Turkish Public Finance Management Law No. 5018

Introduction to Law No. 5018

Law No. 5018 on Public Financial Management and Control (Kamu Mali Yönetimi ve Kontrol Kanunu), enacted in 2003 and fully effective from 2006, represents the most comprehensive reform of Turkey’s public finance system since the founding of the Republic.

This law transformed how Turkish public institutions plan, budget, spend, account for, and are audited on public resources. It aligned Turkey’s public financial management with European Union standards and international best practices.

Objectives of the Law

Law 5018 was designed to achieve several fundamental objectives:

1. Fiscal Transparency: Making public finances visible and understandable to citizens
2. Accountability: Establishing clear responsibility chains for public spending
3. Efficiency: Ensuring public resources are used economically and effectively
4. Strategic Orientation: Linking spending to strategic goals and measurable outcomes
5. Modern Audit: Implementing internal control systems and external audit aligned with international standards

Scope of Application

The law applies to three categories of public entities:

General Government

Category	Examples
Central Government	All ministries, Constitutional institutions (Parliament, Constitutional Court), Universities, Regulatory agencies
Social Security Institutions	SGK, İŞKUR, and related entities
Local Governments	Metropolitan municipalities, Municipalities, Special provincial administrations

Specific Provisions

State Economic Enterprises (SOEs) and other public entities not covered by the general government budget are subject to separate but aligned regulations.

Key Principles

Principle of Fiscal Unity

All public revenues must be collected into Treasury accounts and all expenditures made from these accounts. No public administration may hold funds outside the central treasury system (with limited exceptions for revolving funds and earmarked revenues).

Principle of Universality

All revenues and expenditures must appear in the budget. Extra-budgetary funds are prohibited except where specifically authorized by law.

Principle of Specificity

Appropriations must be allocated to specific purposes and cannot be transferred to other purposes without legal authorization.

Principle of Annuality

The budget is prepared, approved, and executed on an annual basis corresponding to the calendar year. Multi-year appropriations are permitted for investment projects.

Strategic Planning and Performance Budgeting

Strategic Plans

Under Law 5018, every public administration must prepare a Strategic Plan covering five-year periods. Strategic plans include:

• Mission and vision statements
• Strategic objectives aligned with national development plans
• Performance indicators and targets
• Programs and activities to achieve objectives

Performance Programs

Annual Performance Programs translate strategic plans into yearly targets and resource allocations. They include:

• Specific performance targets for the year
• Budget allocations by program
• Activity descriptions
• Performance indicators for evaluation

Performance-Based Budgeting

Unlike traditional line-item budgeting, performance-based budgeting focuses on outcomes rather than inputs. Administrators are responsible for achieving objectives, not just spending allocated funds.

Internal Control System

Law 5018 established a comprehensive internal control framework for Turkish public administration:

Components

1. Control Environment: Leadership commitment to integrity and ethical values
2. Risk Assessment: Identifying and analyzing risks to achieving objectives
3. Control Activities: Policies and procedures ensuring management directives are executed
4. Information and Communication: Relevant information identified, captured, and communicated
5. Monitoring: Ongoing evaluations to ensure controls function properly

Internal Audit

Each public administration must establish an Internal Audit Unit that:

• Reports directly to the head of the institution
• Operates according to international internal audit standards
• Provides independent assurance on internal control effectiveness
• Makes recommendations for improvement

Internal audit differs from the traditional pre-spending financial control (vize) that was eliminated by Law 5018.

Financial Management Responsibilities

Spending Authority Officials

The head of the spending unit (Harcama Yetkilisi) is responsible for:

• Authorizing expenditures within approved appropriations
• Ensuring spending aligns with strategic objectives
• Supervising procurement processes
• Accountability for proper use of resources

Accountants

Accountants (Muhasebe Yetkilileri) are responsible for:

• Maintaining proper accounting records
• Ensuring documents are complete and compliant
• Making payments and collecting revenues
• Preparing financial reports

Finance Officers

Finance Officers (Mali Hizmetler Birimi) provide support services including:

• Budget preparation and monitoring
• Accounting and financial reporting
• Internal control coordination
• Strategic planning support

Accountability and Reporting

Activity Reports

Each public administration prepares an Activity Report at year-end that includes:

• Assessment of strategic plan and performance program achievement
• Financial results compared to budget
• Internal control evaluation
• Explanations for significant variances

Parliamentary Oversight

The Grand National Assembly exercises oversight through:

• Budget approval process
• Review of Court of Accounts reports
• Final Accounts Law approval
• Parliamentary questions and inquiries

Public Procurement Integration

Law 5018 works alongside the Public Procurement Law No. 4734 to ensure that goods, services, and construction works are acquired:

• Through competitive and transparent processes
• In accordance with value-for-money principles
• Subject to review by the Public Procurement Authority

Sanctions and Accountability

The law establishes personal accountability for public officials:

• Accounting officers who make improper payments may be held personally liable
• Spending authority officials who exceed appropriations or violate regulations face administrative sanctions
• Criminal liability applies for fraudulent or corrupt conduct

The Court of Accounts (Sayıştay) enforces accountability through its judicial function, issuing compensation decisions against officials found to have caused losses to the public treasury.

Recent Developments

Since its enactment, Law 5018 has been amended to:

• Expand the Court of Accounts audit scope
• Strengthen internal audit requirements
• Improve performance reporting
• Enhance fiscal transparency through e-government initiatives

Legal Assistance: We advise public officials and institutions on compliance with public finance regulations and represent clients in accountability proceedings. Contact us for guidance on administrative and public finance law matters.

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