46948 Turkey Health Sector Institutional Fiduciary Assessment (IFA) December 19, 2007 Operations Policy and Services Europe and Central Asia Region Document of the World Bank NOT FOR DISTRIBUTION WITHOUT PRIOR CONSENT OF THE WORLD BANK Abbreviations and Acronyms Currency Equivalent 1 TRY (New Turkish Lira) = US$0.8466 (December 3, 2007) 1 TRY = 0.5776 EUR (December 3, 2007) Fiscal Year January 1 – December 31 ABBREVIATIONS AND ACRONYMS Budget and Finance General Department BFGD MTEF Medium Term Expenditure Framework (MOH) Country Financial Accountability CFAA MTFP Medium Term Fiscal Plan Assessment CPAR Country Procurement Assessment Report PCN Project Concept Note Europe and Central Asia Region, World ECA PFM Public Financial Management Bank Human Development Sector Department, ECSHD Europe and Central Asia Region, World PPL Public Procurement Law Bank Operations Services and Policy Department, ECSPS Europe and Central Asia Region, World PPCL Public Procurement Contract Law Bank EU European Union PPA Public Procurement Authority Public Financial Management and FY Fiscal/Financial Year PFMC Control Law General Directorate of Public Accounts GDPA RF Revolving Fund (MOF) Support for Improvement in Governance GFS Government Finance Statistics SIGMA and Management in Central and Eastern Europe HTP I Health Transformation Project I SSI Social Security Institute International Bank for Reconstruction and IBRD SPH School of Public Health Development (or the World Bank) IFIs International Financial Institutions SPO State Planning Organization IMF International Monetary Fund TA Technical Assistance IT Information Technology MOF Ministry of Finance TCA Turkish Courts of Account MOH Ministry of Health UHI Universal Health Insurance MIS Management Information System WB World Bank Regional Vice President: Shigeo Katsu, ECA Vice Presidency Country Director: Ulrich Zachau, ECCU6 Sector Director: Theodore O.Ahlers, ECSPS Sector Manager: Sunil Bhattacharya, ECSPS Task Team Leader: Maria Vannari, ECSPS i Table of Contents Table of Contents ABBREVIATIONS AND ACRONYMS .......................................................................... I ACKNOWLEDGEMENTS ........................................................................................... IV EXECUTIVE SUMMARY .............................................................................................. 1 1. INTRODUCTION............................................................................................... 10 A. Objectives................................................................................................................ 10 B. Scope ....................................................................................................................... 10 C. Organization of the Report ..................................................................................... 14 D. Audience and Process ............................................................................................ 15 2. BACKGROUND AND CONTEXT ................................................................... 16 A. Recent Progress and Challenges in the Health Sector ............................................ 16 B. Government Initiatives in Health and the Health Transformation Program ............ 16 3. HEALTH SECTOR INSTITUTIONAL FRAMEWORK .............................. 19 Ministry of Health Central Level ............................................................................ 19 B. Provincial Level ...................................................................................................... 21 4. FIDUCIARY FRAMEWORK FOR BUDGETARY FUNDS......................... 24 A. Financial Management ............................................................................................ 24 B. Public Procurement .................................................................................................. 34 C. Governance and Anticorruption ............................................................................... 44 5. FIDUCIARY FRAMEWORK FOR REVOLVING FUNDS ......................... 46 A. Background ............................................................................................................. 46 B. Planning and Budgeting .......................................................................................... 47 C. Budget Execution and Internal Control Systems .................................................... 47 D. Accounting and Reporting ...................................................................................... 49 E. External Audit ......................................................................................................... 49 F. Public Procurement .................................................................................................. 49 6. HEALTH SECTOR EXPENDITURE SYSTEMS .......................................... 51 A. Recurrent expenditures ........................................................................................... 51 B. Capital (Investment) Expenditures .......................................................................... 53 Annexes ANNEX 1 - CONCEPT NOTE: INSTITUTIONAL FIDUCIARY ASSESSMENT PROGRAM FOR TRANSFORMATION IN HEALTH............................................. 58 ANNEX 2 - CONSOLIDATED HEALTH SECTOR EXPENDITURES.................. 62 ANNEX 3 - GOVERNEMNT STATISTICS – CATEGORIES FOR CLASSIFICATION (FINANCIAL AND PUBLIC PROCUREMENT) ................... 63 ii Table of Contents ANNEX 4 - HEALTH SECTOR INSTITUTIONAL FRAMEWORK ..................... 70 ANNEX 5 - PLANNED INSTITUTIONAL CHANGES ............................................. 74 ANNEX 6 - BENCHMARKING OF TURKEY PUBLIC PROCUREMENT SYSTEM .......................................................................................................................... 77 ANNEX 7 - ORGANIZATIONS AND EXPERTS WITH WHOM TEAM CONSULTED.................................................................................................................. 96 List of Tables Table 1: Health Expenditures in Turkey (in millions YTL) .......................................................... 13 Table 2: Health Indicators for Selected Upper-Middle-Income Countries ................................... 17 Table 3: Government Targets in the Health Services for the Ninth Development Plan Period .... 18 Table 4: Health Sector Service Providers ...................................................................................... 19 Table 5: MOH Medium-Term Indicative Budget Ceilings (million YTL) ................................... 29 Table 6: MOH Appropriation versus Realization (Million YTL) ................................................. 29 Table 7: Share of the Health Sector (“MOH�) in Public Procurement, by Year (in million TRY)37 Table 8: Share of the Health Sector in Public Procurement in Comparison with Other Sectors and Public Institutions .......................................................................................................................... 37 Table 9: Number of Advertised Tenders in Total Conducted Tenders (including contracts not registered with PPA) ..................................................................................................................... 41 Table 10: Contracts by Procurement Method ( in millions TRY) ................................................. 42 Table 11: Cancellation Reasons – Health Sector Tenders ............................................................. 42 Table 12: Number of Complaints .................................................................................................. 43 Table 13: Participation of Foreign Bidders in Public Procurement in Turkey (under Open Tender Procedure) - (in US$ billions) ....................................................................................................... 44 Table 14: Importance of Revolving Funds in the Health Sector (in YTL millions) ...................... 46 Table 15: Health Sector Procurement Responsibilities ................................................................. 53 List of Figures Figure 1: Organizational Relationships in the Health Sector ........................................................ 11 Figure 2: Flow of Funds among Institutions within the Health Sector.......................................... 12 Figure 3: Structure and Coverage of a Public Financial Management System ............................. 14 Figure 4: Schematic Diagram of the Internal Financial Control and Reporting Framework for General Budget Institutions ........................................................................................................... 31 Figure 5: Schematic Diagram of the Internal Financial Control and Reporting Framework for General Budget Institutions with Revolving Funds ...................................................................... 48 iii Acknowledgements ACKNOWLEDGEMENTS The present work was carried out by a World Bank team comprising Maria Vannari (procurement); Ranjan Ganguli and Seda Aroymak (financial management); and Mediha Agar (public expenditure and public finance management). Important inputs were received from Loraine Hawkins (health systems management and finance) and Ibrahim Sirer (procurement). Assistance with data collection was provided by Yasar Mutlu and Ferhat Emil (consultants). Overall guidance and inputs on sector background was provided by Sarbani Chakraborty (team leader for health portfolio in Turkey) and the management of the ECSPS and ECSHD. The team was assisted by Elif Yonca Yukseker, Hulya Bayramoglu, Ayse Ronay (Country office, Ankara) and Ilyas Butt (World Bank, HQ). Peer reviewers were: Elmas Arisoy (Senior Procurement Specialist, East Asia Region), John O. Ogallo (Senior Financial Management Specialist, Europe and Central Asia Region), and Rajeev Swami (Senior Financial Management Specialist, Latin America and the Caribbean Region). Valuable support from the counterpart team is gratefully acknowledged—from the Ministry of Health, Ministry of Finance, State Planning Organization, Public Procurement Authority and Treasury Undersecretariat. Annex 7 provides a detailed list of the institutions, government officials, and experts with whom the team consulted. iv Executive Summary EXECUTIVE SUMMARY A. Background and context 1. The Government of Turkey is undertaking comprehensive reforms in the health and social security sectors. At the center of these reforms is the Transformation in Health Program (the Program) which has been underway since 2004. The Institutional Fiduciary Assessment (IFA), first, assesses the fiduciary arrangements currently in place to support implementation of the Program; and second, helps to identify areas where fiduciary arrangements and systems of the key sector institutions could be further strengthened to improve the way the public funds are spent and accounted for. 2. IFA utilizes a two-phase approach. Phase I, the present report, focuses primarily on the Ministry of Health (MOH). Phase II will take place during a period of major reforms with significant fiduciary implications – for example, the restructuring of MOH into a planning, policy setting and supervisory entity, conversion of MOH hospitals to autonomous state enterprises, and establishment of an independent regulatory authority for drug and medical devices. Such reforms will substantially alter institutional and organizational responsibilities, including the flow of funds; and the second phase of IFA will be designed to take these changes into account. In the interim, the current institutional and organizational arrangements will remain in place and will form the basis for continued implementation of the Program, therefore, covered by the present assessment. 3. The IFA analysis is prepared for the government counterparts in Turkey to serve as a basis for a constructive discussion on further development of the public financial management system in the health sector (one of the largest spenders of public funds in the country) and strengthening of fiduciary capacity of the key sector institutions. B. Country- and Sector- Level Fiduciary Framework for Budgetary and Revolving Funds 4. Given Turkey’s centralized structure of its public sector fiduciary framework, the main elements of the sector’s fiduciary arrangements for budgetary funds are determined directly at the country-level. Therefore, the fiduciary systems at the sectoral level are dominated by the frameworks set at the central level 5. Enactment of the Public Financial Management and Control (PFMC) Law in 2003 marked a defining moment for public financial management in Turkey. It provided a new legal framework for comprehensive public expenditure management and accountability and articulated a modern performance-oriented public sector management. Enactment of the public procurement law and its amendments in the last two years contributed to further strengthening of the regulatory framework and directly affected the health sector particularly through introduction of framework agreements and public-private partnership in construction and renovation of health care facilities. 6. Health sector fiduciary systems assessed in the IFA correspond closely to those in the model of public financial management per the Public Financial Management Performance Measurement (PEFA) Framework and, in part related to public procurement, – four pillars of the Benchmarking and Assessment Tool for Public Procurement Systems (OECD/DEC). More specifically, the systems assessed are: (a) planning; (b) budget formulation; (c) budget 1 Executive Summary execution, including internal controls; (d) accounting and reporting; (e) external audit; and (f) public procurement. (a) Planning 7. Institutional strategic planning is still a relatively novel concept. It is gradually taking root through implementation of the PFMC law. The Ministry of Health (MOH) will complete its first strategic plan (covering 2010–14) by January 2009. A Strategy Development Department (SDD) within the MOH was set up to take the lead on this. Because the strategic planning function is still relatively new, internal capacity is not yet fully developed. MOH would benefit from supporting capacity building in the area of strategic planning to improve the quality of budget preparation. A training needs assessment would be a good first step in this direction. 8. Health sector with its multiple sources of funds (budget tax and non-tax revenues, social security premiums, revolving funds and public sector borrowing) and numerous expenditure users (MOH directorates and affiliated agencies, MOH and universities’ hospitals, social security institution, provincial administrations, and state-owned economic enterprises) has a complicated revenue and expenditure structure. This structure adds up to extremely complex flow of funds structures, which impede efficiency in resource allocation in the sector. 9. Moreover, one of the sector’s main sources of funds - Revolving funds (RFs)- are off-budget activities of the public sector even though the PFMC law requires its inclusion in the related central budget institutions. As a result, more than 6 percent of central government expenditures are not covered by the overall control and financial management structure defined by the PFMC. Totality of the health sector resource envelope can be captured by consolidation of all revenues and expenditures including revolving funds. This would assist the government in managing its entire health sector budget more effectively, and improve investments planning which is more effective when done on the basis of a consolidated budget. (b) Budget formulation 10. Multiyear budgeting was initiated in 2005 covering the period 2006-2008. Nevertheless, general government institutions still tend to focus primarily on their current year’s budget, with simple projections for the following two years. This undermines the value of the strategic plans and multi-year budgets. 11. The indicative institutional ceiling for the total budget set by the MOF in the medium-term expenditure framework (MTEF) establishes a limit for the MOH budget formulation. The institutional ceilings are intended to provide institutions with an indication, but not a guarantee, of their expected allocations from the budget. However, MOH ceilings may change by as much as 11% for any given year. While this may be understandable if there are significant changes in sector policies, it is not a good practice from the point of view of establishing the credibility of medium term budgeting. In addition, there is considerable variance between annual budget appropriations and budget realization which also undermines budget credibility. 2 Executive Summary 12. Moreover, despite gains in strategic planning and improved processes for medium-term budget formulation, the budget formulation process remains fragmented as the present budget classification system does not facilitate program budgeting. 13. Revolving funds are managed in a decentralized fashion. Each hospital or any other spending authority which has its own RF prepares a RF budget with a breakdown by estimated revenues and planned expenditures. Investments financed from RFs are part of the public investment program, but these expenditures are outside of budget discipline. Multi year budgets will improve the value of strategic plans and medium term expenditure management in the health sector. It will assist the MOH to focus not only on yearly budget, but also on longer term budget management. The implications of any changes in health sector`s policies and programs provide opportunities for better health sector’s multi-year budgeting so that better medium term planning is achieved. In the absence of program budgeting monitoring, assigning program codes alongside the Government Finance Statistics (GFS) budget classification in both the e-Budget and Say2000i systems will provide the Ministry of Health with a mechanism to formulate and track budgets by programs. (c) Budget execution and internal control systems 14. All spending units face two major challenges in the execution of the budget. First, budget appropriations usually are not released by the MOF during the first three months of the year (except for nondiscretionary expenditures such as payroll and other current expenditures such as utility bills). Second, exceptional appropriation blockages occur, primarily in the final quarter of the budget in response to the fiscal concerns. These practices hamper the ability of spending units to plan their investments, execute the budget, including making payments against contractual obligations. 15. MOH has devised a series of cash-rationing “coping strategies� to deal with frequent delays or exceptional blockages in the release of approved funds. These strategies pose risks to fiscal control; however, as a pragmatic matter, they tend “to work� and include: (i) utilizing resources from its revolving funds to cover both recurrent and investment expenditures; (ii) requesting front-loaded appropriation releases clustered in the second and the third quarters; (iii) in accordance with the PFMC law, reallocating expenditures between budget line items up to a limit of 5% per line item unless another rate is specified under the relevant annual budget law; and (iv) requesting additional allocations during the budget year from the MOF’s contingency reserve. 16. However, in case of revolving funds, a number of MOH RFs face liquidity difficulties. The Social Security Institution (SSI) is not always able to pay hospital invoices in full and on time so many RFs have accumulated receivables from SSI. Reliance on institutional coping strategies to ensure predictability in cash flow is understandable but needs to be questioned—especially in light of MOH restructuring the hospitals’ revolving funds. Collaboration between MOH and MOF on the predictability of budget appropriations and timing of their releases would improve the accuracy of MOH budget planning and execution. MOH has initiated protocols with MOF and SSI for improving cash planning. 3 Executive Summary Reducing the revenue arrears from the SSI with a) the full implementation of the MEDULA (Electronic invoice and payment system between SSI and the health service providers) and b) new Social Security and Universal Health Insurance reform Law that would strengthen the fiscal position of the SSI will improve liquidity and predictability of revenues for RFs. 17. The PFMC law sought to balance accountability by segregating responsibilities of those who incur expenditures from those who make payments. The Budget and Finance General Department (BFGD) of the MOH has assumed responsibility for monitoring budget execution and the efficacy of the internal financial control framework. Only seven financial services specialists (out of 24 planned for MOH) have been recruited and trained as of the date of the IFA. 18. In accordance with the PFMC law, each public administration has an internal audit unit. However, fully operational internal audit structures have yet to be established anywhere in government. This is primarily due to a shortage of appropriately qualified staff. Despite available positions, MOH has only one internal auditor (out of planned 24), who has yet to receive training. Also, even when established, the scope of audit work will not cover revolving funds. 19. The lack of internal control capacity has direct implication for procurement oversight, especially at the provincial level where most of health sector procurement is done. Since the Turkish Public Procurement Authority does not audit procuring entities, internal control is the main mechanism through which irregularities can be identified throughout procurement process and corrected. Requesting MOF to appoint a complete complement of financial service experts and internal auditors in MOH would facilitate MOH to properly discharge its fiduciary responsibilities in respect of budget execution and internal control functions respectively. With the health sector being one of the main spenders of the public funds establishing appropriate budget execution and internal control environment is a matter of a top priority. Expansion of the internal audit arrangements applied for budgetary funds to the Revolving Funds would put a comprehensive fiduciary oversight over the health sector system in place. (d) Accounting and reporting systems 20. Turkey has a single accounting system—Say2000i (an automated online system consistent with Government Finance Statistics budget coding structure)—maintained by General Directorate of Public Accounts (GDPA) of the MOF. Thus, general budget institutions, including MOH, do not maintain the public sector official accounting systems. Upon individual requests from general budget institutions, GDPA can provide them with read-only access to the Say2000i system for the purposes of monitoring budget execution. However, this option is rarely used. Instead, the MOH spending units keep parallel accounting records in order to monitor their budget execution. 21. The accounting for the revolving funds is also done by the GDPA by the use of centralized accounting system developed by MOH. The MOF RF department consolidates the RF data for the health sector as maintained by the various MOF GDPA offices. Thereafter, MOF consolidates all RF data across all sectors and publishes quarterly consolidation results. 4 Executive Summary Unlike the accounting done for general budgetary funds using Say2000i, regular monthly accounting reports for RFs are shared with hospitals by the GDPA, thus, enabling them to monitor the financial position of RFs without having to maintain parallel accounting systems. Giving access to the Say2000i system to the health sector spending units would eliminate the practice of maintaining parallel accounting systems for the purpose of monitoring budget execution. 22. There is no standard contract management system for contracts that require payments in installments. Contract management is done by the GDPA by monitoring commitments but only after the first payment is registered. In most cases, signed contracts are sent to GDPA only when payment of the first installment is required which can be some time after the signing. Capturing the contracts in both Say2000i and the MOH system for RF prior to first payment on the signed contract is made and, thereafter, showing outstanding commitments alongside each expenditure category in budget execution reports would facilitate monitoring of commitments and cash forecasting. (e) External audit 23. The Turkish Court of Accounts (TCA) is a constitutional establishment entrusted with auditing on behalf of the Turkish Grand National Assembly. TCA performs compliance audits at both central and the provincial levels (and covers both budgetary and revolving funds), but does not perform financial audits on the credibility of the financial statements or assess the adequacy of internal control systems. Once enacted, the new law (the draft of which was submitted to the Parliament back in 2005) will have a profound impact on the role of the TCA by shifting the focus from compliance audits and judicial work to financial and performance audits. In the absence of appropriate financial audits of the health sector by the TCA, there is a risk that inappropriate use of funds and other resources may go undetected. This risk can be partially mitigated by MOH to enter into agreements with the TCA to perform periodic operational reviews of key aspects of the health sector fiduciary systems. (f) Public Procurement 24. Public procurement system in Turkey is well developed. In some aspects, it is more advanced than in other neighboring countries. The benchmarking of Turkey’s public procurement system against an internationally recognized baseline of best practice in procurement was carried out jointly by the World Bank and the Turkish Public Procurement Authority in February 2006 and updated in October 2007. The benchmarking included analysis of four main pillars—legislative and regulatory framework (Pillar I); institutional framework and institutional capacity (Pillar II); procurement operations and market practices (Pillar III); and the integrity of procurement systems (Pillar IV). It showed that the country achieved its greatest progress and most impressive results in the area of legislative and regulatory framework (Pillar I), and in improving integrity of the national public procurement system (Pillar IV). 5 Executive Summary 25. Further improvements in the public procurement are nevertheless critical for efficient functioning of the system. The most critical areas requiring urgent attention are (a) lowering mandatory threshold for publication of contract award decisions; (b) eliminating restrictions in a form of thresholds for participation by international bidders (any bidding should be open to both domestic and international bidders); (c) simplifying dispute resolution system (only international bidders can use international arbitrage, local bidders have to appeal to local courts which is a lengthy and time consuming process). Finally, selection of consulting services procedures would benefit from use of quality-and-cost based selection system, particularly for the assignments that require high competence and relevant experience. Progress toward achieving an open, efficient public procurement system that adopts international best practices and is fully grounded in modern techniques should continue. 26. The health sector is one of the main spenders of the public funds in Turkey, including both general budget and revolving funds. Legislative framework governing procurement in the health sector has been substantially expanded and refined in recent years. With adoption of the PFMC law in 2003, procurement was decentralized to MOH general directorates, affiliated agencies, and provincial level units—all of which have spending authority. The bulk of procurement for the sector is carried out at provincial level by provincial health directorates and hospitals. Other service delivery facilities (including family doctors centers) deal with very small number and volume of procurement transactions. 27. It is quite a common practice for the system with decentralized procurement function and numerous procuring entities that the capacity of the individual procuring units varies greatly (both at the central and provincial levels). Many ideas came up during the IFA meetings and discussions to address this issue of uneven capacity. For example: (a) A self-assessment test to determine a procurement unit’s level of capacity could help individual contracting authorities (procurement units) to pinpoint gaps in expertise and knowledge of procurement law, and the need for additional training and technical assistance. (b) An “umbrella� technical assistance facility – a contract with a consulting firm to provide individual contracting authorities access to advisory services in preparation of tender documents, development of bidders’ qualification and bids’ evaluation criteria; and conducting custom tailored subject-specific training to individual units, especially at provincial levels. (c) An electronic (web based) catalogue can be developed to collect updated information for the most commonly procured health sector goods, consumables, and pharmaceuticals to facilitate work of individual contracting authorities. (d) Framework agreements with suppliers of the health sector items are now allowed by the recent amendment to the public procurement law. These could be negotiated at the central level on behalf of individual institutions and facilities to address a widespread (at the provincial level) problem of unqualified suppliers winning contracts because they offer the “lowest� prices but deliver sub-standard quality items. Framework agreements for short shelf- life consumables and drugs can also be a more economical method than currently used direct contracting for such situations. 