Turkish Court of Accounts in Crisis: An Urgent Problem, Yet not a Main Concern?

Turkish Court of Accounts in Crisis:

An Urgent Problem, Yet not a Main Concern?

Marco Polo describes a bridge, stone by stone. “But which is the stone that supports the bridge?” Kublai Khan asks. “The bridge is not supported by one stone or another,”

Marco answers, “but by the line of the arch that they form.” Kublai Khan remains silent, reflecting.

Then he adds: “Why do you speak to me of the stones? It is only the arch that matters to me.” Polo answers: “Without stones there is no arch.”

— Italo Calvino, Invisible Cities

 Introduction 

In democracies, the parliament plays a key role in overseeing the public spending of the country’s tax–payer money, and holds the government accountable for the manner in which it manages its public funds. In Turkey, the Turkish Court of Accounts (TCA) on behalf of the Turkish Grand National Assembly (Parliament) monitors the public spending. In 2005, an amendment to Article 160 of the 1982 Constitution was made in line with the promises given to the IMF in the 17^th Stand-by agreement. The conditions of the International Monetary Fund (IMF) were coupled with the demands of the World Bank and the European Union (EU) from Turkey in regard to aligning its external auditing system in line with the international control standards. With the constitutional amendment, the TCA has been tasked with the capacity to investigate, monitor, and resolve issues on the income and spending of public offices, and to also audit economic enterprises, social security institutions, and some certain organisations which were previosly audited by the Higher Supervisory Board of the Prime Ministry (Başbakanlık Yüksek Denetleme Kurulu). Moreover, all state institutions, including the Turkish Armed Forces (TAF), have become subject to be inspection by the TCA for the first time in the history of the Republic.

With the new tasks and liabilities given to the TCA, the Court moved from a court model with judicial powers (law driven audit) to an audit system performing audits (standard-driven audit) with new audit approaches, at least on paper (SIGMA 2012:23).  These were all regarded as drastic changes in line with international standards of auditing (European Commission 2008:85). If the draft law had been adopted without any delays and deficincies, the TCA would have been regarded as a succes story of external policy promotion. Yet, the draft law came into power in 2010, after waiting five years in the Parliament. Furthermore, it was adopted with last minute changes. While the Court was trying to adapt its organization law to the newy adopted legal regulations, the governemnt introduced further amdenments to the TCA law. This has not only casted a shadow on the transparency of the Court but it has also made it dysfunctional (Özsemerci 2011:110).  Today, the debates surrounding the external auditing of the state institutions have been deadlocked in the Parliament. This is clearly not a good sign for the democracy, and transparency of the public spending. Yet, it is not hot agenda item to policy makers. This paper seeks to shed light on the reform process of the auditing system and discusses the changing status of the TCA in law and in practice.

Why a new TCA law?

Turkey’s traditional public finance control system used to be extremely complicated and ineffective. The General Accounting Law (1927) was used to cover the control of all public administrative bodies. For public institutions under the coverage of the General Accounting Law, the external auditing had been conducted by the Ministry of Finance, the Court of Accounts and Higher Inspection Board at the Prime Ministry on the ex ante control basis. The Plan and Budget Committee (PBC) in the parliament were responsible to receive TCA reports. However, the system was not functioning properly for two distinct reasons. First, most of the audit reports of the TCA were shelved without being examined since there was no specific department to do so in the PBC. Second, there were no general control and auditing standards. Thus, the external audits conducted by the TCA were mostly seen as routine bureaucratic requirements, and were done under political tutelage (Öniş 2009:411, OECD 2002:9; Global Integrity 2004:59; TESEV 2004:2-3).  At the end, the audit reports were usually ignored or only given superficial attention by the government and did not lead to policy changes (Global Integrity 2010:99). The system, which used to lack effective legislative oversight of the budget and external scrutiny of public accounts by credible general audit offices create risks of excessive executive discretion in public budgeting (Çaha 2009:111). This had generated extreme waste in the public expenditure. In a report published by the Union of Chambers and Commodity Exchanges of Turkey (TOBB) in 2001, the amount of waste in Turkish public system between 1990 and 2000 was calculated at 195.2 billion US dollars.

