From cash in envelopes to automated bank payments. This is a story of how a national payroll system in was built over a few months.
How the government payroll in Somalia was established so extraordinarily quickly
It is a little known success of Somalia. That is, except for the thousands of public sector workers who now receive their salaries on a regular basis.
Few thought it possible. To turn around the public financial management practises so quickly. To provide a boost to the public administration and institutional capacity amidst the very poor financial management systems in a war thorn country
In Somalia, the core institutions of government had been broken for decades. This payroll reform happened in a country riddled with difficulties, but also one that is also rapidly changing, for the better.
In Somalia, the government payroll system was established over a hectic period, mid-year 2013. The first salary payments were made on August 28, 2013, only six weeks after the program started. Salaries have been since been delivered almost every month and the payroll system has grown in scale, sophistication and robustness.
Four years later (2017) the core salary system still delivers. It has become more sophisticated. Salaries are disbursed electronically and there are very few mistakes and errors. The civil service has grown as state capacity has grown.
The reforms are replicated across other sectors of public administration. Similar concepts are being designed and implemented for health workers, teachers and security personnel. As well as for local government and other federal member states. All building upon the core principles of the reforms of 2013.
1. What was the scope of the reforms?
From a professional point of view, this was a reform push like no other I have seen. The scope and depth of the technical challenges was mindboggling. It ranged from basic personnel registration issues, via complicated treasury and accounting operations, to establishing payment solutions, central banking operations and international correspondent accounts.
It involved technologies, for HRM, for financial management and for banking. It involved work procedures cutting across institutions and it involved redefining roles and responsibilities for hundreds of technical actions. This takes years in the typical PFM program. Here it happened on an extreme accelerated path.
We initially though that establishing a payroll system in a fragile and conflict affected state would be relatively “easy”. Pretty soon, however, we realized that this was a challenge like no other. It far exceeded the complexities of the corporate and developed country government reforms we had been engaged with throughout our careers as management consultants and auditors.
The reforms of 2013, and subsequent enhancements, focused on three main problems:
(i) Human Resource Management
- The starting point was that personnel files and appointment letters were in a “box”. There were some files, rudimentary lists drafted on personal laptops of enthusiastic staff, and a basic identification card system was just launched. Much to build on.
- Key questions were about establishing authoritative registries and processes for ensuring that only legitimate staff were paid salaries. This principally focused on establishing personnel registries and supporting processes and tools. This ensured integrity of the registries at starting point, and also that they are maintained over time.
- Today, there are proper archives, and electronic registries and HRIS systems linked to the government financial management information system. Ghost workers have been cleared off. Work procedures have been established and embedded in the organizations.
(ii) Financial authorizations and treasury management
- The starting point was a very basic formal approval and controls process. It built upon remains of the government procedures that were established in the 1960s. Forms and paperwork were in the original colonial languages. The process was not controllable or auditable.
- Key issues was about the basic financial management processes of the treasury. In most fragile and conflict affected states, these systems have a basic functionality. Not quite so when this started in Somalia in 2013. Quite unexpectedly, the work also had to focus on rebuilding core treasury and accounting operations. A World Bank sponsored SFMIS implementation was commencing at the same time which helped stabilize the situation and create opportunities for linking the HR information stems to the financial systems.
- Today, the treasury operations of government has grown more robust and handles transactions beyond the payroll. Much effort was made in 2013 to ensure that the principles built into treasury and accounting, were scalable beyond payroll, so that they could serve the nations financial management needs for decades and not just for a project.
(iii) Banking and payment solutions
- The starting point was a very rudimentary cash disbursement process from the central bank to the management of line ministries. The interfaces between the Ministry of Finance/treasury and the Central Bank were rudimentary to say the least. Linkages between the central Bank and the private financial institutions were non-existent. The Central Bank was lacking linkages to the international financial markets, necessary to receive funding from the World Bank and other donors. A number of international banks refused to work with the central Bank of Somalia. The private institutions themselves had limited capability, and more importantly, with no financial regulation, supervision and oversight. There was no formal credibility of the sector in the eyes of the international financial markets and regulators. All this had to change.
- The list of issues to resolve here was very long. It included improving interfaces between MoF and the Central bank, meaning establishing sound protocols and practises for sending payment information and reconciling the accounts. It had to deal with accounting and core banking operations to ensure that payments were processed and accounted for appropriately. It had to resolve the international connectivity problems of the Central Bank, and it had to resolve the last leg of the payments to the civil servants. A basic national clearing and settlement process was designed and implemented as part of the efforts.
- Today the payment infrastructure is much more robust. The Central Bank and MoF interfaces are much more functional. Core banking and accounting is stronger. The Central Bank as several functioning correspondent banking relationships. The Central Bank can disburse payments and collect revenue, through established systems for engaging with commercial banks. Salaries are paid directly to commercial bank accounts held by each civil servant. The international credibility of the financial sector remains of Somalia remains a challenge, but efforts are underway to strengthen formalization of the sector.
2. Benefits of the reform
Payroll reform can have significant benefits. Directly, building the national payroll system ensured that government was able to disburse salaries more effectively top thousands of public sector workers and their families.
