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RECENT DEVELOPMENTS IN THE AREA OF PUBLIC INTERNAL FINANCIAL CONTROL IN TURKEY AND THE RELATIONS WITH THE EUROPEAN UNION. PUBLIC FINANCIAL MANAGEMENT-1.
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RECENT DEVELOPMENTS IN THE AREA OF PUBLIC INTERNAL FINANCIAL CONTROL IN TURKEY AND THE RELATIONS WITH THE EUROPEAN UNION
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.
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.
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.
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.
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
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
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
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
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
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
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
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
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
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
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
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
SCOPE OF THE LAW ACCORDING TO ADMINISTRATIONS GENERAL GOVERNMENT SOCIAL SECURITYCENTRAL GOVERNMENT LOCAL ADMINISTRATIONS INSTITUTIONS GENERAL BUDGETSPECIAL BUDGETREGULATORY AND SUPERVISORY AGENCIES
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
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
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.
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.
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
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.
ORGANIZATIONAL STRUCTURE OF THE FINANCIAL MANAGEMENT AND CONTROL SYSTEM IN COMPLIANCE WITH THE EU MINISTRY OF FINANCE INTERNAL AUDIT INTERNAL CONTROLInternal Audit Coor. Board Central Harmonization Unit Central Harmonization Unit PUBLIC ADMINISTRATION INTERNAL AUDIT UNITFINANCIAL SERVICES UNIT
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
AUDIT OF THE COURT OF ACCOUNTS • Exante 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.
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.
EXANTE CONTROL -1 • The article 58 of the Law No 5018 regulates the task of exante control and the article 59 regulates the qualifications and appointment of financial control officer.
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.
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.
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.
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
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
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.
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 officergrants spending instruction and signs the payment order. • Authorizing Officersare 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
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
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.
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
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.