In the beginning of the 2000s, the lack of international standards in government accounting was defined by the government as a policy problem, which hindered effective control of the expenditure of the public taxes and paved the way for the corruption (Dinçer/Yılmaz 2003:48; TESEV 2011:16; Saygılıoğlu/Arı 2003:211). The urgency of the reforms in the public finance system became an issue on the political agenda during the deep financial crisis of 2001,mostly due to the pressure coming from the international institutions such as the EU, IMF and the World Bank (Uğur 2008; Aydın/Çarkoğklu 2009).

In this regard, more concrete reform plans were enlisted in the restructure of public administration action plan in 2003 in line with the EU demands mentioned in the regular reports of the Commission (Dinçer/Yılmaz 2003:12). Accordingly, the EU demanded from Turkey to adopt the INTOSAI (International Organization of Supreme Audit Institutions) standards and methods for effective and transparent financial management and control systems including an operationally and financially independent external audit organization (European Commission 2004:131).  Furthermore during the early part of the 2000s, Turkey became part of structural programs for economic recovery, which was to a large extent funded by the International Financial Institutions; e.g.; the IMF and the World Bank. These IFIs criticized the lack of regulatory framework in public finance in Turkey, which resulted in huge amounts of waste in the public expenditure during 1990s. In 2002, Turkish government committed to submit to the Parliament a Law on Financial Management and Control with the aim of promoting control and audit standards in line with the best international practices as mentioned in the letter of intent to the IMF for the 17^th SBA of 15 billion US $ ((Demir et al. 2002:24-5, Sabuktay 2009:1). The World Bank’s Programmatic Financial and Public Sector Adjustment Loan Project –II (PFPSAL-II),[1] which aimed to address the government’s immediate financial and public sector reform priorities in the aftermath of the November 2000 financial turmoil and February 2001 financial crisis, supported to revamping of existing Turkish public finance control systems as well (WB 2002:4). Concerning the control of public expenditure management, the conditions of the IMF and the World Bank were coupled with the demands of the EU from Turkey (European Commission 2003:125).

A comprehensive Law on Public Financial Management and Financial Control (PFMC) was submitted to Parliament in 2002, which provided changes to the current system in line with a number of concerns, expressed in the chapter 28 Financial Control of the European Commission’s 2001 and 2002 Regular Reports. More specifically the EU demanded from Turkey to increase transparency in public financial management and align with the standards of the International Organization of Supreme Audit Institutions (INTOSAI) and EU best practices in terms of external auditing.[2] The PFMC law came into force in 2002 and based on the INTOSAI standards.

The new law brought in new legal standards to the system of external auditing. In this regard Article 160 of the Constitution was amended as a part of the PFMC law in 2005, and extended the audit area of the Turkish Supreme Audit Institution. Thus, it became necessary to introduce a new legislation on TCA to in line with the INTOSAI standards (SIGMA 2009: 5). INTOSAI requires establishing a standard-driven audit system, which created a mismatch with the existing law-driven audit system (SIGMA 2008: 2). With the aim of eliminating this conflicting situation, a law proposal for a new audit was presented to the TGNA in 2005. The new law aimed to amend the organizational law of TCA, and synchronize its audit tasks and authorities with the new system. The draft law provided the Court with the functional independence and organizational autonomy as well.

 What did happen to the Draft TCA Law?

The law on TCA came into force after waiting five years in the Parliament, in 2010. Under the new arrangement the legal scope of the external audit was extended to include bodies previously outside its scope, including the military. The adoption of the TCA law was regarded by many as an opportunity to introduce a more transparent process for overseeing public institutions and spending, including that of the military (Altay 2011). This could have solved the long-standing lack of transparency problem in the state institutions.

