Document of

The World Bank

Report No. 14656-TU

STAFF APPRAISAL REPORT

VOLUME 3 OF 3

REPUBLIC OF TURKEY

PUBLIC FINANCIAL MANAGEMENT PROJECT

ANNEX II: EXPENDITURE AND PERSONNEL

ANNEX III: CUSTOMS MODERNIZATION

AUGUST 29, 1995

Country Operations DivisionCountry Department IEurope and Central Asia Regional Office

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CURRENCY EOUIVALENTSCurrency Unit - Turkish Lira (TL)AVERAGE EXCHANGE RATES

(Turkish Lira per US$)

Currency Unit CY1990 CY1991 CY1992 CY1993 CY1994 CY1995Jan-July

US$1.00 = TL 2,609 4,172 6,872 10,985 29.609 42,447

WEIGHTS AND MEASURES FISCAL YEARMetric System January I - December 31

ABBREVIATIONS AND ACRONYMS

AB - National Agricultural Bank (Ziraat)CAS - Country Assistance StrategyCBT - Central Bank of TurkeyCCC - Customs Cooperation CouncilCCT - Common Customs TariffCET - Common External TariffCIT - Corporate Income TaxCustoms - Undersecretariat of CustomsEBF - Extra Budgetary FundsEDI - Electronic Data InterchangeEDP - Electronic Data ProcessingEU - European UnionFAD - Fiscal Affairs DepartmentFIB - Finance Inspectors BoardFLS - Financial Ledger SystemGATT - General Agreement on Trade and TariffsGDBFC - General Directorate of Budget & Fiscal ControlGDC - General Directorate of Citizens' AffairsGDPA - General Directorate of Public AccountsGDR - General Directorate of RevenuesGFMIS - Government Financial Management Information SystemGFS - Government Financial StatisticsGIBOS - Customs Administration Integrated Automated SystemICB - International Competitive BiddingIMF - International Monetary FundIT - Information TechnologyLFA - Legal Framework AgreementMERNIS - Merkezi Nufus Idaresi Sistemi (Central Citizens Registry System)MOF - Ministry of FinancePFMP - Public Financial Management ProjectPIAL - Privatization Implementation & Social Safety Net Assistance LoanPIT - Personal Income TaxPMSS - Project Management Support ServicesPMU - Project Management UnitPSBR - Public Sector Borrowing RequirementPSAL - Public Sector Adjustment LoanRCs - Revenue ControHersSAR - Staff Appraisal ReportSBA - Stand-By ArrangementSEE - State Economic EnterprisesSOFIX - Systeme d'Ordinateurs de Fret InternationalSPO - State Planning OrganizationTAB - Tax Accountants BoardTCA - Turkish Court of AccountsTIN - Taxpayer Identification NumberTIR - International Transport RegisterTreasury - Undersecretariat of TreasuryTL - Turkish Lira

UIN - Unique Identity NumberVAT - Value Added Tax

TABLE OF CONTENTS

ANNEX 2: EXPENDIrURE AND PERSONNEL COMPONENT

Annex 2a: Implementation Plan ................................... 1

Annex 2b: Terms of Reference ................................... 33

Annex 2c: Detailed Cost Table ................................... 57

Annex 2d: Implementation Schedules . ............................... 61

Annex 2e: Elements of the Government Financial Management Information System . . . 69

ANNEX 3: CUSTOMS MODERNIZATION COMPONENT

Annex 3a: Implementation Plan . ................................. 79

Annex 3b: Terms of Reference ................................... 107

Annex 3c: Detailed Cost Table ................................... 135

Annex 3d: Implementation Schedules ............................... 141

Annex 3e: Simplified Customs Operational Procedures .................... 149

Annex 3f: Monitoring and Impact Indicators .......................... 161

Annex 2a

PUBLIC FINANCIAL MANAGEMENT PROJECT

Expenditure and Personnel Component

Implementation Plan

Annex 2aExpenditure and Personnel Component

Implementation Plan

Table of Contents

I. THE EXPENDITURE AND PERSONNEL MANAGEMENT COMPONENT ... ..... 1A. Scope and Objective .B. Project Description .2

Budgetary Procedures and Personnel Management. 2Government Financial Management Information System. 7

C. Project Costs and Financing Plan .13D. Accounting and Audit Plans. 15

11. IMPLEMENTATION ARRANGEMENTS ....... ...................... 17A. Responsibilities of the Implementation Agencies ................... 17B. Inter-Agency Coordination ......... ....................... 19C. Role of World Bank Supervision ............................ 19

Ill. IMPLEMENTATION ACTIVITIES .............. .................. 21A. Implementation Schedules ......... ........................ 21B. Procurement Arrangements and Schedules ....................... 21C. Disbursement Arrangements and Schedules ...................... 23

IV. BENEFITS AND RISKS ....................................... 27A. Benefits ............................................ 27B. Main Project Risks . ................................... 27C. Other Factors Affecting Project's Success ....................... 28

V. MONITORING AND EVALUATION .............. ................. 29A. Actions to Monitor Project Objectives .29B. Indicators .29C. Reporting Arrangements .31

Tables:1. Costs Summary by Expenditure Accounts .142. Financing Plan. 153. Proposed Procurement Arrangements .234. Procurement Implementation Plan .245. Estimated Bank Disbursements .256 Impact Indicators .29

Figure:1. Architecture of Financial Management Information Systems. 8

I. THE EXPENDITURE AND PERSONNEL MANAGEMENT COMPONENT

A. ScopE AND OBJEcTIVE

1. The primary objective of the Expenditure and Personnel Management component is toimprove the regulatory and technical framework for the central government budget--including:(a) preparation; (b) revision; (c) execution; (d) monitoring; and (e) accounting--and theinformation and payroll systems for management of personnel expenditure. Many of theproblems in government expenditure management are only the corollary of the 1994 financialcrisis and the practice of managing public expenditure from the financing, or cash, side ratherthan through a well-conceived above-the-line budgetary program consistent with a soundmacroeconomic framework. However, independently of the spillover of the financial crisis, thereare two major structural weaknesses of the public expenditure management process. First, thelax and erratic nature of budgetary policy in the 1980s led over time to a proliferation of specialmechanisms and a fragmentation of expenditure decision-making processes. Second, while thebases and systems for budget preparation, monitoring and accounting remain workable, they dateback to a much earlier time, and now require substantial modernization--in order to update,simplify, and streamline the budgetary and accounting framework.

2. Reforms of budgetary procedures are to be targeted to: (i) strengthen the role of thebudget as an instrument of policy implementation; (ii) make the control more efficient andreinforce budget discipline; and (iii) improve the flexibility of the budget execution, as strongerbudget discipline will permit greater delegation of budget execution responsibility to spendingagencies. To support the process, a comprehensive information system will also be needed.

3. Computerization of financial transactions and the installation of computer systems inmajor accounting offices will take some time. However, some reform measures can beintroduced early in the process and will generate immediate benefits. Moreover, theimplementation of a fully integrated management information system needs important preliminarystudies and development. Thus, a phased approach has been selected for the implementation ofthe reforms.

4. The first phase, financed under the present project, is intended to develop a soundfoundation for planning the larger investments envisaged in the subsequent phase. Phase I, to beconcluded in two and a half years, will encompass the following major activities:

a. Modernization of budgetary procedures, which will aim at strengthening the budgetarycontrol system and will update, simplify and streamline the budgetary and accountingframework

c. Preparation of an integrated Government Financial Management Information System(GFMIS) and of a personnel and payroll management information system, which willinclude (i) the functional analysis of the intended system; (ii) applications development;and (iii) the computerization of pilot sites.

The total cost of these activities is estimated at about US$11.1 million, including contingencies.

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5. The second phase of the program for modernization of Expenditure and PersonnelManagement will cover the replication, throughout the country, of the systems designed andtested under the first phase. About 1S0]accounting offices, which cover 90 percent of totalgovernment expenditures, will be computerized, according to an implementation schedule thatwill be defined in Phase I. Computer hardware and software will be located at the Ministry ofFinance (MOF) in the center, the 76 provincial headquarters and about 80 other AccountingOffices. Non-automated Accounting Offices will forward documents to automated accountingoffices documents for processing. The payroll system will be fully computerized at theprovincial level. Thus, at the end of the second phase, processing and reporting of governmentexpenditure and personnel data will be fully automated and the implementation of an integratedGFMIS will be completed. Phase II activities will include acquisition of needed hardware andsystem software equipment, training to end-users and site preparation. The authorities haverequested Bank support for the Phase II activities through a follow-up investment loan.

B. PRojEcT DEscRimoN

1. Budgetary Procedures and Personnel Management

6. Current Situation and Ma*or Weaknesses. As presently structured, the budget gives afragmented and incomplete picture of government finances. The budget is divided into 'general'and 'annexed" budgets, while extra-budgetary funds (EBFs) and revolving funds include revenuesand expenditures that are planned and managed in separate processes. An inadequate integrationamong budget components at the preparation stage, especially between investment and currentexpenditure, impedes efficient expenditure programming. The structure of budget coding is notconducive to economic analysis. There is no presentation on a functional basis (for expenditure)and limited breakdown on an economic basis. As a result, the budget is not the predictable androbust instrument of policy implementation that it should be.

