RECENT DEVELOPMENTS IN THE AREA OF PUBLIC INTERNAL FINANCIAL CONTROL IN TURKEY AND THE RELATIONS WIT

1
RECENT DEVELOPMENTS IN THE AREA OF PUBLIC
INTERNAL FINANCIAL CONTROL IN TURKEY AND THE
RELATIONS WITH THE EUROPEAN UNION

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PUBLIC FINANCIAL MANAGEMENT-1

• Public Financial Management, covers the
  institutions and processes related to the
  management of public resources. This process
  consists of three stages.
• Determination of policies and priorities
• Allocation of the resources of the country in
  accordance with the specified policies
• Establishment of control and audit mechanisms
  aiming to ensure the economical, effective and
  efficient acquisition and utilization of public
  resources
• Ability to execute the fiscal policy in an
  effective manner depends on the capacity of the
  public financial management.

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PUBLIC FINANCIAL MANAGEMENT-2

• Determination of the policies and priorities
• A government which operates efficiently is
  required to make strategic decisions considering
  also the resource constraint, to make medium term
  plans in order to implement these decisions and
  to form a budget in a way to support these
  policies.
• This depends on reinforcing the policy production
  capacity and the budget processes.

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PUBLIC FINANCIAL MANAGEMENT-3

• Allocation of the resources in accordance with
  the determined priorities Budget
• Budget
• is the allocation instrument of the limited
  resources.
• is the instrument of realizing economic plan and
  policies.
• is a basic political choice indicating what
  amount of the common public needs is to be
  covered by the government.
• is the financial reflection of the government
  policy.

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PUBLIC FINANCIAL MANAGEMENT-4

• Establishment of the mechanisms relating to the
  control and audit of the utilization of public
  resources
• These mechanisms are called financial control.
• Internal Control
• Financial Services Unit
• Ex ante control
• Ex post internal audit
• External Audit
• Another element of the audit mechanism is
  financial reporting and the existence of a budget
  code structure and government accounting
  compatible with this. Improvement of financial
  reporting is among the main factors of
  transparency and accountability.

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CRITICISM OF OUR PUBLIC FINANCIAL MANAGEMENT
SYSTEM -1

• narrowness of the financial management system and
  the scope of the budget
• increase in the extra-budgetary expenditures
• break of the link between the development plan
  and the budgets
• failing to use public resources in an efficient
  manner
• spending process is subject to a strict
  preliminary control
• failing to strike a fine authority-responsibility
  balance in the spending process
• not enough initiative is provided to the
  administrations in the course of budget
  preparation, execution and control process

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CRITICISM OF OUR PUBLIC FINANCIAL MANAGEMENT
SYSTEM - 2

• Narrow scope of the audit of the Court of
  Accounts
• Insufficiency of the budget code structure
• Insufficiency of the accounting system
• The system does not include the principles of
  strategic planning, multi-year budgeting,
  performance based budgeting, accountability,
  fiscal transparency, efficient internal financial
  control, which are predominant in the modern
  concept of public financial management
• Insufficiency of the automation and information
  system of the financial management

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TRANSFORMATION IN PUBLIC FINANCIAL MANAGEMENT

• Defects of the current system
• Internal factors
• Increasing public sensitivity in terms of the
  utilization of public resources
• Transformation demands formed in the public
  sector and academic circles
• External Factors
• The European Union harmonization process.
• Relations with the IMF and World Bank

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TRANSFORMATION ACTIVITIES IN PUBLIC FINANCIAL
MANAGEMENT

• The following include certain changes
  considered to be made within the framework of the
  criticised issues
• 8th. Five-year Development Plan
• Report of the Specialization Commission
• Programs of 2001, 2002, 2003
• National Program (2001),(2003)
• Accession Partnership Document
• Letters of Intention to IMF
• Action Plan for increasing transparency in Turkey
  and improving efficient management in the public
  sector
• Government Program and the Urgent Action Plan of
  the 59th Government

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NATIONAL PROGRAM (2003)-1

• As regards the chapter 28-Financial Control of
  the Negotiation Topics
• Adoption of the public internal financial control
  legislation, in compliance with EU practices,
  international control and auditing standards,
• Strengthening the administrative capacity for the
  prevention of irregularities and fraud
• Development of the external audit areas in
  compliance with international standards