28. Another issue in the health sector public procurement system is finding a right balance between centralized and decentralized procurement. Similar to the fact that there is no perfect model of the health care system in the world, there is no golden standard for the health sector procurement system and an answer to the question which system- centralized or 6 Executive Summary decentralized- is better. Even a fully decentralized procurement system can have elements of central procurement (for example, consolidated tenders for certain items required in substantial quantities) to take advantage of the economy of scale. The IFA team was informed about intention of some hospitals to organize a joint procurement of commonly used items. While this is obviously an initiative which should be encouraged, consolidation at provincial or central level can be further discussed and tested to arrive to an optimal combination of centralized and decentralized procurement. In addition, positive experience of other countries and benefits of consolidated IT items procurement is worth studying. 29. Turkey’s public procurement law is one of the best practices in the region in regard to having separate selection procedures for consulting services that uses quality criteria to evaluate technical proposals prior to price comparison. There is also a model document for selection of consulting services (“Request for Proposals� or RFP). Unfortunately, these procedures and the RFP are not widely used by procuring entities. Instead, they opt for price only selection which negatively affects both, quality of the provided services and removes incentives for qualified consulting firms to compete for public contracts in the sector. A technical assistance facility described above as one of the examples to assist in capacity building of procuring entities can be used to operationalize this beneficial provision of the law. MOH is well positioned to convene debate on innovation in health sector public procurement (in coordination and close involvement of the Public Procurement Authority). The efficiency, cost effectiveness and quality of the health sector procurement will benefit from comparing what worked best in the health sector procurement in the other countries, especially those, who has introduced a mixed (i.e. “centralized and decentralized�) approach to organizing procurement of goods, works and services for the needs of the health sector. Organizing in- country discussion forums as part of the on-going institutional reform under the Program could be a practical form of experience sharing for the professionals responsible for procurement in the health sector in Turkey. C. Health Sector Expenditure Systems 30. Health sector expenditure systems are grouped into Recurrent and Capital expenditures with Recurrent being, by far, the largest share (69 percent of the sector expenditures covered by the IFA). 31. About half of the Recurrent Expenditures are for Personnel (or payroll) expenditures. Salaries are calculated using payroll software, centralized at the Say2000i personnel module and transferred electronically to the employees’ bank accounts. The system for calculation of performance bonuses (paid from revolving funds revenues) to the employees is separate from the general budget salary module. However, the same information is used as the basis for calculations. Bonuses are also paid to the personal bank accounts of the employees. Other Recurrent Expenditures in the health sector include vaccines, pharmaceuticals, medical supplies and consumables as well as some technical services which are not directly related to civil works. 32. Capital (Investment) expenditures are grouped into goods, and civil works (which sometimes may also include related technical services included in the same works contract). Procurement of capital expenditure items is carried out at central and provincial levels. 33. Most of sector procurement (by aggregate value and number of contracts) is done at the provincial level, even though an average value of individual contracts rarely exceeds 7 Executive Summary US$100,000 equivalent threshold above which advertisement in bulletin of the Public Procurement Authority (PPA) is required. Therefore, about 2/3 of contracts awarded in the sector are below the PPA’s “radar screen� and are not included in its statistics. 34. Procurement at the central level planned and coordinated by MOH includes (a) medical and laboratory equipment tenders including the Project management unit within the MOH with financing from the MOH budget and foreign loans; (b) a wide range of items required for the country’s hygiene and sanitary system (by Refik Saydam Hygiene Center); (c) vaccines (by the MOH directorate); (d) civil works financed from budgetary funds and investment program (by the newly established MOH construction department); and (e) consulting/advisory services financed under the projects co-financed by foreign loans (by the Project management unit of the MOH). In case of foreign loans, procurement procedures and methods of a respective financier would apply. Experience and capacity of (a) procurement team of the General Directorate of Health for Borders and Coastal Services who is conducting medical equipment tenders for the MOH , and (b) Project management unit within the MOH administering tenders under the World Bank procurement procedures, are highly valuable. Options for preserving, transferring and/or sharing such experience and capacity for the benefit of procuring entities involved in implementation of the Program may need to be discussed and considered by the MOH management. 35. Civil works contracts for new construction and major rehabilitation is a responsibility of a newly established construction department (capital investment unit) of the MOH. This responsibility has been transferred from the Ministry of Public Works in 2007. At the time of the IFA, this new unit has been preoccupied with completing inherited tenders and contracts and has not launched the new ones yet. Both, the design and on-site technical supervision is carried out by the department’s own staff located throughout the country. The IFA team was informed about future plans ( not yet incorporated into the public investment programs ) to build 30 new medical training and teaching hospitals in the next 10 years. Procurement planning and alignment of the time-schedule of these new constructions with the sector reform program needs careful consideration. Analysis of existing capacity and in-house expertise (comparing with outsourcing options for design and technical supervision, for example) will prepare the new department in implementation of the government’s ambitious civil works program. 36. No health sector institution has experience with selection of large-value consulting services, including international participation1 as most needs for consulting services are met in-house or by internal order from MOH that draw experts from the state- owned universities. By broadening the base of technical expertise that can be drawn from inside and outside the country for provision of consulting services the MOH will be able to obtain required expertise to implement the Program. D. Governance and Anti-Corruption. 1 This observation relates to consulting services financed from the budget and does not include experience of the central project unit set up for implementation of the projects co-financed by the World Bank 8 Executive Summary 37. Considerable progress has been achieved by the Turkish authorities in the past few years in adopting policies and procedures aimed, directly or indirectly, at reducing corruption. Implementation of the Freedom of Information Law has progressed, and a Public Sector Ethics Board, although still understaffed, has initiated operations. A circular issued by the Prime Minister in October 2006 reinforced the role of an inter-ministerial steering group in combating corruption by expanding its duties to cover cooperation with international anti- fraud organizations and determining principles and measures in this context. 38. However, in four areas of openness and accountability, Turkey’s legislation still falls short of the standards being set by the new members of the EU. All have direct implication on the governance of the health sector: (i) asset monitoring in Turkey is confidential, infrequent and cover too many officials to be workable; (ii) enforceability of conflict of interest rules for officials is weak; (iii) the Law on the Right to Information has shortcomings and its implementation encounters wide variation; and (iv) the breadth of officials covered by immunity is larger than in many countries. E. Planned Institutional Changes 39. Several important institutional changes are planned, and others are under pilot implementation as part of the Program. These include: (a) Reorganization of certain MOH functions; (b) Scaling up of the family medicine pilot project; (c) Conversion of best- performing MOH hospitals to pilot Public Hospital Enterprises, which would facilitate hospital autonomy 40. The above institutional changes would likely affect fiduciary responsibilities of the reorganized institutions and the flow of funds within the health sector. The impact of these changes in terms of the fiduciary framework will require evaluation (Phase II of the IFA) when the plans are more certain and implementation progresses. 9 Introduction 1. INTRODUCTION A. OBJECTIVES 1.1 The initial objectives of this Institutional Fiduciary2 Assessment (IFA) were to (1) assess the extent to which the country’s health sector fiduciary arrangements and systems can be used for effective implementation of health sector reform programs; and (2) propose areas for further strengthening of those fiduciary arrangements and systems. (See Annex 1 for the IFA concept note, including detailed objectives, scope, and methodology). After the IFA team began work in country, these objective were refined and narrowed to (1) assess the current status of the health sector fiduciary arrangements and systems from the perspective of their ability to support effective implementation of health sector reform, and (2) propose areas for further strengthening and developing of those fiduciary arrangements and systems. 1.2 The assessment is planned in two phases. The current report covers Phase I, focusing on the Ministry of Health (MOH) and its affiliated agencies. Its objective is to identify and prioritize areas for further strengthening of sector's fiduciary systems, and set up a road map for Phase II. 1.3 During Phase II, major reforms will continue to unfold—including the finalization of restructuring of the MOH; converting it into a planner and auditor, and making MOH hospitals autonomous state enterprises. A pilot hospital autonomy law is expected to be submitted to Parliament in 2008, allowing MOH to pilot hospital autonomy in Turkey. A law allowing establishment of an independent drug and medical devices regulatory authority is also expected to be submitted to parliament in 2008. Once these reforms are under implementation, the flow of funds in the health sector and institutional and organizational responsibilities are expected to change. At that point, a decision would be needed regarding the Phase II assessment. Nevertheless, these significant changes would occur over a 2 to 5 year timeframe. In the meantime, the current institutional and organizational arrangements will remain in place and form the basis for continued implementation of the Program; so these arrangements are therefore covered by Phase I of the IFA. 1.4 It is important to note that the IFA is not an audit, nor is it intended to review health expenditures or assess the fiscal strategy for managing these expenditures. B. SCOPE Institutions 1.5 The institutions falling within the scope of Phase I of this assessment include: central and provincial units of the MOH; Refik Saydam Hygiene Center and subordinated to it School of Public Health Directorate and a select sample of general MOH hospitals and family doctors practice. The assessment does not cover the entire health and social security sectors. The following institutions are not included: private hospitals and clinics, university hospitals, Social Security Institute (SSI), Ministry of Defense, municipalities, pharmaceutical institutions, and other medical providers. There are references to the procurements conducted by Directorate of Health for Borders and Coasts even though the institution was not covered within the scope of this assessment. The relationship between these organizations is presented in Figure 1. Institutions covered under the assessment are highlighted in bold, blue color and are also underlined. 2 For the purpose of this report, fiduciary means “financial management and procurement.� 10 Introduction Figure 1: Organizational Relationships in the Health Sector Refik Saydam Ministry of Health* Central level Hygiene Center * Governor Provincial Health Hygiene Directorates Regional/provincial level Directorate Health group MOH hospitals, Public health Presidency Laboratories University hospitals, Health centers affiliated to other ministries Service facilities Family Medicine Practices TBC dispensary Malaria Center Health centers STD Center Village clinics Private Doctors Mother & child care Private clinics Notes: * Organizational chart of (a) the central level of the Ministry of Health and its subordinate units, and (b) Refik Saydam Hygiene Center is provided in Annex 4; Abbreviations: TBC (tuberculosis); STD (sexually transmitted diseases) The above institutional structure affects the fiduciary responsibilities of the institutions as well as the flow of funds between them. Figure 2 illustrates the flow of funds between institutions. 11 Introduction Figure 2: Flow of Funds among Institutions within the Health Sector Sources of Funds Users of Funds Providers Taxes Central Governments  - Health Related Ins. (MoH etc) etc) Health Related Ins. (MoH - Public Funds Non-tax Revenues  - Green Card Exp Green Card Exp -  - Civil Servant Health Exp.Exp. Civil Servant Health - - Domestic Public Debt Social Security Premium Households Private Funds Private Ins. Expenditures Table 1 shows public sector health expenditures and identifies those expenditures falling within the scope of the IFA. These include expenditures within the direct influence of the Ministry of Health as well as revolving funds managed by organizations subordinate to the Ministry of Health. Therefore, the IFA covers expenditures of about 57 percent of the public sector health expenditures3. 3 2006 data 12 Introduction Table 1: Health Expenditures in Turkey (in millions YTL) 2004 2005 2006 I. Public Sector Health Expenditures 21,563 24,445 30,581 of which A. Ministry of Health (MOH) Expenditures 4,461 6,769 8,536 Personnel expenses 2,989 4,116 4,557 Civil servants 2,721 3,699 4,111 Contracted personnel 217 298 334 Employees 50 117 108 Temporary personnel 0 1 4 Purchase of goods and services 1,204 2,298 3,503 Current transfers 8 8 9 Capital expenditures 261 345 465 Capital transfers 0 2 2 B. MOH Revolving Funds 1/ 3,971 6,725 8,845 Scope of IFA (A+B) 8,432 13,494 17,380 (as percent of total public sector health expenditures) 39 55 57 1. Revolving funds expenditures should not be part of the health expenditure consolidation since they are not considered as the end-spending units. However, for the purpose of the IFA analysis of consolidated health sector expenditures, RFs expenditures have been taken into account. Source: MOH and MOF data, World Bank staff own calculations Fiduciary systems 1.6 The fiduciary systems assessed in the IFA correspond closely to those in the model of public financial management per the Public Financial Management Performance Measurement (PEFA) Framework and, in part related to public procurement – four pillars of the Benchmarking and Assessment Tool for Public Procurement Systems (OECD/DAC). PEFA model is presented in Figure 3. 1.7 More specifically, the systems assessed are: planning; budget formulation; budget execution, including internal controls; accounting and reporting; external audit; and public procurement. In assessing these systems, issues raised in existing country’s fiduciary diagnostics were considered for their implications on the health sector. 13 Introduction Figure 3: Structure and Coverage of a Public Financial Management System Source: Public Financial Management Performance Measurement Framework (PEFA), July 2005 C. ORGANIZATION OF THE REPORT 1.8 This Institutional Fiduciary Assessment (IFA) consists of an executive summary, six main sections, and seven annexes. 1. This first section, “Introduction,� provides an overview of the objectives and scope of the IFA, organization of the report, and the process for the completion of the report. 2. Section 2, “Background and Context,� describes government initiatives in the health sector and the institutional and organizational responsibilities in the context of the reforms. 3. Section 3, “Health Sector Institutional Framework,� describes the key institutions in the health sector at the central and provincial levels, and thus provides the context in which the health sector’s fiduciary framework is assessed. 4. Section 4, “Fiduciary Framework for Budgetary Funds,� considers the impact of the country-level and sector-level fiduciary framework for budgetary funds. 5. Section 5, “Fiduciary Framework for Revolving Funds,� describes the fiduciary framework for the health sector’s revolving funds. This is posed in contrast to the country-level and sector-level fiduciary framework for budgetary funds described in the previous section. 6. Section 6, “Health Sector Expenditure Systems,� describes the expenditure systems that are used to pay for the main items of expenditures. It is applicable to both the country- level budgetary systems as well as for the revolving funds. 1.9 The annexes include the original concept note for the IFA; further supporting health sector expenditure and public procurement data; details of the expenditure classification system; organizational diagrams; a discussion of the planned institutional changes within the health sector; public procurement system benchmarking against international best practice; and a list of counterparts in the country who cooperated during the IFA. 14 Introduction D. AUDIENCE AND PROCESS 1.10 The analysis in this report is prepared for and discussed with the government counterparts in Turkey to serve as a basis for further constructive discussion and debate on future development of the public finance management system in the Turkish health sector and strengthening of fiduciary capacity of the key sector institutions. 15 Background and Context 2. BACKGROUND AND CONTEXT A. RECENT PROGRESS AND CHALLENGES IN THE HEALTH SECTOR 2.1 In 2001 the Turkish economy suffered a serious economic crisis. At the end of 2001, Turkey registered a 10 percent decline in GNP, and inflation was about 70 percent. Nevertheless, the economy has rebounded. This impressive turnaround is attributable to strong fiscal consolidation, primarily based on the revenue side. 2.2 Today, Turkey faces a complex fiscal challenge—to maintain fiscal discipline, while simultaneously creating the fiscal space to meet urgent development challenges and continue the fast pace for medium-term growth. Structural fiscal reforms aimed at improving the quality of fiscal consolidation are the only feasible means of sustaining the adjustments, while making appropriate fiscal space for growth enhancing expenditures and lower taxes in the futures. Reforms of the social security and health systems are at the core of structural fiscal reforms. 2.3 In addition to the macroeconomic context, challenges must be met in the health and social security sectors. Turkey’s health indicators remain low in comparison to other middle- income countries (MICs). Although under-five and maternal mortality has improved, these indicators are high in comparison to other MICs and the highest among European countries (Table 2, following page). B. GOVERNMENT INITIATIVES IN HEALTH AND THE HEALTH TRANSFORMATION PROGRAM 2.4 Since 2003–04, health sector reform has been a fundamental component of Turkey’s development agenda. This is reflected in the Government’s Health Transformation Program (referred to in the report as “the Program�). Implementation of the Program was included in Turkey’s Eight Development Plan and the Government’s Urgent Plan of Action. The Program seeks to address longstanding problems in the health sector—such as fragmentation in financing and delivery, which results in duplication of coverage, benefits and services, gaps in coverage for certain population groups and limited value for money. 2.5 The Program’s overall objective is to improve governance, efficiency, user and provider satisfaction, and long-term fiscal sustainability of the health care system. This objective is to be achieved through action in several thematic areas: (i) Ministry of Health (MOH) as the planner and the auditor; (ii) universal health insurance under a single purchaser; (iii) widespread, easily accessible, patient-friendly health services, including strengthening primary health care, family medicine, and establishing an efficient referral system; (iv) availability of motivated health personnel with adequate information and skills; (v) education and science institutions to support the system; (vi) enhanced quality of care in health facilities; (vii) institutional restructuring to support rational management of pharmaceuticals and medical devices; (viii) access to effective information in health sector decision-making processes. 16 Background and Context Table 2: Health Indicators for Selected Upper-Middle-Income Countries GDP per Total health Public health Life capita Infant Under-5 Maternal expenditure expenditure expectancy (US$ 2000 mortality mortality mortality (% GDP)* (% GDP)* at birth con.) Spain 14,691 8.6 5.4 80 4 4 4 Greece 11,449 9.5 5.0 78 4 5 9 Portugal 10,284 9.3 6.6 76 4 5 5 Brazil 6,957 7.9 3.6 69 33 35 260 Czech Republic 5,899 7.0 6.4 75 4 51 9 Mexico 5,803 6.1 2.7 74 23 28 83 Hungary 5,105 7.8 5.5 73 8 7 16 Poland 4,634 6.1 4.4 75 6 7 13 Malaysia 4,011 3.8 2.0 73 7 7 41 Slovak Rep 4,254 5.9 5.3 73 7 8 3 Turkey 2,977 6.5 4.6 71.7 29 37 28.5 Thailand 2,276 4.4 3.0 69 23 26 44 Russia 2,138 6.2 3.5 66 16 21 67 Romania 1,963 6.3 4.2 70 18 20 49 Bulgaria 1,838 7.3 4.4 72 12 17 32 Europe and 2,283 6.3 4.2 68 29 36 59 Central Asia UMI 4,075 6.4 3.5 69 24 30 92 Footnote: * Figures for total health expenditures (THE) and public expenditures on health (PEH) are for 2002. Figures for THE should be treated with caution as they might underestimate the level of private spending on health; PEH data for Turkey is the WB staff calculation. Notes: 1. Figures for Maternal Mortality Ratios are for 2000 (2005 Maternal Mortality Study for Turkey). Maternal Mortality Ratio: modeled estimated, the number of deaths among women aged 15-49 per 100,000 live births. 2. Figures are for 2003 or for the latest available year. Infant Mortality Rate: the probability of dying in the first year of life per 1,000 live births. Under-5 Mortality Rate: the probability of dying before the fifth birthday per 1,000 live births. Source: World Development Indicators, 2007; World Bank staff calculations using the latest available data 2.6 Implementation of the Program has been underway since 2004 and is supported by a World Bank loan (the Health Transition Project). Key institutional, organizational, and financing 17 Background and Context changes to date include: (i) focusing the attention of the Social Security Institute (SSI) only on purchasing and relieving it of its health service provision function; (ii) de-concentration of some budget and financial management decisions to the hospitals and provincial health directorates to facilitate faster decision-making and use of revolving fund revenues for necessary purchases; (iii) outsourcing selected hospital services (such as laboratories, cleaning, and catering) to the private sector; (iv) a performance bonus system for personnel, linked to productivity indicators and a performance assessment system; (v) implementation of an enhanced accountability framework for MOH hospitals, focusing on structural dimensions of quality and patient satisfaction; (vi) organizational changes to strengthen the MOH role in regulation (especially of quality of care); (vii) introduction of family medicine in 15 provinces; (viii) passage of a Universal Health Insurance (UHI) Law allowing the integration of the previously fragmented health insurance system; (ix) incremental implementation of a standardized benefits package for all health insurance schemes and standardization of payment mechanisms for providers; (x) expansion of health insurance coverage under the Government’s Green card program (for non-contributors) and the scheme for formal sector health workers. 2.7 Implementation of the Program is expected to continue through the upcoming Ninth Development Plan, 2007–13. The phrase “Making the health system effective� is used to describe the overarching objective. The plan highlights the need for continued improvement of health as follows: “Improvements in health sector indicators—such as the number of health personnel, the number and utilization rates of hospital beds, infant mortality and immunization rates—were achieved during the Eighth Development Plan. However, the desired level is yet to be reached.� 2.8 To meet this objective, the plan sets medium-term targets for the health services (Table 3). Table 3: Government Targets in the Health Services for the Ninth Development Plan Period 2006 2013 (actual) (target) Number of doctors 103,150 120,000 Population per doctor 707 658 New enrollment in the medical faculties 4,800 7,000 Number of beds 197,170 236,600 Population per bed 372 335 Source: SPO, Ninth Development Plan, 2007-2013 2.9 Like other line ministries, MOH is currently developing a strategic plan. The MOH plan reflects the Program, as well as a program-based budget that will reflect priorities during the upcoming period. Strengthening of fiduciary systems of the health sector institutions—to bring them up to the level required for implementation of the Program—therefore becomes integral to the ongoing reform process in the health sector. 18 Health Sector Institutional Framework 3. HEALTH SECTOR INSTITUTIONAL FRAMEWORK This section describes the key institutions in the health sector and thus provides the context in which the health sector’s fiduciary framework is assessed in the sections that follow. The key institutions are presented in diagrammatic form in the introduction to this report (Figure 1, Section 1). These are the MOH central and provincial units; Refik Saydam Hygiene Center and subordinated to it, the School of Public Health; the General Directorate of Health for Borders and Coasts; MOH hospitals, university hospitals, private hospitals and clinics; the Social Security Institute (SSI), Ministry of Defense, municipalities, pharmaceutical institutions, and other medical providers. MINISTRY OF HEALTH CENTRAL LEVEL 3.1 The main service provider in the health sector is the MOH, which operates a network of approximately 769 hospitals (that is, 68 percent of the hospital beds in the country), health centers, health posts, mother and child health and family planning centers, tuberculosis dispensaries and malaria control centers. Table 4 compares the number of hospitals, hospital beds, and specialists provided by the MOH and other providers. Table 4: Health Sector Service Providers, 2007 Hospital Specialized Hospitals beds doctors 849 135,240 24,027 MOH (64%) (67%) (47%) 56 29,700 10,871 Universities (4%) (15%) (21%) 365 17,995 15,930 Private (28%) (9%) (31%) Ministry of 42 15,900 n.a National Defense (3%) (8%) 5 1,138 n.a Municipalities (0.4%) (0.6%) Public 1 910 n.a. Foundations (0.1%) (0.5%) 1318 200,883 80,828 Total (100%) (100%) (100%) Source: Ministry of Health. 3.2 In addition to direct provision of services, the MOH is responsible for policy and strategic planning; sector oversight (stewardship, monitoring, statistics, and evaluation); regulation; and service provision, including primary care, secondary and some tertiary hospital care (except for university teaching hospitals), and public health services. The Social Security 19 Health Sector Institutional Framework Institution’s hospitals were transferred to the MOH in February 2005 under Law No.5283.4 The service delivery facilities are predominantly managed at regional level by about 81 provincial health directorates of the MOH (in other words, these provincial offices are not part of local administrations). Figure 1 in the Introduction section of presents the institutional structure of the health sector, including the MOH. 3.3 At the central level, the MOH has general directorates, boards/councils, presidencies of affiliated organizations, and support units reporting through the under secretariat to the minister. The MOH central organization is presented in Annex 4A. 3.4 The institutional structure at the directorate level is set out in establishment law for MOH. Each directorate has an institutional budget code assigned to it in the MOH budget structure. The minister has the authority to create new structural units (or departments) only within this directorate structure. New units (or departments) can be created by an internal decree of the MOH. 3.5 The following structures and functions of the MOH were covered by the IFA, because they are central to the Program: 1. Strategy Development Directorate (SDD). Established as part of the implementation of PFMC at MOH. The SDD includes budget and finance department; real estate; statistics and documentation department; coordination and administrative affairs department; regulations, personnel and administrative affairs planning department; and health properties and financing department. This directorate is responsible for strategic planning and budgeting of the MOH, as well as executing ex-ante financial controls. A unit within the SDD is responsible for the overall coordination of the revolving funds as well as providing support for their procurement practices. There is also a small unit within the administrative affairs department that deals with minor procurement for the needs of the directorate. The directorate could play and important role in advising on benefits of consolidated (centralized) procurement of certain commonly used items and deciding on centrally conducted tenders when large quantities of similar items are required by the end users. 