7. The overall expenditure management system has a number of serious weaknesses fromboth a conceptual and organizational point of view: (i) the payment processing system iscompletely manual, involving the functions of account control and verification, transactionrecording and payment; (ii) there exists a complex system of control/certification involving theMOF and the TCA, and which contains both duplication of controls and confusion concerningfinancial and accounting controls; and (iii) the system for data aggregation is largely manual,involving substantial "double handling' of data, and is primarily oriented to financial reportproduction, rather than towards producing documents suitable for management information anddecision-making. While it would be possible to continue with the existing labor-intensive manualaccounting system for budget execution, demands by Government and institutions responsible foreconomic management are unlikely to be satisfactorily met in the future without substantialinstitutional modernization within the MOF. The cash management system is in effect acentralized cash rationing system, required largely by the weak budget preparation process andinsufficient overall financing. While necessary in the current economic circumstances, thissystem is cumbersome and, although utilizing computers for detailed calculations, relies onmanual intervention on a daily basis with little or no integration with the budget implementationprocess.

S. The civil service is characterized by substantial over-staffing. In large measure, this isbecause the management and control system of personnel does not permit the identification andprevention of increased expenditures in a satisfactory way. Several weaknesses in this systemmay be identified including the following:

a. The separation of personnel expenditures among different budgets andextrabudgetary entities, which makes comprehensive analysis and managementdifficult

b. A management system of positions based on "cadres" that is ineffective forefficient management of human resources within the government sector--thesystem of position management has resulted in 20 percent more 'cadres' thanoccupied positions

c. A payroll system that is partly manual and partly computerized which makes itdifficult to manage and leads to redundant and cumbersome controls.

9. Planned reforms. To strengthen budgetary decision making: (a) a more appropriatebudget code structure for economic and functional analysis will be prepared and the chart ofaccounts will be revised; and (b) the budget coverage will be improved. In order to submit allproposed expenditures to the same standards of comparative economic efficiency, the followingactions will be carried out:

a. Elimination of all EBFs, except a very few "strategic" ones

b. Elimination of revolving funds which have no specific justification for continuedexistence

c. Better integration of annexed budgets into a single consolidated budget.

10. The relationship between planning and budgeting processes will be tightened and the linksbetween investment budget and current and transfer spending will be improved during the budgetpreparation process. Thus, it will be necessary to:

a. Implement procedures to ensure that recurrent expenditure generated byinvestments projects is appropriately considered

b. Formalize joint meetings between SPO and MOF during the preparation of thebudget, to ensure that current and capital budget of spending agencies arescrutinized together.

11. Improving the budget processes requires a strict definition of the role of core agencies andspending agencies, to give more responsibility to spending agencies to allocate their expenditurewithin their approved budget while enhancing budget discipline. To make controls more efficientwhile avoiding cumbersome procedures, it will be necessary to: (a) correctly deflne controlsneeded at the different steps of the control/certification process, namely financial control before

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commitment is made, accounting control before payment is made and audit after payment; and(b) review the responsibility of agencies in charge of budgetary control, to eliminate duplicatecontrols and center their activities on their essential functions. In general, ex ante controls willbe reduced and ex post audit capabilities improved. Streamlined procedures to governcommitment authorizations, including forward commitments for investment, will be installed.The Accounting Offices network will be rationalized. Many of the current functions of BudgetOffices will be reduced significantly or reassigned elsewhere (notably, in order to make spendingagencies more accountable). The Budget Offices, as currently defined, will be restructured orphased out.

12. To improve cash management, banking arrangements must be reviewed with a view to:

a. Centralizing all Government receipts in a single account at the Central Bank ofTurkey

b. Rationalizing the system of government accounts

c. Improving arrangements for payment of interest and charges.

13. The ability to exercise effective control over civil service posts (positions) is fundamentalfor control over civil service employment and personnel expenditures. Some principles must bedefined:

a. The Budget must include the posts authorized

b. Budget appropriations and authorized posts must be kept fully consistent duringbudget execution

C. Ministries may retain actual implementation responsibilities for personnelmanagement

d. Procedures must be sufficiently flexible to allow the spending agencies to optimizethe allocation of their human resources.

14. Implementation of the Reforms. Since February 1995, Working Groups, assisted byconsultancies financed under the Japan Grant, have been conducting detailed studies to: (a) definea detailed reform strategy for improving budget coverage through the rationalization ofnon-budget entities; (b) introduce a new budget and accounting chart of accounts more suitablefor economic and functional analysis, consistent with international classification structures andwhich can be implemented on the proposed Financial Ledger System (and utilized for both budgetpreparation and execution); (c) prepare an action program for rationalizing the current system ofcontrols over government expenditures, as well as the organizations involved in these processes;(d) define new regulations and procedures for budgeting of positions in the public administrationand develop a detailed program for computerization of personnel information and payroll; (e)deliver training to key staff in the Government Financial Statistics (GFS) methodology; and (f)review banking arrangements and government accounts, this task will be coordinated with the

tdy of the potential role of banks in routine tax administration functions. These studies areexpected to be completed by September 1995. They will design a streamlined procedural systemand institutional arrangements that are needed for the implementation of a Government FinancialManagement Information System. However, some reforms will be introduced before the fullcomputerization of government financial transactions and will generate immediate benefits.

15. Based on the recommendations of these studies, the following actions will be carried out:

a. The new budget code structure will be completed by September 30, 1995--it willbe used in parallel with the current code structure in 1996 and fully implementedfor the preparation of the 1997 budget

b. A new chart of accounts will be prepared by June 30, 1996 and implemented byJanuary 1, 1997

c. All EBFs, except a very few of strategic funds, will be consolidated into the draft1996 budget that will be submitted to Parliament, by November 1995, with a viewto their progressive elimination

d. New regulations and accounting methodology relating to the functioning ofmaintained EBFs and revolving funds will be included in the draft 1997 budgetlaw

e. Principles for streamlining budgetary processes will be defined by September 30,1995 and a detailed action plan will be prepared by December 31, 1995

C. Position ceilings will be introduced in the 1997 budget law.

16. The program for streamlining budgetary processes will include: (i) a detailed design ofnew control and preparation procedures to be implemented; (ii) related organizationalarrangements; (iii) identification of legal issues; and (iv) an implementation plan, includingansitional arrangements for measures, for which full implementation requires computerization.In the context of streamlining control processes and increasing responsibilities of spendingagencies in budget preparation, the functions of budget offices will be reduced and reassignedelsewhere. Thus, the Budget Offices as an institution under revised arrangements must berestructured or eliminated. The action plan will include provision for restructuring of BudgetOffices and reallocating their staff. The restructuring of Budget Offices will be achieved beforeJanury 1, 1997. The action plan will also include a restructuring program for AccountingOffices, which will be phased with other modernization measures (notably, implementation of thenew budget code structure and computerization).

17. The actions for modernizing personnel management in this project will concern only thebudgeffzation of positions and the preparation of personnel and payroll management informationsystems. However, the government intends to continue the actions carried out under the presentproject with a broader reform of the civil service.

18. It is important that the changes in organization structures, procedures and processes andcomputerization be supported by Government personnel. Detailed studies on reallocation andreassignment plans for affected civil servants need to be launched. Moreover, successfulimplementation will require the planning and completion of a set of actions to explain anddisseminate the measures in order to gain active cooperation of the civil servants who will beoperating in the new environment, or who will face a change in assignment or residence due tothe restructuring of Budget Offices and accounting offices. In this respect, a particular emphasiswill be put on communicating the changes to and through middle management.

19. Consultants external to MOF and a permanent advisor will assist in theimplementation of these reforms (47 consultant-months, estimated base cost US$940,000).The In-House advisor (20 consultant-months) will

* Provide technical guidance to staff in the conduct of the reforms, notably for theimplementation of the Budget code structure, new control processes and relatedorganizational changes and the finalization of the chart of accounts

* Ensure the consistency between the outcomes of different studies, notably thefunctional analysis of the information system and the design of reforms

* Prepare progress reports and detailed programs for working groups

* Identify needed additional studies and prepare detailed terms of reference forthese.

Other short-term consultants (27 consultant-months) will help to:

* Finalize the chart of accounts.

* Implement modernized control processes and related organizational changes.

* Design reorganization plans for departments that will be subject to change.

* Improve methods of budget preparation related to personnel expenditure.

* Strengthen payment processes and cash management.

* Review procurement arrangements and systems to ensure consistency with the newcontrol mechanisms.'

The terms of reference for these consultancies are contained in Annex 2b.

' Any investment requirements stemming from the review of government procurement would becosidered for inclusion in the second PFMP operation.

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2. Government Fmancial Management Information System

20. Current Situation and Major Weaknesses. Information systems currently in place inthe MOF produce a variety of reports, but they are lacking in coverage, integration andflexibility. Information systems, where present, have been developed in response to specificorganizational requirements and needs and not along functional lines. This leads to duplication ofsystems, inconsistencies in data, and a disparate set of segmented systems with no systematic datasharing arrangements. Data flows between the core financial agencies are predominantly manualand cross institutional access to data bases is very limited or non existent. This data is also notamenable to cross classification according to other schema as necessary for further analysis. Inthe absence of an automated accounting system, a cumbersome and often duplicate system ofchecks and controls has been built up, and a disproportionate amount of manual resources isexpended on attempting to ensure that prescribed financial controls are applied to all transactions.Information systems organizations at the MOF are particularly weak and fragmented and lackadequate numbers of staff trained in current information systems technology and methodologies.A major part of the hardware and software installed at the MOF would now be consideredout-dated and therefore, acquisitions of new technology are inevitable. However, noministry-wide or organization-wide standards are present, resulting in heterogeneous acquisitionsof hardware and software. This aggravates the data sharing problems and poses serious risks ofinvesting in information systems which may not be compatible with each other.

21. Proposed Changes. A fully integrated new Government Fmancial ManagementInformation System or GFMIS, capable of meeting the demands of Government, economicmanagement agencies and line agencies is to be introduced in a timely and cost effective manner.Demands on such a system will range from the requirement to carry out functional and economicanalysis of the implementation of government policy through the budget process, to theprocessing of a payment order against a particular budget line item appropriation.