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NATIONAL PROGRAM(2003)-2

• Economical, effective and efficient management of
  resources,
• Prevention of irregularities and fraud
• Gathering timely and reliable information
• Concentration of the control and audit activities
  on the most risky areas determined according to
  objective risk management analyses

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NATIONAL PROGRAM(2003)-3

• As regards the institutional structure
• Establishment of Internal Control Harmonisation
  Unit
• Establishment of Internal Audit Coordination
  Board
• Implementation of systematic and comprehensive
  training programs for the training of internal
  auditors and those who are involved in the ex
  ante control process
• Establishment of a computer network between the
  Board, Ministry of Finance and the Spending
  Agencies,
• Assigning sufficient number of internal auditors

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NATIONAL PROGRAM(2003)-4

• As regards the external audit
• Amendment of the Law on Turkish Court of Accounts
• Improvement of the external auditing standards
• Strengthening the administrative and
  institutional capacity
• Utilization of Computer Assisted Audit Techniques

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KEY CONCEPTS OF THE NEW FINANCIAL MANAGEMENT AND
CONTROL SYSTEM

• Managerial responsibility model
• Effective, economical and efficient utilization
  of resources
• Strategic planning
• Performance Based Budgeting
• Multi-year Budgeting
• Accountability
• Fiscal Transparency
• Accrual Based Accounting
• Internal Control System
• Efficient Internal Audit
• Broad-scope external audit

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NEW REGULATIONS IN THE PUBLIC FINANCIAL
MANAGEMENT SYSTEM

• Law on the regulation of Public Financing and
  Debt Management, No 4749
• Public Procurement Law, No 4734
• Public Procurement Contracts Law, No 4735
• Public Financial Management and Control Law, No
  5018
• Budget Coding Structure
• Accounting System
• Special Revenue and Special Appropriation Law No
  5217
• Turkish Court of Accounts Draft Law
• Personnel Draft Law

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PUBLIC FINANCIAL MANAGEMENT AND CONTROL LAW

• Scope of the financial management and the budget
  has been enlarged
• Accountability and fiscal transparency is
  achieved
• The principle of effective, economical and
  efficient utilization of the resources is
  introduced
• Initiative of the administrations is increased
• Strategic planning and Performance based
  budgeting is introduced
• Multi-year budgeting is introduced within the
  framework of medium term expenditure framework
• Unity of Accounting in the public sector is
  ensured and publication of the fiscal statistics
  is foreseen
• Internal Control System is established
• Internal audit system is established
• Auditing scope of the Turkish Court of Accounts
  has been widened

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SCOPE OF THE FINANCIAL MANAGEMENT AND BUDGET HAS
BEEN WIDENED

• Instead of a general and annexed budget, a
  central government budget, which covers the
  administrations within the scope of the general
  and special budget and the budgets of regulatory
  and supervisory agencies, will be prepared
• Public administrations within the scope of the
  general government will be subject to the same
  financial management and control system
• Budgets will be prepared on a three-year basis
• All the revenues and expenditures of the
  administrations will be stated in their budgets

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SCOPE OF THE LAW ACCORDING TO ADMINISTRATIONS

• GENERAL GOVERNMENT
• SOCIAL SECURITY CENTRAL GOVERNMENT LOCAL
  ADMINISTRATIONS
• INSTITUTIONS
• GENERAL BUDGET SPECIAL BUDGET REGULATORY AND
  SUPERVISORY AGENCIES

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SCOPE OF THE LAW ACCORDING TO DUTIES AND
TRANSACTIONS

• Structure and functioning of the public financial
  management
• Preparation and implementation of the public
  budgets
• Accounting and reporting of all the financial
  transactions
• Financial control

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STRATEGIC PLANNING AND PERFORMANCE BASED
BUDGETING

• Strategic Plan Preparation Guide (SPO)
• Performance Based Budgeting Guide (Ministry of
  Finance)
• Budgets based on strategic plans
• The compliance of the budgets with the missions,
  visions and strategic goals in the strategic
  plans
• Evaluation of the budgets in accordance with the
  performance indicators
• Conduction of the performance audits within the
  framework of these indicators
• Reporting

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MULTI-YEAR BUDGETING

• Preparation of medium-term program
• Preparation of medium-term fiscal plan
• Strategic plans to be prepared by the
  administrations
• Preparation of three-year budgets by the
  administrations which will cover the revenue and
  expenditure estimates for the current year and
  following two years
• Accordingly, the relation between the planning
  and budgeting is established within the framework
  of medium term expenditure program.