Yet, with the last minute changes the in the General Assembly the law was adopted with limitations. First, an amendment to Article 2, the definition of performance audit was reformulated “within the framework of accountability, measurement of the outcomes of activities in relation to objectives and indicators set by administrations” (TESEV 2012:21). In this regard, the TCA is entitled to monitor a public institution within the framework of the yearly target that the public institution has determined for itself, without investigating if, in the first place, the yearly target fixed by the public body was adequate, if the institution could have performed better (Özsemerci 2011:107; CHP 2010:9). Yet, several public institutions such as Ministry of Defense, Ministry of Foreign Affairs, National Intelligence Unit, General Commands of Gendarmerie and Cost Guard were not subject to set objectives and indicators for auditing (Yentürk 2011:8). This formulation is argued to have narrowed the scope of performance auditing, and has hamper the legislative oversight of the budget. In turn this provided the public institutions with more power of discretion in spending (Global Integrity 2010:97; TEPAV 2011:10; TI 2012:8). While the government officials argued that empowering the TCA with the performance auditing tools would enable judiciary to intervene into the working of the executive,^[3] the TCA auditors, politicians from the opposition parties[4] and NGOs claimed that without performance auditing tools on the basis of economy, efficiency and effectiveness the TCA would not be able to monitor the public spending effectively in practice (TESEV 2012; Özsemerci 2011; CHP 2010).

Second, all military assets and expenditures, and procurements have become subject to external auditing conducted by the TCA except OYAK (Turkish Army Members Solidarity Fund) (Altay 2011:304). The armed forces showed immense resistance to the adoption of the new law, which would bring civilian oversight to military expenditures for the first time in the history. [5] Thus, the military was given discretion of announcing these auditing reports to the public (TEPAV 2011:10; TESEV 2012:5). The issue is important because the budget that is allocated to the ministries and public institutions dealing with security and public order makes up around 11 percent of the national budget, which amounts to sum 39 billion Liras (TL). On the other hand the military expenditures in Turkey make up around 2 percent of the gross national product, which amounted to TL 26.3 billion in 2011 (TESEV 2012:17). While many TCA auditors and the opposition parties did not welcome these amendmentsseveral international and national observers also underlined that that was a step back in alignment with the legal standards of the INTOSAI (Global Integrity 2010:97; TEPAV 2011:10; TESEV 2012:5; TI 2012:8; EC 2010:9).

After the adoption of the law, the TCA attempted to adapt to the new system.  At that point the TCA faced a challenging moment, that is, it had to adopt its internal regulations (by-laws) and adapt its audit approach to meet the requirements of the new Audit Law The international actors provided support during the major change that the TCA has just started to undergo (SIGMA 2012:18). The TCA established its internal regulatory framework throughout the time, which lays the groundwork for the introduction of its expanded responsibilities under the new law (SIGMA 2012:23). The framework or external audit planning came out as a result of the twinning project conducted by the EU. Furthermore, the draft Strategic Plan of the TCA was developed, with extensive internal and external consultations, in order to provide guidance in implementing this framework with the support of a World Bank project, started in January 2012.[6]

In April 2012 the President of the TCA had announced that the auditors were in the practical phase and started to audit the expenses of the public units. The audit reports are supposed to turn into general TCA reports after the presidency of the TCA work on the auditors’ reports, which should be submitted, to the PBC in the Parliament. [7] Before the budget talks started in the PBC the TCA came up with 132 audit reports.[8] Yet, just before the Parliament recessed for the summer, the government brought forward another amendment to the TCA law within a bag law[9] (literally: torba yasa), which has recently become government’s frequently used mechanism to make changes in different branches of the national legislation at once. As a result of this last-minute change, in June 2012, for the first time in the Republic’s history, the Court could not send its auditing reports of state institutions to Parliament in the fall when the budget deliberations were held in the PBC.[10] The president of the TCA mentioned that those 132 reports were not legally considered completed for presentation due to previous amendments already made to the relevant law.[11] In sum, the TCA was, to a great extent, prevented from fully auditing government agencies and ministries for the year 2011 given the legal amendments.