22. The project will support the design and the development of information systems forbudget preparation, execution and monitoring, cash management, government accounting andcivil service position management, and the pilot implementation of these systems. A basicunderlying principle is that the systems be structured along functional rather than organizationallines and provide support to all organizations involved in the expenditure management processes.This approach has the advantage that it enables the creation of integrated systems and data basesin which the primary responsibility for the timely provision of a particular sub-set of data resideswith the agency responsible for that function. However, all data in the system data bases isaccessible by all relevant central agencies (subject to appropriate security controls). Ihiseliminates duplicate data gathering and enables all agencies responsible for financial functions towork with the same set of data. Figure 1 shows the proposed information systems architecturefor the overall government financial management system.

23. A financial ledger system (FLS) will be the core of the GFMIS and will be designed withthe two basic objectives of: (a) controlling the state budget and the assets and liabilities of thegovernment; and (b) providing comprehensive, reliable and timely information on the financialposition of the Government of Turkey to facilitate its financial management.

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24. The FLS will be used by:

* The General Directorate of Public Accounts (including accounting offices) to performthe basic accounting functions

* The General Directorate of Budget and Fiscal Control to perform the control functionsassociated with budget execution and monitoring

* The Cash Management Department of Treasury to obtain information for cashmanagement, and to implement funds allocations, as may be required

* The SPO to obtain the status of actual expenditures on ongoing projects to update themajor projects data base

* Spending units to obtain financial information in their respective areas.

25. The system will be designed in accordance with generally accepted accounting principlesand standards, a double entry accounting model and policies and procedures developed as part ofthe preceding consultancies.

26. The FLS will be a fully automated accounting system, with data captured only once as anaccounting transaction progresses through the system. This system will be introduced along witha modern budget classification system and an appropriate chart of accounts, and would enableexpenditures and revenues to be recorded at a detailed level and related to specific programs andprojects. Data recorded at this level will then be directly available for use for program andproject management. This data will also be easily amenable to cross classification for financialand economic analyses. The introduction of an automated accounting system would ensurecompleteness of data capture (that is, no transaction would be processed outside the system) andrigorous application of all relevant financial controls to all transactions processed by the system.The system will be structured in two levels, with a clear functional distinction between them: (i)Level 1 will process and keep consolidated data, (the central unit will be located at the MOF);and (ii) Level 2 will execute operational functions and keep detailed data (the units will beoperated at accounting offices). The linkage between the central unit and units in accountingoffices will be established through dedicated data transmission lines.

27. The FLS will be designed to produce the Financial and Management Reports required bythe various users. This includes the monthly civil accounts, annual appropriation accounts andcombined finance and revenue accounts as well as individual accounts for the respective agencies.The system will incorporate a reporting system to enable management to identify problems andbottlenecks in a timely manner. The reporting capability of the system will address all mattersaffecting the efficacy of the accounting function. In addition, the system will have facilities foreasy retrieval and reporting on data in the system data bases in a variety of formats. The systemwill also enable user departments to download relevant data and perform required analysis andreporting.

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28. At present there are about 1,700 accounting offices (including about 400 joint tax/accounting offices) within Turkey. They cover 76 provinces and 840 towns. The total numberof accounting offices in Turkey is expected to be reduced as a result of the financial reformsintroduced under this component. However, setting up computer systems for all remainingaccounting offices across the country, even with a substantial reduction in the number, would bequite expensive. An analysis of the distribution of the volume of transactions by expenditure andrevenue indicates that about 90 percent of the expenditures are incurred through about 150accounting offices. It is therefore appropriate to target these accounting offices for automation.

29. Budget Preration. A set of systems will support the processes of Budget preparation.These systems will receive from the various spending agencies the details of their programs andprojects, consolidate them and produce from them the documents that form the basis ofnegotiations between the ministries and spending agencies and the central agencies. The systemwill facilitate an iterative process of budget submission, consolidation, review/negotiation, anddocumentation until the budget is finalized and approved. The systems will utilize the data baseestablished within the Financial Ledger System (see below) to provide accurate historical data.This system would cover both the Investment and the Current Budgets integrated within acommon chart of accounts.

30. The modules for preparation of the current budget will be managed by the GDBFC in theMOF and that for the Preparation of the Investment Budget by the SPO. Both systems willrequire extensive interaction with and regular data input from the various ministries and spendingagencies in Government, as well as with the Treasury, whose macroeconomic policy formulationcapability is being strengthened under the Treasury Data Systems Project, with World Bankfuiancing. The preparation and subsequent monitoring of the investment budget would requiresetting up a major projects data base in SPO. The Information Technology Working Group andthe consultants in charge of the design of the GFMIS will investigate whether the systemsrecently developed by the SPO would be able to provide the functionality required in this area.If so, the existing SPO systems would be integrated with the other systems envisaged in thisproject.

31. Personne aMj ent. The ability to exercise effective post/position control isimportant to regain control over civil service employment. In addition, line agencies requiresystems to effectively manage personnel on their rolls. To help achieve these goals, it isproposed that the following systems be implemented:

* A Position/Post Management System to maintain records of the authorizedposts/positions for government agencies, of authorizations to fill vacant positions, andof appointments to permanent positions.

* A Personnel Information System to maintain the personnel data for which civilservants and all personnel actions related to these civil servants; including retirements,resignations, removals, deaths and transfers. It would also maintain information to beable to produce manpower profiles including data on age, departmental distribution,skill categories, compensation and tenure etc.

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* An automated Payroll System, at the major accounting offices to cover salary andrelated payments to civil servants.

32. This last group of systems is essential for the Government to regain control over civilservice employment. Effective control will require a post management system that ensures thatall fresh recruitment is against appropriated and budgeted positions. Personnel actions for civilservants on board will be recorded by the agency personnel systems and used to calculate thepayroll. The agency record of budgeted positions will be used to ensure that no personnel areadded to the payroll who do not have an authorized budgeted position. The payroll systemswould be fully integrated with the FLS--the Government Budgeting and Accounting systemdescribed above.

33. Information Technolofy Activities. The information systems defined above will beintroduced in a phased manner. Specifically, in Phase I: (a) the systems will be designed,specifications will be developed for the required hardware and software; (b) application softwarewill be prepared; and (c) pilot systems will be implemented. Nationwide replication will occur inPhase 11.

34. Systems design and sDecifications for hardware and software. This task involves:

a. Studying the functional processes, including administrative procedures, transactiondocuments, forms and information flows related to the budget preparation, budgetexecution, accounting and reporting and payroll and position management;recommendations for changes made by the preceding studies on budgetary reformswill be taken into account.

b. Defining and developing information flows, procedures, transaction types andassociated documents and forms, and related organization required to operate theproposed information system.

c. Defining reporting capacities to make reports available in a variety of formats to endusers and core agencies.

d. Developing a full functional design and systems specifications for the computersystems required, including the specifications of the major data bases, output reports,input formats, processing and controls, interfaces and data flows between the nodes ofthe information flow network.

e. Drawing up specifications of the hardware, system software and DBMS (DatabaseManagement Software) to be installed at various nodes and the mode ofinterconnection of this hardware and software.

f. Investigation of alternatives for application software -- either packages will bepurchased and customized, or specific applications will be developed.

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35. Pilot systems implementation. Implementation of the country wide network ofinformation systems described above is a major long-term project. Under the present project, apilot implementation of the Financial Ledger System and the post management/payroll systemswill be carried out. This pilot implementation will be carried out at eight sites: the MOF, SPO,Treasury, Turkish Court of Accounts, Ministry of Health, State Highways, Ministry of Interiorand a provincial center in the Eskisehir region. The pilot will test the links between the FLS andsystems implemented at SPO and Treasury and access to the central data bank of the system fromcore agencies. Pilot systems implementation will involve site preparation, installation ofhardware, system software and DBMS, installation and testing of the application system andtraining of local staff to enable them to operate and maintain the system and train end users. It isexpected that pilot sites will be installed by July 1997, and testing and training will be carried outduring the following six months (estimated base costs for site preparation, hardware, andapplication development or customization of software packages: US$6.02 million).

36. A consulting firm with extensive experience in the design and installation of such systemswill assist the Government to prepare the implementation of the GFMIS. The task of thisconsultant will be the following: (i) preparation of the detailed design, systems specifications andrelated manuals and procedures for the specified systems; (ii) design of the technologyarchitecture required to implement the information systems; (iii) investigation of alternatives forapplication software (evaluation of existing packages and/or needed developments); (iv)preparation of tender documents for acquisition (or) development of software and for acquisitionof hardware and system software that will be installed at pilot sites; (v) assistance to theimplementation of pilot sites (vi) training of users at pilot sites; and (vii) preparation of animplementation schedule for the second phase of the program of computerization (estimated basecosts for advisory services, functional analysis and training: US$2.4 million).

37. To overcome the shortage of technical staff required for the implementation and supportof systems: (i) a permanent local computer expert will assist the working group in charge of thedesign and the implementation of information systems; and (ii) a pool of about 10 Turkishcomputer experts external to MOF will be set up during the last year of component execution.These experts will work with expatriate experts to implement the pilot sites. Subsequently, theywill assist the Government to replicate the system throughout the country in the second phase ofthe program. The establishment of a pool of local computer experts will be a cost effectivemeans to ensure sustainability of the computerization effort (estimated base cost: permanentcomputer expert and pool of computer experts--one year: US$510,000).

