The Board of Treasury Controllers (the “Board”) of the Undersecretariat of Treasury of Prime Ministry is the main audit body of the Undersecretariat of Treasury of the Prime Ministry of Republic of Turkey. The Undersecretariat of Treasury is mainly responsible for determining adequate economic policies, implementing of those policies, harmonizing with other institutions, carrying on bilateral and international economic and financial relations with Countries, International and Regional Organizations and performing regulations on borrowing/lending policies of the country.

Currently the Board consists of eighty one Treasury Controllers of which one President and three vice presidents, twenty-six Senior Treasury Controllers, eighteen Treasury Controllers and thirty three junior Treasury Controllers.

The main location of the Board is in Ankara; in addition to the main office there exist offices both in Istanbul and in Izmir.

The president of the Board of Treasury Controllers and all Treasury Controllers are appointed through a joint decree, in another words, for their appointment the signature of the President of Turkey, the Prime Minister and the State Minister is required.

Junior Treasury Controllers are selected among the more than one thousand applicants who have finished distinguished universities of Turkey. The selection procedure takes place at three stages, a test exam, a writing exam and an oral exam. Those who had successes are appointed as Junior Treasury Controllers and then three years of evaluation period starts. After those three years past, they have to pass a comprehensive exam and then they may be appointed as appointed Treasury Controllers.

With the parallel of the responsibilities of the Undersecretariat of the Treasury, the duties of the Treasury Controllers are generally related with the public and international financial institutions, such as World Bank, International Monetary Fund, state owned enterprises, municipal authorities, some funds and revolving funds. Treasury Controllers also perform some private sector financial audits especially on the leasing firms, factoring firms and foreign exchange offices. 1 Depending on the situation, non financial or semi financial organizations such as United Nations or European Union may request stationary audit from the Board.

Independent audit functions of the Board are generally performed under the International Standards on Auditing published by International Federation of Accountants (the “IFAC”). If the engagement agreements require other auditing standards to be performed, the Board is also cable to perform the required audit.

The duties of Treasury Controllers which are stated in various laws can be summarized as follows: 2

Independent Audit Functions. The Independent Audit function of the Board is defined by the article 11 of the Law No: 4749 on Public Finance and Regulation of Debt Management. According to this article “The Independent Audit function which is referred in the loan, credit and grant agreements signed in within the scope of this law is performed also by the Board of Treasury Controllers in accordance with the internationally accepted audit standards.”.3

In line with these audit functions, the Board is recognized as independent audit body by the World Bank for auditing of the World Bank financed projects over twenty years, by the International Monetary Fund for the audit of short-term Treasury Debt dominated in foreign currency (with a maturity of less than one year) and by the United Nations Compensation Commission for the audit of distribution of payments. As a requirement of the audit plan for 2005, the Board has audited 31 World Bank financed projects.

On the other hand, according to the Article 12 of the Memorandum of Understanding on the Establishment of National Fund, the Board is also authorized to regularly check the accounts and operations all relevant implementation structures directly related EU programmes and projects.

Internal Audit Functions. Under the Decentralised Implementation System, internal audit of the National Fund and the Central Finance and Contracts Unit are carried out by the Board according to the Memoranda of Understandings for establishment of the National Fund and the Central Finance and Contracts Unit, dated February 14, 2002.

Internal Audit of all of the departments of the Undersecretariat of Treasury is performed by the Board.

Compliance Audit Functions.

• Audit of the projects financed by the Treasury’s guarantees or by direct borrowing of the Treasury: Treasury Controllers perform a compliance, in some cases financial, audit of the expenditures of the state owned enterprises or of municipal authorities that had direct loan from the international financial organizations under the Treasury’s payback guarantees and that have obtained a loan from international institutions by direct borrowing of the Treasury for financing their projects.

• Determining the duty losses of the state owned enterprises (SOEs): Treasury Controllers perform an audit of determining the duty losses of SOE’s. Sometimes government supports some interest groups by direct subvention giving a duty to the related SOE, and the economic loss of that SOE is determined by Treasury Controllers.

• Determining the transferable profits of the Petroleum Companies: Treasury Controllers are responsible for determining the transferable profits of the foreign petroleum producer companies in Turkey.