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ACCOUNTING UNITY AND FISCAL STATISTICS

• Accounting unity is being ensured. The same
  accounting system shall be used in the
  administrations within the scope of general
  government. Consolidation and international
  comparison of all the accounts shall be made
  possible.
• The Board to be formed under the Ministry of
  Finance shall determine the accounting and
  reporting standards, framework Chart of Account
  and the format, period and type of the reports to
  be issued that will be applied by the
  administrations within the scope of general
  government.
• Preparation and publicly announcement of the
  fiscal statistics with regard to public finance
  is foreseen.

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EU STANDARDS FOR THE FISCAL CONTROL SYSTEM REFORMS

• A law which defines the financial control process
• Purposeful internal control system and methods
• -Accounting and Reporting Standards, and the
  Policy Document
• -Automation Based Accounting
• -Mechanism for the auditing of the funds
• -Ex ante control over the Payments and
  Commitments
• -Procurement control system
• -Control of the public revenues
• Functionally independent internal audit
• A mechanism to prevent irregularities and fraud

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INTERNAL CONTROL SYSTEM

• Internal Control is the entirety of
  institutional structure, method, operational
  processes and tools which enable the conformity
  with the budget and rules in effect, assurance of
  the assets, assurance of the validity and
  accuracy of accounting records and facilitation
  of managerial decisions through making fiscal
  information available to be used.
• Internal Control Central Harmonization Task shall
  be carried out by the Ministry of Finance.
• Establishment of an efficient internal control
  system shall be on the account of the
  administrations.

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ORGANIZATIONAL STRUCTURE OF THE FINANCIAL
MANAGEMENT AND CONTROL SYSTEM IN COMPLIANCE WITH
THE EU

• MINISTRY OF FINANCE
• INTERNAL AUDIT INTERNAL
  CONTROL Internal Audit Coor. Board
• Central Harmonization Unit Central
  Harmonization Unit
• PUBLIC ADMINISTRATION
• INTERNAL AUDIT UNIT FINANCIAL SERVICES UNIT

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INTERNAL CONTROL SYSTEM

• The Internal Audit Coordination Board has been
  established.
• Following issues have been planned
• Performing audits as risk-based
• Employment of internal auditors as affiliated to
  the head of public administration
• Certificated internal auditors
• systematic and continuous audit in accordance
  with the internal audit standards

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AUDIT OF THE COURT OF ACCOUNTS

• Ex ante control function of the Court of Accounts
  has been abolished.
• The scope of the audit of the Court of Accounts
  has been expanded. Central government
  administrations, social security institutions and
  local administrations within the scope of general
  government shall be audited by the Court of
  Accounts.

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IMPORTANCE OF THE FINANCIAL SERVICES UNIT IN THE
SYSTEM

• Increasing financial tasks, authority and
  responsibilities of the public administrations
  shall be carried out by the financial services
  units of the administrations.
• Conduction of the financial management and
  control tasks within the administration in a
  sound manner is dependent on the organizational
  structure and capacity of this unit.
• This unit assumes some important functions on the
  issues such as effective use of public resources,
  prevention of irregularity and corruption,
  prevention of the mistakes arising from the lack
  of information, assurance of accountability,
  fiscal transparency and providing information to
  public opinion.
• These functions entail a sound financial services
  unit which is directly affiliated to the head of
  public administration.

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EX ANTE CONTROL -1

• The article 58 of the Law No 5018 regulates the
  task of ex ante control and the article 59
  regulates the qualifications and appointment of
  financial control officer.

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EX ANTE CONTROL-2

• Ex ante control process is set out in the scope
  of the Law in a way to cover the following
• allocating appropriations
• undertaking commitments
• holding tenders and concluding contracts
• receiving goods or services
• carrying out works
• issuing payment orders
• similar financial decisions to be taken by the
  authorizing officer
• The ex ante control task shall be assumed by the
  financial control officers who are appointed by
  the head of public administration and directly
  affiliated to him. However, in the decentralized
  units of the public administrations within the
  scope of general budget, this task shall be
  carried out by provincial treasurers.