2. Primary Care Directorate. This directorate is responsible for policy and program development, coordination, organizing family medicine training, and monitoring. It includes a family medicine department responsible for scaling up the family medicine pilot. (Implementation of the family medicine system, however, is the responsibility of provincial health directorates). Directorate is not involved in procurement for the needs of the sector. Similar to the SDD, it has a small procurement unit responsible for its administrative procurement. 3. Curative Services Directorate. This directorate oversees policy, strategy, and monitoring of secondary and tertiary health services. At present, MOH hospitals are subordinate to the provincial health directorates—that is, hospitals are neither monitored nor supervised by the central Curative Services Directorate. The central Curative Services Directorate could play a more direct role if new policies or service models are planned under the Program—in particular, payment of performance-based financial incentives for medical staff in MOH hospitals; service delivery innovations (for instance, development of a booked appointment system to reduce waiting for outpatient services); and training to prepare hospital managers for increased managerial responsibility, financial autonomy, and stronger performance 4 The Social Security Institution used to be an autonomous social security institution for the private sector employees was placed under the umbrella of the Social Security Administration (SGK) with law no: 5502. 20 Health Sector Institutional Framework orientation. There is a small procurement unit established less than two years ago within this directorate. It is mainly responsible for administrative procurement to meet operating needs of the directorate with an exception of vaccine’s procurement. There are plans to assign responsibility for vaccines procurement to this unit starting in 2008 which can be problematic due to low capacity. More discussion is provided in Section 6. 4. The Pharmaceuticals Directorate (Future Pharmaceuticals and Medical Devices Agency). This directorate is responsible for policy and regulation of medicines, medicines manufacture, as well as wholesale and retail pharmacy. The quality control of medicines is currently the responsibility of a laboratory in the Refik Saydam Hygiene Center; and medical devices policy and regulation is currently part of the Curative Services General Directorate. The MOH restructuring draft law envisages integration of these functions under the responsibility of a legally autonomous Pharmaceuticals and Medical Devices Agency, which would be subordinate to the MOH. The Pharmaceuticals Directorate does not have provincial-level structure. The directorate is not involved in procurement for the needs of the sector, only minor value administrative type procurement to cover its own needs. 5. Refik Saydam Hygiene Centre (RSHC). The center, established in 1928, is an affiliated institution of the MOH. It is headed by the president, who reports to the minister of health through the Undersecretariat. The RSHC has one (1) central and seven (7) regional directorates. It has 1669 staff working across the country. Its annual budget is more than 56 million YTL.5 The RSHC provides a range of public health services, including epidemiological services, disease surveillance, national reference laboratories, regional and provincial public health laboratories, food and drugs testing laboratories, and information processing related to its public health functions. The RSHC has a department of administration and financial services (which includes two procurement units) and a revolving fund accountancy unit. The RSHC carries out a substantial number and volume of annual procurement administered by two procurement units staffed with qualified and experienced specialists. 6. School of Public Health (SPH) Directorate. Established in 1940 with adoption of the General Hygiene Law,6 SPH is currently organized as a subordinate structure of the RSHC reporting directly to the RSHC president. In practice, it operates with considerable organizational autonomy. Its functions are training, research, expert advice in health policy, health management and public health. Under a draft law associated with the suite of laws for restructuring of the MOH, SPH is envisaged as the future, legally autonomous National Health Institute, which would retain its own revenues. Besides of administrative procurement, the SPH is involved in selection of consultants for advisory services and provision of training to the health sector staff. In the past, such consultancy services have been primarily financed by internationally funded projects and grants, therefore, procurement rules of financing IFIs applied. B. Provincial Level 3.6 MOH is a ministry with an extensive provincial structure (organization structure is presented in Annex 4B). Key elements of the provincial structure relevant to the Program are: 1. Provincial health directorate. Each provincial health directorate includes units that directly correspond and attached to the central-level general directorates of the MOH. These 5 MOH, 2006 Year Book 6 General Hygiene law, December 30, 1940 (Law No.3959) 21 Health Sector Institutional Framework units report to the provincial health director under the governor. Most MOH health facilities at provincial level are subordinate to the provincial directorates. Provincial directorates also play a role in monitoring, oversight, and coordination of public health facilities outside of the MOH system, such as university hospitals and health centers affiliated with other ministries. They also regulate private health facilities. Each provincial health directorate has a procurement unit under the management of the finance and administration deputy head. The unit is responsible for procurement of required health sector goods, supplies, and outsourced services (like cleaning, catering, oxygen tanks refill, etc.) for all provincial level facilities except for those hospitals which handle procurement themselves. 2. Hospitals. MOH hospitals, clinics, and semi-autonomous dispensaries are subordinate to the provincial health directorates. Every hospital has a revolving fund in which fees for services are accumulated. As of October 2007, 961 revolving funds were attached to the hospitals, dispensaries, and health clinics. Incremental reforms have provided MOH hospitals with autonomy to hire contractual staff, outsource non-medical functions, lease medical and other equipment, and pay performance-related bonuses to salaried staff from Revolving Funds (RF) revenues (subject to rules promulgated by the MOF and the MOH). These units finance their personnel costs from budget funds and all other operating costs, including personnel bonuses, from revolving funds. For a discussion of the manner in which personnel and operational costs are paid, please refer to Section 6. For a discussion of revolving funds, please refer to Section 5. 3. Health posts and clinics. Health centers, dispensaries (such as tuberculosis dispensaries, malaria centers, and other special clinics) and village clinics are subordinate to provincial health directorates. These operate with less managerial and financial autonomy than hospitals. Income received from services is typically managed and accounted for through the revolving fund of a nearby hospital. Provincial health authorities procure inputs that are required for health posts and clinic service delivery. These units also finance their personnel costs from budget funds and all other operating costs, including personnel bonuses, from revolving funds. For a discussion of the manner in which personnel and operational costs are paid, please refer to Section 6. For a discussion of revolving funds, please refer to Section 5. 4. Family medicine centers and Family doctors. Family medicine doctors are generally former staff members of public health centers and clinics on leave from public sector employment. Under a pilot program launched by the MOH they become independent providers through a contract with the MOH. Participation in the pilot program is voluntary. (Traditional public health centers and clinics not participating in the pilot program are also operating in the same areas). The doctors’ contracts specify performance requirements (for example, immunization targets), as well as financial penalties if critical targets are not met. Under the pilot program, the nurses assigned to the family doctors continue as staff of the public health centers and clinics. Their salaries are paid by the provincial health directorate. Family doctors (providers) are paid according to a capitation formula. The provider is required to meet the costs of his or her practice, including paying rent for the use of public facilities, as well as deriving income from residual surpluses.7 Currently, capitation payments are made from the SSI budget and executed by the MOF on behalf of the MOH.8 The MOH is 7 Rent for the use of the MOH facilities is paid to the MOF’s General Directorate of National Property (Milli Emlak Genel Mudurlugu). Family doctors are free to move to private premises if they wish. 8 This is a transitional arrangement in anticipation of effectiveness of the Social Security and UHI law at the end of 2007. Since 2007 budget was prepared under the assumption that this law will be in place by 2007, the budgetary allocation for Family Medicine pilot was made for the SSI as the single purchaser (the 22 Health Sector Institutional Framework responsible for providing data to the MOF as the basis for payments, as well as for monitoring numbers of registered patients and doctors’ performance. It is envisaged that Social Security Institute (SSI) will ultimately take responsibility for the contracting and monitoring of family practices operating within the MOH system. Family doctors are responsible for purchasing any required equipment, furniture, medical supplies and drugs required to ensure functioning of the practice and uninterrupted provision of services to the assigned population. Purchasing is based on the needs of the practices and preferences of the doctors for particular brands and manufactures. It appears that purchasing by family doctors using funds under the contract with MOH does not fall under the public procurement law, so commercial practice would apply. (The Public Procurement Authority was not able to confirm this.) role the MOH currently plays). Therefore, to overcome this technical discrepancy, until the law is effective, the SSI budget is transferred to the MOH who, in turn, makes payments to providers. 23 Fiduciary Framework for Budgetary Funds 4. FIDUCIARY FRAMEWORK FOR BUDGETARY FUNDS This section considers the country- and sector-level fiduciary framework for budgetary funds. It looks at the impact of the fiduciary arrangements on the health sector and on the implementation of the Program. This analysis is based on country-level fiduciary diagnostic reports by the World Bank and other donors.9 The purpose is not to restate issues from previous fiduciary diagnostics, but to consider how these country-level issues affect fiduciary arrangements of the health sector specifically. Nevertheless, the challenge for the health sector is to address and mitigate risks that essentially arise at the country level. To the extent that the health sector operates a fiduciary framework in addition to the country-level fiduciary framework, these are also described where relevant. However, given Turkey’s centralized approach to public sector fiduciary framework—, particularly in regard to planning, budgeting, accounting, internal auditing and external auditing; as well as the decision to decentralize public procurement function to the level of spending units following adoption of the PFMC law—there is very little in the health sector’s fiduciary arrangements for budgetary funds that are not directly derived from country-level systems. The only significant fiduciary framework that is health-sector-specific is that of the revolving funds (RFs). Health sector RFs are described separately in Section 5.  Note: In the sections that follow, arrow-type bullets and italicized text—as shown here— are used to highlight suggestions on priority areas where further efforts for potential strengthening in the corresponding area of public finance management can be taken to benefit the health sector. A. FINANCIAL MANAGEMENT 4.1 Enactment of the Public Financial Management and Control (PFMC) Law (No. 5018) by the Parliament in December 2003 marked a defining moment for public financial management in Turkey. The law replaced the 1927 Public Accounting Law (No.1050). It provided a new legal framework for comprehensive public expenditure management and accountability and articulated a modern performance-oriented public sector management. PFMC law covers all general government institutions, including central government, local administrations, and social security institutions. The law defines: (i) main principles and rules of public finance and the use of public resources; (ii) accountability and responsibilities within the public administration; (iii) budget preparation, approval, and execution processes; (iv) public revenues; (v) accounting, financial statistics, and reporting; (vi) internal control systems; and (vii) external audits. The law clarifies ministerial and official accountability to the public, and it strengthens public expenditure and financial management processes in line with EU practice. 9 Public Expenditure Review (PER), World Bank, December 2006; Baseline Indicators System, Joint Assessment Report for Turkey by the World Bank and Turkish Public Procurement Authority (February 2006); OECD/SIGMA/EU reports “Turkey Public Procurement System Assessment� (June 2005 and June 2006); the World Bank Briefing Note on the 2006-2008 Medium Term Fiscal Framework (February 2006). 24 Fiduciary Framework for Budgetary Funds Planning 4.2 Development plans (most recently, the 2007–2013 Development Plan), annual programs, public investment programs, and medium-term macro programs are the main documents that set forth the government’s priorities and policies at both country and sector level. These key policy documents provide guidance to the spending units on institutional strategic planning and budget formulation.10 4.3 Multiyear budgeting was first initiated in 2005 with the approval of 2006 central government budget. For the first time in Turkish history, the central government budget was prepared and enacted with a three-year medium-term perspective. The PFMC law not only brings a medium-term perspective to the general government budget formulation but also requires a stronger link between the budget and Government polices and plans. The link between planning and budget formulation is designed to be secured through (a) institutional strategic plans prepared in line with country-level development plans and programs; (b) the Medium Term Program (MTP) and Medium Term Expenditure Framework (MTEF), which provide macroeconomic targets and overall institutional ceilings. 4.4 The medium-term budget formulation process will improve with the implementation of strategic planning. All general government institutions are to prepare 5-year strategic plans in a phased manner by 2009. These strategic plans will create a basis for medium-term budgeting, providing a tool for the administrations to prioritize their needs and make realistic medium-term projections. 4.5 According to the timetable announced by the State Planning Organization (SPO), the MOH is expected to complete its first strategic plan (covering 2010–14) by January 2009.11 A Strategic Development Department (SDD) was established within the MOH in line with the new institutional structure deriving from the PFMC to take a lead on this task. Preparatory work for the strategic plan has included the hiring a strategic planning consultant, consultations with the SPO and the strategic planning pilot institutions,12 preparation of a strategic planning action plan, and creation of a strategic planning coordination department.  By closely coordinating formulation of strategic plans for the health sector with the SPO, the MOH would be able to develop strategic plans which are fully consistent with the Government’s key planning and policy guidance documents. 4.6 Given the novelty of strategic planning generally, as well as the specificities of the health sector in terms of wide geographical coverage and broad scope of activities, MOH faces significant challenges in producing its strategic plans. 10 Institutional strategic planning was initiated with the enactment of the PFMC law. The Government announced a phased approach for implementing strategic planning in the general government institutions. The Social Security Institute and MOH will prepare their first strategic plans in 2008 and 2009, respectively for the following five year period. 11 The SPO issued a communiqué, “Procedures and Principles for the Strategic Planning in the Public Administration,� on May 26, 2007, in the official gazette. 12 SPO began strategic planning pilot activities with eight institutions in 2004. 25 Fiduciary Framework for Budgetary Funds  By conducting a brief training needs assessment the MOH would be able to take the next step in capacity building in the area of strategic planning. This will contribute to improvements in the quality of budget preparation. 4.7 There are multiple sources of income and expenditures within the public sector in Turkey. The revenue sources are consolidated budget tax and non-tax revenues, social security premiums, and public sector borrowing. On the expenditure side, the main users are: MOH, universities, social security institution, local administrations, and state-owned economic enterprises. A structure of this complexity requires consolidation of the revenues and expenditures for effective resource allocation, as well as planning for the use of funds, including investments.  Totality of the health sector resource envelope can be captured by consolidation of all revenues and expenditures including revolving funds. 13 This would assist the government in managing its entire health sector budget more effectively, and also improve its investments planning which is more effective when done on the basis of a consolidated budget. Budget formulation 4.8 Three types of budgets in Turkey constitute the general government budget: (i) the central government budget, (ii) social security institution budget, and (iii) local administrations’ budgets. The central government budget includes general budget (mostly ministries and central administrations); special budget institutions (higher education institutions); and regulatory and supervisory institutions. 4.9 Multiyear budget formulation: Although multiyear (three-year) budgeting was initiated in 2005 during the preparation of the 2006 budget, general government institutions tend to focus on their current year’s budget only. The outlying two years’ budgets, although designed to be indicative and understood to be subject to change, continue to be prepared simply based on first iterations of these budgets with adjustments made for inflation and with due regard to the institutional budget ceilings provided by the MTEF. The outlying two years’ budgets are not prepared after a full and proper consideration of the implications of the current year’s budget as well as any policy changes. This undermines the value of the strategic plans and multi-year budgets.  Multi year budgets will improve the value of strategic plans and medium term expenditure management in the health sector. It will assist the MOH to focus not only on yearly budget, but also on longer term budget management. The implications of any changes in health sector`s policies and programs provide opportunities for better health sector’s multi-year budgeting so that better medium term planning is achieved. 4.10 Fragmentation of budget formulation: Despite gains in strategic planning and improved processes for medium-term budget formulation, the budget formulation process remains fragmented. The MOH budget is divided into investment and recurrent parts. The MOH formulates these two parts concurrently and consistent with one another in, what is effectively, a 13 The State Planning Organization has been consolidating public sector social expenditures, including health, since 2002. Investment expenditures financed from the RFs are also part of the investment program. 26 Fiduciary Framework for Budgetary Funds single budget formulation process. However, the investment part of the MOH budget has to be discussed with and approved by the MOF and the State Planning Organization. In contrast, the recurrent part of the MOH budget has to only be discussed with and approved by the MOF. Then, both parts are presented as an integrated budget to the Parliament for approval. 4.11 Budget classification: Public administrations prepare their budgets according to institutional, functional, and economic classifications, as well as financing type. These categorizations are summarized below, with particular reference to the MOH14 :  Institutional classification. Allocates funds to the MOH directorates, boards, presidencies, and affiliated institutions (that is, to the second level in the MOH organizational chart). The line items for provincial health directorates are aggregated into a single sum under each directorate for all provinces combined. This implies that the geographic allocation is not subject to parliamentary scrutiny, or to review by the MOF and the SPO.  Functional classification. Distinguishes expenditures from the service delivery perspective. Budgets are prepared to the fourth level of functional classification.  Financing type. Distinguishes line items financed by foreign loans from those financed from the general budget. It has three classification codes under the first level: domestic borrowing; foreign borrowing; and changes in cash, deposits, and securities.  Economic classification. Distinguishes expenditures by cost type. Budgets are prepared to the fourth level of economic classification. 4.12 Program budgeting: The budget classification system does not include the capacity to budget or monitor information by programs—that is, it does not facilitate program budgeting. It is, therefore, difficult to follow the total expenditures of a particular program. At present, the internal structure of the MOH appears to correspond to programs in that the General Directorates and other departments within the MOH appear to be responsible for particular activities that could be regarded as programs. To the extent that the future MOH programs mirror the MOH’s current internal structure, it will therefore be possible to monitor programs by reference to the financial reports from each internal structural unit. On the other hand, if future MOH programs do not mirror the MOH’s current internal structure, the absence of program budgeting capabilities will impede strategic planning and performance evaluation of those programs.  In the absence of program budgeting monitoring, assigning program codes alongside the Government Finance Statistics (GFS) budget classification in both the e-Budget and Say2000i systems will provide the Ministry of Health with a mechanism to formulate and track budgets by programs. 4.13 Handling of foreign loans within the budget: Central government institutions’ budgets include allocations for expenditures financed by foreign loans and grants, including loans by the World Bank15. Foreign-financed expenditures, therefore, are considered as part of the institutional budget ceiling. However, such foreign-financed expenditures are treated as part of the investment budget, even if they finance expenditures that would ordinarily be classified as recurrent 14 Details on levels of classifications are provided in the Annex 3. 15 As of 2002 in accordance with Debt Management Law (No.4749), March 2002 27 Fiduciary Framework for Budgetary Funds expenditures. This practice results in an overstatement of investments and an understatement of recurrent expenditures.  Appropriate reclassification of recurrent expenditures financed from foreign loans and grants would eliminate their incorrect classification as investment expenditures. In this way overstatement of investment expenditures would be addressed. 4.14 Coordination of MOH Budget preparation: The Budget and Finance General Department (BFGD) of the Strategy Development Directorate of MOH is responsible for budget preparation. According to the PFMC law, each general directorate and each provincial directorate in the MOH has a spending authority status. Each provincial health directorate has units that directly correspond and are attached to the central-level directorates of MOH. The budgetary requirements of provincial directorates are integrated into the related MOH general directorates, which produce an aggregate budget proposal including the provincial level. The aggregate budget allocations of provincial directorates are shown with the fourth level institutional code of “62� under each MOH general directorate. The budget requests of the general directorates are submitted to the BFGD through “expenditure forms,� which are prepared at the fourth level of economic and functional classification. The BFGD consolidates the budget allocation requests of spending units and coordinates the budget process with, as discussed above, the State Planning Organization for the investments) and the MOF (both for the investment and recurrent parts). 4.15 The budget formulation part of the PFMC reform entails a major increase in the responsibility and capacity demands of the strategic development units of line ministries. It appears that staff of the MOH Strategy Development Department (SDD) currently play largely an administrative, rather than a strategic, role in budget preparation. SDD merely collates and consolidates the budget information received from the MOH directorates. It does not undertake critical analysis of the information. As discussed, it is critical that SDD capacity be strengthened so that the department can take a lead role in strategic planning. 4.16 Submission of budget for parliamentary approval: After collecting and discussing individual budget proposals with the line agencies, MOF consolidates and submits multiyear central government budget proposal to Parliament. Together with the central government budget proposal, MOF also submits multiyear budget projections for the Social Security Institute (SSI), local governments, extra budgetary funds, and revolving funds for information. Parliament approves the central government’s budget for the current year only. The rest are submitted as an annex and are not subject to parliamentary approval. Budget allocations approved by Parliament are published in the official gazette. 4.17 The budgets of the central government institutions approved by the Parliament are then entered into the electronic budget (e-Budget) system developed by the General Directorate of Budget and Fiscal Control of the MOF. The line ministries keep track of their budget appropriations, allocations, and utilizations through the e-Budget system. Each spending unit can see its budget allocation to the second level of economic classification. The SDD breaks down aggregate allocations into individual allocations for each provincial health directorate. These allocations are then sent to the provincial units through transfer of appropriations. The transferred amounts are integrated into the e-Budget and could be spent and monitored at the provincial level. 4.18 Budget credibility. The indicative institutional ceiling for the total budget set by the MOF in the medium-term expenditure framework (MTEF) establishes a limit for the MOH budget formulation. The institutional ceilings are intended to provide institutions with an indication, though not a guarantee, of their expected allocations from the budget. 28 Fiduciary Framework for Budgetary Funds 4.19 Table 5 gives an example of MOH ceilings for the MTEFs for 2006–08.The table demonstrates that MOH ceilings change by as much as 11 percent for a given year. Changes of this magnitude may be understandable when significant changes occur in sector policies; however, they are not good practice from the point of view of the credibility of medium term budgeting. Table 5: MOH Medium-Term Indicative Budget Ceilings (million YTL) 2006 2007 2008 2009 2010 2006 MTEF 6,965 5,934 6,230 — — 2007 MTEF — 6,581 6,971 7,385 — 2008 MTEF — — 6,924 7,288 7,933 Source: Ministry of Finance, 2007 4.20 In addition, considerable variance occurs between annual budget appropriations and budget realization, as illustrated in Table 6 for the period 2004–06. This also undermines budget credibility. Table 6: MOH Appropriation versus Realization (Million YTL) 2004 2005 2006 Appropriation Realization Appropriation Realization Appropriation Realization Personnel 2,678 2,617 2,912 3,597 3,968 3,980 expenditures State contribution 367 371 411 518 582 578 to SSI premiums Goods and 1,169 1,204 1,716 2,298 2,259 3,504 Services Current transfers 9 8 10 8 11 9 Capital 331 261 395 345 652 465 expenditures Capital transfers 0 0 4 2 6 2 Total 4,554 4,461 5,448 6,769 7,477 8,536 Source: MOF data 29 Fiduciary Framework for Budgetary Funds Budget execution and internal control systems 4.21 Appropriations. Following parliamentary approval of the budget, line agencies prepare detailed expenditure analyses, which provide their cash requirement forecasts on a monthly basis. In consultation with the under secretariat of Treasury, MOF, agrees on a quarterly appropriation release with individual administrations. Spending units cannot make payments before MOF releases their budget appropriations, even though they may have a sufficient budget allocation. Detailed expenditure analyses are usually finalized around the end of first quarter of any given year. 4.22 Budget execution challenges. All spending units face two major challenges in the execution of the budget. First, budget appropriations usually are not released by MOF during the first three months of the year (except for nondiscretionary expenditures such as payroll and for current expenditures such as utility bills). Second, exceptional appropriation blockages occur, primarily in the final quarter of the budget in response to fiscal concerns. These practices hamper the ability of the spending units to plan their investments, execute the budget, or make payments against contractual obligations16. MOH has initiated protocols with MOF and SSI for improving cash planning. The uncertainties regarding the release of budgetary allocations can also cause delays in the utilization of foreign credits, including from the World Bank. 4.23 Predictability of cash flow has improved over the last years, so cash rationing has become more of an exception rather than a rule. However, in response to fiscal concerns to meet the primary surplus target, MOF partially blocked the unreleased goods and services and investment appropriations. The most recent budget cut was communicated with a MOF budget implementation communiqué dated August 31, 2007. Accordingly, MOF blocked the unreleased appropriation for the last quarter of fiscal 2007, as happened in 2006. 