• Audit of the financial aspects of the other financial institutions: Another working area of The Board is the financial institutions, like Leasing, Factoring, Consumer Finance, Precious Metals Companies and exchange offices which compose a great portion of the Turkish Financial Sector. The Controllers audit the financial statements of these financial institutions and examine their activities for compliance with the related legislation.

• Other duties: The Board also conducts inspections, examinations and investigations especially in the banks and other financial institutions related with the Law concerning the struggle against money laundering activities. Besides the above-mentioned duties, the Treasury Controllers carry out examinations, audits and investigations with concerned authorities and natural and legal persons in subjects related to tasks assigned to the Undersecretariat by the Law and other laws, decrees and legislation and to duties assigned to the Undersecretariat on the basis of special agreements.

Performance Audit Functions. The Board carries out performance audit of State Owned Enterprises. This audit covers financial statements analyses and efficiency, effectiveness and economy of the operations of State Owned Enterprises. In some cases compliance audit is also performed as a direct result of the performance audit.

After all these duties are performed, Treasury Controllers prepare a report and submit it Undersecretary of Treasury or State Minister responsible for the Undersecretariat of Treasury by means of the Board. They only take orders from Undersecretary of Treasury or in some case from Ministry of State that is responsible for Treasury. They are fully independent for performing the audit; no one can direct their audit or can have influence on the audit.

Besides the regular training programs and workshops, under a World Bank financed project, The Board members had a long-term program on the International Standards on Auditing and International Accounting Standards and Turkish Law for six months in the year 2000 by well-known audit firm (Deloitte & Touché).

36 of Treasury Controllers have attended a three months training program by The Institute of Chartered Accountants of Scotland and Scott-Moncrieff in Scotland in 2002. This project was designed to equip Treasury Controllers with the knowledge and skills required in both public and private sector accounting and auditing also with on the job experience. The Course Program was prepared from the perspective of EU requirements and the requirements of International Accounting Standards and International Standards on Auditing.

In the context of EC Funded Project “Support to the CFCU, NAC, and NAO in Turkey”, 21 Treasury Controllers had a one month comprehensive training, by East West Consulting in consortium with Belgian Bankers Academy, related with the EU Funds and DIS system in Turkey in 2004. In addition to this training, at the same year, 18 Treasury Controllers have attended 2 weeks training course in order to obtain a certification for Certified Internal Auditor.

The Board has prepared a Project fiche for Strengthening Audit Capacity of The Board of Treasury Controllers with Respect to Pre-Accession Funds and this fiche have been approved by the European Commission in 2004 program under the program number (TR 0403.10). Under this project, in the 1st phase Junior Treasury Controllers will be trained on accounting and financial reporting, private and public sector auditing, and EU regulations and applications. In the 2nd phase, Treasury Controllers are planned to receive an exam (such as CIA, CISA, CGAP, CFE) preparation training in addition to obtain an audit software.

Currently, one Treasury Controller has Associate Professor Degree, two Treasury Controllers have Ph.D. degree and twelve Treasury Controllers have master degree. For internal audit functions, five Treasury Controllers became as Certified Internal Auditor provided by the Institute of Internal Auditors (the “IIA”) and nine Treasury Controllers have passed some parts of the Certified Internal Audit exam.

Meanwhile, The Board of Treasury Controllers are attached to the Undersecretary of Treasury that is under the State Ministry responsible for economy and there is no administrative, financial or legal relationship with the Center for European Union Education and Youth Programmes (National Agency).

National Agency functions under the Undersecretariat of State Planning Organization (SPO) and SPO is not attached to the the same State Ministry. Therefore, there is no conflict of interest and relation that impair the objectivity and independence of Treasury Controllers. Besides, The Board assures the Commission that there is neither a family/personal relationship between auditors and staff of the Turkish National Agency and nor financial link between the Board and the Agency.

The Board assures the Commission that the auditors directly and indirectly involved in this process worked in strict compliance with the principles of professional independence. Details on the methodology applied to carry out the present certification can be provided upon request from the Commission or from the person/body duly empowered by her. They can also make verifications of the audit file at our premises.