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EX ANTE CONTROL-3

• Ex ante control mechanism foreseen by the Law is
  based on the principle that compliance audit
  should be performed before the payment by a
  certificated financial control officer at various
  stages of the spending process.
• Financial control officer who will take part at
  the different stages of the spending process
  shall control the compliance of the transactions
  with the legislation and thereupon shall grant
  visa or positive opinion.
• In the event that the transactions not visaed or
  not approved are realized, the authorizing
  officer shall be deemed to have assumed personal
  responsibility.

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EX ANTE CONTROL-4

• Ex ante control mechanism foreseen by the Law is
  based on the principle that compliance audit
  should be performed before the payment by a
  certificated financial control officer at various
  stages of the spending process.
• Financial control officer who will take part at
  the different stages of the spending process
  shall control the compliance of the transactions
  with the legislation and thereupon shall grant
  visa or positive opinion.
• In the event that the transactions not visaed or
  not approved are realized, the authorizing
  officer shall be deemed to have assumed personal
  responsibility.

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AUTHORITY-RESPONSIBILITY

• Political and managerial authority and
  responsibilities have been separated.
• Authorities of the process
• The Minister
• Head of public administration
• Authorizing officer
• Director of financial services unit
• Financial control officers
• Realization officers
• Accounting officers
• Internal auditors

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AUTHORITIES IN THE MANAGEMENT AND CONTROL
PROCESS-1

• THE MINISTER is politically responsible for
• Implementation of government policies
• Preparation and implementation of the budgets
• Coordination and cooperation with other
  ministries
• Utilization of the resources
• Providing information to public opinion

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AUTHORITIES IN THE MANAGEMENT AND CONTROL
PROCESS-2

• Head of public administration is responsible for
  the budget of the public administration.
• Head of public administration is responsible for
• Preparing and implementing the strategic plans
  and budgets of the administrations
• Ensuring that the resources are provided and
  utilized in an effective, economical and
  efficient way
• Supervising and monitoring the operation of the
  financial management and control system
• Fulfilling the task and responsibility set out in
  the Law towards the Minister towards their local
  councils in local administrations.

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AUTHORITIES IN THE MANAGEMENT AND CONTROL
PROCESS-3

• Authorizing Officers Head of each spending unit
  to which appropriation is allocated with the
  budget is the authorizing officer.
• The authorizing officer grants spending
  instruction and signs the payment order.
• Authorizing Officers are responsible for
• the compliance of spending instructions with the
  budget principles and basics,
• the compliance of spending instructions with the
  other laws, by-laws and regulations
• Utilization of appropriations in an effective,
  economical and efficient manner

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AUTHORITIES IN THE MANAGEMENT AND CONTROL
PROCESS-4

• Director of financial services unit
• Financial Services Unit carries out the tasks
  such as
• Preparing the budget of the public administration
• Preparing the budget estimates for the following
  two years
• Keeping the budget records
• Issuing the appropriation dispatch documents
• Compiling and reporting the data related to the
  budget implementation results
• Carrying out the financial transactions on making
  expenditures and collecting revenues
• Preparing the Final Account

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AUTHORITIES IN THE MANAGEMENT AND CONTROL
PROCESS-5

• Financial Control Officer
• Grants visa or positive opinion on the spending
  decisions upon a preliminary control
• The decisions and transactions to be subjected
  to visa or positive opinion are determined by the
  Ministry of Finance.
• Financial Control Officers are responsible for
  the visas and positive opinions which they have
  granted.

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AUTHORITIES IN THE MANAGEMENT AND CONTROL
PROCESS-6

• REALIZATION OFFICERS
• carry out the following duties
• Doing or having the work done
• Receiving goods or services
• Completing the receiving formalities
• Documenting the transactions
• Issuing necessary documents for payment

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AUTHORITIES IN THE MANAGEMENT AND CONTROL
PROCESS-7

• Accounting Officer
• At the payment stage, controls the following
  aspects in the payment order document and its
  appendices
• Signature of the authorized persons
• The completeness of the documents listed in the
  regulations pertaining to payment
• The existence of any material error
• The information on the identity of the rightful
  person
• realizes the payment and keeps accounting
  records.