The legal amendments of 2012 limited the organizational autonomy of Court further in terms of auditing the performance of a public institution. The 2012 amendments took the 2010 law backwards, made the auditing of the military and civil expenses almost impossible (TESEV 2012:8). The Constitutional Court ruled against curbing the Court’s powers in 2012, reintroducing strong rules to preserve the transparency and accountability of expenditures made by state institutions.  Yet, under these conditions no performance audits were conducted on the basis of the existing manual and reached to the PBC in 2013 as well (EC 2013:76).  Although TCA prepared 146 reports[12] and submitted to the Parliament, many parliamentarians were not satisfied with the quality of the reports. It is argued that the reports lacked comprehensive information the Parliament needs to perform its budgetary oversight role since many agencies and ministries failed to provide information specifically requested by the Court. In the end the Court couldn’t properly audit the accounts of many public institutions in the last two years.[13]

The recent crisis in the external auditing system illustrates that externally induced domestic reforms lead to failure when the political ownership is weak. The Turkish authorities drafted a new law on the TCA to benefit from the funds and credits of the international donors and to pursue the EU candidacy process. Therefore, it came as a result of the international pressure rather than public demand or domestic pressure for such a change (Karabeyli/Coşkun 2010:94). In the end, the existing traditional law-driven audit system had become incompatible with the standard-driven audit system, which required undertaking regularity and performance audits in line with the internationally accepted standards and EU practices (SIGMA 2008: 2). The political elites did not show the same willingness to implement these standards in practice. Rather, they attempted to amend the laws and practices several times in line with their own interests before they had to reach a point of compromise–in this time between performances based international auditing standards and political interest associated previous rules of auditing.

What is the Current Situation?

The crisis is not over yet. In 2013, the government has prepared another draft to bypass the decision of the Constitutional Court. According to current legislation, audit reports of public institutions are made public within 15 days of Parliament receiving them. However, if the recent amendment becomes law, audit reports on public institutions will not be sent to the Parliament, but will instead be discussed within the TCA.[14] This would make it much more difficult for the opposition parties in Parliament and the public to monitor the public institutions.[15] Moreover, with the same amendment the decision-making powers of auditors will be restricted, while the decision-making powers of the TCA’s prosecutor will increase. Although the government argues that this would strengthen the TCA, many national and international observers agree on the fact that this would be a backward step for the Court in terms of its independence, auditing capacity, and functional efficiency (TESEV 2012:5-6; EC 2013:76). This would in turn then increase the risks of excessive executive discretion in public budgeting. [16] In the recent progress report on Turkey, which released in October 2013 the European Commissions also expressed its concerns about the proposal to amend the TCA law. [17] Due to the reactions coming from the opposition parties, NGOs, TCA auditors and several international institutions the draft law was put on the shelf for now.[18]

The debates over the independence and effectiveness of the Court are ongoing in the Parliament.[19] During the time this paper is being written the Parliament was discussing the 2014 state budget. The weak and incomplete audit reports added fuel to the ongoing debates. Opposition parties harshly criticized the government noting that the reports by the court were only submitted to Parliament in a hugely crippled state in way to ensure that the corruption in state institutions would go unnoticed.[20] Although this should be an urgent issue for any democracy to function properly, it is not the main concern of the policy makers in Turkey. And it looks like it won’t be on the agenda at least in the coming three years. Because according to a recent amendment to a law published in the Official Gazette the TCA will not be able to fully inspect accounts for at least another three years as the institutions will not be obliged to provide their account details.[21] When the local elections, which will be held in March 2014, are taken into account it is less likely to see the TCA law high on the government’s agenda in the near future.

The lack of transparency in the state institutions is a long-standing problem for Turkey. This makes the control mechanisms acting beyond the executive’s discretion much more needed. Recent corruption and bribery investigations targeting government officials clearly underline this urgency.[22]

Diğdem Soyaltın, Managing Editor, Centre for Policy and Research on Turkey (ResearchTurkey)

Please cite this publication as follows:
Soyaltın, Diğdem (December, 2013), “Turkish Court of Accounts in Crisis:  An Urgent Problem, Yet not a Main Concern?   ”, Vol. II, Issue 10, pp.11-20, Centre for Policy and Research on Turkey (ResearchTurkey), London, Research Turkey. (http://researchturkey.org/dev/?p=4587)

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