38. The second phase of the program of modernization of expenditure and personnelmanagement will follow the implementation of pilot sites and will involve the replication ofinformation systems in other selected sites, according to an implementation plan to be definedduring the first phase. About 150 accounting offices will be computerized, as mentioned above.Major cost items in Phase II will include: (i) hardware equipment and software defined in thefirst phase; (ii) site preparation; (iii) training of end users; and (iv) maintenance contracts for thehardware and software. At this stage, it is envisaged that the consulting firm responsible for thepilot will assist with the first ten replications, then the implementation of other sites will becarried out by the pool of local computer experts that will be set up in Phase I. Accurate designand estimates of costs for the Phase II activities will be drawn under the present project.

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C. PRojEcT Com AND FINANCING PLAN

39. Project Costs. The total cost of the Expenditure and Personnel Management componentof the PFMP is estimated at US$11.1 million equivalent, including contingencies, taxes andduties. Project costs include goods and equipment, advisory services, civil works, trainingservices and materials, project management support services and a refund of that part of a US$2million advance from the Bank's Project Preparation Facility allocated to this component. Abreakdown of costs by expenditure category is shown in Table 1. A more detailed presentation iscontained in Annex 2c.

40. The total baseline cost is estimated at about US$10.4 million. Physical contingencies areestimated at US$312,000, or 5 percent of the baseline costs of civil works and equipment. Pricecontingencies are estimated at US$377,000 equivalent or 4 percent of overall baseline costs overthe two and a half years of component implementation. These are based on the assumptions ofan average local inflation rate of 51 percent in 1995-96, and 15 percent thereafter; and priceincreases for foreign costs (estimated in US dollars) of 1.6 percent in 1995-96 and 2.6 percentfor the remaining years of project execution. Cost calculations assume an average exchange rateof 62,000 Turkish Lira/US$1.00 for the project execution period. Foreign currency costs,including contingencies, are estimated at US$8.6 million or 78 percent of total cost. Taxes andduties are estimated at about US$1.2 million equivalent or 11 percent of total cost.

41. Financing Arrangements. The proposed IBRD loan will finance US$8.6 million(approximately 78 percent of the total cost of the component). It will cover 100 percent of theforeign costs of the component. The Government contribution of US$2.5 million will finance avariety of local costs, notably training and project support costs. The Government gaveassurances during negotiations that adequate budgetary provisions will be made to meetcounterpart funding requirements throughout the period of project execution. The financing planis set out in Table 2.

Table 1. Costs Summary Bv Expenditure Accounts

(IL bilon) (US SN0)

Of %Which % Foreig % Toal Of which % Tobl

LoCal Foreign Toal Duties & Exchange Base Costs Duties & Foreig BasTax LAl1 Foreip TOtl Tax Excaa Costs

Civil Worh 5 0 5 0 0 1 100 0 100 0 0 1

Equipment 55 230 285 56 81 57 1,146 4,773 5,919 1,162 S1 57

Training

Local Training 19 10 29 0 33 6 400 200 600 0 33 6

International Taining 0 5 5 0 100 1 0 100 100 0 100 1

Subtotal 19 15 34 0 43 7 400 300 700 0 43 7

Technical Assitance

Local Technicnal Aasitan 25 0 25 0 0 5 510 0 510 0 0 51

Intenatonal TechnicalAsistance 0 147 147 0 100 29 0 3,040 3,040 0 100 29

Subtotal 25 147 172 0 86 34 510 3,040 3,550 0 86 34

Piject Support 5 0 5 0 0 1 100 0 100 0 0 1

BASE COSTS 19 392 501 56 78 110 2,!i6 8,113 10,369 1,162 78 101

Pbysicl Contingeies 4 11 15 2 78 3 44 268 312 35 78 3

Price Continencies 175 438 613 69 77 123 151 226 377 42 76 4

TOTAL COSr 25R 76 1429 127 78 226 2,451 ,7 ii 1,239 78 107

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Table 2. Financing Plan(US$Million Equivalent)

Local Foreign Total % of Total

EBRD 0.0 8.6 8.6 77.5

Government 2.5 0.0 2.5 22.5

Total 2.5 8.6 11.1 100.0

42. Preparatory activities for the PFMP as a whole have benefitted from a Japanese PHRDgrant in the amount of Yen 128 million (approximately US$1.3 million). The FrenchGovernment has also provided a grant of about US$132,000 specifically for preparatory studiesfor the Expenditure and Personnel Management component. The Government has obtained anadvance in the amount of US$2 million from the Bank's Project Preparation Facility. Thesemonies have allowed the timely initiation of the most time-sensitive preparatory activities.

D. ACCOUNTING AND AUDIT PLANS

43. A project account and special account will be established for each of the threeimplementing agencies. Each PMU would prepare quarterly statements of expenditures,consolidate component accounts, and prepare and submit disbursement withdrawal applicationsfor project expenditures (beginning from the date of Loan Effectiveness). The project accountsand special accounts would jointly be audited annually by independent auditors acceptable to theBank. The audit reports will contain a separate opinion on the use of Statements of Expenditure.During negotiations, it was agreed that an annual audit of all project and special accounts wouldbe undertaken by an independent auditor in accordance with the Bank's Guidelines for FinancialReporting and Auditing of Projects Financed by the World Bank. (March 1982). Audit reports inEnglish will be submitted to the Bank not later than six months after the end of each fiscal year(December 31). Details of the schedule for project reporting and annual reviews are presented inTable 4.7 of the Main Report.

II. IMPIEMENTATION AMANGEMENTS

A. REsrONS B es OF THE ImPEENTAToN AGENC1ES

44. The borrower is the Republic of Turkey which is represented by the Undersecretariat ofTreasury. The Ministry of Finance will have overall responsibility for the Expenditure andPersonnel Component.

45. The Undersecretary of Finance will have overall responsibility for supervision andmanagement of this component which involves a number of agencies. A high-level, inter-agencySteering Committee has been appointed as an advisory body. The Steering Committee is chairedby a Deputy Undersecretary of Finance and includes appropriate high-level participants from theMinistry of Finance (General Directorate of Budget and Fiscal Control and General Directorateof Public Accounts), Treasury, State Planning Organization and Court of Accounts.Responsibility for day-to-day coordination, management and monitoring of the component restswith a Project Management Unit (PMU), led by a Head of Department from the GeneralDirectorate of Budget and Fiscal Control (GDBFC). The PMU includes the heads of fourWorking Groups that are responsible for implementation of specific tasks, as well as other MOFpersonnel with skills in accounting, procurement, contract monitoring and informationprocessing.

46. The specific responsibilities of the PMU are the following:

* Ensure the movement of official documents and contracts through their usual approvalprocesses and undertake measures to expedite their release

* Monitor the availability of Government funds

* Monitor project expenditures and costs (local and foreign), process loan disbursementapplications and track disbursements of the Bank loan and Government funds

* Ensure compliance with the Bank Procurement Guidelines in the acquisition ofequipment and software packages, administration of suppliers' and technical assistancecontracts

* Procure goods and services and works

* Prepare and distribute periodic reports to the Undersecretary of Finance (monthly) andthe Bank (quarterly), reflecting: (i) the status of implementation, progress, problemsencountered and corrective actions needed; and (ii) current costs and estimates ofcompletion

* Ensure the timely preparation and submission to the relevant government institutionsand the Bank of annual audit reports of project expenditure, including Statements ofExpenditures (SOEs) and accounts

* Liaise with the Bank and involved government agencies for project administration andsupervision matters

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* Ensure the placement and performance of staff receiving training and of consultanthired under the project

* Prepare a Component Completion Report within six months after the completion ofthe component, which will be incorporated eventually into the overall ProjectCompletion Report.

47. The specific responsibilities of the four working groups are:

(a) Budget preparation and revision. This working group will:

* Study issues related to budgetary coverage* Propose budget structure and coding* Develop a program for training in the methodology of Government Financial

Statistics (GFS)* Study the integration of current and investment budget preparation procedures* Design a new budget presentation and related procedures* Coordinate with the working group in charge of information systems regarding

the design of the budget preparation system.

(b) Budgetary control processes. This working group will:

* Study control process of Public Expenditures and role of TCA3 Propose structure of Accounting Offices* Propose structure of Budget Offices* Propose cash management and banking arrangements* Coordinate with the working group in charge of information systems regarding

the design of the FLS.

(c) Personnel and payroll management. This working group will:

* Study issues related to post and payroll management and develop proposals* Develop methodology for personnel expenditures forecasts* Coordinate with the working group in charge of information systems regarding

the payroll and posts management systems.

(d) Information systems. This working group will:

* Design, develop and implement computer systems related to the expenditureand personnel component of the project in coordination with the three otherworking groups

* Propose hardware/software standards for government financial management* Coordinate with the ongoing or new information systems projects in the

government agencies, such as Tax Department, Treasury Undersecretariat,SPO, Customs to ensure systems integration.

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B. IR-AGE mCY COORINATON

48. The successful implementation of actions carried out under the Public Expenditure andmanagement component will depend on close coordination among several agencies in thegovernment sector. Most of the reforms, and particularly the implementation of a new budgetcode structure and the strengthening of the Budget coverage will involve spending ministries.Their implementation will require close cooperation between core agencies and spending units.The modernization of personnel administration must be carried out in close cooperation betweenthe MOF and the State Personnel Presidency. The design of new information systems must becoordinated with the ongoing or new information systems projects. The steering group must playan effective role in ensuring that there is coordination between the various agencies, while theparticipation of the most concerned agencies in the working group will contribute to ensure agood coordination at the technical level.