4.24 The health sector has devised various “coping strategies� to deal with these challenges. These include: (i) utilizing resources from its revolving funds to cover both recurrent and investment expenditures (see Section 5, “Revolving Funds�); (ii) requesting front-loaded appropriation releases clustered in the second and the third quarters; (iii) in accordance with the PFMC law, reallocating expenditures between budget line items up to a limit of 5 percent per line item unless another rate is specified under the relevant annual budget law. Reallocations above this threshold require approval from MOF with respect to the recurrent budget and from SPO with respect to the investment budget. It should be noted that personnel costs cannot be reallocated to other expenditure categories funds under any circumstances. For 2007, the annual budget law established a reallocation limit of 20 percent; and (iv) requesting additional allocations during the budget year from the MOF’s contingency reserve. 4.25 While the reasons for resorting to “coping strategies� are understandable, such practices have contributed to fragmentation of overall financial management, and they pose risks to fiscal control. Moreover, these coping strategies are now highly developed; and inevitably, they have inevitably become institutionalized. The fact that “they work� undermines the motivation and sense of urgency with which the MOH is restructuring the hospitals’ RFs.  Reliance on institutional coping strategies to deal with cash flow rationing undermines the MOH efforts in restructuring the RFs to make general budget formulation and execution system more effective overall. 16 Since 2007, MOH initiated protocols with MOF and SSI on liquidity planning and timetable. 30 Fiduciary Framework for Budgetary Funds 4.26 Executing payments and transactions. The PFMC law has balanced the accountabilities and the authorities of spending agencies by segregating duties and responsibilities between those who incur expenditures and those who make payments. It has revoked the authority of the Turkish Court of Accounts (TCA) and MOF to grant visas. In 2006, the Budget and Finance General Department (BFGD) of MOH assumed responsibility for monitoring budget execution and the efficacy of the internal financial control framework from MOF. Expenditures above certain thresholds set by the strategic development directorate are subject to ex-ante control by BFGD.17 In recognition of capacity weaknesses within the BFGD and to ensure continuity, MOF budget staff was seconded to MOH to carry out these functions to maintain continuity during the transitional period. MOH was allocated 24 positions for financial service experts and assistant experts. However, as of the date of IFA, twelve experts in financial services out of planned 24 were successfully recruited and trained by MOF.  Finalizing appointments of all financial service experts’ positions planned for the MOH (and done by the MOF) would facilitate BFGD to properly discharge its fiduciary responsibilities with respect to budget execution. 4.27 Provincial directorates have spending authority, so they are subject to the financial control arrangements laid out in PFMC. Expenditures above the thresholds set by SDD are subject to ex-ante control by BFGD.18 All payments are based on approval by the provincial health director. 4.28 All spending units prepare payment requests and supporting documents. They submit requests for payment to the GDPA accounting officer in MOH. GDPA frequently sends payment requests back to the spending unit when supporting documentation is incomplete. 4.29 A description of the main health sector expenditure systems, including payroll, recurrent, and investment expenditures is provided in Section 6. 4.30 Internal financial control and reporting framework. Figure 4 schematically illustrates the internal financial control and reporting framework for general budget institutions, with specific reference to the Ministry of Health. Figure 4: Schematic Diagram of the Internal Financial Control and Reporting Framework for General Budget Institutions 17 The 2006 and 2007 thresholds were YTL 1 million for goods and services and YTL 2 million for civil works contracts. 18 The 2006 and 2007 thresholds were YTL 1 million for goods and services and YTL 2 million for civil works contracts. 31 Fiduciary Framework for Budgetary Funds Head of Public Administration MOF GDPA (e.g., MOH Undersecretary) Consolidated Accounting (Centralized) Say2000i system Information Authorizing Financial services expert Internal GDPA accounting officer officer (Strategy Development auditor (decentralized) (Spending unit) Directorate, SDD) Say2000i system Payment processing controls: * SDD: Financial services unit responsible for ex-ante controls * Authorizing officer: Approves and is held accountable for payments * Accounting officer: Verifies, makes payment, and maintains accounts 4.31 Internal audit. In accordance with the PFMC law, each public administration has an internal audit unit that is supposed to provide feedback to the head of the spending agency on the operation and appropriateness of the spending agency’s internal control system. Institution-level internal audit units are not foreseen at the provincial level. Rather, the internal audit unit of the Ministry of Health is expected to act as internal auditors to provincial level health sector institutions. However, fully operational internal audit structures are yet to be established anywhere in government. This is primarily because of the shortage of qualified staff. MOH has only one internal auditor, who has yet to receive training. The 24 remaining positions that are earmarked for internal auditors have not been filled yet. As of the date of the IFA, no internal audit reports have been issued in the health sector. 4.32 The lack of internal control capacity has direct implications for procurement oversight, especially at the provincial level where most procurement is done. Interpretations of how the public procurement law and specific procedures should apply differ by procurement unit. This creates a substantial risk of incorrect interpretations developing into incorrect practice effecting integrity and efficiency of the system. Because PPA does not audit procuring entities, internal control is the main mechanism through which irregularities can be identified throughout the steps of procurement process and corrected. While the Inspection Board (discussed below) initiates case-by-case investigations in response to received complaints and signals, internal audit is the only tool designed to prevent misuse of funds through continuous monitoring of internal practices and procedures during procurement process.  Requesting the MOF to complete appointments of all positions of internal auditors planned for the MOH would help strengthening the sector’s financial control environment This way an adequate internal control environment will be achieved in a very decentralized sector with high volume of expenditures .With the health sector being one of the main spenders of public funds, establishment of appropriate internal control environment becomes a matter of a top priority. 4.33 Inspection Board. The MOH structure includes an inspection board as a separate department within the MOH. Its mandate is to inspect the activities of the MOH structural units and its affiliated institutions and to propose enhancements for better compliance with the laws and regulations. The inspection board functions under the authority of the minister and therefore 32 Fiduciary Framework for Budgetary Funds reports directly to the minister’s office. The inspection board does not have a provincial organizational structure, only an office in Istanbul and the central office in Ankara. More than 200 full-time and assistant inspectors deal with reported irregularities and misuse of funds on a case-by-case basis. Investigations cover procurement-related issues as well as noncompliance with laws and regulations. Accounting and reporting systems 4.34 Accounting framework. A modern accounting framework—which includes accrual-based accounting and consolidated reporting requirements for the general government—was established under the PFMC law. MOF has made substantial progress towards consolidated general government reporting. The consolidated accounts for central government have been available since 2006. Consolidation of the SSI and local administrations reporting, however, is still in progress. Turkey uses a cash-based approach for the budget and an accrual-based approach for accounting. The General Directorate of Public Accounts (GDPA) in MOF has devised an intricate method for accounting entries that tracks both cash-based and the accrual entries. 4.35 Accounting systems. Turkey has a single accounting system—Say2000i (an automated online system consistent with GFS budget coding structure)—maintained by GDPA. General budget institutions, including the ministry of health, do not maintain the public sector official accounting systems. Rather, the detailed books and accounting records for all budget institutions are maintained in more than 1,500 GDPA offices throughout the country. Each general budget institution forwards all of its accounting source documents to the relevant GDPA office, which in turn enters the accounting data onto Say2000i. This applies equally to both provincial and central levels. MOH accounting records are therefore maintained by MOF staff, who report information to both MOH management as well as to the MOF (Figure 4, above). This classic division of function enables strict control of accounting transactions. 4.36 The MOH SDD and other MOH spending units monitor their budget execution using the e-Budget system, which provides data only at the second level of economic classification. The Say2000i system provides detailed accounting records up to the invoice level. An interface integrates Say2000i with the e-budget system. GDPA provides general budget institutions with read-only access to the Say2000i system so that they can monitor budget execution. However, most general budget institutions, including those in the health sector, fail to make use of this option. In order to monitor budget execution in detail, most health sector institutions maintain parallel accounting systems that mirror the accounting in Say2000i. In addition, such parallel systems differ greatly across health sector institutions. Considerable efforts (both in developing and maintaining these parallel systems) can be reduced if the health sector institutions chose to utilize Say2000i to its full potential.  Giving access to the Say2000i system to the health sector spending units would eliminate the practice of maintaining parallel accounting systems for the purpose of monitoring budget execution. External audit 4.37 Enhanced financial accountability: The Turkish Court of Accounts (TCA) is constitutional establishment entrusted with auditing on behalf of the Turkish Grand National Assembly. To be fully effective, Turkey’s public audit system requires extensive modernization. Enactment of the PFMC law authorized the TCA to carry out audits of all general government budgets. It removed the requirement of ex-ante involvement by the TCA in budget execution, 33 Fiduciary Framework for Budgetary Funds which otherwise could have hindered its independence and objectivity. The PFMC law also requires the TCA to audit the accountability reports prepared by line ministries. 4.38 In order to ensure consistency with the PFMC law and to bring the TCA in line with international best practice, a draft law was submitted to the Parliament in 2005. It aims to significantly amend the existing TCA law—for example, extend TCA’s mandate to cover the general government institutions and the state-owned economic enterprises, as well as other institutions using public funds. Furthermore, the draft law defines the types of audits that the TCA could carry out—that is, financial and performance audits, in addition to compliance and regularity audits. Shifting the focus from compliance audits and judicial work to financial and performance audits will have a profound impact on the role of the TCA. 4.39 MOH is subject to external audit by TCA at both the central and the provincial levels. In practice, TCA only performs compliance audits. It does not perform financial audits or provide opinions on the credibility of financial statements or the adequacy of internal control systems. As of the date of the IFA, TCA has issued no external audit reports with respect to the health sector. It is crucial to enact and rapidly implement the new TCA law to enhance accountability structure in terms of both the coverage and types of audits that TCA undertakes19.  In the absence of appropriate financial audits of the health sector institutions by the TCA, there is a risk that inappropriate use of public funds and other resources may go undetected. Since the TCA is outside of the sector influence, the MOH can only partially mitigate the existing risk, for example, by discussing with the TCA whether they could conduct periodic operational reviews of key aspects of the health sector fiduciary systems. B. PUBLIC PROCUREMENT 4.40 Public procurement system in Turkey is well developed. In some aspects, it is more advanced than other countries in the region that have recently become EU members. The benchmarking of Turkey’s public procurement system against an internationally recognized baseline of best practice in procurement was carried out jointly by the World Bank and the Turkish Public Procurement Authority in February 2006 and updated in October 2007 (the summary is included in Annex 6). The benchmarking exercise demonstrated that most key elements of the public procurement system are fully or substantially developed, though some key work remains to be done to fully achieve an open, efficient system. 4.41 Public procurement systems are benchmarked through analysis of four main pillars— legislative and regulatory framework (Pillar I); institutional framework and institutional capacity (Pillar II); procurement operations and market practices (Pillar III); and the integrity of procurement systems (Pillar IV). Turkey achieved its greatest progress and most impressive results in the area of legislative and regulatory framework (Pillar I), and in improving integrity of the national public procurement system (Pillar IV). 19 Refer to the proposed Programmatic Public Sector Development Policy Loan 2 - PPDPL2 34 Fiduciary Framework for Budgetary Funds 4.42 The EU and the World Bank are urging the government to continue its progress toward achieving an open, efficient public procurement system that adopts international best practices and is fully grounded in modern techniques.20  The following areas would benefit from further strengthening:  Further development of national procurement legislation to (i) align with the EC procurement directives21 (including introduction of modern instruments and methods such as central purchasing bodies, and e-procurement, for example); (ii) improved user-friendliness of the law; (iii) eliminating inappropriate policies and rules; (iv) increased market competitiveness by phasing out regulations allowing domestic preference; and (v) addressing the issue of utilities sector and concessions;  Development of modern procurement techniques, especially different forms of electronic procurement;  Improved implementation practice and correct application of the legislation;  Capacity building among procuring entities (contracting authorities), especially at the provincial level (in the sectors where procurement function is decentralized to that level);  Development of sustainable human capacity of national procurement cadre through ongoing training programs, preferably with involvement of the private sector. 4.43 Further improvements in transparency and competitiveness of the public procurement are critical for efficient functioning of the system. The most critical areas requiring urgent attention are (a) lowering mandatory threshold for publication of contract award decisions22; (b) eliminating restrictions in a form of thresholds for participation by international bidders (any bidding should be open to both domestic and international bidders); (c) simplifying dispute resolution system (only international bidders can use international arbitrage, local bidders have to appeal to local courts which is a lengthy and time consuming process). Finally, selection of consulting services procedures would benefit from use of quality-and-cost based selection system, particularly for the assignments that require high competence and relevant experience. 4.44 The Turkish Public Procurement Authority (PPA) is addressing most of these challenges. The PPA operates in increasingly effective and efficient manner and is coming to be known as one of the best PPA in the region. However, some issues specific to Turkey go beyond the authority of the PPA. In particular, as already described earlier in this section, the current budgeting system does not provide for timely release of funds to make procurement payments against contractual obligations, especially during the first quarter of the budget year. 4.45 In addition, there is not yet an organization responsible for overall policy coordination and implementation in all areas of public procurement, including concessions and, the area which is of particular importance to the health sector - public-private partnerships.23 20 OECD/SIGMA/EU Turkey Public Procurement System Assessment, 2006; Baseline Indicators System (BIS) Joint Assessment Report for Turkey, February 2006; Turkey Progress Report for the period 1 October 2006 to October 2007 by the EU. 21 EC Directives 2004/17 and 18 22 Only a fraction of all award decisions becomes available to the public which undermines transparency of the system. In 2006, for example, only 1,363 contract awards were published which is small portion of 47,743 advertised tenders (PPA, 2007). 23 Turkey Progress Report for the period from October 2006 to October 2007, by the EU 35 Fiduciary Framework for Budgetary Funds  Most of the country challenges described above cannot be solved by the health sector institutions that affected by them. They need to be addressed broadly at the country level. It should be noted, however, that progress in these areas would have direct positive benefit on procurement practices in the health sector. 4.46 Areas of direct influence of the health sector are described in the following sub-section. Public procurement system in the health sector 4.47 As illustrated in Table 7 and Table 8, below, the health sector is among the main spenders of the public funds (including both general budget and revolving funds). The data shown in these tables were collected by the Public Procurement Authority based on tenders and contracts above a threshold of US$100,000 equivalent which are normally advertised in the PPA’s bulletin24. Public procurement system in the health sector is fully decentralized with bulk of procurement done at provincial level (mainly by provincial health directorates and hospitals). It is estimated that only one third (1/3) of tenders in the health sector is above the publication threshold and, therefore, included in the PPA’s statistics. An assumption, therefore, can be made that the share of the total health sector procurement in the country’s public procurement is close to 30%. 24 While Article 53 of the Public procurement law mandates the PPA to publish procurement notices, the law does not enforce contracting authorities to report tendering information to the PPA. The PPA estimates that only about 60% of tenders (all sectors) are reported to the PPA. 36 Fiduciary Framework for Budgetary Funds Table 7: Share of the Health Sector (“MOH�*) in Public Procurement, by Year (in million TRY)** 2004*** 2005 2006 Health Health Health Health Health share in Total Health share in share in In mill TRY Total PP sector Total PP Sector total PP PP sector total total PP total PP total total (%) (%) (%) 14 Goods 6 352 727 11.4 2 219 15.1 16 396 2 083 12.7 673 Services 3 548 487 13.7 5 523 791 14.3 11 043 1 784 16 3 978 10 Works 36 1 221 2.1 11 585 179 1.5 489 Grand 30 13 878 1 250 9 3 231 10.5 39 024 4 046 10.5 total 685 Legend: “PP� – public procurement; Notes: * “MOH� in this context includes all contracting authorities procuring for the needs of the health sector from all sources of public funds (budget, RFs, grants, loans) under the Public Procurement law procedures ** Data includes only tenders and contracts above $100,000 equivalent threshold which are mandatory for advertisement in the PPA’s bulletin. ***data for 2004 does not include contracts awarded under Direct Contracting procedure (which is included in 2005 and 2006). Direct contracting for Turkey in 2004 was 2.2 billion TRY, with the largest share of goods contracts- 1.7 billion TRY. Similar data for MOH is not available. Source: Public Procurement Authority data, 2004-2007 Table 8: Share of the Health Sector in Public Procurement in Comparison with Other Sectors and Public Institutions Percentage of Procurement in Total Value (%) Administration 2004* 2005 2006 Municipalities 16 20.06 26,81 State Owned Enterprises 21 19.90 15,21 Ministry of Health (health sector) 9 10,53 10,37 Administrations with private budget Not in the list 9,60 6,83 Ministry of Defense 8 6,98 7,83 Ministry of Public Works 7 6,5 6,65 Ministry of Education 6 6,37 7,02 High Education Administrations 9 5,6 6,33 Ministry of Interior 7 4,49 4,58 Ministry of Energy and Natural Resources 1 2,34 1,35 NOTE: *2004 Values calculated without considering Direct Contracting Source: Turkish Public Procurement Authority data 4.48 Legislative framework for health sector public procurement: Legislative framework governing procurement in the health sector include the Public Procurement Law (PPL, Law No.4734); the Public Procurement Contract Law (PPCL, Law No.4735), including its recent amendment which introduced framework agreements for the use in the health sector only (Law No.5680); the Ministry of Health Regulation (No.26236, July 22, 2006) on public private partnership in construction and renovation of health care facilities in exchange for the long term 37 Fiduciary Framework for Budgetary Funds lease and operation of non medical services on the constructed or renovated premises; and, to some extent, the Public Financial Management and Control Law in part related to public investment projects and planning for procurement of pharmaceuticals, vaccines, serums and medical consumables of short shelf life or those requiring special storage conditions. 4.49 All procuring entities (at central and provincial levels) follow public procurement law. However, application of the law is often subject to individual interpretation. For example, while merit point system of evaluation provided as an exception under the law, provincial health directorates use it quite frequently on an assumption that it is an option allowed by the law rather than an exception. Public Procurement Authority recognizes the need for more support to procuring entities, especially in remote locations and is planning to develop a practical Questions and Answers guide to help them to correctly interpret provisions of the law. 4.50 Organization of procurement function in the health sector – central level: Following adoption of the PFMC law, the MOH has decentralized procurement function to the level of the MOH general directorates, affiliated agencies, and provincial level units – all having a spending authority. Each spending unit also became a contracting authority (or procuring entity) separately classified by the PPA for the purpose of data collection and monitoring (please refer to Annex 3B for the list of contracting authorities as classified by the PPA). Each of them established a separate procurement unit. With a few exceptions, these units are quite small (usually two or three people); and they largely deal with administrative procurement to meet the operational needs of their respective directorates. 4.51 Organization of procurement function in the health sector – provincial level: The bulk of procurement for the needs of the sector is carried out at provincial level where the procuring entities are (a) provincial health directorates and (b) hospitals. Other service delivery facilities (including family doctors centers) deal with very small number and volume of procurement transactions. (a) Procurement by provincial health directorates. Provincial health directorates have a small procurement unit which is responsible for procurement of inputs for the local service facilities which do not procure themselves. Procurement is administered by the staff of procurement unit who then presents the results of the bids (or price quotations) to the Evaluation Committee for a recommendation regarding contract award. In most cases, an evaluation committee is chaired by the head of the finance department and includes at least five staff, including the chairman. Merit points system of evaluation allowed by the law is used quite frequently (compare to the central level institutions which almost exclusively use the lowest price option for the evaluation purposes). Breaking procurement packages into smaller contracts procured several times during the year is a common practice. (b) Procurement by Hospitals. Individual hospitals act as contracting authorities (procuring entities) and carry out procurement themselves. Some hospitals, however, consider it a great burden and expensive way of obtaining required inputs for provision of health services in their facilities. Some expressed concern over quality of procured equipment and medical supplies items due to the difficulties in (a) preparing technical specifications and qualifications requirements to the bidders, (b) attracting reputable suppliers with proved past performance due to low quantities placed under a tender. Hospital procurement is generally administered by hospital staff, usually by the chief 38 Fiduciary Framework for Budgetary Funds administrator (or administrative manager) with close involvement of the chief doctor (typically the head of the hospital). Procurement includes medical equipment, health sector supplies and consumables, minor office and computer equipment, pharmaceuticals and consumables (for example, for surgical procedures). A tender committee is typically comprised the hospital’s chief doctor, the administrative manager, and the chief nurse. Some hospitals have teams of one or two procurement specialists who prepare tender documents and procurement documentation and also participate on the tender committees. 4.52 Capacity of the individual procuring units varies greatly both at the central and provincial levels. At one end of the spectrum, there are institutional islands of excellence (for example, the procurement units in the Refik Saydam Hygiene Center which has experienced and qualified staff, developed and customized model bidding documents, and carries out most of its procurement through an open tender procedure using the lowest price as the only evaluation criteria). At the other end of the spectrum, there are small procurement units with few staff and low volume of procurement transactions of relatively small value). Capacity, level of qualifications and experience in procurement units of provincial health directorates and hospitals also differ a lot. 4.53 Many ideas surfaced during the IFA meetings that could potentially improve outcome of procurement when it is conducted by the procuring entities where experience and/or capacity are lacking. Here are four examples which can be further debated during discussion of the IFA report with the key counterparts in the country to consider pros and cons of each instrument: 1. A self-assessment test to determine a procurement unit’s level of capacity: The assessment test could help to pinpoint gaps in expertise and knowledge of procurement law, and the need for additional training and technical assistance. 2. An “umbrella� technical assistance facility: A framework agreement (contract) with a consulting firm can be arranged at the central level, providing advisory services, including with preparation of tender documents, qualification criteria and the evaluation; and training to procuring units, especially at provincial levels. 3. An electronic catalogue: Updated information would be made available for the most commonly procured health sector goods, consumables, and pharmaceuticals. The catalogue would include technical specifications, performance requirements, and a range of market prices. It could be developed and maintained at the central level for use by provincial level procuring units. Purchasing from “a catalogue� (though not electronic) is being already used by the MOH directorates for administrative procurement of office items (minor office equipment and supplies). It is done by choosing required items from the catalogue of the central supplies warehouse (used by the government agencies for purchasing a wide range of small quantities of minor office equipment and office supplies). 