REPUBLIC OF TURKEYPRIME MINISTRY

Undersecretariat of Treasury

MANAGEMENT LETTER

On

PUBLIC FINANCE MANAGEMENT REFORM IMPLEMENTATIONSUPPORT PROJECT

Implemented by

MINISTRY OF FINANCEAnd

Financed UnderWorld Bank Grant Agreement numbered TF-19355

For the Period January 1, 2017 - March 31, 2018

Prepared by:

H. Aypen BILENLER Neslihan YIKILMAZ

Senior Treasury Controller Senior Treasury Controller

(igdem KAHVECi

Treasury Controller

June 14, 2018

Ref.: Report Dated June 14, 2018

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TABLE OF CONTENTS

1. EXECUTIVE SUMMARY

2. INDEPENDENT AUDITOR'S REPORT & FINANCIAL STATEMENTS OF THEPROJECT

2.1. Independent Auditor's Report

2.2. Statement of Sources and Uses of Funds

2.3. Statement of Cumulative Investments

2.4. Statement of Special Account

2.5. Notes to The Project Financial Statements

1. Objectives and Nature of the Project

2. Main Accounting Policies

3. Limited Use of Funds and Other Assets

4. World Bank Grant

5. Cash Availability at March 31, 2018

EXECUTIVE SUMMARY

REPUBLIC OF TURKEYPRIME MINISTRY

Undersecretariat of Treasury

EXECUTIVE SUMMARY

A. Project Summary

The Republic of Turkey has provided a grant equivalent to USD 780.000 withthe Grant Agreement signed with International Bank for Reconstruction andDevelopment (IBRD) on November 26, 2015.

This Project is implemented by Ministry of Finance (MoF).

The overall objective of the Project is to enhance the transparency andaccountability of Turkish public sector through the provision of support to itsinstitutions in addressing implementation challenges of the public financialmanagement reform.

The project consists of 3 basic components;

A. Development of a Program Classification and Program Structure

B. Enhanced Implementation of Public Internal Financial Control Framework

C. Enhancing the Accounting and Reporting System to Promote Accountability

The total amount of the Project is 780.000 USD. Opening balance of TCMB specialaccount, as of January 01, 2017 is 80.000 USD and closing balance, as of December 31,2017 is 80.000 USD. In 2017, 264.834 USD was transferred to TCMB special account andthe same amount was disbursed. Opening balance of TCMB special account, as of January01, 2018 is 80.000 USD and closing balance, as of March 31, 2018 is 10.834 USD. Thisamount was refunded to World Bank on 28.03.2018. In 2018, 69.166 USD wasdisbursed. Also 395.914 USD was disbursed as direct payment and the totaldisbursement amount is 729.914 USD.

This report is prepared for all components of the Project.

B. Objectives of Audit

The objectives of our audit are;

a) To give an opinion on whether the financial statements, present fairly, in allmaterial respects, the financial position of the project in accordance with the cashreceipts and disbursements basis of accounting,

b) To determine, for the period 01.01.2017 - 31.03.2018 , whether theMinistry of Finance has complied, in all material respects, with the rules and proceduresof the Grant Agreement,

C. Scope of Audit

We have performed an audit of financial statements of the Public FinanceManagement Reform Implementation Support Project for the period 01.01.2017-31.03.2018 in accordance with the cash receipts and disbursements basis of accounting.We have also performed a compliance audit on whether project activities are in line withthe Grant Agreement.

Our audit was conducted in accordance with International Standards onAuditing published by International Federation of Accountants (IFAC) applicable to theaudit of financial statements and compliance auditing.

There was no limitation in our scope for the Project's audit

D. Audit Results

For the financial statements of project; our audit resulted with an unqualifiedopinion.

In addition, for the period 01.01.2017-31.03.2018, Ministry of Finance hascomplied, in all material respects, with the rules and procedures of the Grant Agreement.

E. Management Recommendations

A management letter, dated June 14, 2018, to the attention of the Ministry ofFinance was issued separately from this report. The objective of this Management Letteris to enable the auditors to communicate appropriately to those charged withgovernance and management deficiencies in internal control that the auditors haveidentified during the audit and that, in the auditors' professional judgment, are ofsufficient importance to merit their respective attentions. For this purpose, ourrecommendation is attached to the Letter.