C. ROLE OF WORLD BANK SUPERviSION

49. Bank supervision of project implementation will concentrate on the consistency ofcomponent activities with agreements reached during appraisal, performance of the implementinggroups and assessment of emerging needs for adjustments to project parameters. The day-to-dayimplementation and monitoring will be carried out by the PMUs. The basis for Bank monitoringwill be quarterly progress reports prepared by the PMUs. The reports will describe the status,deviation, if any, from the implementation plans, reasons for deviations as well as correctiveactions being taken. The quarterly reports will be supplemented by substantive discussions withthe Working Groups implementing the various subcomponents and discussions with higherechelon officials. Annual work and procurement programs will be required to be agreed with theBank each year, and will include quarterly benchmarks for monitoring and evaluating progress inimplementation.

50. Implementation of the proposed project, and the extent to which it is achieving its statedobjectives, would be reviewed and evaluated annually and upon its completion. In addition, therewill be three formal joint Bank-Government reviews. The first of these would be conductedearly in 1996, about four months after Loan Effectiveness, to provide a basis for proceeding withpreappraisal of the proposed follow-up investment operation, and for making any earlyadjustments as may be necessary in project parameters. The second (in FY1997) would coverthe formal assessment of the pilot implementation of the new Customs system, and the third(FY1998) the assessment of the pilot GFMIS for the Expenditure and Personnel ManagementComponent. The evaluation criteria for the latter are described in Part V of this annex. Theproposed schedule of supervision and review missions is in Table 4.7 of the Main Report.

III. IMLEMENTATION AMIfTIES

A. ImrLz&iywAnoN59iwEuLFs

51. There are no substantial requirements for coordinating the three components of the PFMPat the implementation level and the three components would proceed according to separateComponent Implementation Plans--see Annex la for Tax Administration and Annex 3a forCustoms Modernization. However, overall responsibility for the supervision of the TaxAdministration and Expenditure and Personnel Management components rests with theUndersecretary in the Ministry of Finance, who will ensure any necessary coordination within theMOF, and with other entities involved in the tax and expenditure components. Any necessarycoordination between MOF and Customs will be effected at the ministry level by theUndersecretaries of Finance and of Customs, with the assistance of the Treasury.

52. Implementation of Expenditure and Personnel Management Component activities is to becarried out over a period of two and a half years. Due to the constraints of the budget cycle, thetimeliness with which individual subcomponents are executed is critical, as delays in onesubcomponent may delay overall implementation by one fiscal year. Successful implementationwill depend on close coordination among several agencies in the government sector. Most of thereforms, particularly the introduction of a new budget code structure and the strengthening ofbudget coverage, will involve spending ministries. Thus, implementation will require closecooperation between core agencies and spending units. The modernization of personneladministration must be carried out in close cooperation between the MOF and the State PersonnelPresidency. The design of new information systems must be coordinated with ongoing activitiesunder a number of disparate information system projects. The Steering Committee must play aneffective role in ensuring that there is the required coordination between the various agencies.Participation of most of the concerned agencies in the Working Groups is already contributing togood coordination at the technical level.

53. Studies to help for the preparation of reforms have been launched in February 1995.Detailed terms of reference for short term consultancies to assist in the implementation of thesereforms will be prepared on the basis of the results of the initial studies. A rough indication ofthe likely short term assignments is included in the terms of reference for a long-term In-Houseadvisor (see Annex 2b). Also included in Annex 2b are the terms of reference for an informationtechnology expert and for the functional analysis of the intended information system. Annex 2dcontains the schedule of implementation by activity. This schedule takes into account the workcarried out during project preparation (preliminary studies for the preparation of reforms).

B. P REmNT ARANGEN7s MD SCEEULES

54. The executing agencies' capabilities and purchasing regulations and procedures werereviewed during Appraisal. It was determined that the GDBFC and GDPA have staff with theappropriate background (including training in Bank procurement procedures) to manage theprocurement activities of the Expenditure and Personnel Management Component.

55. All procurement of goods and material to be financed from the Bank loan proceeds wouldbe carried out in accordance with the Bank's Guidelines: Procurement Under IBRD Loans and

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IDA Credits (January 1995) and procurement of services, including the selection of consultantsfor technical assistance and training, would be in accordance with the Guidelines for the Use ofConsultants by World Bank Borrowers and by the World Bank as Executing Agency (August1981). Project procurement would be limited to the purchase of goods, material and services,including training. The former consists mainly of the hardware and software for the informationtechnology subcomponents (including substations, personal computers and peripherals).

56. Contracts for goods and material with a value of more than US$300,000 equivalent percontract will be arranged in accordance with the Bank's procedures for international competitivebidding (ICB). In that event, goods manufactured in Turkey and procured through ICB may begranted a margin of preference of 15 percent in accordance with paras. 2.54 and 2.55 of theBank's Guidelines and paras. 1-6 in Appendix 2 of the Bank's Guidelines. Direct contracting(single source) of proprietary software may be followed to ensure compatibility with developmenttools already in use in the MOF. Direct contracting will be permitted for contracts costing a totalof up to US$330,000 equivalent in the aggregate. The Bank's Standard Bidding Documents willbe used for all procurement under ICB.

57. Contracts for equipment and material estimated to cost US$300,000 equivalent or moreand all direct procurement contracts would be subject to the Bank's prior review of procurementdocumentation and approval of contract award. This would result in prior review of 94 percentof Bank financed contracts. Other contracts would be subject to ex post review after contractaward.

58. Procurement of services, including the selection of consultants, would be based mainly ona shortlisting of firms. The services of individual specialists not to exceed US$50,000 percontract may be contracted for diverse tasks of short duration (up to six months). Study tourswill likely be sole sourced. The total value of consultant services to be procured from firmsthrough shortlisting is estimated to be US$2.8 million, from individuals is US$580,000 andthrough sole sourcing is US$210,000. Prior review of consultant contracts would not apply tocontracts estimated to cost less than US$100,000 equivalent per contract for firms andUS$50,000 per contract for individuals. However, the terms of reference for all contracts will bepre-reviewed by the Bank.

59. Items to be procured will be grouped into major packages to encourage competitivebidding and permit bulk procurement. Major procurement categories include: about US$5.8million equivalent to be procured through ICB; US$540,000 of proprietary software throughdirect procurement; and US$3.6 million equivalent through shortlisting of consultant firms,individual consultants and sole sourcing. Table 3 summarizes the procurement arrangements forthe major categories of the component. Further details of the procurement packages and therelative timing of procurement actions are shown in Table 4.

60. The PMU will furnish the Bank quarterly procurement reports indicating: (a) changes inindividual contracts' cost estimates, including best estimates for physical and price contingencies;(b) revised timing of procurement actions, including advertising, bidding, contract award andcompletion time of individual contracts; and (c) compliance with aggregate limits on specifiedmethods of procurement. Further, the annual project operating plans would include any revisions

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in the agreed implementation schedule regarding employment of consultants. Prior Bank reviewof procurement decisions will result in a coverage of 100 percent of Bank-financed project costs.

Table 3. ProRosed Procuranent Anuiements(US$million equivalent)

Item International Other N.B.F.w TotalCompetitive Cost

Bidding

Civil Works 0.10 0.10I __________________________ _____________ ____________ (0-00) (0.00)

Equipment/Goods 5.78 0.54 6.32l ___________________________ (4.65) (0.43) (5.08)

Training 0.32 0.43 0.75l _______________________________ _______________ (0.32) (0.00) (0.32)

Technical Assistance/Advisory 2.8S 0.55 3.43Services (2.88) (0.00) (2.88)

Project Management Support 0.11 0.11Services (0.00) (0.00)

PPP 0.35 0.35(0.35) (0.35)

Total 5.78 4.09 1.19 11.06(4.65) (3.98) (0.00) (8.63)

a/ Other includes shortlisting of consultant firms (USS2.77 million); individual consultants (US$0.58 million); solesourcing (US$0.21 million); and direct procurement of proprietary software (USS0.54 million).bl Not Bank FinancedNote: Numbers in parenthesis are the respective amounts financed by the Bank loan.

Differences due to rounding.

61. The procedure of procurement for DBMS, development tools and financial management"off-the-shelf" packages will be reviewed with the Bank on the basis of the review andrecommendations of the study for designing information systems. Direct procurement withproperty owners would be considered if compatibility with existing systems is needed for thepurchase of DBMS and development tools.

C. DISBURSEMENT ARRANGEMENTS AND SCHEDULES

62. The Loan would be disbursed separately for each component. Table 5 shows thedisbursement forecast for the Expenditure and Personnel Management Component by semester.Disbursements for this component are expected to be completed by September 30, 1998,approximately 6 months after the end of component execution. Loan Closing will be June 30,2000, allowing ample time for the processing of final withdrawal applications.

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Table 4: Prournent Dln hmentation Plan(USS million)

TOTAL Prepare(Including Procuremen Tender Bid Award CotrLct

Contingencies) t Method Documents Invitation Contract Conlpetiom.

1 Hdand Syem Software 3.11 ICB 12/96 2/97 4/97 3/982. DBMS and Appllaioa Development Tools \b 0.54 DP 9/96 10/96 11/96 11/963. ApplicatIo Softwae 2.67 ICB 9/96 11/96 1/97 7/97

TOTAL Prepare Letter(ncluding Procuremnen Terns of of Award Contract

Contingencies) t Reference Invitation Contract CompletionMethod

I. Study Tours 0.21 SS TBD TBD TBD TBD2. Information Technology (Procured with

OFMJS) 0.11 SL 9/95 10/95 12/95 2/98

C. Tedl ce1 .Budgetary Reforis

a) In-House Advisor 0.43 SL 5/95 9/95 10/95 9/97b) Sbort Termi Consulants 0.58 IC 5/95 9/95 10/95 3/97

2. Inonatioa SyatemsGFMIS Developnent and Pilot

i bnplemuaiiona 2.23 SL 9/95 10/95 12/95 2/98

j2MI 9.38

luhdte duties and taxes ealmted at US51.24 tolln, whicb are to be financed by the Governmentb Direct Procurement of propritory software nay be cesary to ensure compatability with development tools curmntly available in the MOF.