4. Framework agreements with suppliers: Terms and provisions can be negotiated to establish maximum (ceiling) unit prices, performance criteria, and technical requirements. Agreements of this sort could cover many of the goods and technical services that decentralized units—especially hospitals and family medicine clinics—commonly use and must otherwise procure on their own. Framework agreements (allowed for the health sector only by an amendment to the Public Procurement Law) can be negotiated at the central level on behalf of individual institutions and facilities. This could lead to potential reductions in unit prices and could help to eliminate the widespread problem (especially at provincial level) 39 Fiduciary Framework for Budgetary Funds of unqualified suppliers winning contracts because they offer the “lowest� prices. Moreover, use of framework agreements can reduce the number of direct contracts for procurement of medical supplies and pharmaceuticals of short shelf-life25 as the supply and delivery schedule can be planned under the framework agreement. Framework agreements, however, can be easily misused if not properly administered by trained staff and the detailed procedures are spelled out in secondary level regulations and model documents. 4.54 Innovation and more efficient sharing of scarce expertise could substantially help procuring units that have responsibility but not expertise or experience. Innovative approaches within the boundaries of the law can be broadly debated, including with involvement of the Public Procurement Authority, and vetted with the authorities. The MOH, in its newly emerging role of a policy leader, is well positioned to provide a forum for such debate, including with inviting other countries with relevant experience in health sector procurement to share experience. Options for obtaining technical assistance and exchange visits to other countries to support innovative approaches can be explored as well. 4.55 Centralized vs. Decentralized Procurement: This is another area to debate in an open forum to find the best option for the Turkish Health Sector. Experience of many countries with decentralized procurement systems (i.e. systems where procurement for the needs of the sector is administered by the end users of goods, works and services themselves) shows that even in a fully decentralized environment, consolidated procurement of certain commonly used items (such as large orders of medical and computer equipment; or health sector supplies, vaccines and pharmaceuticals consumed in large quantities on an annual basis) is more economical than when it is done by the individual end-users acting as contracting authorities. 4.56 Analysis of the most commonly consumed items to identify large quantities of similar items can lead to the decision on which of them would be more economical to procure centrally. For some of such items, framework agreements negotiated at the central level (and individual orders placed by the provincial level end users) may be a more efficient option which allows combining the economy of scale, efficiency with which procurement is carried out with higher level of responsibility of the end users/contracting authorities over the contract administration and timely completion of procurement process. 4.57 Similar to the fact that there is no perfect model of the health care system in the world, there is no golden standard for the health sector procurement system and an answer to the question which system- centralized or decentralized- is better. The success formula is in finding the most appropriate approach to procurement of specific items required for the needs of the sector without ruling out central procurement for most commonly used goods items required in substantial quantities. The IFA team was informed about intention of some hospitals to organize a joint procurement of commonly used items. While this is obviously an initiative which should be encouraged, consolidation at provincial or central level can be further discussed and tested to arrive to an optimal combination of centralized and decentralized procurement. 4.58 In case of the centralized (or consolidated) tenders for certain items, the MOH would also need to consider who the best is positioned to administer such procurement. In the countries where the Ministry takes a policy leadership role, procurement function is normally out-sourced to a specialized agency or an institution (a central purchasing body). The EU procurement 25 Currently, the PPL allows direct contracting in case of short shelf-life health sector items. While direct contracting can help with ensuring uninterrupted supply of critical items, it does not allow obtaining the best prices, or even ensuring that the offered prices are not inflated. 40 Fiduciary Framework for Budgetary Funds directives include establishment of central purchasing bodies specifically for the purpose of taking advantage of economy of scale in procurement of certain items. Turkish legislation does not provide for this option yet and there are no central purchasing bodies in the country.  Until the legislation is changed and such bodies are established, the MOH may want to consider interim solutions based on the best capacity available in the sector. Taking an example of vaccines procurement, Refik Saydam Hygiene Center seems to be the more appropriate to delegate this responsibility than procurement unit of the Curative Care Directorate. 4.59 Transparency and Integrity of Public Procurement System: The key measurements of transparency of a public procurement system are advertisement process; use of competitive procurement methods in total procurement; and the complaint handling system, including follow up outside of the public procurement system (through administrative actions and criminal prosecution). 4.60 1 Advertisement: Substantial progress has been achieved in this area. As of 2007, Procurement Notices above the threshold of YTL 61,000 published at the free access Web-site of the Public Procurement Authority in electronic format which is accessible via internet free of charge. The remaining notices below the above threshold are published at the regional local press, Web site of the MOH and regional Web site of the relevant procurement Health department Although the current practice is in line with the Public Procurement Law , the transparency of the system can be further improved (Table 9). Currently, only 1/3 of all tenders in the health sector are advertised nationally, with the rest presumably advertised in the provincial or local media. Table 9: Number of Advertised Tenders in Total Conducted Tenders (including contracts not registered with PPA) 2004 2005 2006 Total number of tenders in health sector (“MOH�) 15,567 28,789 30,332 Total advertisements (“MOH�) in PPA Bulletin 7,243 8,702 10,234 Total number of tenders – all Turkey 95,105 115,639 137,857 Total advertisements (all Turkey) in PPA Bulletin 39,821 40,218 47,743 Source: PPA annual statistics One can assume that 2/3 of the tenders conducted primarily at provincial level are advertised locally, therefore, the principle of transparency is achieved. A sample testing by IFA team during visits to provincial health directorates and hospitals confirms this. However, in the absence of internal audit reports regarding compliance with the public procurement law and review of procurement practices, there is no evidence to conclude positively. Moreover, whether the number of small value contracts concluded at provincial level is justified or it is a result of an intentional breakage of large procurement 41 Fiduciary Framework for Budgetary Funds packages to reduce the amount to below the advertisement threshold is not possible to conclude due to the same reason. 2. Use of competitive procurement methods in the health sector procurement: An open tender procedure together with restricted tender method, are the main procurement methods defined by the law. According to the Public Procurement Authority, the restricted procedure is not frequently used. An open tender procedure is the mostly used method by the health sector procuring entities (Table 10). Direct contracting (i.e., award of contracts to a supplier/contractor without competitive selection) is about 12 percent. It is, however, worth mentioning that PPA estimates that only 70 percent of awarded contracts is registered with the PPA and, therefore, reflected in the PPA’s annual statistics. Table 10: Contracts* by Procurement Method (in millions TRY) Procurement Method 2004** 2005 2006 Open Tender Procedure ( Health Sector) 1,251 2,628 3,475 Direct Contracting (Health Sector) 600 568 Total Tenders– Health Sector (“MOH�) 1,251 3,231 4,045 Total Tenders- all Turkey 16,075 30,685 39,023 Percentage of “MOH�’s Direct Contracting in Total Turkey 14 12 Notes: * Only contracts subject to Public Procurement Law, all financing sources ** Open Tenders data for 2004 includes Exceptions *** PPA estimates that about 70% of signed contracts are registered with PPA Source: Turkish PPA annual statistical reports About 11 percent of all health sector related tenders do not result in contract award (in other words, they are cancelled). The main reasons are presented in the table below: Table 11: Cancellation Reasons – Health Sector Tenders Reason for Cancellation of Tenders 2004 2005 2006 Not sufficient number of bids (in restricted bidding procedure) 28 All submitted bids are substantially lower than estimated budget 383 all submitted bids exceed estimated cost 85 Wrong registration number is received 43 Commercial terms of submitted bids are not acceptable 112 Incomplete information in tender announcement 33 Need to change procurement method 6 Winning bidder did not sign the contract 89 Winning bidder fail to submit missing documents (article 4734/10 of PPL requirement) 757 No responsive bids 200 No bids received 462 Missing information in bidding documents (commercial part and technical specs) 6 42 Fiduciary Framework for Budgetary Funds Less than 3 bids received (in negotiated procedure) 104 Cancelled by procuring entity as a result of a complaint 69 Cancelled by the PPA or court decision as a result of a complaint 109 Mistakes in technical specifications 4 Other 802 Total 3292 Total number of tenders conducted in Health Sector 15567 28739 30282 Percentage of tenders cancelled 0 0 11 Notes: *Breakdown for 2004 and 2005 is not available *Total number of tenders is based on tenders registered with PPA which is estimated at 70 percent of all tenders. 3. Complaints handling mechanism: An achievement in this area was an establishment of the Public Procurement Board (in the PPA) consisting 10 members to review complaints from the bidders. However, the review procedures remain to be aligned with the EU acquis. The number of complaints submitted to the Public Procurement Board on totaled 3,348 out of 137,857 tenders announced in 2006 showing a significant increase in comparison to the previous year (Table 12). The MOH has the highest number of complaints in comparison with other sectors as it has the largest number of tenders conducted annually (please refer to Annex 3C for comparison statistics of tenders conducted by public institution). Table 12: Number of Complaints 2004 2005 2006 Number of complaints related to health sector tenders (“MOH�) 1,061 Total number of tenders for “MOH� 15,567 28,739 30,282 Percentage of complaint for “MOH� 0 0 4 Total number of complaints made to PPA 1,892 2,469 3,348 Total number of tenders in Turkey 95,105 115,639 137,857 Percentage of complaints for all contracts 2 2 2 Cancelled by procuring entity as a result of a complaint 69 Cancelled by the PPA or court decision as a result of a complaint 109 Notes: *Data for 2004 and 2005 for “MOH� is not available due to the change in the PPA’s database structure in 2006 when a breakdown was introduced. *Number of tenders is based on contracts registered with PPA which is approx. 70% of all signed contracts in Turkey. 4.61 Out of 1,061 complaints received in regard to health sector tenders, as a result of Procurement Board’s decisions made in 2006, 81 tender was cancelled; 62 cases were referred to the procuring entity for corrective measures; 92 cases were sent to the Ministry or an authority to which the procuring entity is subordinated to. About ¼ of all submitted complaints was found unsubstantiated or not accepted for further review and decision making for different reasons. 43 Fiduciary Framework for Budgetary Funds 4.62 According to the PPA, about 50 cases a year (which is about 1-2% of all received complaints) involve allegations in corruption. Such cases are sent to the Chief Prosecutors office. However, there is no a feedback mechanism, so the PPA is not aware of decisions made on these cases, except for the Prosecutors or courts’ decisions which make it to the media. It is not clear whether the Ministry of Health is informed about the outcome of such cases. 4.63 Markets operations: Turkish internal market remains to be protected by domestic preference (applied in 8 percent of the total tenders’ value in 2006) and high thresholds for national tenders. Participation of foreign bidders is very low and is primarily limited to Goods type of contracts (Table 13)26. Table 13: Participation of Foreign Bidders in Public Procurement in Turkey (under Open Tender Procedure) - (in US$ billions) 2005 2006 Country of bidders Total Goods Works Services Total Goods Works Services Turkey 22 7.6 10.2 3.9 28.7 8.8 11.1 8.7 EU .478 .440 .022 .016 .263 .212 .038 .013 USA .004 .004 0 .019 .019 0 0 Other .002 .016 .005 .026 .320 .289 0 .030 Total 22.4 8.26 10.2 4 29.3 9.35 11.2 8.8 Source: Annual statistics, Public Procurement Authority C. GOVERNANCE AND ANTICORRUPTION 4.64 Considerable progress has been achieved by the Turkish authorities in the past few years in adopting policies and procedures aimed, directly or indirectly, at reducing corruption, and various incidences of corruption indicate efforts are showing results. Many sector-specific reforms, such as tax simplification and automating processes in customs, reduce the incentives and opportunities for corruption by speeding and simplifying processes and by limiting interactions between the business community and public officials. Some progress has also been achieved in the past few years in improving the cross-cutting institutions for controlling corruption. Implementation of the Freedom of Information Law has progressed, and a Public Sector Ethics Board, although still understaffed, has initiated operations. The country also has a long established Financial Crimes Investigation Board under the Ministry of Finance (called " MASAK")27 which investigates financial crimes, particularly in the area of money laundering. 4.65 Progress in creating the institutional framework to control corruption has been notable but needs to be consolidated. A circular issued by the Prime Minister in October 2006 was aimed at strengthening the institutional structure for the fight against corruption. The circular reinforced the role of the inter-ministerial steering group in combating corruption by expanding its duties to cover cooperation with international anti-fraud organizations and determining principles and measures in this context. The circular also identified the Prime Ministry Inspection Board (PMIB) as the secretariat for the committee. In four areas of openness and accountability, Turkey’s legislation falls short of the standards being set by the new members of the EU. (i) Asset monitoring in Turkey is confidential, infrequent and cover too many officials to be workable, (ii) 26 The PPA noted that data (on low participation of foreign bidders) does not include cases when a foreign company submits the bid through its local office (and in which the data will show it as a domestic bid). 27 MASAK was established by a Law Code 5549, effective as of 19 November 1996 44 Fiduciary Framework for Budgetary Funds enforceability of conflict of interest rules for officials is weak (iii) the Law on the Right to Information has shortcomings and its implementation encounters wide variation and (iv) the breadth of officials covered by immunity is larger than many countries. 4.66 The European Commission’s 2007 Progress Report on Turkey’s accession reported that the Prime Minister's Inspection Board (PMIB) has started to cooperate with OLAF as its Turkish contact point. Turkey has not decided on an operationally independent anti-fraud coordinating structure (AFCOS) for coordination of all legislative, administrative and operational aspects of the protection of the Communities’ financial interests, and to notify the Commission of suspected fraud and cases of irregularity. As an interim measure, an OLAF contact point was established in the Prime Ministry Inspection Board. Legislative amendments to complete alignment with the convention on the protection of the European communities’ financial interests (PIF-convention) and its protocols are pending. Preparations are considered by the EC to be moderately advanced in this field. 45 Fiduciary Framework for Revolving Funds 5. FIDUCIARY FRAMEWORK FOR REVOLVING FUNDS This section describes the fiduciary framework for the health sector’s revolving funds. This is in contrast to the country- and sector- level fiduciary framework for budgetary funds, as described in Section 4. A. BACKGROUND 5.1 The share of revolving funds (RFs) is important in health and education sectors but they are outside the central budget formulation. In the health sector, RFs are especially important at the provincial level. In recent years, RF revenues have generally grown faster than budget revenues. Table 14 for illustrates the financial importance of revolving funds in the health sector. Table 14: Importance of Revolving Funds in the Health Sector (in YTL millions) 2000 2001 2002 2003 2004 2005 2006 Revolving fund expenditures 2,104 3,342 5,524 6,781 9,536 10,718 12,525 . . . as a percentage of general government primary 5.3% 5.7 % 6.0% 5.7 % 6.8% 6.55 6.2 % expenditures MOH revolving funds expenditures 586 953 1,749 2,238 3,971 6,725 8,845 . . . as a percentage of total 28% 29 % 32 % 33 % 42 % 63% 71% revolving funds expenditures . . . as a percentage of MOH 51% 52 % 58% 61% 89 % 99 % 104% expenditures . . . as percentage of central 3% 3% 4% 4% 6% 9% 10 % government expenditures General government primary 39,504 58,689 92,779 119,020 141,012 165,828 200,482 expenditures Central government primary 21,228 32,526 49,610 58,642 65,990 76,288 92,478 expenditures Ministry of Health (MOH) 1,140 1,822 3,039 3,674 4,461 6,769 8,536 expenditures Source: MOH and MOF data. World Bank staff own calculations 5.2 Revolving funds are particularly significant because they generate revenues that institutions can use to overcome rigid budget processes and constraints in budget execution (Section 4). Revolving funds represent off-budget public sector activities. There is no a framework law covering all revolving funds in the public sector. Each general budget institution that operates revolving funds has its own revolving fund regulation. Respectively, MOH regulates the activities of the RFs which it operates. The MOH regulation (No.209) determines the functional areas, means of generating revenues, basis of expenditures, personnel and organizational structures of the MOH RFs. Although the PFMC law requires that RFs are included in the related central budget institutions, they remain outside of the budget coverage. As a result, more than 6 percent of central government expenditures are not covered by the overall control and financial management structure defined by the PFMC. However, Revolving Funds Budget and Accounting Regulation issued by MOF (as a secondary legislation of PFMC Law) requires a consistent financial management framework to be established in RFs. Based on this 46 Fiduciary Framework for Revolving Funds regulation, MOF has been publishing quarterly balance sheets (revenues and expenditures) for the RFs since June 2005. 5.3 MOH hospitals are allowed to retain income in the RFs and carry surpluses forward from year to year. RFs are obliged to transfer 4 percent of their revenues into a central RF at the MOH. Additionally, one (1) percent of collected RF’s revenues are payable to the Treasury, and another one (1) percent to the Social Assistance Fund for Children. 5.4 It is understood that the government is currently working on the restructuring of the revolving funds which, once implemented, will have implications for the fiduciary framework of revolving funds, including those relating to the health sector. It is possible that the changes may give rise to additional fiduciary issues. It is also possible that some of the fiduciary issues as discussed in this report may be addressed by these changes. B. PLANNING AND BUDGETING 5.5 RFs are managed in a decentralized fashion. Each hospital, the Refik Saydam Hygiene Center, and the central MOH has its own RF. The RF regulations require budget preparation for each fiscal year, broken down by estimated revenues and planned expenditures for the fiscal year and by forecasts for the subsequent two years. RF regulations additionally require balanced budgets. Guidelines are provided on prioritization in situations where expenditure commitments exceed income. RF investments are part of the public investment program, but these expenditures are outside of budget discipline. 5.6 Budget is prepared by hospitals, agreed with the MOF RF Sayman, approved by the MOH and shared with the MOF. The budget of each hospital is considered individually rather than on a consolidated basis.  As discussed earlier, totality of the health sector`s resource envelope can be captured by consolidation of all revenues and expenditures including revolving funds. This would assist the government in managing its entire health sector budget more effectively, and improve its investments planning which is more effective when done on the basis of a consolidated budget C. BUDGET EXECUTION AND INTERNAL CONTROL SYSTEMS 5.7 Figure 5 schematically illustrates the internal financial control and reporting framework for revolving funds. It builds upon Figure 1 (Section 1), which shows the linkages with the framework for internal financial control and reporting of general budget funds. 47 Fiduciary Framework for Revolving Funds Figure 5: Schematic Diagram of the Internal Financial Control and Reporting Framework for General Budget Institutions with Revolving Funds Ministry of Finance General Directorate of Public Accounting MOF GDPA MOF GDPA Consolidated Consolidated Accounting Accounting Revolving Fund Statistics Say2000i system MOH Central Structure MOH Hospital Revolving Funds Abbreviations: GD- General Chief of Directorate Doctors Head of Public Administration information (e.g. MOH Undersecretary Authorizing Financial Services Expert Internal GDPA Accounting GDPA Accounting Personnel, Officer (Strategy Development Auditor Officer Officer (decentralized) budget, and (Spending Directorate, SDD) (decentralized) (MOH customized RF procurement Unit) Say2000i system Accounting Software) units Revolving Funds Department (Consolidated MOH RF Statistics) Payment processing controls: * SDD: Financial services unit responsible for ex-ante controls * Authorizing Officer: Approves and is held accountable for payments * Accounting Officer: Verifies, makes payment, and maintains accounts 5.8 Each RF operates its own bank account, as well as its own financial and tangible assets. 5.9 Expenditures, especially investment expenditures at the provincial level, are financed from the two main sources—general budget allocations through the MOH budget and revolving fund revenues. The RF revenues are accrued from the health services provided by the MOH health centers in the province. Revenue has dropped significantly in provinces where the family medicine model has been piloted. 5.10 In practice, a number of MOH RFs face liquidity difficulties. The SSI is not always able to pay hospital invoices in full and on time, so many RFs have accumulated receivables from SSI. The SSI may challenge submitted invoices as part of its financial and medical control procedures, which leads to doubtful or disputed values for RF receivables. Reportedly, RFs commonly request additional cash from the MOH central RF in order to meet their commitments. Once the SSI has a fully functioning invoice monitoring system which is part of the MEDULA (Electronic invoice and payment system between the SSI and health service providers), the SSI would be able to fully monitor and manage its commitments to hospitals. Moreover, with implementation of the new SSI reform law that is expected to be in place in 2008, the fiscal position of the SSI will be improved and the risk of accumulating arrears to the RFs would be reduced. 48 Fiduciary Framework for Revolving Funds 5.11 In the area of internal audit, it is understood that revolving funds will still not fall within the scope of the internal audit department of the MOH—even after that department is finally fully staffed and operational.  Including revolving funds into the scope of the MOH internal audit control system would ensure that all expenditures of the health sector are subject to the same internal control arrangements. D. ACCOUNTING AND REPORTING 5.12 Control and accounting for RFs is governed by MOF Regulation dated May 2007 and published in the Official Gazette no: 26509. MOF has issued a uniform chart of accounts to be used by RFs to facilitate consolidation with the accruals accounts that are produced for general budget expenditures. 5.13 The accounting for the revolving funds is also done by the personnel of the MOF GDPA. Each GDPA office provides services to one or more hospitals using accounting software developed in house by the Information Processing Department of MOH. It is operated in coordination with the Strategy Development Department. RFs use a uniform chart of accounts issued by the MOF that was developed for the purpose of consolidating RF accounts with the general government expenditures. However, this consolidation has not been fully achieved because their budget structure does not follow GFS classification. Consequently, use of a uniform chart of accounts for all RFs has facilitated the consolidation only of all RF expenditures and revenues. 5.14 The MOF RF department consolidates the RF data of the health sector as maintained by the MOF GDPA offices that service the health sector. Thereafter, MOF consolidates all RF data across sectors and publishes the results quarterly. Unfortunately, the published consolidated RF information is not available by sector or institution. Unlike the accounting that is done for general budgetary funds using Say2000i, regular monthly accounting reports for RFs are shared with hospitals by the MOF GDPA. This enables them to monitor the financial position of RFs without having to maintain parallel accounting systems. E. EXTERNAL AUDIT 5.15 As is the case with budget funds (Section 4), the RFs are subject to audit by the TCA. However, it is understood that no RF-specific audit reports have been issued. Rather, TCA only refers instances of fraud and corruption to the relevant authorities. TCA does not appear to perform financial audits or provide opinions on the credibility of RF financial statements or the adequacy of their internal control systems. Suggested areas for strengthening TCA audits, discussed in Section 4 (see External Audit) are equally applicable to RFs. F. PUBLIC PROCUREMENT 5.16 Procurement procedures for revolving funds are similar to those for budget funds. In practice, individual procurement units generally do their planning of needs first. Then they request management guidance on which source—general budget or RF—from which a particular contract should be financed. The same procurement unit in each procuring entity (and the same staff) handles procurement of contracts financed from both general budget and revolving fund. 49 Fiduciary Framework for Revolving Funds 5.17 The Law number 209 which is related to the MOH revolving funds allows procuring entities to (a) to conduct direct procurement of services from each other (for example, laboratory services, diagnostic tests such as X-rays and MRI); (b) award multi- year contracts (for example, for cleaning services); and (c) carry out centralized (or consolidated) procurement of medical equipment, pharmaceuticals and services by the regional health directorates on behalf of and for the small hospitals and medical centers (in case they do not have own capacity or the value of goods and services is too small to attract bidders). Procurement financed from the revolving fiunds is subject to the PPL No 4734. ) 50 Health Sector Expenditure Systems 6. HEALTH SECTOR EXPENDITURE SYSTEMS This section describes the expenditure systems that are used to pay for the main items of expenditures in the health sector. It is applicable to both the country-level systems as described in Section 4 as well as the health-sector specific revolving funds systems described in Section 5. Health sector expenditure systems are grouped into Recurrent and Capital (or Investment) expenditures. Recurrent expenditures represent, by far, the largest share accounting to about 69 percent of the sector expenditures covered by the IFA. A. RECURRENT EXPENDITURES Personnel and Payroll 6.1 Payroll represents the largest portion of the total recurrent expenditures, accounting for about 49 percent of the expenditures covered by the IFA. Paragraphs below describe the payroll system at MOH and MOH revolving funds as well as related internal control procedures in place. 6.2 Recruitment and assignment. Norm cadres are determined for MOH by a Council of Ministers decision with input from MOH. Based on these norm cadres, MOH applies for MOF visa, and the vacancies are determined. 6.3 There is a centralized examination (KPSS) for all government personnel. Only those candidates that receive an eligible grade can enter government service. Assignments to the MOH from the new governmental recruits are done by the State Personnel Presidency. 6.4 MOH personnel department announces job vacancies eligible for government personnel of other institutions in its web site. Personnel at the other governmental organizations apply for these positions. Selections from these applicants are done through a notary-approved lottery. 6.5 MOH personnel department determines the distribution of personnel country wide in the Personnel Distribution System (PDS) on an annual basis with input from all functional units. MOH has a point system in which each candidate is assigned a performance point based on number of years and location of service. Personnel apply for the vacant positions outlined in PDS, which is posted on the Internet. Assignments are based on the merit points. 