INDEPENDENT AUDITOR'S REPORT &FINANCIAL STATEMENTS OF THE PROJECT

REPUBLIC OF TURKEYPRIME MINISTRY

Undersecretariat of Treasury

INDEPENDENT AUDITOR'S REPORT

TO MINISTRY OF FINANCEANKARA

Opinion

We have audited the Statement of Sources and Uses of Funds, Statement ofCumulative Investments, and Statement of Special Account of the Public FinanceManagement Reform Implementation Support Project for the period 01.01.2017-31.03.2018 , and a summary of significant accounting policies and other explanatoryinformation. The financial statements have been prepared by Ministry of Finance basedon relevant provisions of the Grant Agreement Numbered TF-19355.

In our opinion;

a) The accompanying Statement of Sources and Uses of Funds, Statement ofCumulative Investments and Statement of Special Account present fairly, in all materialrespects, the financial position and accounting policies of the Public FinanceManagement Reform Implementation Support Project for the period 01.01.2017-31.03.2018 in accordance with the provisions of the Grant Agreement Numbered TF-19355.

b) Ministry of Finance, as of March 31, 2018 has complied with, in all materialrespects, the requirements of Grant Agreement Numbered TF-19355.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing(ISAs). Our responsibilities under those standards are further described in the"Auditor's Responsibilities for the Audit of the Financial Statements" section of thisreport We are independent of the Ministry of Finance within the meaning of ethicalrequirements and have fulfilled our other responsibilities under those ethicalrequirements. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion.

Basis of Accounting and Restriction on Distribution and Use

We draw attention to Note "2" to the financial statements, which describe thebasis of accounting.

The financial statements are prepared to assist the Ministry of Finance to complywith the financial reporting provisions of the IBRD Grant Agreement Numbered TF-19355. As a result, the financial statements may not be suitable for another purpose. Ourreport is intended solely for the Ministry of Finance, Undersecretariat of Treasury, andIBRD, and should not be distributed or used by other parties.

Responsibilities of Management and Those Charged with Governance forthe Financial Statements

Ministry of Finance is responsible for the preparation and fair presentation ofthese financial statements in accordance with Grant Agreement Numbered TF-19355,and for such internal control as management determines is necessary to enable thepreparation of financial statements that are free from material misstatement, whetherdue to fraud or error.

Those charged with governance are responsible for overseeing financial reportingprocess of the Ministry of Finance.

Auditor's Responsibilities for the Audit of the Financial Statements

The objectives of our audit are to obtain reasonable assurance about whether thefinancial statements as a whole are free from material misstatement, whether due tofraud or error, and to issue an auditor's report that includes our opinion. Reasonableassurance is a high level of assurance, but is not a guarantee that an audit conducted inaccordance with ISAs will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if, individuallyor in the aggregate, they could reasonably be expected to influence the economicdecisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgmentand maintain professional skepticism throughout the planning and performance of theaudit. We also:

* Identify and assess the risks of material misstatement of the financialstatements, whether due to fraud or error, design and perform audit proceduresresponsive to those risks, and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error, as fraud may involvecollusion, forgery, intentional omissions, misrepresentations, or the override of internalcontrol.

* Obtain an understanding of internal control relevant to the audit in order todesign audit procedures that are appropriate in the circumstances, but not for thepurpose of expressing an opinion on the effectiveness of the entity's internal control.

* Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made by management.

* Evaluate the overall presentation, structure and content of the financialstatements, including the disclosures, and whether the financial statements representthe underlying transactions and events in a manner that achieves fair presentation.

We are required to communicate with those charged with governance regarding,among other matters, the planned scope and timing of the audit and significant auditfindings, including any significant deficiencies in internal control that we identify duringour audit.

We are also required to provide those charged with governance with a statementthat we have complied with relevant ethical requirements regarding independence, andto communicate with them all relationships and other matters that may reasonably bethought to bear on our independence, and where applicable, related safeguards.