9CB - 1 1wntios. Competitive Bidding SL - Short Listing of FirmsDP - Dirct Procurment of propitary software IC - bndividual Consultants5S - Single Sourced TBD - To be Deterrined

63. In order to facilitate disbursements, the Bank's share of project expenditures for theExpenditure and Personnel Management Component would be disbursed through a SpecialAccount which would be opened in the Central Bank, and managed by the PMU. The authorizedallocation for the Special Account would be US$930,000, equivalent to an estimated four monthsof component expenditures under the Bank loan. However, initially this level of allocation wouldnot be allowed until the project has disbursed an aggregate amount of US$900,000. Until suchlevel of disbursements is reached, the Special Account deposit would be limited to US$470,000.

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Table 5. Estimated Bank Disbursements(US$million Equivalent)

IBRD Fiscal Year FY96 FY97 FY98 FY99

I II I II I | I II

Annual 0.4 1.0 1.1 2. 2.0 2.0 1

Cumulative 0.4 1.4 2.5 4. 6.5 8.5 6

64. To ensure that critical initial project activities are not delayed, provision has also beenmade for retroactive financing of up to US$6.2 million for all eligible project expenditures (forthe entire PFMP) between September 29, 1994 and the expected date of loan signing.Disbursements are expected to commence immediately at Loan Effectiveness with the initialdeposits into the Special Accounts along with the refinancing of the PPF advance. Alldisbursements would be fully documented, except for expenditures on contracts for equipmentand material of less than US$300,000 and contracts for services of less than US$100,000/50,000with firms/individual consultants. In these cases, disbursements will be made against statementsof expenditures, whose documentation will be retained by the PMU until at least one year afterthe Bank has received the audit report for the fiscal year in which the last withdrawal from theLoan Account or payment out of the Special Account is made.

65. During Loan negotiations the Government confirmed its agreement to the followingspecific conditions for the Expenditure and Personnel Management Component:

Condition of Loan Effectiveness

* The In-House Adviser for the Expenditure and Personnel Management Componentshall have been appointed on the basis of terms of reference agreed with the Bank.

Dated Covenants

* By February 28, 1996, the new calendar and methodology for budget preparationshall have been adopted for implementation in the preparation of the fiscal 1997budget.

* The general budget submitted to Parliament for the 1997 fiscal year shall be preparedon the basis of the new code structure, which is to include functional and economicclassification of expenditures according to international standards (GFS andCOFOGE).

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* The general budget submitted to Parliament for the 1997 fiscal year shall introduce thefull implementation of new guidelines agreed with the Bank for budgetary postsmanagement.

* The new chart of accounts shall be put into effect by January 1, 1997 on the basis ofguidelines agreed with the Bank.

* By December 31, 1997, the Ministry of Finance shall furnish the Bank a satisfactoryplan for the reorganization and rationalization of the budget offices and accountingoffices prepared on the basis of the new procedures, regulations and automatedsystems.

* By December 31, 1997, the Ministry of Finance shall have conducted successful pilotimplementations of the Government Financial Management Information System andPersonnel and Payroll Management Information System, with the success ofimplementation to be assessed on the basis of criteria agreed with the Bank.

IV. BENEFITS AND RISKS

A. BENEM

66. If the major weaknesses in budget preparation and execution are not addressed,computerization and technical assistance can do very little. Indeed, they could jeopardize thefunctioning of the present system without putting a better one into place. If instead theseweaknesses are addressed--as the Turkish authorities have explicitly stated they are determined todo--modernization of Turkey's information systems on a uniform basis for all key agencies ofgovernment can produce the following benefits:

* Improvement in the efficiency of the substantial resources expended by the centralgovernment--some US$25 billion equivalent at current rates

* The concomitant regulatory and procedural improvements of the budget process shouldcontribute substantially to the Government's capacity to pursue successfully its fiscaladjustment prograrn

* By the time the fiscal and financial stabilization program has achieved its objectives, therewould be modern and sound systems in place to prevent a reoccurrence of the budgetaryfragmentation and loss of control that helped create the 1994 crisis

* Modern processes and systems will improve the transparency of decision-making andincrease the credibility of, and the confidence in, the government apparatus

v The new systems would generate information necessary for economic analysis and furtheradministrative reform--in particular, the rationalization of the civil service.

B. MAN PRojEcT RISKS

67. Implementation of the proposed project must be undertaken on the basis of acomprehensive, integrated package. There is a risk that some components, such ascomputerization, will appear attractive, while other components involving hard decisions, such asrestructuring the Accountancy Offices, will be set aside. There is a danger of unbalancing theproposed reforms and failing to realize their full benefits which should be recognized andaddressed up-front in the reform process. Timely action in implementing individual sub-components will also be critical, as delays in a sub-component, such as budget coding, have thepotential to delay overall implementation by one year, since implementation must be in line withthe fiscal year.

68. Implementation of new Information Systems, always entails risks. To avoid these risks,the main requirements are:

(a) Successfully setting up inter-agency group organizational arrangements to ensuresystems integration, avoid duplication and implement systematic data sharingarrangements, and more importantly allay fears of domination by one agency;

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(b) Ensuring that the systems fully take into account user needs and requirements;

(c) Extensive user training so that users can make full use of the implemented systemsfor their day to day work and do not revert to manual methods;

(d) Adequate numbers of trained technical staff available to implement and support thenetwork of systems; and

(e) Assurance that the existing system is protected and continues to function until itcan be safely replaced by the new one.

C. OTHER FACTORS AFECTING PROJECT'S SucCEss

69. The second phase of the project, which will concern the installation of informationsystems throughout the country, must be engaged as soon as technical requirements have beendefined. Otherwise, studies on computerization that are carried out under this project maybecome outdated.

V. MONITORING AND EVALUATION

A. ACTON TO MomrroR PRojEcT OBECTIS

70. In addition to the milestones and actions identified as conditions of disbursement anddated covenants, the tracking of key monitoring indicators is necessary to measure the impact ofthe component and the implementation of reforms (see section B, below). The preparation of thePhase II program, which will involve the implementation of the GFMIS and the payroll systemthroughout the country, will be based on the review of these indicators.

B. INDIcATORS

71. The major objectives of the Expenditures and Personnel component of the PFMP arereflected in the system of impact indicators shown in Table 6. Input indicators will track plannedinvestments in terms of contracting assistance (consultant-months), enrollment and time intraining programs (staff-months) and procurement of goods, software and system applications(disbursements). Output indicators will track items such as: (i) the number of reports completedby a given date during the project cycle; (ii) the number of staff trained; (iii) the software andapplications that have been procured; (iv) the hardware systems that have been procured; and (v)the number of sites prepared for the pilot implementation of the information system.

Table 6. hngac Indicators

IMACT INDICATOR 1 ASUREMBNT

imrovem_n of the Budget Covere Number of EBFs fully incoporaed into tle Budget.Completion of the Rcview of annexed budget and revolving fiuds.Number of revolving fuds coolidaed ito the Geeal Budget

Stremliued Budget Code Structure New budgetay code sucur effcive for all governmn expeadiwre and reveeas.Number of staff traied in OFS methodology.

plemnatio of a new chart of accounts.Availability of fuctional sd economic anaysis of the Budget.

laovem i of Budget preparation Icree of responsibilities of Spending Agencies in tie budget prpration proces.Bettr coolini betwua_ the prepuation of the invesmet ad curt budgets(forml joint circular and meetn SPO-Budget, recurn costs of invetmen takenino account).

lmp _vemen of the effeicacy of the budgetary Redution of deays for appriation r_elProcess Budgetization of personne positioos.

Streamlining of Budget conrol: Introduction of effective controls on expenditurecommt.Resructuring of Budget Offic and Accounting Offic

72. In addition to the above, the following specific criteria will be used to evaluate thefunctional and technical success of the pilot management information systems applications:

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1. Core Accunting Systems

FunctionalA2ct:

* New management processes for Budget execution (Cash allocation, Commitment,payment, receipts) in place and functioning with a sufficient number of end users (at least5) trained in these processes at each of the eight pilot sites.

* Necessary functional Manuals and procedures for the operation of the new processes andprocedures completed.

Technical As2pcts:

* Hardware, Systems Software and application development tools successfully installed andtested at the Pilot Sites and necessary interconnections between sites successfully madeand tested.

* Inter agency coordination arrangements in place and functioning. In-house dataprocessing organization in place and staffed (with contractors if necessary) to replicate thePilot systems across other nodes of the network and for maintenance.

* Application software for the Core Accounting applications installed and tested for thefollowing minimum functions:

- Maintaining Budget appropriation data- Maintaining and processing Cash allocation transactions- Maintaining and Processing Commitment Transactions- Maintaining and processing Payment transactions- Maintaining and processing receipt transactions- Producing Core financial reports required by the MOF and other agencies as required- System has a capability to enable sharing of data between relevant government

agencies (MOF,Treasury, SPO etc.).- System has necessary security and selective authorization arrangements.- Full system functions tested and installed at Pilot sites. Full Technical and User

Documentation complete and available.- Training arrangements for End Users formalized and in place. End users at Pilot sites

trained and capable of using the system.

2. Post Management and PayroD Administration

Technical Aspect:

* Application software for Post and payroll management installed at Pilot sites and testedfor the following minimum functions:

- Maintaining a database of authorized positions for government agencies.- Producing the payroll for the selected sites

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- Necessary Interfaces completed between the two systems to ensure that the payrollsystem checks on the availability of positions before authorizing payment.

- Technical and user documentation complete- End Users trained in the operation of the new system- Technical staff in place to support the new system and for replication across other

sites.