6.6 The Personnel General Directorate and the personnel departments of the related unit keep a copy of personnel records. The Personnel General Directorate keeps the originals of assignment records, performance evaluations, disciplinary records, personal assets statements and retirement records. The personnel departments at individual units keep the originals of working records, including annual leave, sick leave, and so forth. 6.7 Payroll processing. The salary system for government employees is based on grading and title, without a performance link. Therefore, the salary level for all persons in a particular category is fixed for the year unless the Government grants an across-the-board salary increase. 6.8 Timesheets are kept at the department where employees work, and they are shared with the personnel department on a monthly basis. All annual, sick, maternity, and unpaid leaves must be approved by the head of the related department and filed at the personnel department. 51 Health Sector Expenditure Systems 6.9 The personnel department informs the salary officer (mutemet) (department responsible for the calculation of the payroll) of these movements during the month, and this data forms the basis for salary calculation. Salary is calculated with payroll software. Each spending unit selects its own software for this purpose. The salary officers then re-enter the data into the personnel module of Say2000i at the office of the GDPA accountant. Simultaneously, they send a list of personnel and the payable amount to the deposit bank for processing. The GDPA officer transfers the lump sum amount from the budget appropriation to the deposit bank. Salaries are transferred electronically to employees’ bank accounts. 6.10 Personnel at MOH are also eligible for bonus payments from the revolving fund. Unlike general budget salaries, these bonuses are based on performance criteria. Performance criteria are determined clearly at the central level in SDD. Both institutional and the individual performances are taken into account in calculating these bonuses. 6.11 The system for calculation of revolving fund bonuses is separate from the general budget salary module. However, the same information is used as the basis for calculation. Bonus amounts are calculated by the salary officers of the spending units and sent to the revolving fund GDPA officer for processing. Bonuses are also paid to the personal bank accounts of employees. Other recurrent expenditures 6.12 Other recurrent expenditures include minor repair and maintenance, utilities, health sector consumables, medical supplies, pharmaceuticals and vaccines, technical services related to operation and maintenance of the facilities (such as cleaning, catering for in-patient facilities, medical waste disposal, equipment and vehicles maintenance, cleaning services, oxygen tanks refill, and so on). 6.13 Payment documents for recurrent expenditures are prepared by the spending unit incurring the expenditure. The payment file includes a standard payment request form with the signatures of authorized personnel. If a contract is involved, the required documents also include the contract, invoice, and acceptance committee approval. This file is sent to the GDPA accountant for processing. The GDPA accountant verifies the documents and registers the payment directly to the bank account of the recipient. 6.14 The spending units of MOH do not have a standard contract management system for contracts where payments are made in installments. Contract management is done by the GDPA accountants. However, the commitments can only be monitored by the GDPA offices after the first payment is registered. There is no regular information flow from the spending units to MOF GDPA office when a contract is signed. The contract is shared with GDPA only when it is sent for the payment of the first installment.  Capturing the contracts in both Say2000i and the MOH system for RF prior to first payment on the signed contract is made and, thereafter, showing outstanding commitments alongside each expenditure category in budget execution reports would facilitate monitoring of commitments and cash forecasting. 52 Health Sector Expenditure Systems B. CAPITAL (INVESTMENT) EXPENDITURES 6.15 Capital expenditures include (a) goods, (b) civil works and (c) consulting services. Main goods expenditures include medical and laboratory equipment, office and computer equipment, medical and office furniture, and vehicles (mainly ambulances). Civil works include new construction and major rehabilitation (which require preparation of design documents).28 Services mainly include technical or outsourced services (like catering for in-patient facilities, cleaning services, oxygen tanks refill, and so forth) and consulting services (advisory or training), the latter normally paid by foreign loans. C. PROCUREMENT SPECIFICS OF CAPITAL (INVESTMENT) AND RECURRENT EXPENDITURES 6.16 Several institutions are responsible for health sector procurement and deal with different type of capital and recurrent expenditures (see table below). Table 15: Health Sector Procurement Responsibilities* General Directorate for MOH- Administrative Refik Saydam Center Public Health School Borders and Coastal MOH- procurement and Finance depart. Provincial health Family Medicine Investment Unit units of general MOH- Capital MOH -PMU directorates directorates Hospitals Services Expenditures subject to Offices public procurement I. Goods Medical and lab X X X X X X equipment Goods other than X X X X X X medical equipment Pharmaceuticals and health sector X X X X consumables Vaccines X x x Ambulances x X x II. Civil works X X X X x III. Services, including X x Technical (contractual) x X x x X X x services Consulting (advisory, training) x x x services 28 Small building repair works, which do not require preparation of design, are normally considered to be building maintenance expenditures, and are therefore paid from the recurrent budget. 53 Health Sector Expenditure Systems Legend: “X� – large number and volume of procurement transactions; “x� – small number and volume of procurement transactions; “X� – procurement responsibility is being transferred to the unit on the left from the arrow; “PMU� – project management unit ( administering WB loan/project); “WB� – World Bank; Note: * excluding university hospitals and health facilities financed from the Ministry of Defense budget.) 6.17 Most of sector public procurement, as measured by aggregate value and number of contracts, is done at the provincial level. 6.18 Central-level procurement for the health sector is generally covering the following (all sources of public funds): 1. Large orders of medical equipment by the General Directorate of Health for Borders and Coasts and by the PMU (financed from foreign loans). 2. A wide range of goods items required by the Refik Saydam Hygiene Center. 3. Vaccines, which constitute the largest procurement for the needs of the sector handled by the MOH itself. 4. Civil works financed from the budget and investment program by the newly established construction department. 5. Consulting services, goods, and works under international tenders financed by foreign loans—for example, through project management units (PMU) within MOH. 6.19 Provincial level procurement is characterized by a large number of relatively small-value contracts (below US$100,000 equivalent) as individual health facilities (acting as procuring entities) require small quantities of equipment and supplies. Medical (including surgical) supplies and consumables, pharmaceuticals, and lab reagents top the list of inputs required by the facilities to ensure uninterrupted provision of services at each facility. Among services, cleaning, catering, oxygen supply, and technical services are the main items. (a) Goods (under Capital and Recurrent Expenditures) 6.20 Medical equipment. The General Directorate of Health for Borders and Costal Services (an independent agency affiliated with the MOH) is the only institution that conducts large tenders, including with participation by international bidders. It procures medical equipment for the health sector based on the needs agreed and planned with the MOH hospitals. 6.21 Technical specifications for medical equipment prepared by the General Directorate are posted on the website. These specifications are frequently used when hospitals need to procure smaller quantities of similar equipment. Currently, this is the only source of assistance for the hospitals and other small contracting authorities.  By preserving (or transferring) capacity and experience of the team who has experience with preparation of the bidding documents and administration of the medical equipment tenders on,, the MOH would be able to continue efficient administration of large value tenders. 6.22 Within the MOH itself, only a project management unit (PMU) has experience with international tenders (though conducted under World Bank guidelines, not the public procurement law). Other MOH units conduct contracting for relatively small quantities of low-value equipment primarily using an open-tender method of the public procurement law. 54 Health Sector Expenditure Systems 6.23 Procurement legislation limits use of direct contracting method to not more than 10 percent of the budget allocation, so competitive procurement dominates in theory (see tables in Section 4). In reality, the competition is a bit lower because of (a) funding sources other than the budget (that is, the revolving funds), (b) a 10 percent ceiling is counted separately for each source of funds (i.e. separately for the general budget and RF), and (c) exceptions in the public procurement law for the health sector. For example, pharmaceuticals and medical substances with a short shelf-life can be procured directly from the supplier, but such procurement would be classified as an exception to the law rather than counted toward the direct contracting ceiling. PPA data shows that about 12 percent of health sector procurement is done through direct contracting. Adjusted for exceptions and percentage of contracts that are not included into PPA statistics, the share of direct contracts can reach 22 percent.29 6.24 Vaccines. Procurement of vaccines is currently conducted by the MOH Administrative and Finance Department. Open tender procedure is used. It is planned to transfer this function to a small procurement unit within the Curative Care Directorates in 2008 budget year. This may be problematic because the new procurement unit in the Curative Care Directorate lacks capacity and experience in the procurement of vaccines. The IFA team was informed that there are no current plans to reassign experienced procurement staff to the Curative Care directorate. 6.25 Assigning responsibility for vaccines procurement to Refik Saydam Hygiene Center would be in line with international best practice when line ministries outsource procurement function to the centralized purchasing bodies or other specialized public or private agencies (in part related to procurement for the needs of the sector, not administrative procurement).  By considering an option of reassigning responsibility for vaccines procurement to Refik Saydam Hygiene Center which has experienced and qualified staff and the cold chain arrangements rather than to a small and inexperienced procurement unit in the Curative Care directorate, the MOH will avoid the risk of interruptions in supply of vaccines to the users. Outsourcing to an outside of the core MOH central apparatus would also be consistent with the new (policy and leadership) role the MOH is undertaking as part of the institutional reform process. 6.26 Computer and IT Equipment. IT equipment is procured by each procuring unit at central and provincial levels. Each unit is responsible for developing technical specifications and bidding documents (they can consult with the IT Directorate of the MOH, which has some model specs posted on the website) and carrying out procurement. Alternatively, they can procure directly from the government-approved warehouse catalogue, which supplies all public administrations with office equipment and supplies when orders are for small quantities.  The experience from other countries can be considered—which generally shows substantial savings from centralized purchase of computer and IT equipment through consolidated tenders. 6.27 Pharmaceuticals, medical supplies and consumables. These are procured at the provincial level by the health directorates, hospitals and, sometimes, health centers and are mainly limited to emergency care drugs; and drugs, supplies and consumables required for 29 World Bank staff own calculations on the basis of PPA data and information on coverage 55 Health Sector Expenditure Systems treatment of patients while in a hospital.30 These can be procured either through an open tender procedure or direct contract with a supplier or a pharmacy under the exception allowed by the public procurement law. PPA data do not break down at this level; therefore, this could not be verified by the IFA team to determine the most commonly used procurement method.31 6.28 Procurement of drugs from GMP-certified manufacturers is not mandatory. 6.29 According to the Pharmaceuticals Directorate, drugs counterfeit is not an issue in Turkey.32 (b) Civil works (under Capital Expenditures) 6.30 Civil works contracts, which fall under capital expenditures, include new contraction and major renovation (or rehabilitation) that requires preparation of design documents. Minor building repairs, which can be done without a design, are treated as recurrent costs. 6.31 Until FY2007, the Ministry of Public Works was responsible for procurement related to new construction and rehabilitation, including for the health sector. This responsibility was recently transferred to the MOH, which set up a Capital Investment Unit as a separate department.33 At the time of the first IFA mission in June 2006, this unit had not yet dealt with any new tenders. The unit has primarily been occupied with completing of the transferred contracts (some ongoing contracts date back as far as 1991) or preparing design for those sites for which the contracts have been signed but no action initiated. Nationally, the department employs about 300 specialists, including 70 engineers to carry out on-site technical supervision. There is no outsourcing of design or on-site technical supervision to the private sector. The IFA team was informed about ministry’s plans to build 30 new medical training and teaching hospitals over the coming decade.  Procurement planning and alignment of the time-schedule of these new constructions with the sector reform program needs careful consideration. Analysis of existing capacity and in-house expertise (comparing with outsourcing options for design and technical supervision, for example) will prepare the new department engages in implementation of the government’s ambitious civil works program. (c) Services (under Capital and Recurrent Expenditures) 6.32 In the country’s statistics, Services may include (a) technical or contractual services which are mainly treated as recurrent expenditures, and (b) consulting (technical assistance) or advisory services (including provision of training). (a) Technical services. These primarily include out-sourced services required for ensuring operation of health sector facilities and institutions (such as cleaning, catering, medical waste disposal, ambulances and vehicles repairs, buildings’ maintenance, and so on). These 30 Drugs, purchased by the patients themselves using doctor’s prescription and drugs purchased by family doctors from capitation budget they receive from the SSI/MOH are not subject to the public procurement law, therefore, are not discussed in this report. 31 The PPA’s classification by product group (type of expenditure) includes only one position which combines medical equipment and pharmaceuticals. For detailed list of PPA’s classification please refer to Annex 3C. 32 Verification of this statement is outside of the IFA’s scope. 33 Capital Investment unit was a unit within the Strategy Development directorate and is now set up as a separate department 56 Health Sector Expenditure Systems contractual services are procured mainly through an open tender procedure and contracts awarded to a private sector firms. Most tenders of this sort are done at the provincial level. MOH procures these services as part of its administrative procurement (that is, for the needs of the MOH office). (b) Consulting services. No health sector institution has experience with selection of large-value consulting services, including international participation. There is no experience of managing contracts with consulting firms.34 Most needs for consultancy services or advisory expertise are met in-house or by internal order from MOH that draw experts from the state-owned universities.  By broadening the base of technical expertise that can be drawn from inside and outside the country for provision of consulting services the MOH will be able to obtain required expertise to implement the Program. 6.33 It should be noted that Turkey is one of a few countries in the region with separate procedures for selecting consulting services that use quality criteria to evaluate the proposals. Moreover, the PPA has developed a model document for selection of consulting services (“Request for Proposals� or RFP) based on the standard World Bank standard RFP. 6.34 Unfortunately, these procedures and the RFP are not widely used by procuring entities. Instead, they opt for price only selection. Quality of the consultants’ proposals and qualifications of the firms is not considered in the selection process. Such practice has negative impact both on the quality of the provided services and on incentives for qualified consulting firms to compete for public contracts in the sector. 34 This observation relates to consulting services financed from the budget and does not include experience of the central project unit set up for implementation of the projects co-financed by the World Bank 57 Annex 1 ANNEX 1 - CONCEPT NOTE: INSTITUTIONAL FIDUCIARY ASSESSMENT PROGRAM FOR TRANSFORMATION IN HEALTH Background The Government of Turkey (Government) has undertaken comprehensive health and social security sector reforms (the “Program for Transformation in Health� or the Program), and harmonization/consolidation of pensions administration and policy aimed at improving health outcomes, equity, efficiency and quality of health and social security services. The World Bank is financing the Program through a two phase APL: the Health Transformation Project (HTP I) which will close in December 2008, and a new Health and Social Security Reform project (HSSR) which will support the second phase of the Program and social security reform. An Institutional Fiduciary Assessment (IFA) of selected institutions in the health and social sector will be carried out by the Bank team in close cooperation with the respective counterparts in the country starting in May 2007 to address the issue of fiduciary capacity of implementing entities, pooling of funds with the government and other donors as the case may be, and the use of the country systems to the maximum extent possible, and the risks associated with it. The assessment is focusing on the progress and achievements made so far in area of public finance management by the Turkish institutions. Analysis of these achievements and comparison with international standards and best practices may provide options for further improvement in the economy, efficiency and effectiveness with which the public resources (including external borrowing) are utilized. The Assessment will be limited to the institutions directly involved in implementation of the Program and will not cover the entire health and social sectors. Objectives of the IFA and the Intended outputs The purpose of this fiduciary assessment is twofold: (1) to determine to what extent the country’s fiduciary arrangements and systems can be used to effectively implement the Program of the Government; and (2) to analyze options to further strengthen the fiduciary capacity of the assessed institutions to utilize public funds. It is important to note that the IFA is not an audit, nor is it intended to review health expenditures or assess the fiscal strategy for managing these expenditures. Scope of the IFA Institutions: The scope of the IFA is determined by reference to the institutions that would participate in implementation of the Program, and the flow of funds to and within the health sector as well as main expenditure systems that these institutions would use to implement the Program. Central Level. The assessment will start at the central level35 and will focus on the main institution involved in implementation of the Program - the Ministry of Health (MOH) and the Social Security Institute. In addition to the budget, accounting, internal audit and procurement related departments, the following departments and programs within the MOH will be covered: (a) Primary Care Directorate (Family Medicine program) (b) Curative Services Directorate (Programs for improving performance of secondary and tertiary health services; and Pilot program for converting MOH hospitals in to public hospital unions) 35 Other agencies within the MOH system may need to be looked at depending on the flow of funds arrangements. The need and level of detail of such reviews will be identified by the end of May mission. 58 Annex 1 (c) Refik Saydam Hygiene Centre (d) Drug Agency of the MOH (e) School of Public Health/National Health Institute The following three institutions are the central agencies dealing with internal and external financing, planning and budget allocation. Their role in the Program is limited to allocation of funds to the MOH, therefore, the assessment of these institutions would be limited to the related to the Program functions: (1) State Planning Office (SPO); (2) Ministry of Finance ( MOF); (3) Treasury. Sub-national Level. The analysis of the flow of funds and the budget expenditure categories which will be completed during the first IFA mission (May 15- June 1, 2007) will define to what extent the sub-national (provincial level institutions) need to be assessed during the second mission ( tentatively planned for June 18-30, 2007): Sub-national (provincial) level institutions: (a) Pilot in two provinces (Duzce and one more province to be selected in consultation with the government) to cover provincial directorate, hospital and district level units; (b) up to two Hospital Unions pilots (sites to be selected in consultation with the government). The assessment will aim to provide an understanding of how these institutions will be affected by envisaged reforms and the Program and analyze options on how to further strengthen their fiduciary capacity. The main revenue and expenditure systems36 to be included in the scope of work of the IFA can only be finalized on the basis of the analysis of the sector financial statements. A complete sample of the expenditure and revenue cycles of the Program components would be reviewed. At this time these are identified as follows: (1) Goods (including equipment, furniture, pharmaceuticals) (2) Civil Works (School of Public Health/National Health Institute; central lab building of Refik Saydam Hygiene Centre; pharmaceuticals control lab; etc.) (3) Consulting Services (including studies) (4) Training (5) Salaries (including incentives and bonuses) (6) Other operational expenditures covered by recurrent budget (7) Pharmaceuticals revolving funds It is important to note that the IFA will not cover revenue generation and collection by the SSI for social health insurance. Methodology and Approach The IFA is a two-part assessment which looks at both: (a) The acceptability of the financial management and procurement-related laws, regulations and other rules governing the identified expenditure systems, by reference to recognized acceptable (not best) international practices, standards and codes: this aspect of the assessment can be considered a “standards gap� analysis. The main background materials for this part of the assessments are the Country Procurement Assessment Report (CPAR), Country Financial Accountability Assessment (CFAA), Public Expenditure Review (PER) and other relevant country level diagnostic work (e.g. on PFMC law) as well as relevant international financial management, accounting and 36 The IFA will not cover revenue generation and collection by the SSI for social health insurance. 59 Annex 1 auditing standards and best international practices in the area of public procurement, including the OECD/World Bank benchmarking. (b) The extent to which these practices, standards, codes are actually applied in practice for the identified expenditure systems by the identified implementing institutions: this aspect of the assessment can be considered a “compliance gap� analysis. Compliance gap analysis involves the review of documentation, walk-through testing and evaluation of the relevant procurement and financial management procedures and controls in place. The fiduciary risks attributable to the health sector and/or SSI will be presented in the IFA report with the breakdown by nature of the risk and the level of risk at each assessed institution. Clearly, some of the fiduciary risks will be attributable more directly to fiduciary systems of the health sector or SSI and, therefore, fall within their direct influence and remit to manage. However, other issues affecting the health and social sector’s fiduciary risk relate to country fiduciary systems which are not within their direct influence (e.g. delays in release of cash authorizations from MOF at the beginning of the fiscal year which affects all government ministries). Accordingly, the IFA’s analysis will distinguish country and health/SSI sector issues in order that they may be more easily identified and addressed by those with a direct influence over such issues. The Program’s management and governance aspects which are common across the entire set of revenue and expenditure systems will be assessed on an institution-wide basis. These aspects of the IFA will include: (i) General institutional arrangements and administrative procedures; general features of the government’s budget cycle of salience to the objectives of the IFA (including cash management); (ii) Accounting and financial reporting (number of staff, educational background and qualifications of key accounting personnel, accounting systems, contract management systems, accounting procedures and manuals, internal control systems, and reporting arrangements); (ii) Internal financial control arrangements (number of staff, education and qualifications of key internal audit personnel, resources available to this function, reporting lines, and management use of internal control reports); (iv) Use of capital investment budget and procurement systems (number of staff, education and qualifications of key procurement personnel, resources available to this function, reporting lines); and (v) External audit (scope and periodicity of external audits, financing of external audits, qualifications of external auditors, prior year external audit reports). Thereafter, the following broad topics will be analyzed for each identified expenditure system (inter-institutional basis), as follows: (i) Identification of needs and progress towards policy objectives, including planning, forecasting of revenues, budget preparation and capital investments planning; (ii) Monitoring of expenditure and program delivery; (iii) Authorization of commitments; 60 Annex 1 (iv) Tendering; (v) Contract management; (vi) Cash management (for autonomous entities, and revolving funds) (vii) Authorization of payments; (viii) Execution of payments; (ix) Recording of payments Roles and Responsibilities of the IFA Team Members The team will comprise financial management, procurement, public sector management and health systems specialists. The IFA team composition is given below: The World Bank team will work in full cooperation with the Government counterparts . A round table meeting to discuss the IFA’s analysis and options to further strengthen fiduciary capacity of the health and social sector institutions to efficiently utilize public funds is proposed for the end of June mission. Timeline for the Completion of the Task Proposed timeline:  IFA preparation missions May 14 – June 1; June 6-22  Draft report preparation by July 30,2007  Internal Discussion of the Draft report September 2007  Discussion of the Draft Report with the September - October, 2007 Government  Finalization of the Report November, 2007 61 Annex 2 ANNEX 2 - CONSOLIDATED HEALTH SECTOR EXPENDITURES Table 1: Turkey Public Sector Health Expenditures, 1999-2006 In million YTL (% of GDP) 1999 2000 2001 2002 2003 2004 2005 2006 4,722 7,497 12,877 16,957 21,563 24,445 30,581 Public Sector 2,999 (3.79%) (4.20%) (4.64%) (4.71%) (5.01%) (5.02%) (5.31%) (3.87%) General Government 2,968 4,671 7,392 12,708 16,764 21,345 24,210 30,322 (3.83%) (3.75%) (4.14%) (4.58%) (4.66%) (4.96%) (4.97%) (5.26%) Cons. Budget 1,837 2,864 4,819 6,019 7,283 9,402 12,362 1,253 (1.47%) (1.61%) (1.74%) (1.67%) (1.69%) (1.93%) (2.14%) (1.62%) Ministry of Health inc Green Card 1,051 1,580 2,799 3,449 4,171 6,474 9,128 754 (0.84%) (0.89%) (1.01%) (0.96%) (0.97%) (1.33%) (1.58%) (0.97%) Gen. Direct. of Coast Health 1 2 4 7 7 9 39 89 (0.0%) (0.0%) (0.0%) (0.0%) (0.0%) (0.0%) (0.01%) (0.02%) Universities 101 173 231 381 448 532 555 607 (0.13%) (0.14%) (0.13%) (0.14%) (0.12%) (0.12%) (0.11%) (0.11%) 9 18 21 61 79 108 124 103 Other Budget Agencies (0.01%) (0.01%) (0.01%) (0.02%) (0.02%) (0.3%) (0.3%) (0.2%) Civil Serv. Health Exp. 387 592 1,028 1,572 2,035 2,462 2,211 2,434 (0.50%) (0.48%) (0.58%) (0.57%) (0.57%) (0.57%) (0.45%) (0.42%) Funds (3418&SSF) 37 135 233 384 252 500 142 11 (0.05%) (0.11%) (0.13%) (0.14%) (0.07%) (0.12%) (0.03%) (0.00%) Social Sec. Ins. 1,519 2,502 4,085 7,246 10,156 13,151 14,220 17,474 (1.96%) (2.01%) (2.29%) (2.61%) (2.82%) (3.05%) (2.92%) (3.03%) Local Authorities 158 198 209 260 336 412 446 476 (0.20%) (0.16%) (0.12%) (0.09%) (0.09%) (0.10%) (0.09%) (0.08%) State Economic Ent. 32 51 105 169 193 218 235 259 (0.04%) (0.04%) (0.06%) (0.06%) (0.05%) (0.05%) (0.05%) (0.04%) Memo