Somalia. The finding was similar to Mohamed and Sheikh‐Ali (2014) that advocated for an active role by the civil society organization in promoting transparency and financial accountability. RE FE RE NC ES Allen, R., Schiavo‐Campo, S., & Garrity, T. (2004). Assessing and reforming public financial management: a new approach. Washington World Bank. Aziz, T. A. (2003). E‐Government: impact on transparency and anti‐corruption. In impact on transparency and anti‐corruption). E‐Government: Washington, DC: World Bank Workshop. Bagozzi, R., & Yi, Y. (1988). On the evaluation of structural equation models. Journal of the Academy of Marketing Science, 16(1), 74–94. 5 | PRACTICAL IMPLICATIONS Betley, M. (2008). Assessing the impact of the PEFA framework. Oxford: Mokoro. This study has revealed that in order for the PFM reforms to succeed a Chene, M. (2012). Overview of corruption and anti‐corruption in Somalia. country such as Somalia or any country that has volatile political and Chin, W. (1998). The partial least squares approach to structural equation modeling. In Modern Methods for Business Research (pp. 295–358). Mahwah, NJ: Lawrence Erlbaum Associates. economic climate, four main factors needs to be prioritized: 1. Refresher training courses for government officials with regard to enhancement of technical skills in relation to best practices in public finance management. 2. There has to be an effective and strategic use of public resources to minimize corruption in all levels of government sectors and also prioritize the most immediate needs of their citizens (Warsame & Ireri, 2016). 3. There has to be an active parliamentary oversight body that will monitor government expenditures in line with the country’s budgetary systems. 4. Lastly, every government official needs to be held accountable on any approved government expenditure signed by them. Without any accountability, then the level of corruption and misuse of public funds remains rampant thus reducing the level of trust on the PFMRs. 6 | C O N CL U S I O N In recent years, there has been a considerable amount of literature written on the topic of PFM reform in Sub‐Saharan Africa. However, we have not come across any empirical work looking at the key ingredients for the success of such reforms in various countries where such reforms were proposed and Somalia is not an exception. The research found that a major legislative public financial reform should be instigated to enhance the country’s financial management architecture and strengthen the technical and professional efforts of Federal Republic of Somalia. (2013). Public financial management self‐ assessment report and proposed public financial management strengthening initiative (2013‐2016). 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Partial least square structural equation modeling (PLS‐SEM) techniques using SmartPLS. Marketing Bulletin, 24. Mohammed Hersi Warsame received his PhD in Banking and Finance from Durham University (UK). Dr.Warsame also holds two prestigious professional qualifications, namely, ACCA (Chartered Certified Accountant) and CIPA (Certified Islamic Professional Accountant). Dr. Warsame is currently a faculty member and the chairman of the Department of Finance and Newberry, S., & Pallot, J. (2005). A wolf in sheep’s clothing? Wider consequences of the financial management system of the New Zealand Central Government. Financial Accountability & Management, 21, 263–277. Economics at the University of Sharjah, UAE. Nunnally, J., & Bernstein, I. (1994). Psychometrictheory (3rd ed.). New York: McGraw‐Hill. director at Smart Health EQAS Consultants Limited Company, Rakner, L. E. (2004). The budget as theatre: the formal and informal institutional makings of the budget process in Malawi. Bergen: Christen Michelsen Institute. finance and health statistics, multidisciplinary research collabo- Ringle, C., Wende, S., & Becker, J. (2015). SmartPLS 3. Bönningstedt: SmartPLS. Mr. Ireri Mugambi Edward is the senior research scientist and with over 10 years of experience. His main interests are in rations, survey analysis, SEM, and CB‐SEM modeling. Mr. Ireri is currently the research assistant at the University of Kabianga in Kericho, Kenya. The author has published papers with the Journal of Public Affairs, and the East African Medical Journal. Sahgal, V., & Chakrapani, D. (2000). Clean government and public financial accountability. Washington, D.C: World Bank, Operations Evaluation Department. Transparency International (Producer). (2015), October 2. Transparency International Corruption Perceptions Index. Transparency International Organization. Retrieved from http://www.transparency.org/cpi2014/ results How to cite this article: Warsame MH, Ireri EM. 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