C. REroRTING ARRANGEMENTS

73. The PMU will be responsible for: (i) tracking the above indicators; (ii) tracking inputsand outputs related to the project; and (iii) overseeing studies from consultants and workinggroups. The PMU will prepare a quarterly progress report which, upon clearance by theUndersecretary of Finance, will be submitted to the World Bank. The reporting schedule isdescribed in Table 4.7 of the Main Report.

Annex 2b

PUBLIC FINANCIAL MANAGEMENT PROJECT

Expenditure and Personnel Component

Terms of Reference

Annex 2bExpenditure and Personnel Component

Terms of Reference

Table of Contents

Consultancy 1: In-House Advisor and Short Term Experts ...................... 37

Consultancy 2: Information Systems Expert ............................... 41

Consultancy 3: Functional Analysis and Pilot Management Information Systems .... ..... 43

TURKEY

PUBLIC FINANCIAL MANAGEMENT PROJECTPUBLIC EXPENDITURE MANAGEMENT COMPONENT

TERMS OF REFERENCE

CONSULTANCY 1Support for the Implementation of Reforms

(Residential Advisor and Short-Term Consultancies)

1. BACKGROUND

1. The Public Expenditure Management component of the Public Financial ManagementProject aims at modernizing the expenditure management processes of the national government.New and revised concepts and practices of the expenditure management will be introduced,building where possible on the existing system. The legislative framework underpinning the newconcepts and methodology are to be revised. In particular, the budget formulation process willbe modernized, with the integration of the current and investment budget, and budgetimplementation and the related accounting framework will be streamlined and simplified, notablythrough the introduction of computerized systems for government financial operations.

2. The Undersecretary of Finance is responsible for overall management and supervision ofthis component. A Project Management Unit (PMU), led by a Department Head from theGeneral Directorate of Budget and Fiscal Control (GDBFC), is responsible for day-to-daymanagement. A Steering Group has also been set up to ensure inter-agency coordination and toact as an advisory body to the PMU. This Steering Group is chaired by a DeputyUndersecretary of Finance and includes high level participants from the Ministry of Finance, theState Planning Office (SPO), Treasury and Turkish Court of Accounts. Specific tasks are beingcarried out by four Working Groups, which include staff from the GDBFC and GeneralDirectorate of Public Accounts (GDPA) within the MOF, as well as from the Treasury, SPO andTurkish Court of Accounts. The heads of these Working Groups are members of the PMU.

3. Currently, Working Groups assisted by consultancies financed with grants from theJapanese and French Governments are carrying out studies to improve the budget preparationprocess and the budget coverage, define a new budget code structure and the framework of a newchart of accounts, and define modernized procedures for controlling expenditures and personnelmanagement.

2. OBJECI1VE OF THE ASSISTANCE

4. Services from a residential advisor and short-term consultancies from specialized expertsare required to assist the Project Management Unit in the implementation of reforms that havebeen defined by the working groups and studies financed under the Japanese and French grantsand in the coordination of activities to be carried out under the component.

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3. TASKS

a) Residential advisor

5. The residential advisor will assist the GDBFC and GDPA to:

* Identify needed studies to complete the design of reforms, draft their detailed terms ofreference and monitor them.

* Supervise the implementation of reforms.

* Prepare the overall program and detailed work plans for working groups in charge ofspecific tasks.

* Prepare quarterly progress reports, identify needed adjustments and ensure theirimplementation.

* Ensure the consistency between the outcome of studies, the design of reforms and thefunctional analysis of information systems.

* Provide technical guidance to staff in the conduct of reforms and supervise thepreparation of needed users' manuals.

b) Short-term consultancies

6. Specialized experts will assist the MOF to complete the detailed design of the reforms andto implement them. The following assignments have already been identified:

S Budget Preparation. The consultants will assist to the implementation of the newbudget preparation process. They will notably help to improve methods of budgetpreparation related to personnel expenditure and to introduce commitmentauthorizations for investment expenditures into the Budget. They would assist toprepare the methodology and guidelines for structuring the budget of spendingagencies by program and defining indicators to monitor them. They will contribute todefine and implement a program of work for developping progressively an approachby program in the budget preparation and monitoring process.

* Implementation of the budget code structure. The consultants will supervise thepreparation of a version of the 1996 Budget under the new budget code structure,prepare a training program for budget users and assist to its implementation.

* Chart of Accounts. The consultants will contribute to finalize the Chart of accountsand define accounting procedures for each category of expenditures. They willprepare a training program for accountants and assist to its implementation. They willassist to the implementation of the new Chart of Accounts.

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* Review payment processes and cash management. The consultants will carry out areview of government banking arrangements with a view to developingrecommendations for strengthening cash management, including through centralizingall Government receipts in a single account at the Central Bank of Turkey,rationalizing the system of government accounts and improving arrangements forpayment of interest and charges.

* Organization of the accounting offices network. The consultants will assist toprepare a detailed plan for restructuring the accounting offices, including eventuallyreallocation/reassigment plans for relevant civil servants.

* Implementation of modernized control processes and relevant organizationalarrangements. In the context of modernizing budget preparation and executionprocesses many of the current functions of the Budget Offices will be reducedsignificantly or be reassigned elsewhere. Moreover, the introduction of new controlson commitments for some categories of expenditures will need specific skills.Consultants will assist in the preparation of a detailed plan for restructuring the budgetoffices including reallocation/reassigment plans for relevant civil servants. They willassist in the implementation of this restructuring program. They will identify skillsneeded for operating budget execution procedures and will prepare a training programfor officials in charge of budget execution.

* Personnel Management. The consultants will assist with the implementation of abudgetary posts management system.

* Procurement. The consultants will review procurement procedures and systems inorder to ensure their consistency with revised control mechanisms. Any ITrequirements will be identified for implementation in Phase II.

7. These short-term consultancies will be engaged at the request of the project director, onthe basis of specific terms of reference to be agreed with the Bank. The residential advisor willassist in the preparation of the required detailed terms of reference and program of work for eachconsultancy.

4. TIMING OF ASSIGNMENT

In-House Adviser: October 1995-September 1997.Short Term Experts: October 1995-March 1997.

5. REPORTING RESPONSIBILITY

8. The residential advisor and short term consultants will be functionally responsible to thedeputy undersecretary of Finance, chairman of the Steering Group in charge of the supervision ofthe project. The residential advisor will be a member of the Project Management Unit.

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6. INPUTS

Residential advisor: 20 man-months

Short-term consultancies: 27 man-months

7. QUALIFICATIONS

Minimum requirements for the experts:

* Graduate degree in public finance or related field

* Ten years experience in government budget management

* A knowledge of information systems for public expenditure management is needed for theresidential advisor.

TURKEY

PUBLIC FINANCIAL MANAGEMENT PROJECTPUBLIC EXPENDITURE MANAGEMENT COMPONENT

TERMS OF REFERENCE

CONSULTANCY 2Information systems Expert

1. BACKGROUND

1. The Government of Turkey (GOT) is currently embarking upon a program to set upmodern fiscal management systems to enable it to improve the management of the governmentsector. As part of the fiscal reform process the Government has decided to implement anintegrated Government Financial Management Information System (GFMIS). The Expenditureand Personnel Management component of the Public Financial Management Project, financed bythe World Bank, supports the design and pilot installation of the GFMIS.

2. OBJECTIVES OF THE ASSIGNMENT

2. The objective of the assignment is to assist the Ministry of Finance to design andimplement a set of fully functioning computer based information systems for Budget Preparation,Budget Execution and Monitoring (for both the Current and Investment Budgets), CashManagement and Government Accounting (including Payroll Accounting) and Civil Service Post IPosition Management for the Government of Turkey.

3. To achieve this objective the Government has set up an internal working group oninformation systems, will require services from consulting firms for the design and developmentof applications and appoint a permanent information systems expert. The permanent informationsystems expert will assist the project director for carrying out his tasks on issues related toinformation systems.

3. TASKS

4. The permanent information systems expert will assist:

* The working Group in charge of information systems to:

(i) contribute to the design and implementation of computer systems related tothe Expenditure and Personnel component of the project in coordinationwith the three other working groups;

(ii) propose hardware/software standards for government financialmanagement; and

(iii) coordinate with the ongoing or new information systems projects in thegovernment agencies, such as Revenues Directorate, TreasuryUndersecretariat, SPO and Customs to ensure systems integration.

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* The project management unit and the project director to:(i) Follow up advisory services related to the implementation of information

systems(ii) Prepare and launch tenders for hardware or software acquisitions(iii) Coordinate the implementation of information systems at pilot sites(iv) Prepare detailed progress reports.

5. A pool of about 10 computer experts external to MOF will be set up in February 1997.They will assist the government with the installation of pilot sites and replication of the systemthroughout the country. The permanent information systems expert will help the Ministry ofFinance to set up the pool of computer experts and will coordinate activities of this pool.

4. TIMING OF ASSIGNMENT

IT Adviser: November 1995-March 1998.Pool of IT Experts: February 1997-March 1998.

5. REPORTING RESPONSIBILITY

6. The permanent information system expert will be functionally responsible to the Head ofthe PMU.

6. QUALIFICATIONS

Minimum requirements:

* Graduate degree in information system technology.

* Ten years experience in information systems management.

* Detailed knowledge of information systems for public expenditure management wouldbe desirable.

* Proficiency in English and Turkish languages.