item General Government Primary Expenditures 36,541 60,683 104,050 140,937 176,656 195,641 212,487 247,424 (8%) (8%) (7%) (9%) (9%) (11%) (11%) (12%) Source: Yılmaz (2007); Budget Figures of MOF (1999-2006); MOH Budgets (1999-2006); SSI Figures and Fiscal Reports (1999-2006); MOH Household Survey (2002); MOF Local Authorities Figures (2007) 62 Annex 3 ANNEX 3 - GOVERNEMNT STATISTICS – CATEGORIES FOR CLASSIFICATION (FINANCIAL AND PUBLIC PROCUREMENT) 3.A Budget Classification Table 3A-1: Institutional Classification I II III IV Highest Main Support Minister Authorized Officer Functional units Accountable to the units Administrative Structure Minister - Ministries and central administrations 1-37 1-37 - Special Budget Institutions 38-41 38-41 - Regulatory Institutions 42 42 - Social Security Institutions 43 43 - Special Provincial Administrations 44-45 44-45 - Municipalities 46-47 46-47 A. Central LevelA=01-60 a. Undersecretary a=01 01 b. Support Units b=02-19 02-19 c. Advisory and Audit c=20-29 20-29 d. Main Functional units. d=30-60 30-60 30-60 B. Local Offices B=61-62 61-62 a. Regional a=61 61 b. Provincial b=62 62 C. Overseas units C=63 63 a. Overseas units 63 63 D. Affiliated Institutions D=64-99 64-99 63 Annex 3 Table 3A-2: Functional Classification First Second Level Level 01 General Public Services 02 National Defense Services 03 Public Order and Security 04 Economic Affairs 05 Environmental Protection Services 06 Housing and Community Amenities 07 Health Services 1 Medical Equipments and Related functions and Services 2 Outpatient Services 3 Hospital Functions and Services 4 Public Health Services 8 Health R&D 9 Miscellaneous Health Services 08 Recreation, Culture and Religious Services 09 Education Services 10 Social Security and Social Assistance Services 64 Annex 3 Table 3A-3: Economic Classification First Second Level Level 1 I-Personnel 1 1 Employees 1 2 Contractual Personnel 1 3 Workers 1 4 Temporary Personnel 1 5 Other Personnel 1 7 Deputies 1 8 Appropriation of President of a Republic 1 9 Personnel of National Intelligence Organization 2 II-Government Premiums to Social Security Agencies 2 1 Employees 2 2 Contractual Personnel 2 3 Workers 2 4 Temporary Personnel 2 5 Other Personnel 2 7 Deputies 2 9 Personnel of National Intelligence Organization 3 III-Good and Services Procurement 3 1 Procurement of Productional Goods and Services 3 2 Consumptional Goods and Services 3 3 Transportation Allowances 3 4 Duty Expenses 3 5 Services 3 6 Representation and Presentation 3 7 Movable goods, Non-material Due, Maintenance and Repair 3 8 Maintenance and Repair of Immovable 3 9 Cure and Funeral Expenses 4 IV-Interest 4 1 Domestic Debt Interest Paid Public Management 4 2 Other Domestic Interest 4 3 Foreign Debt Interest 4 4 Discount Expenses 4 5 Interests of Short Fixed Term Cash Operations Table 3: Economic Classification (continued) 65 Annex 3 First Second Level Level 5 V-Current Transfers 5 1 Duty Losses 5 2 Treasury Aid 5 3 Transfers to Non-Financial Establishment 5 4 Transfers to Households 5 6 Foreign Transfers 5 8 Shares from Revenues 6 VI-Capital Expenses 6 1 Product Purchase 6 2 Movable Capital Expenses 6 3 Non-Material Due 6 4 Immovable Purchase and Nationalizations 6 5 Immovable Capital Produce 6 6 Movable Great Repair Expenses 6 7 Immovable Great Repair Expenses 6 8 Stock Purchase Exclusive Defense 6 9 Other Capital Expenses 7 VII-Capital Transfers 7 1 Domestic Capital Transfers 7 2 Foreign Capital Transfers 8 VIII-Liability 8 1 Domestic Liability 8 2 Foreign Liability 9 IX-Reserve Appropriations 9 1 Personnel Reserve Appropriation 9 3 Appropriations of Investment Acceleration 9 5 Appropriations for Earthquake Expenditure 9 6 Reserve Appropriation 9 7 Appropriations for New Agency and Administration 9 9 Other Reserve Appropriation 66 Annex 3 3B. CLASSIFICATION OF CONTRACTING AUTHORITIES IN THE HEALTH SECTOR BY THE PUBLIC PROCUREMENT AUTHORITY Central Level: (a) Ministry of Health 1. MOTHER-CHILD HEALTH AND FAMILY PLANNING DIRECTORATE GENERAL 2. RESEARCH, PLANNING AND COORDINATION DEPARTMENT 3. EU COORDINATION DEPARTMENT 4. MINISTRY PRIVATE SECRETARIAT 5. PRESS AND PUBLIC RELATIONS ADVISORY 6. FOREIGN RELATIONS DEPARTMENT 7. PUBLIC RELATIONS COORDINATION OFFICE 8. LEGAL ADVISORY 9. ADMINISTRATIVE AND FINANCIAL AFFAIRS DEPARTMENT 10. PROVINCIAL HEALTH DIRECTORATES 11. PHARMACEUTICALS AND PHARMACIES DIRECTORATE GENERAL 12. CANCER DEPARTMENT 13. MANDATORY SERVICE COMMISSION 14. UNDERSECRETARIAT 15. PRIVATE SECRETARIAT 16. PERSONNEL DIRECTORATE GENERAL 17. REFİK SAYDAM HYGIENE CENTER 18. HEALTH EDUCATION DIRECTORATE GENERAL 19. HEALTH PROJECT GENERAL COORDINATION OFFICE 20. DEFENSE SECRETARIAT 21. MALARIA DEPARTMENT 22. CURATIVE SERVICES DIRECTORATE GENERAL 23. INSPECTION BOARD 24. BASIC HEALTH SERVICES DIRECTORATE GENERAL 25. TUBERCULOSIS DEPARTMENT 26. HIGHER DISCIPLINARY BOARD 27. HIGHER HEALTH COUNCIL 28. REVOLVING FUND DIRECTORATES 29. DATA PROCESSING DEPARTMENT (b) Affiliated agencies 30. BORDERS AND COASTS HEALTH DIRECTORATE GENERAL Provincial Level: Provincial level contracting authorities (health directorate, hospital, health center) who conduct tenders themselves. 67 Annex 3 3C. PUBLIC PROCUREMENT AUTHORITY CLASSIFICATION BY PRODUCT CODES/TYPE OF EXPENDITURES No Product Code/Type of Expenditure Number of Perce AdvertisedTen ntage ders (in 2006) (%) 1 Medicine, Medical and laboratory equipment, optical 5937 12 2 Building construction works 3392 7 3 Petroleum products, fuel and oil 314 7 4 Food and beverages 1907 4 5 Machine, equipment, tools and devices 1333 3 6 Transportation of personnel, transportation service on 1141 2 highways 7 Vehicles, trailers, spareparts 1100 2 8 Engineering design and construction works 1066 2 9 Catering and accommodation services 1035 2 10 Motorways, Highways, airports, railways 982 2 11 Construction works related to water 609 1 12 Products related to agriculture, hunting and gardening 54 1 13 Products related to mining, operation of stone quarry and 557 1 others 14 Repair, maintenance and installation services 547 1 15 Coal, lignite, and coal based products 523 1 16 Sewerage and waste disposal services 440 1 17 Office equipments and computer and spare parts 438 1 18 Services related to computer 425 1 19 Health and social work services 405 1 20 Clothing and shoes (all kind of ready-made clothing) 383 1 21 Produced products and materials 378 1 22 Electricity, gas, nuclear energy, steam power 365 1 23 Agriculture, forestry, gardening, and other related services 352 1 24 Education services 348 1 25 Textile and textile materials 309 1 26 Electricity system works 266 1 27 Products of Rubber and plastic 245 1 28 Machine, equipment and all kind of tools 245 1 29 Services related to the public (electricity, water) 232 0 30 Products related to main metals 225 0 31 Chemical materials, chemical products, and synthetic fibers 15 0 32 Management, defense and social security services 163 0 33 Electrical machines, mechanism and rigging 146 0 34 Petrol, natural gas, oil and related products 139 0 35 Radio, television, communication services 137 0 36 Furniture, handwork, special purpose products 132 0 37 Services related to recreation, culture and sport 129 0 38 Other various services 113 0 39 Architectural, civil engineering law, accounting and 105 0 operation services 40 Posting and telecommunication services 104 0 68 Annex 3 41 Products related to forestry and log industry 101 0 42 Printing and services related to print house 95 0 43 Services related to petrol and gas industry 8 0 44 Floor and wall covering (finishing) services. 74 0 45 Mechanical installations 65 0 46 Paper and paper paste products 60 0 47 Roofing works and other special commercial construction 56 0 works 48 Transportation equipments (sea, air and railway) 50 0 49 Various printed materials and materials for print houses 48 0 50 Tobacco, tobacco products and materials 47 0 51 Building demolishing and debris removal services 39 0 52 Plumbing works 37 0 53 Painting and polishing works 36 0 54 Wood, wooden products, cork products and basket works 34 0 55 Soil improvement and drilling works 34 0 56 Obligatory social insurance services and insurance 34 0 57 Fence, railing and security equipments 28 0 58 Mining and production sector, petrol and gas industry 25 0 59 Fish, fishery products, and other fishing products 24 0 60 Other nonmetallic products (glass, ceramic, etc) 23 0 61 Collected and treated water and water distribution 22 0 62 Woodwork and carpentry works 22 0 63 Research and development services 21 0 64 Building plaster and finishing works 21 0 65 Membership organization services 19 0 66 Leather and leather products 16 0 67 Support and subsidiary transportation services 15 0 68 Transportation on waterworks 15 0 69 Metal ores 9 0 70 Insulation works 9 0 71 Decoration works 5 0 72 Special houses rented with their special personnel 2 0 73 Services and works provided by foreign organizations and 2 0 institutions 74 Retail selling services 1 0 75 Uranium and thorium ores 1 0 76 Recovered secondary raw materials 1 0 77 Others 16425 34 TOTAL 47743 100 69 Annex 4 ANNEX 4 - HEALTH SECTOR INSTITUTIONAL FRAMEWORK 4A. ORGANIZATIONAL CHART: MOH - Central Level (as of August 2007) Minister Press Cabinet of Mr. Inspection Board Advisers Consultancy Minister Health Supreme Council Civil Defense Undersecretary Secretariat Deputy Deputy Deputy Deputy Deputy Undersecretary Undersecretary Undersecretary Undersecretary Undersecretary Dept. of Adm. Coordinator of GD of Primary and Fin. HT Program Strategy Devel. Health Care Affairs Department GD of Mother&Child Personnel Dept. of EU GD of Curative Health GD Coordination Services GD of Project Manag. Pharmacy and Social Services Dept. of Inf. Support Unit Pharmaceu. Coord. Unit Processing Dept. of Cancer Dept. of Law Monitoring and Control Foreign Affairs Consultancy Evaluation Unit Refik Saydam GD of Health Investments, Hygiene Cen. Education Constructions& Maintenance Dept. of Public Private GD Malaria Control Partnership GD Quality Coord. Dept. of Unit Tuberculosis Control. Project Implementation Unit 70 Annex 4 4B. MOH - Provincial Level (as of August 2007) Provincial Governor Health Director Provincial Hygiene Board Deputy Health Directors In-patient Treatment Ins. Branch Local Health Centers Branch Pharmacy Branch Mother-Child Health&Fam. Plan. Br. Infectious Diseases Branch Food and Environmental Health Branch Psychiatry Branch Mouth and Dental Hygiene Branch Health Statistics Branch Personnel Branch Emergency Services Branch Med. Professions and Special Diagnosis Br. Education Branch Administrative and Financial Affairs Branch Sub Provincial Health Group Governor Director Mother-Child Tuberculosis Vocational Health State Hospital Health and Family Dispensary School Planning Center Emergency Health Local Health Public Health Services Control Centers Laboratories Center Emergency Aid Health House Station 71 Annex 4 4C. Refik Saydam Hygiene Center Organization Chart (as of August 2007) 72 Annex 4 PRESIDENT School of Public Health Civil Defence Specialist Unit Quality Management Unit Data Processing Unit International Relations KGA 7 REGIONS & PROVINCIAL Vice President Vice President Vice President Vice President ORGANISATIONS Infectious Diseases Research Vaccines, Sera Production and Biological Control Laboratory Personnel Department Center Research Department Department Blood, Blood Products Production Department of Publishing and Admin. and Finance Department Experimental Animals Laboratory & Research Department Documentation Food Safety Laboratory and Revolving Fund Accountancy Unit Mental Illness Research Center BCG Laboratory Research Department TB Reference and Research Drugs and Cosmetics Laboratory Governor Sera Distribution Laboratory Laboratory and Research Service facilities Department Regional/provincial level Central level Family Mmedicine Ppractices Health group Environmental Health Research Presidency Sample Admission Unit Poison research Department Center Health centers Private Doctors Private clinics MOH hospitals, University hospitals, Health centers affiliated Antigen-Antis era Production Virology Laboratory to other ministries Laboratory Public health Laboratories TBC dispensary Malaria Center STD Center Village clinics Health Promotion Training Degenerative Diseases Research Department Mother & child care Department Regional RSHC Centers Provincial Health Directorate Ministry of Health* Refik Saydam Hygiene Center Presidency * 73 Annex 5 ANNEX 5 - PLANNED INSTITUTIONAL CHANGES Institutional and Organizational Responsibilities and Flow of Funds in the Health Sector in the Context of health reforms and the Program During the next plan period, major reforms will include the finalization of restructuring of the MOH to convert it into a planner and auditor and making MOH hospitals autonomous (state enterprises). Several important institutional changes are planned, and others are under pilot implementation as part of the Program. These are described below. 1. Reorganization of certain MOH functions. Selected reorganization of the MOH functions would produce income from fees and contracts that semi-independent agencies could retain and use outside of the budget. These include the Pharmaceuticals and Medical Devices Agency (currently, the Pharmaceuticals Directorate of the MOH), the National Health Institute (currently, the School of Public Health under Refik Saydam Hygiene Centre), and the Refik Saydam Hygiene Centre. 2. Scaling up of the family medicine pilot project. Under this model, the MOH would act as a purchaser of health services from public-sector family-medicine providers. When fully implemented, the provincial-level structure of MOH would be simplified as shown in Figure 4. Figure 4. Scaling up Family Medicine Model and Subsequent Change in the Institutional Structure Current Situation Under the Family Medicine System Health Group Presidency Health Clinics Community Health Centers Mother and Child Health Care Centers Tuberculosis Dispanseries Public Administrations Doctor's Practice Family Medicine Centers Health Centers Malaria Centers STD Centers Several MOH organizational units are involved in implementation of the Family Medicine Program, including the Family Medicine Department within the Primary Care Directorate, the Health Data Processing Department, the Monitoring and Evaluation Unit in the SDD, and participating provincial health directorates. The SSI, MOF, and the National Real Estate General Directorate are also involved. 74 Annex 5 Although family medicine is conceptualized and coordinated as a single program, its budget structure is not programmatic; so there is no single budget line representing family medicine. Resources for program implementation come from the budgets of the respective organizational units. In addition to capitation revenues (paid by MOF from SSI funds), resources for family medicine practices come from provincial budgets, which pay the salaries of practice nurses, as well as from provincial RF revenues (which are used for upgrading and equipping facilities). Family doctors pay rent for use of MOH facilities to the National Real Estate General Directorate. The budget structure and funds flows associated with the family medicine program are complex and fragmented. While it is theoretically possible to track these flows from the MOF accounting systems, at present there is no unified presentation/reporting of the budget or actual revenues and expenditures associated with this program. 3. Conversion of best-performing MOH hospitals to pilot Public Hospital Enterprises, which would facilitate hospital autonomy. Currently, MOH is the largest provider of health services in Turkey, managing about 800 hospitals. The Social Security Institute (SSI) currently has an annual budget, but does not have individual contracts with MOH hospitals, although SSI does have contracts with University and private hospitals and health facilities. Although each individual hospital makes claims directly to SSI and is paid by SSI, MOH plays a key role in coordination of funds. In addition to its role as the provider of health services, the Ministry of Health is also incrementally building its capacity in evidence-based policy making, regulation, especially of drugs, medical devices and the quality of care in MOH hospitals. Under the draft law, Pilot Hospital Enterprises would retain all generated income and receive full autonomy in managing the funds. Performance will be monitored by a dedicated unit within the MOH. Poorly performing enterprises would lose their autonomous status and revert to direct management of the MOH. The Program envisages that the restructuring option for hospitals would convert MOH hospitals to autonomous Public Hospital Unions—in other words, state-owned enterprises. This process would begin with a small number of hospitals on a pilot basis. The pilot hospital unions would retain income; but unlike existing hospital RF arrangements, the unions would produce single financial statements rather than dual budget and RF financial reporting. The unions, not the MOH budget, would be responsible for their staff salaries. Financial control would be provided by their own finance officers rather than by MOF GDPA officers. Overall oversight would be provided by executive boards of directors, whose members would include provincial and national appointees. A dedicated MOH unit (now being set up) would carry out performance monitoring. Poorly performing hospital unions would loose their autonomous status and revert to direct management by MOH. Restructuring along these lines would eliminate the fragmented structure of the MOH budget because the hospitals would retain an autonomous structure but not be part of the general government expenditures. However, as state owned enterprises they would continue to be considered as part of the public sector. Eventually, when hospitals become autonomous, the flow of funds, financial management and accountability arrangements in the health sector will change with SSI implementing contracts with hospitals directly and MOH having no direct role in paying providers 75 Annex 5 Once these reforms are substantially under implementation and restructuring of the revolving funds is completed, the flow of funds in the health sector and institutional and organizational responsibilities are expected to change. However, the times frame for these significant changes to occur in between 2-5 years. The impact of these changes in terms of the fiduciary framework will require evaluation when the plan are more certain and can be included in the scope of Phase II of the IFA. 76 Annex 6 ANNEX 6 - BENCHMARKING OF TURKEY PUBLIC PROCUREMENT SYSTEM Baseline Indicators System – Assessment Table (October 2007) Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) 1 Public procurement legislative and regulatory framework achieves the agreed standards and complies with applicable obligations 1.1 Scope of application and coverage of the legislative and regulatory framework 1.1.1 Contracting entities at all levels, Public Procurement Law, Article 2 Fully Achieved The Bank remains concerned until the including government new law for Utilities Sector is enacted. S authorities, municipalities, Contracting entities except utilities sector regional authorities and are all covered by the Law. utilities/state-owned enterprise, But a new draft law on public are covered procurement of utilities sector has already been prepared by PPA. 1.1.2 All areas of procurement: work, Public Procurement Law, Article 2 Fully Achieved Public Procurement Authority (PPA) goods and consulting services, should maintain its oversight on all M are included Consulting services procurement is amendments and new laws which effects regulated through a separate division in public procurement e.g. excluding certain the Law Article 48-52 type of services and entities from the scope of law. 1.1.3 Procurement using public funds, Public Procurement Law Articles 1, Fully Achieved The Bank remains concerned about irrespective of contract value, is 2, 3 exemptions provided to certain type of M included services and entities through other laws. 1.1.4 The applicable legislative and Public Procurement Law, Fully Achieved It was agreed that in order to address the regulatory framework is Public Procurement Contract Law, needs of international business S structured, consistent and Implementing Regulation Everybody can instantly access the community, translation of whole accessible to users and all website of PPA for all legislative and legislation into English would continue. interested stakeholders regulatory framework information on With the help of twinning agreement; Public Procurement. Official Journal in translation of main procurement which the public procurement legislations legislation into English is completed and are issued is thoroughly open to the published at the PPA web-site. public as well. 1.2 Procurement methods 1.2.1 Stated preference for the use of Public Procurement Law, Articles 5, Fully Achieved Open competitive procurement is not the 77 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) open, competitive procurement 18,19,20,21,22 stated preference as restricted bidding is M unless otherwise justified in also a standard alternative selective accordance with the legislative method to open tendering. and regulatory framework 1.2.2 International competitive Public Procurement Law, Articles 8, Fully Achieved The thresholds provided in Article 8 tendering methods defined for 13, 63 regarding international publication of M specified contracts (e.g. where In conformity with the provisions of notices are significantly above the EU monetary thresholds exist) that public procurement law (PPL), on the thresholds. The PPL should be aligned are consistent with international initiative of procuring entities, unless with EU Directives. standards adversely decided, procurement market is open to all bidders regardless of In 2005, Domestic preference is applied nationality. only in 0.4 % of the contracts awarded Procurement above specified threshold (4.8 % in terms of contract value). values have to be open to all international In 2006, Domestic preference is applied bidders in any case. only in 1 % of the contracts awarded (8 (with an option for domestic preference) % in terms of contract value). International bidders may be prohibited to participate to procurements under a certain thresholds value. All public procurements below or above the thresholds should be open to international competitors. 1.2.3 Defined basis for the Public Procurement Law, Articles Fully Achieved It is agreed that data on the use of procurement method, if other 18,19,20,21,22 procurement methods will continue to be S than open competition monitored. It is required that all procuring entities, which may use direct procurement method, are required to complete an “information form� and send to PPA for their records. The procuring entities are providing the required information thus this requirement is sustainable 1.2.4 Negotiated procedures and direct Public Procurement Law, Articles Fully Achieved See above 1.2.3 purchasing only under well- 21,22, 62/ı M defined and justified These procurement procedures with circumstances, subject to restricted competition or no competition controls at all should be very rarely used and 78 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) under very specific circumstances. 1.3 Advertising rules and time limits 1.3.1 Mandatory and accessible Public Procurement Law, Articles Fully Achieved The publishing of hard copy of the Public publication of opportunities for 13, Annex provision 1 (4964/ Procurement Bulletin abolished and M competitive procurement Article 41) Implementing electronic copy is made available to all regulation subscribers free of charge. Thus availability to all interested persons achieved . 1.3.2 Mandatory publication of result Public Procurement Law, Article 47 Fully Achieved The thresholds for the mandatory information on contract awards publication of contract awards are M based on defined thresholds significantly high. In 2005, about 45,978 procurement notices are published, whereas only 1062 contract award notices are published. In 2006, about 47694 procurement notices are published, whereas only 1363 contract award notices are published. Other than the mandatory publications; the procuring entities are required by implementation regulations to complete a “procurement result form� for each procurement activity and submit it to PPA within 10 days after signing the contract, which would enable PPA to monitor results of all procurements. 1.3.3 Minimum time limits for Public Procurement Law, Article 13, Fully Achieved The thresholds provided in Article 13 submission of tenders and 29, 36 regarding time limits for submission of M applications, which should be Implementing regulation tenders are significantly shorter than the consistent with method of limits provided in EU Directives. The procurement, national conditions attempts to reduce time limits should be and, when applicable, prevented and PPL should be aligned international requirements with EU Directives. The draft amendment (prepared in June 2005) of the PPL has a provision about preliminary notices, which would result 79 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) more shortening of the current time limits but abolished in 2006 . 1.4 Rules on participation and qualitative selection 1.4.1 Fair, predictable and defined Public Procurement Law, Articles Fully Achieved Implementation needs to be monitored to rules for participation that rely 10, 11 avoid hindering competition. M on qualifications and ability to Implementing regulation perform the requirement 1.4.2 Limited and controlled use of Public Procurement Law, Article 63, Fully achieved See above 1.2.2 M price preferential clauses Implementing regulation 1.4.3 Debarment process if covered, Public Procurement Law, Articles Fully Achieved Although there is no specific provision on defined basis, allowing for 17, 58, in the PPL law guaranteeing due process S due process and appeal Implementing regulation Debarment process is clearly defined in or appeal against debarment decisions the PPL with possibility to appeal to Constitutional law is giving adequate administrative courts comfort to appeal any public decision. , Moreover Article 125 of the constitution enabling the foreign firms to go to international arbitration. The data on the debarment process by various contracting entities should be monitored and consideration to create an appeal mechanism at a lower level than administrative courts, which are back logged and resulting delayed resolutions, should be given. The government is currently working on an adjudication process to create an appeal mechanism at a lower level than courts 1.4.4 Rules for participation of Public Procurement Law Article 11, Fully Achieved PPL does not restrict participation of government-owned enterprise paragraph 9 ( as amended by government-owned enterprises to public S that provide for equal treatment 4964/8) There exists no provision of special tenders, except they are not allowed to in competitive procurement Implementing regulation treatment for government-owned participate to tenders of the contracting enterprises participating in any agencies which are directly related with competitive procurement. them. In order to determine if there is any unfair competitive advantage of the state- owned enterprises, the number of 80 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) contracts awarded to them should be monitored and necessary measures should be considered for equal treatment of all bidders. 1.5 Tender documentation and technical specifications 1.5.1 The minimum content of the Public Procurement Law, Article 27, Fully Achieved No comment. S tender documentation is Implementing regulation specified 1.5.2 Neutral technical specification Public Procurement Law, Article 12, Fully Achieved It was agreed that PPA will prepare and with reference to international Implementing regulation It is explicitly highlighted in the Article issue a Good Practice Guidance Note on M standards where possible 12 of Public Procurement Law, how to prepare neutral technical Implementing regulations (Goods, specifications. Services and Works) and Public Procurement General Communiqué that neutral technical specifications of tender documents will be with reference to international standards and include non- discriminatory criteria. However, it is mainly agreed to prepare a guideline which will include detailed question- answer section and guide contracting entities how to prepare their documents orderly. 1.5.3 Content of tender documentation Public Procurement Law, Articles Fully Achieved No comment. is relevant to meeting 27, 28, 29 M requirement and implementing Implementing regulation the process 1.6 Tender evaluation and award criteria 1.6.1 Objective, fair and pre-disclosed Public Procurement Law, Articles Fully Achieved To minimize implementation problems criteria for evaluation and award 24, 25 and 40 originating from ambiguity in Article 40; M of contracts Implementing regulation amendment to PPL is under consideration. 1.6.2 Clear methodology for Public Procurement Law, Article 38, Fully Achieved To minimize implementation problems; evaluation of tenders based on 40 Amendment in the Article 40 of PPL is legislation issued in July 2005 to address M price and other fully disclosed Implementing regulation under further consideration in order to the problems originating from ambiguity 81 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) factors leading to award of ease problems arising in implementation in Article 38(excessively low prices). contracts process when evaluating tenders and in Amendment to Article 40 (tender this stage technical studies are being evaluation criteria) is under conducted taking account of demands and consideration.. suggestions by sectors. Detailed information on the methodology for evaluation is in the implementing regulation. 