Ahmet Umit SUCUActing Chairman of Board of Treasury Controllers

Akif Bilent BOYACIOOLU(Audit Partner)Vice-Chairman

H. Ay en BILENLER Neslihan WHKILMAZ igdem KAHVECiSenior Treasury Controller Senior Treasury Controller Treasury Controller

Date : June 14, 2018Address: Republic of Turkey Prime Ministry Undersecretariat of Treasury,Board of Treasury ControllersEmek/Ankara, TURKEY

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[MINISTRY of FINANCE][PUBLIC FINANCIAL MANAGEMENT IMPLEMENTATiON SUPPORT PROJECT

(TF: 19355)]SPECIAL ACCOUNT STATEMENT

ACCOUNT NO: 940701041AT CENTRAL BANK

For the year ended. December 31, 2017(in US Dollars)

Opening Balance 80.000,00

Reimbursements to SA 264.834,00a) Advance 264.834.00b) SOE Procedure 0c) Summary Sheet 0

Refunds to SA 0,00

Available Funds 344.834,00

Payments Made for Expenditures 264.834,00

Service charges for the account 0

Total Project Investments 264.834,00

Closing Balance 80.000,00

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[MINISTRY of FINANCE][PUBLIC FINANCIAL MANAGEMENT IMPLEMENTATiON SUPPORT PROJECT

(TF: 19355)]SPECIAL ACCOUNT STATEMENT

ACCOUNT NO: 940701041AT CENTRAL BANK

For the quarter ended. March 31, 2018(In US Dollars)

Opening Balance 80.000,00

Reimbursements to SA 0a) Advance 0b) SOE Procedure 0c) Summary Sheet 0

Refunds to SA 0,00

Available Funds 80.000,00

Payments Made for Expenditures 69.166,00

Service charges for the account 0,00

Total Project Investments 69.166,00

Closing Balance 10.834,00

REPUBLIC OF TURKEY MINISTRY OF FINANCE PUBLIC FINANCIAL REFORMIMPLEMENTATION SUPPORT PROJECT

GRANT NO. 19355NOTES TO THE PROJECT FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31,2018

I. OBJECTIVES AND NATURE OF THE PROJECT

PFM Grant No. TF019355 Public Finance Management Reform Implementation Support Project

under Multi-Donor Programmatic Trust Fund for Europe and Central Asia Public Finance

Management (TF071577) was signed between Republic of Turkey and International Bank for

Reconstruction and Development ("IBRD") on November 26, 2015. The objective of the grant is to

enhance transparency and accountability in the Turkish public sector through the provision of support

to its institutions in addressing implementation challenges of the public financial management reform.

Project consists of three parts; Part A is related with development of a program classification and

program structure. Part B is about enhanced implementation of Public Internal Financial Control

Framework. Part C is for enhancing the accounting and reporting system to promote accountability.

General Directorate of Budget and Fiscal Control was responsible for implementing part A and B of

the projects and the General Directorate of Public Accounts was responsible for implementing C. Both

General Directorates (Ministry of Finance) acted as the financial intermediary for providing funds to

private sector enterprises (Consultants) under Part A, B and C. The IBRD agrees to make available to

Republic of Turkey the OTF Grant in an amount US Dollars 780,000.00.

The closing date was set as November 30, 2016. However, it was extended two times and final closing

date was set as January 31, 2018.

2. ACCOUNTING POLICIES

a) The Ministry uses the cash basis of accounting to account for project transactions. Under that basis,

income is recognized when funds are received and expenses are recognized when payment is made. At

March 31, 2018, there were no material transactions pending disbursement.

b) The Ministry maintains a kind of subsidiary recording system for each project. When a subsidiary

agreement is signed between the Ministry and a consultant, the Ministry opens and credits an account

equal to the amount of the subsidiary agreement for consultant under the sub-account Public Finance

Reform Implementation Support Projects payments. After reasonable cost of consultancy services

required for carrying out the sub-project are made, the said account is debited by the amount of

expenditure. When total of the subsidiary agreement withdrawn from the Grant, the account opened

for this consultant is closed with a zero balance. Payments are made directly to the consultants either

from special account or from the World Bank.

c) Transactions are recorded in foreign currency (USDs) by the Ministry. Statements of Sources and

Uses of Funds and Cumulative Investments, have been prepared in USDs.

3. RESTRICTED USE OF FUNDS AND OTHER ASSETS

In accordance with the grant agreement between the Turkish Government and IBRD, funds available

in the Special Account were restricted to project purposes only. Project funds still unused at the end of

the project have been refunded to the International Bank for Reconstruction and Development in

accordance with the provisions of the corresponding financing agreement.

4. IBRD GRANT

Because the agreement signed between IBRD and Republic of Turkey on November 20, 2015 was a

grant agreement financed by Multilateral Fund, Republic of Turkey is not obligated to make any

repayment under the grant agreement.

5. CASH AVAILABILITY AT MARCH 31,2018.

There is no any cash account.

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