Beyond these direct benefits, this is about strengthening institutional capacity. Its capacity building in the most sustainable meaning of the term.
State capability has been significantly strengthened and this is not going away anytime soon. Paying staff regularly has helped strengthen credibility of the Federal government and contributed to its stability.
There is a direct impact on human resource management in the public administration. I.e recruitment and selection, good job descriptions and performance appraisals do little to boost motivation if public workers are not paid, or paid unregularly, or if the managers keep parts of the salary. Robust payroll systems helps strengthen human capital. It motivates employees, makes the state a more attractive employer (which is not a given after a civil war).
Payroll reforms, included developing information systems, have provided a boost to the planning capability, as well as to the ability for financial control and audit. There was no possibility or management capacity to engage strategically with these issues before the reforms.
The payroll reform also gave a considerable boost to the broader public financial management (PFM) reforms. At a technical level, it helped strengthen budget execution. This helped Government get better control of expenditures and ensures that both tax and international development aid is spent more targeted and not misdirected.
The reforms also gave a boost to the credibility with the international community. This helped set Somalia on a path to support from the multilateral institutions. The World bank adapted supporting the process. The World Bank now provides aid to Somalia, and uniquely, using entirely the country systems developed then. Quite unprecedented for a fragile and conflict affected state. It also gave a push to the IMF managed debt relieve process and the staff monitored program (SMP). This helped significantly in setting Somalia on the path to debt relief.
This note focuses on the process of problem solving during those intense weeks in 2013. We review the initial design considerations, the trade-offs that were considered as well as the developments that have subsequently taken place.
We identify the key factors that contributed to the success and hopefully inspires others, as these approaches can be replicable across sectors and other fragile and conflict affected states.
3. Capturing the political window for reform and moving quickly
This was a unique moment in the history of the country. it was also a unique moment where all the stars were aligned for reform.
Speed is a friend in such circumstances. Moving quickly and creating a momentum for the reform makes it less likely to be bugged down in resistance and bureaucratic delays.
A newly formed government had recently gained international recognition. There was a sharp focus, from the President and other key leaders, to move quickly.
Politics were still challenging. Three central Bank governors, highly public and controversial resignations, two ministers of Finance, and much international scrutiny of financial governance during some hectic months of 2013 provided quite volatile working conditions for the reform.
There was alignment with the international partners. The development of the payroll system was motivated in part by the promises of financial support for salaries by a bilateral donor, under the condition that a credible payroll system could be put in place.
The work was powered by a group of highly capable Government officials, advisers and political leaders from the many government institutions that have important functions in the payroll system and public finance. The contributions of individuals were heroic, as it often is, in countries where institutions are broken. Technical assistance was made available quickly. An international consulting firm was provided by the donor and since by the World Bank (Abyrint) and supported design and implementation.
4. Starting point: Salaries paid in cash through management, or not at all
The initial situation was one of mostly irregular salary payments were mostly irregular and distributed in cash by trusted officials. Few were happy with the existing solution. This possibly contributed to the political economy dynamic that enabled the success.
Institutions almost always have legacy systems and that was also the case in this instance. While the Government legacy system may have been effective back in the day, it was surely broken in 2013.
The presence of legacy systems also meant that critical building blocks were in place: institutional structures and processes originating from decades ago when this was a functioning state. Certain elements were working reasonably well while others were either absent or dysfunctional. Most importantly, the interfaces between the components were particularly ineffective. Rebuilding was needed but many of the parts already existed.
There were also challenges arising from the difficult financial situation of the Government. This could lead to implementation problems due to the lack of liquidity to pay civil servants on a regular basis.
Donor’s advance financial contributions helped to alleviate this, but, for about six to nine months into implementation most of the cost was “fronted” by government itself. This indicates that, at the time, availability of financing was not the binding constraint. The lack of technical systems were the binding constraints and this had to be rebuilt.
5. Sharp focus on minimal critical actions and long-term sustainability
The design and implementation was based upon five core principles:
- The system should be based entirely on using country systems, government institutions and capabilities.
- It should be workable with the existing capacity constraints and not require a build-up of temporary structures that would need to change soon.
- Government should run with it entirely on its own, using its regular staff and organizations.
- Beyond the initial investment in international management consultants, there should not be need for external input for the payroll system to function.
- The system should be aligned with existing structures and processes.
- Hundreds of marginal improvements, building upon the legacy systems from the 1960s. The government made small investments in technology, mostly by tweaking existing, and off-the-shelf solutions, already in use in public institutions.
- Significant changes only in a few areas that had to be fundamentally changed, and adding new functionalities only were it was critically needed.
- This would help ensure fewer implementation hiccups and immediate traction.
- The system should provide basic functionality and have few bells and whistles.
- A payroll in a developed organization is a very complex mechanism with many dependencies on other institutional functions.
- This payroll system had to function when many .
- The system should be scalable both in numbers and in functionality.
- Subsequent improvements could be built upon the foundations established in 2013.
- It should be capable of handling major upward shifts in quality and scale at later stages without a need to redesign the core.