1.6.3 Requirement to maintain Public Procurement Law, Articles 9, Fully Achieved No comment. confidentiality during the 17, 36, 37, 60 M evaluation process Public Procurement Contract Law, Article 25 Implementing regulations 1.7 Submission, receipt and opening of tenders 1.7.1 Public opening of tenders in a Public Procurement Law, Article 36 Fully Achieved No comment defined manner that ensures the Implementing regulations M regularity of the proceedings 1.7.2 Clear requirement to maintain Public Procurement Law, Article 7 Fully Achieved The minutes of public opening records of proceedings and Implementing regulations announcing the bid prices and existence M process that are available for of required documents as part of bid are review/audit provided to all participating bidders. 1.7.3 Requirement to maintain security Public Procurement Law, Articles Fully Achieved No comment. and confidentiality of tenders 30, 60, 61 M prior to bid opening Implementing regulations 1.7.4 Submission and receipt Public Procurement Law, Articles Fully Achieved No comment. modalities of tender documents 36, 30, 31 M are well defined Implementing regulations 1.8 Complaint review procedures 1.8.1 Inclusion of complaint and Public Procurement Law, Article 53, Fully Achieved The time allowed for the contracting remedy procedures that provide 54, 55, 56, 57 authority to respond to complaints S for fair, independent and timely Regulation on Administrative submitted by unsuccessful bidders can be implementation Applications Against Procurements reduced to enhance the effectiveness of appeal mechanism. An electronic system is put in place to 82 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) monitor the current status of the complaint review process. 2 Existence of Implementing Regulations and Documentation 2.1 Implementation regulations that Regulation on Implementation of Fully Achieved It is agreed that PPA will continue to define processes and procedures services procurement ensure consistency within all related S not included in higher-level Regulation on Implementation of regulation. legislation goods procurement Regulation on Implementation of The entities exempted by Article 3 of works procurement PPL prepare their own procurement Regulation on Implementation of regulations, with the approval of PPA. consultancy services procurement Regulation on Administrative The implementation regulations are being Applications Against Procurements updated regularly to provide further clarifications based on the experiences gained. 2.2 Model tender documents for Annexes of the Implementing Fully Achieved No comment. goods, works and services Regulations, standard forms to be S used during each step. 2.3 Procedures for pre-qualification Public Procurement Law Article 20, Fully Achieved No comment. 21, 48 S Implementing Regulations Annexes of the Implementing Regulations 2.4 Procedures suitable for Public Procurement Law 20, 21/e, Fully Achieved No comment. contracting for services or other 48, 49, 52 S requirements where technical Implementing regulations capacity is a key criterion 2.5 User’s Guide or manual for Hard copy User’s guide Fully Achieved The Manual should be updated regularly contracting entities Electronic User’s guide based on amendments in the procurement S Website of Public Procurement legislation. Authority As part of the Twinning Agreement; the Manual updated in 2006 to include all changes in the procurement legislation and placed in the web site. 2.6 General Conditions of Contracts Public Procurement Contract Law Fully Achieved No comment. for public sector contracts Annexes of the Implementing S covering goods, works and Regulations 83 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) services consistent with national Regulation on Inspection and requirements and, when Acceptance applicable, international General Specifications Annex of the requirements Implementing Regulations 3 Mainstreaming Procedures into Public Financial Management 3.1 Procurement planning and data Public Procurement Law Article 5, Fully Achieved It is agreed that further studies will be on costing is part of the budget 62 done to provide data on actual cost to S formulation process and Public Financial Management and Public Financial Management and support budget formulation. Piloting e- contributes to multi-year Control Law. No 5018 Articles 9, Control Law came into force in January procurement project would help to collect planning 13, 15, 16 2006. Therefore, the law anticipates data. Amendment to Public Financial yearly basis budget but on the other hand Management and Control Law No following two years’ revenue and 5436 (December 2005) expenditure prediction are envisaged. On the other hand, it can be possible to reach out to actual procurement details including contract information through Electronic Public Purchasing Platform (PPP) designed and put into practice by Public Procurement Authority. Acces to this platform is completely free and it is enough to be registered for using it. Considering suggested new approaches and problems occurred in implementation process, further studies are executed to develop the Platform in orther to correspond all technical needs. 3.2 Budget law and financial Public Procurement Law Article Substantially Achieved This is out of control of PPA and should procedures support timely 62(b) The issue under this Article should be be considered under broader Public S procurement, contract execution General Accounting Law Articles referred also to the Ministry of Finance. Financial Management System. and payment 50, 51, 83 PFMC Law Articles 26, 27, 28, 35 3.3 No initiation of procurement Public Procurement Law Articles 5, Fully Achieved No comment. actions without existing budget 62 S appropriations General Accounting Law PFMC Law 3.4 Contract execution is subject to Public Procurement Law Article 5, Substantially Achieved This is out of control of PPA and should budgetary controls to ensure 62/a be considered under broader Public S sufficient funding for contract Public Financial Management and The issue under this Article should be Financial Management System. 84 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) Control Law. No 5018 referred also to the Ministry of Finance. Public Procurement Contracts Law Article 24 3.5 Budgeting system provides for Annual Budget Law Article 8 Substantially Achieved The system should enable the timely timely release of funds to make Public Financial Management and release of funds after the commitment of S payments against contractual Control Law. No 5018 Article 20 The issue under this Article should be funds when award of contracts are obligations referred also to the Ministry of Finance. approved. This is out of control of PPA and should be considered under broader Public Financial Management System.. 3.6 Systematic completion reports General Accounting Law Articles Fully Achieved No Comment are prepared for certification of 100, 101 S budget execution and for PFMC Law Articles 41, 42 Public Financial Management and reconciliation of delivery with Control Law came into force in January budget programming 2006. Articles 41, 42,63,64,68 of this Law regulate rules about preparing systematic completion reports for certification of budget execution and state procedures for internal and external control. 4 Functional Management/Normative Body 4.1 The status and basis for the Public Procurement Law Article 53 Fully Achieved No comment. functional normative bodies is Regulation for Public Procurement S covered in the legislative and Authority regulatory framework 4.2 The responsibilities address a Public Procurement Law Articles Fully Achieved PPA is still in process of consolidating defined set of functions that 53, 56 authority in the areas defined in the S include, but not limited to: Regulation on Administrative legislation. providing advice to contracting Applications Against Procurements entities; drafting amendments to the legislative and regulatory framework and implementing regulations; providing monitoring of public procurement; providing procurement information; managing statistical databases; 85 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) reporting on procurement to other parts of government; developing and supporting implementation of initiatives to improve the public procurement system; and providing implementing tools and documents to support training and capacity development of implementing staff 4.3 Organisation, funding and Public Procurement Law Article 53 Substantially Achieved See above 4.2 staffing and the level of Regulation for Public Procurement S independence and authority Authority (formal power) of the bodies is sufficient and consistent with their responsibilities 4.4 Responsibilities provide for Public Procurement Law Articles Fully Achieved No comment. separation and clarity so as to 53, 56 S avoid conflict of interest and direct involvement in the execution of procurement transactions 5 Existence of Institutional Development Capacity 5.1 A system exists for collection Public Procurement Law Article 53 Fully Achieved See above 1.3.1 and dissemination of Electronic public procurement S procurement information, control system exists in website of including tender invitations, PPA requests for proposals and Public procurement bulletin issued contract award information periodically by PPA in hard copy and electronically. 5.2 A sustainable strategy and Public Procurement Law Article 53 Substantially Achieved It is agreed that PPA will develop a more training capacity exists to Upon training demand by stakeholders in proactive strategy for capacity S provide training, advice and respect of public procurement legislation development such as compulsory assistance to develop the and its implementation process, Public training, minimum qualification capacity of government and Procurement Authority regularly standards to professionalize procurement private sector participants to organizes training and sector programs staff, on-line certification of staff, understand the rules and not only to public sector but also to awareness raising campaign etc. regulations and the how they private sector participants. On the other 86 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) should be implemented hand, besides the Authority’s regular training activities, also certificated public procurement trainings are given to the participants in accordance with the cooperation protocol done between PPA and TOBB University of Economics and Technology. 5.3 Systems and procedures exist for Public Procurement Law Article Fully Achieved Second paragraph after Article 53(b) 9 collection and monitoring of Second paragraph after 53(b) 9 provides that PPA requires mandatory S national procurement statistics Electronic public procurement supply of required statistics from all control system exists in website of contracting entities. PPA will continue to PPA increase the data collection rate. It is agreed that PPA needs technical assistance for the interpretation and make use of the statistical data to improve the procurement system and eliminate the common problems in the implementation 5.4 Quality control standards are No data Not Achieved See above 5.2. disseminated and used to In order to put the activities stated in this S evaluate performance of staff and indicator into practice, it is needed to address capacity development amend some articles in Public issues Procurement Law, PFMC Law and the other related legislation. 6 Efficient Procurement Operations Capacity and Practice 6.1 The level of procurement Public Procurement Law Article 6 Substantially Achieved See above 5.2 and 5.4 competence among government S officials within the entity is There is no data collected about the level consistent with their procurement of procurement competence among responsibilities government officials. 6.2 The procurement training and Public Procurement Law Article Fully Achieved See above 5.2 information programmes 53.b.3 Upon training demand by stakeholders in S implemented for government Regulation for Public Procurement respect of public procurement legislation officials and private sector Authority and its implementation process, Public participants is consistent with Procurement Authority regularly demand organizes training and sector programs not only to public sector but also to 87 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) private sector participants. All demands for training are completely met. On the other hand, besides the Authority’s regular training activities, also certificated public procurement trainings are given to the participants in accordance with the cooperation protocol done between PPA and TOBB University of Economics and Technology. In addition to the interactive training CD’s prepared by the Authority there are also guide books both for the administrations and suppliers prepared during Twinning Project. Stakeholders or others interested individuals in this matter can easily access to the contents of CD and these guidance books on the PPA web site 6.3 The existence of administrative Procurement statistics Fully Achieved Bank will consider providing support to systems for public procurement Complain statistics PPA for analysis and how to use S operations, and information Notice of procurement statistics It can be possible to reach tender statistical data to improve procurement databases, to support monitoring Updated records keeping for banned documents and even contract information performance. See above 5.3 of performance and reporting to contractors through Electronic Public Purchasing and responding to the (All statistical data reports are Platform (PPP) designed and put into information needs of other prepared for 3 month period and practice by Public Procurement related government systems announced via internet and press Authority. Acces to this platform is releases) completely free and it’s enough to be registered for using it. After calling for tenders, a contracting entity can follow up all procurement information on the system and can do inquires from past to present (of the past). 6.4 The existence and Public Procurement Law Articles Fully Achieved By the effectiveness of PFMC Law, new implementation of internal 54, 55, 56 performance inspection mechanisms has S control mechanisms for the Public Procurement Contract Law . been established. understanding of procurement Article 11 operations at the contracting Regulation on Inspection and 88 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) level, including a code of Acceptance conduct, separation of Law on Court of Accounts responsibilities as a Inspection and Control Legislations check/balance mechanism and of the Administrations oversight/control of signature/approval authority 6.5 The existence of norms for the PPL Art. 7, General Specifications Fully Achieved No Comment safekeeping of records and Annex of the Implementing S documents related to transactions Regulations and control management 6.6 Provisions exist for delegation of Legislations of the ministries, Substantially Achieved Implementation issues remain. authority to others consistent organisations and institutions. S with capacity to exercise All Ministers may delegate their own responsibilities authority to the sub level bureaucracy. This is usually ruled by the respective administrative codes of the entities. 7 Functionality of the Public Procurement Market 7.1 There are effective mechanisms Substantially Achieved Government has strong initiative to for partnerships between the A new draft bill for PPP prepared by the launch a reliable PPP system in the public and private sector SPO and circulated among the country. There are good examples of stakeholders to collect their comments. PPP projects in construction and Technical discussions and consultations operation of airports and power are ongoing. production projects which are not governed by PPL. . World Bank is supporting the PPP activities through a private consultant firm to provide technical assistance to the public entities in the technical discussions of the draft PPL. 7.2 Private sector institutions are TOBB nominates one member of Fully Achieved No comment. well organised and able to PPA Board. TOBB’s sector board S facilitate access to the market (construction) is in close relation with the PPA Board. Private sector is fairly in good position to facilitate & inform the market 7.3 There are no major systematic Major problem is about the Substantially Achieved This is out of PPA’s control, and will be constraints (e.g. inadequate difficulties in access to credit referred to TOBB for study and S access to credit, contracting market. Prime reason is recommendations to resolve systematic 89 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) practices, etc.) inhibiting the informalities in company’s assets constraints. private sector’s capacity to (i.e. informal economy). Another access the procurement market reason is high provision level of non-cash credits (currently 40% of cash credit) that increases costs of letter of guarantees & performance bonds. These are the major issues for some of the small and medium sized companies, but not systematic constraints for the entire private sector. 7.4 There are no major constraints Public Procurement Law Article 12 Fully Achieved No comment. that inhibit competition (e.g. Those technical, labour, financial S technical, labour and other standards stated in Article 10 of PPL standards) are integral part of fair competition. 7.5 There are clear and transparent PPL Articles 5., 12., 24., 25., 27., Fully Achieved Implementation issues remain rules for determining whether to 53., 54., 55., 56., 57., 61. engage international or national It is free to enter to any public contract. markets, based on a sound Participating in any public contract is development and business logic mainly related with commercial priorities of enterprises. Right of compliance is guaranteed in procurement legislation. Procurement rules and procedures are based on international best practices and essential principles in the process are equal treatment, transparency and competitiveness as stated in Article 5 of PPL. 8 Existence of Contract Administration and Dispute Resolution Provisions 8.1 Procedures are defined for Public Procurement Contract Law Fully Achieved Implementation issues exist. undertaking contract Regulation on Inspection and Regulation issued by the PPA to S administration responsibilities Acceptance eliminate reported problems that include inspection and The existence of Supreme Science acceptance procedures, quality Board (Yüksek Fen Kurulu) control procedures and methods to review and issue contract 90 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) amendments in a timely manner 8.2 Dispute resolution procedures Public Procurement Contracts Law Substantially Achieved Although a proper local Arbitration law are included in the contract Draft contract annexes of the exists ( Law code 4686) all local S document providing for an implementation regulations Although there is clear indication at the contracts are referred to courts. efficient and fair process to International Arbitration Law end of the draft contract annexed to the Arbitration procedure is applicable only resolve disputes arising during implementing regulations about dispute for contracts signed with foreign firms the performance of the contract resolution by courts, there is no Arbitration dispute resolution procedures flexibility for opting for administrative are being used in some of the private dispute resolution procedure (e.g. sector contracts, not in public sector. arbitration) for disputes arising with the Change in legislation may be required to local firms during the performance of the facilitate opting for any of the dispute contract. resolution process for local contracts to improve efficiency . 8.3 Procedures exist to enforce the Regulation on Administrative Fully Achieved Any disputes during contract outcome of the dispute resolution Applications Against Procurements administration are either referred to local S process Sample form of contracts courts or international arbitration in accordance with International Arbitration Law. 9 Effective Control and Audit System 9.1 A legal framework, organisation, Public Procurement Law Article 53 Fully Achieved Subject to proper implementation of policy and procedures for Law on Court of Accounts PFMC Law with respect to the new M internal and external control and Public Financial Management and See above 3.6 control and audit arrangements. audit of public procurement Control Law Articles 63, 64, 68 operations exists and operates to Constitution Article 160 provide a functioning control General Accounting Law framework 9.2 Enforcement and follow-up on Law on Court of Accounts Article Fully Achieved See above 9.1 findings and recommendations of 50, 64 M the control framework provide an PFMC Law Articles 63, 64 environment that fosters compliance 9.3 The internal control system Decree Law on Organisation and Fully Achieved See above 9.1 provides timely information on Mandates of Ministry of Finance, no M compliance to enable 178, Article 10, 11, 20, 43 Since the effectiveness of the Public management action Financial Management and Control Law , new provisions are in force on this subject. 9.4 The internal control systems are PFMC Law Articles 64, 68 Not Achieved See above 9.1 91 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) sufficiently defined to enable S performance audits to be conducted 9.5 Auditors are sufficiently Law on Court of Accounts Article 9 Substantially Achieved See above 5.2 informed about procurement Decree Law on Organisation and S requirements and control systems Mandates of Ministry of Finance, no Since the effectiveness of the Public to conduct quality audits that 178, Articles 10, 11, 20, 43 Financial Management and Control Law , contribute to compliance PFMC Law Articles 63, 64, 68 gradual improvements are expected. 10 Efficiency of Appeal Mechanisms 10.1 The existence and operation of a Public Procurement Law Articles Fully Achieved Complaints are not resolved at the initial complaint review system that 54, 55, 56, 57 stage (at the contracting entities) and S gives participants in the public Regulation on Administrative generally referred to PPA, which delays procurement process a right to Applications Against Procurements the contract award for one month and file a complaint within the increases the workload of PPA. framework of an administrative PPA should develop and provide and judicial review procedure guidance to the contracting entities to address the complaints from participants. Implementation practices which delays the complaint resolution process should be identified and eliminated by the PPA. 10.2 Decisions are deliberated on the Public Procurement Law Articles Fully Achieved No comment. basis of available information 54, 55, 56 S and the final decision can be Regulation on Administrative reviewed and ruled upon by a Applications Against Procurements body (or authority) with enforcement capacity under the law 10.3 The complaint review system has Public Procurement Law Articles Fully Achieved No comment. the capacity to handle lodged 56, 57 S complaints efficiently and a Regulation on Administrative means to enforce the remedy Applications Against Procurements imposed 10.4 The system operates in a fair Public Procurement Law Articles Fully Achieved No comment. manner, with outcomes of 53, 54, 55, 56, 57 S decisions balanced and justified on the basis of available information 10.5 Decisions are published and Public Procurement Law Article 53 Fully Achieved No comment. 92 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) made available to the public Official Journal S Website of PPA 10.6 Administrative review body or Public Procurement Law Article 53 Fully Achieved No comment. authority is separate from the Regulation for PPA S regulatory body, executing Administrative review body is not agency and the audit/control separate from the regulatory body, but is agency separate from executing agency and the audit/control agency 11 Decree of Access to Information 11.1 Access to information by A registration number is given for Fully Achieved No comment. stakeholders in the process is all procurements M supported by publication and Stakeholders can access information distribution of information about procurement process and through available media with complaints via internet support from information Website of PPA technology when feasible Publication of the Legislations 11.2 Systems exist to collect key data “Procurement Control System� Fully Achieved No comment. related to performance of the project has come into force. S procurement system and to report Proceedings on “Real Time� regularly reporting system project has been going on. 11.3 Records are maintained to All records are kept in digital form. Fully Achieved No comment. M validate data 11.4 There is clear legal basis Public Procurement Law Articles 5, Fully Achieved No comment. providing access to information 13, 40, 47, 53, 58 and 59 S to the public Public Procurement Contracts Law Articles 26 and 27 Secondary legislation 2004 General Communiqué on Public Procurement Daily Public Procurement Bulletin Freedom of Information Act 12 Ethics and Anti-corruption Measures 12.1 The legal and regulatory Public Procurement Law Articles Fully Achieved No comment. framework for procurement, 10, 11, 17, 58, 59, 60 M including tender and contract Public Procurement Contract Law documents, includes provisions Articles 25, 26 93 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) addressing the issue of corruption, fraud, conflict of interest and unethical behaviour and states actions which can be taken with regard to such behaviour (either directly or by reference to other laws) 12.2 The legal system defines Public Procurement Law Article 58, Fully Achieved No comment. responsibilities, accountabilities 59, 60 M and penalties for individuals and Public Procurement Contract Law firms involved in fraud or Article 25, 26, 27, 28 corruption cases 12.3 Evidence of enforcement of Public Procurement Law Article 58, Fully Achieved No Comment.. rulings and penalties exists 59, 60 M Public Procurement Contract Law Article 25, 26, 27, 28 12.4 Special measures exist for the Public Procurement Law Article 53, Fully Achieved Implementation issues remain. government to prevent and detect 58 S potential fraud and corruption in Turkish Criminal Code public procurement (e.g. Law on Fight Against Corruption procurement audits) and statement of property 12.5 Stakeholders (private sector and Ethical rules of Professional Fully Achieved No comment. civil society) support the Institutions, Non governmental S criterion of a procurement Organisation, trade associations. market known for its integrity and ethical behaviours 12.6 Existence of a secure mechanism Public Procurement Law Article 11, Fully Achieved Implementation issues remain. to report fraudulent, corrupt or 53, 58, 60 S unethical behaviour Turkish Criminal Code Law on Fight Against Corruption and statement of property Law on Ethical Rules in Public Administration PFMC Law Articles 64/g and 67 12.7 Existence of Codes of Public Procurement Law Article 60 Fully Achieved Signature of ethical contract is required Conduct/Codes of Ethics for Law on Ethical Rules in Public for all public employees. S participants that are involved in Administration Disclosure of financial assets by the aspects of the public financial Turkish Criminal Code public staff is required every 5 years and management systems that also Law on Civil Service interim disclosures are required in case 94 Annex 6 Indicator Indicator Data Used in Assessment Self Assessment by PPA Bank’s Comments on Assessment No (*) provide for disclosure for those of substantial changes in assets in decision making positions exceeding 5 times the monthly salary (*): S = Standard sub-indicator M = Mandatory sub-indicator 95 Annex 7 ANNEX 7 - ORGANIZATIONS AND EXPERTS WITH WHOM TEAM CONSULTED Many gave generously of their time to assist and cooperated with the IFA team. The IFA team expresses its sincere thanks to these people and organizations Undersecretariat of Treasury General Directorate of Foreign Economic Relations Osman Gurdogdu, Elvan Ongun Ministry of Finance General Directorate of Public Accounts Haydar Kulaksiz Ismail Hakki Yazici General Directorate of Budget and Financial Control Abdulkadir Goktas Ertan Eruz Murat Ugur Fusun Dogan Onder Ince Public Procurement Authority Kadir Akin Gozel, Head of International Relations and Coordination with EU Department Selcuk Ari, Expert Vesile Tufandoken, Researcher Ministry of Health Primary Care Directorate Bekir Keskinkilic, Assistant Director General, Mustafa Karakoso, Head of general budget unit Ugur Sahin, Head of procurement unit Curative Care Directorate Oner Odabas, General Director Ugur Kucukozkhan, Administration and Financial Affairs Department Ramazan Karabal, Head of procurement unit Ibrahim Kocaoglu, Head of general budget unit Pharmaceuticals Directorate Mahmut Tokac, General Director Department of Investment Construction and Maintenance Senay Mertok, Department Director Levent Demirel, Deputy Director PMSU Adnan Yildirim, Project Director (HTP I) Haluk Uckun IT Department Mehmet Kanmaz, Deputy Director Emin Aydogan, Project Associate 96 Annex 7 Strategy Development Directorate Mehmet Atasurer Ramazan Tezcan Personnel General Directorate Nizamettin Ekinci Refik Saydam Hygiene Institute Mustafa Erek, President Esmeray Alacağdağli, Quality Unit Head Administrative and Financial Affairs Department Halit Altun, Manager Tahir Uzunmehmetoglu, Tenders Preliminary Preparation Unit Fatih Ertaç, Tenders Preliminary Preparation Unit Celalettin Sahin, Procurement Unit Erdogan Kiraz, Budget Unit Isa Acar, Budget Unit Yakup Eroglu, Revolving Fund Osman Pinar, Revolving Fund accountant (MOF) International Relations and EU Unit Tulin Celik School of Public Health Ali Kemal Caylan, Deputy Director Etem Hatemoglu, procurement specialist Suha Barias, procurement specialist S. Akin, procurement specialist Ozgul Karaman, budget/finance Eskisehir Province Provincial health directorate Koray Erberk, Assistant Director, Eskisehir Provincial Health Directorate Kadir Bey, Assistant Manager, Administrative Affairs Department Omer Faruk Uresin, Financial Affairs Department Kagan Karakaya, Family Medicine Head of Department Golbasi Hospital Chief Doctor Ertugrul Bayram, Hospital Manager Gazi Hospital Ahmet Bey, General Secretary Atilla Aydin, Payroll expert Havva Soylu, Revolving Fund expenditures expert 97