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The Importance of Accounting (from Governmental perspective) – By Abdiwali Mohamed Qarboobe.

This short article is response to the report by the World Bank that the Somali government has not accounted for majority of the revenues and donations it received in 2009 and 2010. This is not new information as most Somalis are aware of these type of asset misappropriations.  According to the report, between 2009 and 2010, the Somali government collected and received a total of $164M; out of these funds only $23M was reported! This means that for every $1 that was collected and/or donated; only $0.14 was actually accounted. This is unprecedented as the government tries to win the hearts and minds of Somali citizens and its partners as it goes from a transitional government to permanent government.  With strong accounting system, and public disclosure of funds through financial statement disclosures, the mismanagement of funds could have been prevented.  For more information of the article, please see the link below:

http://www.voanews.com/content/report-somalia-has-not-accounted-for-majority-of-funds/1145803.html.

As Certified Public Accountant (CPA) and Chartered Global Management Accountant (CGMA), I will like to explain the importance of accounting from a government’s perspective.  My article will be divided into the following four sections; (1) Introduction to accounting, (2) Importance of a strong accounting system, (3) Importance of publicly disclosing governmental financial statements and finally (4) Benefits publicly available financial statements.

Introduction to accounting

The word “accounting” may be described as the process of identifying, measuring, recording, and communicating economic information to permit informed judgment. Accounting is often called the “language of business.” In order for accounting to work all the important elements of identifying a transaction, measuring the transaction on basis of its value, recording the transaction at the appropriate time, and communicating the information through reports such as financial statements reports must happen all together.  These elements must fit together in order for it to be called accounting. This might sound foreign to an individual who is not familiar with the process, but think of accounting as a statement of reasons, causes explaining some event.

Importance of strong accounting system

What is an accounting system?  It is an organized set of manual and computerized accounting methods, procedures, and controls established to gather, record, classify, analyze, summarize, interpret, and present accurate and timely financialdata for managementdecisions.. Most people in America are familiar with QuickBooks, Peachtree, and Oracle based software’s like PeopleSoft as an enterprise accounting system (EAS).  In the World Bank report, the Somali government was accused of not having real accounting system. How would an institution publicly disclose financial statements when it does not have “real accounting system? By not having a system that summarizes the operations of business or government, the risk of fraudulent financial reporting is high.  Lack of these types of controls breeds’ incentives to commit fraud, and justify the fraudulent behavior of misappropriating taxpayer and donor funds.

How do you detect and mitigate fraud risks?

There is no software or accounting application that can detect fraud 100%.  One must understand that one of the best ways to detect and reduce the risk of fraud is segregation of duties which provides separation of authorizing, recordkeeping, and custodial functions.  By implementing this type of control, the institution ensures that individuals do not perform incompatible duties hence the limiting of fraudulent behavior.  However, there is always an opportunity of collusion, which is a secret agreement between two or more people for an illegal or deceitful purpose.  If we go back to the report published by the World Bank again, it states that “donations are often given directly to individual government members and does not exactly specify who and how.” This is one of the first signs of misappropriations of assets/funds, misstatements arising from fraudulent financial reporting, as there is excessive involvement of nonfinancial management in selection of the accounting process.

Importance of Publicly Disclosing Governmental Financial Statements

I was in primary school when the central government of Somalia collapsed and was not familiar with the financial statement disclosures that the government of Somalia provided publicly.   Several months ago, I had conversation with one of my clients who mentioned the agency that performed the responsibilities of auditing and disclosing governmental financial statements.  The agency was called “Hanti Dhowrka Qaranka” or as it is translated (literally) in English, “the Guardian of State Assets/Funds”.  As a Somali-American, I believe “the Guardians of State Assets/Funds” is equivalent to the Government Accountability Office’s (GAO) of the United States of America. If you need to know what the GAO does and its mission, please visit their website at http://www.gao.gov.

The importance of publicly disclosing governmental financial statements is that we taxpayers and other stakeholders get an opportunity to review the books of our government.  Our focus will mainly be on operational and fiscal accountability.  From operational perspective, we will review the financial statements to the extent to which the government has met its operating objectives efficiently and effectively.  From fiscal perspective, we will review the government’s actions in the current period to see if they have complied with the public’s decisions concerning the raising and spending of public funds. If there was a policy or rule of law that enforces the publication and disclosures of governmental financial statements and there were concerned citizens about the operational and fiscal responsibility of the Somali government, 84% of revenue and donated funds would not have been siphoned out of the state treasury! This is why it is important to have annual financial statements published.

Benefits of strong accounting and accounting system, and publicly available financial statements from a governmental standpoint

There are many benefits to having strong accounting, accounting system, and publicly available financial statements.  I will list several key factors:

  • A government that is more efficient, effective, ethical, equitable and responsive to its taxpayers and stakeholders,
  • A moderate infrastructure that supports the economy of local and international businesses,
  • Flow of foreign investment due to strong government that is transparent, and ethical, and
  • Motivated and involved citizens about local and federal government. This might be beyond just writing a tax check and saying I have fulfilled my citizenship duties!

Conclusion

I hope I have educated the readers about basic accounting and the fundamentals of accounting.  My goal was to raise awareness on the mismanagement and misappropriation of state funds and assets and how we can change the mind of our current country Comptroller General.  We, as Somalis or Somali-Americans have fiduciary responsibility to make our government accountable to us.  After all, they are caring our name “Soomaaliya.”

Abdiwali Mohamed Qarboobe, CPA, CGMA, MST, works for a fortune 100 company as Senior Accountant and also owns his own accounting firm in Seattle and is a citizen-observer of Somali politics. He routinely writes about Somalia and can be reached by E-mail: Digix252@gmail.com.

 

 

 

Allgedo News Media Network
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