- It was planned for quick but gradual implementation.
- With opportunity to learn and adjust during the first 6 to 12 months.
- Incremental improvement ideas were to be handled within the parameters of the original structure.
The list above was not literally agreed upfront. It came out of the diagnostics and analytics conducted over the first few weeks of the project.
Decision making was very iterative. Political leadership provided direction on key issues, including on the choice to build exclusively upon government institutions. Technical leadership had autonomy enough to make several calls that sped up implementation.
6. Much analytics of problems and on design of possible solutions
Much attention was paid to initial diagnostics of the payroll value chain. The analytics focused on mapping the extent and quality of the existing system and on the capabilities for change as well as the range of possible solutions given resource and time constraints.
The viability of future concepts was also analyzed. Existing processes included core civil service registries and HR processes as well as related workflows in treasury, accounting and payment systems of the government.
Much attention was also give to the understanding of available technological solutions in use by government. Traditional manual accounting procedures could be adopted; registries could be created from letters and text lists. Biometric authentication techniques established for other purposes in government could also be tweaked and integrated in the final approach.
The role and capabilities of the organizations involved and the legal and regulatory frameworks. This also extended to indirectly related issues; banking and international financial transfer arrangements that were embryonic, at best, at that time.
Problem-solving for designing the process was largely conducted in parallel with the analytics. This was innovation as a production process: not a “eureka” moment, nor was it sequential or linear in the approach.
Step-by-step, back-and-forth, the team moved closer to designing a workable solution. As in many good problem solving processes, this was done by identifying several initial issues and solutions; quickly discarding many of them, and deliberately move towards a workable solution.
7. On the heroes
This is primarily the story of a highly capable government team.
Creating something like this requires a few heroes. Government had just enough of those in-house to pull this off. A small team led the design involving not many more than 2-3 people at the core, from government. Other relevant people from government supported the project when and as needed. In addition, an integrated international consultant team helped analyze, structure and guide the problem solving process, on the ground.
The design team from the government has since moved on to other ventures. And that is quite normal. Just like in a big business, people with such skills would perhaps be assigned to internal consulting and strategy teams, tasked with supporting change and not involved in the line. The payroll system is now entirely operated by the line staff in government.
Scaling up and replicating the reforms
A momentum was created as soon as the original concept went live. Government quickly scaled up over the first six months. Today, 99 percent of the civil servants are paid individually and more or less monthly, through this system. Current constraints are almost entirely related to government financing and liquidity.
A second push for improvement took place during 2014. This included the digitization of the systems, building of HR management software, and the reinforcement of certain practices. Another digital push came in first half of 2015, to link in electronically with the emerging treasury accounting system.
A third push for improvement is expected later in 2015/2016, to link the payroll system with banking payment systems. The designs are done and implementation is expected soon. The project is set to follow the same principles as for this first success story: a critical path and minimum requirements with highly customized and workable solutions for the context.
Subsequent reforms may involve aspects of human resources more substantially, including enhancing recruitment practices. At some point, there may also be a need for increased sophistication to adjust for time and attendance and to handle exceptions. There will also be a need to adjust for the social laws and regulations, which, to a large extent, do not currently exist in the country. However, the system foundations and practices are in place.
The same design principles have since been adapted across other sectors, security, teachers and health workers.
IMF has subsequently tagged conditions of the Staff Monitored Program (SMP) to expanding the payroll reforms, including for the security sectors.
8. Agile approaches by donors
There is also an external side to this story that may provide some lessons for design of aid programs and technical assistance.
There are important issues of dependencies and financial sustainability when external donors finance recurrent costs such as a payroll. Such issues will not be addressed here.
For this note, our interest is to focus on successful reform elements. It is quite possible that the institutional reforms were propelled by promises of external financing, but the configuration of the support and technical assistance in itself also contributed.
Firstly, the bilateral donor supported the developments financially and politically. The donor team approached this with much enthusiasm and creativity. The donor provided financing for the initial strategy, design and implementation support as well as for the financing of the payroll for the first 11 months of its existence. The financing of the payroll was provided on a reimbursement basis: the Government received funding only after verification that salary payments had taken place in the appropriate manner.
It is not unheard of, but it is not all that common for bilateral donors to operate with such determination and flexibility in post-conflict countries. As demonstrated here, it can be highly effective.
Secondly, the World Bank took over the external financing of the payroll from July 2014. This provides more predictability and a longer-term horizon for the financial support.
Importantly, the multilateral financing operation would not have been able to commence as early as it did if it were not for the initial system being built and tested during 2013. This is the first major program allowing for multilateral reengagement with this Government.
Thirdly, the international support for strategy and system design was organized in a very similar manner to how such work would have been organized in a mature market, for a big business or government. This includes contracts and governance arrangements focused on high level outcomes, timing and budget. The dialogue was close and took place in a trusting environment between all parties. The problem solving approaches were determined by the government and the consultant team and not prescribed in a Terms of Reference. The mandate was to “make it functional”.
x. Links to external documents
Updated analysis of wage bill management and payroll system in Somalia here (external link)
Ivar Strand and Ian Hawley are partners with Abyrint.