FY 2025 Annual Audit Report (Xisaab-Xirka 2025), Somali Version

The audit revealed that expenditure amounting to $21,390,477.60 was either not supported by complete expenditure documentation or was not sufficiently supported by audit evidence available in the Puntland Financial Management Information System (PFMIS). The details of these matters are set out below:

FINDING 5.1 (A): Expenditure amounting to $5,876,195.55 was recorded in the Puntland Financial Management Information System (PFMIS) as payable to the Puntland State Central Bank instead of the actual beneficiaries. Government expenditure policies require payments recorded in the PFMIS to reflect the actual recipient of the funds rather than the Puntland State Central Bank.

FINDING 5.2 (B): Expenditure amounting to $15,514,282.05 was not supported by complete supporting documentation. This comprised expenditure of $7,360,743.00 paid without the supporting requisition or payment request, and expenditure of $8,153,539.05 paid based on incomplete payment requests that lacked the required signatures and approvals. Consequently, I was unable to verify the occurrence, accuracy and purpose of these expenditures.

I considered this matter to be one of the Key Audit Matters because it could significantly affect the completeness and reliability of the Financial Statements. Government liabilities submitted for audit amounted to $16,354,587.86, comprising liabilities relating to construction companies, employee entitlements and military personnel. During the audit, I identified additional Government liabilities that had not been reported, including liabilities owed to Hantaara Company, utility service providers and Gondogooye Company. This indicates that the Financial Statements did not fully reflect all Government liabilities.

HOW THE AUDIT ADDRESSED THE MATTER: The audit verified the liabilities submitted for audit and performed additional audit procedures to identify other financial obligations owed by the Government. I also evaluated the controls and procedures relating to the recording and reporting of Government liabilities. The audit concluded that improvements are required to establish a comprehensive and centralised register of Government liabilities to enhance the completeness and reliability of financial reporting.

I considered this matter to be one of the Key Audit Matters because the preparation of the Government’s Financial Statements relies significantly on information generated by the Puntland Financial Management Information System (PFMIS) and PUNTCAS. The completeness, accuracy and integrity of information maintained in these systems are fundamental to reliable financial reporting and effective public financial management.

HOW THE AUDIT ADDRESSED THE MATTER: The audit reviewed the controls relating to the use of PFMIS and PUNTCAS, reconciled system-generated information with supporting documentation and the Financial Statements, and evaluated controls over revenue recording, expenditure processing and the preparation of the Financial Statements. The audit identified weaknesses affecting the completeness and reliability of information recorded in the systems and concluded that further improvements are required to strengthen and modernise the Government’s financial management information systems.

While I maintain my opinion on the Puntland Government's financial statements for the year ended on December 31, 2025, I would like to emphasise certain aspects that I consider crucial for a comprehensive understanding of the Government's financial standing.

The total Government Budget for 2025, as approved by the House of Representatives, amounted to $466,840,762.00, comprising $150,513,800.00 under the Central Treasury and $316,326,962.00 relating to off-budget funds, representing both revenue and expenditure. However, the Financial Statements submitted by the Office of the Accountant General to the Office of the Auditor General did not include all financial transactions relating to the Government's approved budget.

This difference arose from funds that did not pass through the Central Treasury Account, particularly those relating to projects implemented by international organizations, United Nations (UN) agencies, international non-governmental organizations, and certain local government authorities.

The Office of the Accountant General provided the Office of the Auditor General with a list of eight (8) United Nations agencies that reported implementing projects in Puntland amounting to $67,749,838.00, which were disclosed in the 2025 Financial Statements (see Note 27). However, the Office of the Auditor General did not receive the supporting financial accountability documentation, including audited financial statements, for these funds and, consequently, did not perform an audit of those transactions.

I draw the reader’s attention to Section 12 (Follow-up of Prior-Year Audit Recommendations) of this report. The audit revealed that a number of the significant findings reported in the previous year’s audit remain unresolved during the current financial year. These include deficiencies in revenue documentation and expenditure supporting documentation, weaknesses in the management and recording of Government liabilities, non-compliance with Government procurement procedures, and delays in the preparation of Bank Reconciliation Statements.

The audit revealed a decline in revenue collections in certain regions compared with the previous financial year. Based on the audit analysis, revenue collected in the Raascaseyr Region declined by 61%, while revenue in the Mudug Region declined by 11% and revenue in the Nugaal Region declined by 6%. The audit also noted that some local governments included budgeted revenue in the 2025 Government Budget, although no corresponding revenue had been collected during the financial year. In addition, the audit found that, in certain instances, Government revenue was retained in cash for extended periods before being deposited into the Government’s designated bank accounts.

These matters are important to understanding the Government’s revenue position and highlight the need to strengthen revenue administration, improve revenue collection procedures, and enhance the monitoring of regional revenue to promote transparency, accountability and effective management of Government revenue.

The audit found that certain expenditures relating to infrastructure development projects and Government services were incurred without complying with the procurement procedures prescribed by law. The audit further identified procurement transactions amounting to $7,098,793.00 for which key procurement documentation supporting the procurement process, including procurement requests, bid evaluation reports and contract award documentation, was not available. These matters are inconsistent with Section 5(1) of the Procurement and Concessions Act (Law No. 8 of 16 August 2000), which requires Government procurement to be conducted in accordance with the prescribed procurement procedures and principles.

The audit identified instances of non-compliance with the legal requirements governing tax administration and revenue management. These included expenditure incurred without the required tax deductions, incomplete supporting documentation for certain revenue collections, and weaknesses in the recording and verification of Government revenue. The audit also noted a decline in revenue collections in certain regions compared with the previous financial year. These matters are inconsistent with the Revenue Act of the Puntland State of Somalia (Law No. 11 of 20 December 2023), Presidential Decree No. 10 of 1 October 1999 relating to Government Treasury Management, and other legal requirements governing the recording and management of Government revenue.