TURKEY

PUBLIC FINANCIAL MANAGEMENT PROJECTPUBLIC EXPENDITURE MANAGEMENT COMPONENT

TERMS OF REFERENCE

CONSULTANCY 3Consultancy Services for the Design, Development, and Implementation of Budget

Preparation Systems, Core Government Accounting Systems, Payroll and Civil ServicePosition Control Systems for the Government of Turkey

I. INTRODUCTION

1. The Government of Turkey (GOT) is currently embarking upon a program to set upmodem fiscal management systems to enable it to improve the management of the public sector.As part of the fiscal reform process the Government has decided to implement an integrated suiteof modern computer based information systems to support the core expenditure managementprocesses, namely those for Budget Preparation, Execution and Monitoring (for both the Currentand Investment Budgets), Cash Management and Government Accounting (including PayrollAccounting) and Civil Service Post/Position Management (CSPM). It is expected that theimplementation of these systems would materially improve the efficiency of public resourceallocation and use, and assist economic policy formulation by:

(i) Providing the core financial agencies namely the Ministry of Finance (MOF), theTreasury, and the State Planning Organization (SPO), with a comprehensiveinformation base to better manage public resources and provide them the toolsnecessary to support day to day operational processes and for longer term planning.

(ii) Enabling the integration of Budgeting and Accounting functions of the MOF andprovide links with Cash and Debt management functions in Treasury.

(iii) Providing the MOF senior management with the basic building blocks required for anexecutive Management Information System (MIS), accompanied by necessaryreporting facilities.

2. The Government has applied for a loan from the World Bank to undertake the preparationof an integrated Government Financial Management Information System and a personnel andpayroll management information system, which work will include (i) the functional analysis ofthe intended system; (ii) applications development; and (iii) the computerization of eight pilotsites.

3. These terms of reference provide a description of the technical assistance required byGOT to design and implement on a pilot basis the intended information systems.

4. The Government invites qualified agencies, with experience in the design andimplementation of computer based Government Fiscal Management Systems to assist in thisproject. It is necessary that the agencies have extensive experience in the design and

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implementation of similar systems for other government entities. It is considered that some of theservices required under this project could be satisfactorily carried out by local firms. Internationalagencies are accordingly encouraged to enter into partnerships with a local firm to deliverservices for parts of the project for which local expertise is available.

5. The consultants will need to work closely with GOT officials in the various financialentities of the government which have responsibility for fiscal management processes, including,inter-alia, the various General Directorates of the Ministry of Finance and their subordinateoffices, (in particular the General Directorates of Public Accounts (GDPA), the GeneralDirectorate of Budget and Fiscal Control (GDBFC), and the General Directorate of Revenue(GDR)), the Treasury, State Planning Organization, the Central Bank, the Under Secretariat ofCustoms, and spending agencies, etc. The consultants will report to the Undersecretary ofFinance, through the Head of the PMU.

2. ASSIGNMENT OBJECTIVES

6. The objective of the assignment is to develop and implement a set of fully functioningcomputer based information systems for Budget Preparation, Budget Execution and Monitoring(for both the Current and Investment Budgets), Cash Management and Government Accounting(including Payroll Accounting) and Civil Service Post/Position Management for the Governmentof Turkey. To achieve this objective the consultants will be required to:

(i) Prepare a detailed functional design and systems specifications for each module of theintegrated Information System and develop related procedures and manuals

(ii) Research possible alternatives for application software to set up these system modules.Emphasis will be placed on the use of off the shelf software packages to the maximumextent possible

(iii) Develop Hardware and Software specifications for the technology platform required toset up the Systems, and assist the Government in its procurement

(iv) In the event that off the shelf application software is not available for a particularapplication system, develop detailed system and program specifications and contractwith an appropriate software supplier to custom develop the applications and managethis development

(v) Implement the Systems at pilot sites and assist the Government to train trainers andend-users at selected pilot sites.

3. INFORMATION SYSTEMS REQUIRED BY THE GOVERNMENT

7. The suite of systems required to support the expenditure and personnel managementprocesses and planned for implementation under this project are described below.

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A. Budget Preparation

8. As the expenditure management reform progresses in Turkey and processes related to thepreparation and monitoring of the Current and Investment budgets are better integrated, theGovernment will require information systems to support the preparation and monitoring of boththe Investment and the Current Budgets. This set of systems will support the processes of Budgetestimates preparation.

9. These systems will receive from the various spending agencies the details of theirprograms and projects, consolidate them and produce from them the documents that form thebasis of the negotiations between the ministries and spending agencies and the central agencies.The system will facilitate an iterative process of budget submission, consolidation,review/negotiation, and documentation until the budget is finalized and approved. The systemwill thus provide a facility for tracking the budget preparation process from preliminary budget tothe final draft stage and produce the master copy in a form suitable for presentation to parliamentand ready for printing. After approval by parliament, the system will produce the approvedbudget estimates in a format suitable for budget implementation and accounting purposes.

10. In order to satisfy these requirements, the systems should be able to capture andmaintain the budgetary proposals and revenue estimates of all government agencies and to captureany subsequent changes during the budget development and approval processes. The systemshould be able to assist in the evaluation of the budget proposals by enabling an analysis of themanpower costs, the maintenance and other operating expenses and capital outlays, by accessingbaseline data from previous periods for comparison. Examination of the capital budget willrequire data on the status (physical and financial) of approved projects. The system shouldtherefore be able to access and generate baseline data from the relevant past year data bases. Thesystems will utilize the data base established within the Financial Ledger System (see below) toprovide accurate historical data. Training would need to be provided to the MOF staff in how touse the new models in the analysis of budget and expenditure policies.

11. The modules for preparation of the current budget will be managed by the GDBFC in theMOF and that for the Preparation of the Investment Budget by the SPO. Both systems willrequire extensive interaction with and regular data input from the various ministries and spendingagencies in Government, as well as with the Treasury, whose macroeconomic policy formulationcapability is being strengthened under the Treasury Data Systems Project, with World Bankfinancing.

12. This system would cover both the Investment and the Current Budgets integratedwithin a common chart of accounts. The preparation and subsequent monitoring of the investmentbudget, would require the setting up a major projects data base in SPO. As part of this project,the consultants would investigate whether the current systems recently developed by the SPOwould be able to provide the functionality required in this area. If this is so, then the existingsystems would be integrated with the other systems envisaged in this project.

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B. A Financial Ledger System (FLS)

13. The Financial Ledger System should be designed with the two basic objectives of: a)controlling the state budget and the assets and liabilities of the government; and b) providingcomprehensive, reliable and timely information on the financial position of the Government ofTurkey to facilitate government financial management. The Financial Ledger System would bethe central element of financial management and accounting operations and would be the corefinancial management information systems of the Government. It would be used by:

a. The General Directorate of Public Accounts (including accountancies) to performthe basic accounting functions

b. The General Directorate of Budget and Fiscal Control to perform the controlfunctions associated with budget execution and monitoring

c. The Cash Management Department of Treasury to obtain the information itrequires for cash management, and to implement funds allocations, as may berequired

d. The SPO to obtain the status of actual expenditures on ongoing projects to updatethe major projects data base.

14. A basic underlying principle would be that the system would be structured alongfunctional rather than organizational lines and would provide support to all organizations involvedin the expenditure and personnel management processes. This approach has the advantage that itenables the creation of integrated systems and data bases in which the primary responsibility forthe timely provision of a particular sub-set of data resides with the agency responsible for thatfunction. However, all data in the system data bases is accessible by all relevant central agencies(subject to appropriate security controls). This eliminates duplicate data gathering and, moreimportantly, enables all agencies responsible for financial functions to work with the same set ofdata, thereby removing chances of data inconsistencies which are inevitable in separately gathereddata.

15. Thus, each of the departments mentioned above will be responsible for the integrity of theinformation that they are responsible for, within the system. In return they will have access toinformation provided by the other agencies. Thus all departments will jointly "own" the systemand use it for their day to day operational purposes while the MOF will "manage" the systemcentrally.

16. Such a system would need to be comprehensive in terms of a coverage and be a source ofreliable and timely data to become a credible source of information for users. The informationcontained in the system data bases would provide the MOF and other central agencies with afoundation for a comprehensive management information system related to the country's financialresources. The information contained in the data bases would be available to other ministries andgovernment agencies on an as required/approved basis to enable them to better manage thefinancial activities connected with approved programs.

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17. Specifically the FLS should have the capability to:

a. Include core functional requirements for the execution components of thegovernment budget through an integrated accounting system. In general, thiswould include recording of revenue collections, appropriations, commitnents,verifications, and fund allocations leading to payment (covering accounts payable,accounts receivable, general ledger options, and report generation).

b. Cover all elements of expenditure and revenue for the central government ofTurkey (that is, including the general budget, annexed budgets, extra budgetaryfunds and revoving funds)

c. Record and report budget appropriations and distribution, as approved by thelegislature, to spending ministries and keep a record of initial budgets, revisedbudgets, and budget transfers, for a typical government ministry/spending unit.

d. During the course of a year, record distribution of appropriation and commitrnentauthorizations to ministries/spending units and to record commitments incurred bya ministry against the approved limits and the appropriation.

e. Record and report distribution of funds allocations to ministries/spending units andkeep a record of funds allocations against the appropriations.

f. Record and report all relevant stages of the payments and receipts processes andenable reports to be made on key variables, such as commitments, funds available,bills outstanding and payments and receipts (both cash and accrual basis); forindividual agencies and at various levels of aggregation;

g. Incorporate controls on any specified variable. The system should have the facilityto check availability of appropriation, commitment authorization and fundsallocation prior to approval of a payment.

h. Record and report revenue and other receipts against appropriate account heads.

i. Print consolidated payment instructions for actioning by the banking system.

j. If required, print checks against payment instructions and/or initiate instructionsfor the electronic transfer of payment information to an external paying entity.(e.g. a Bank).

k. Generate standard monthly reports and provide query facilities to determine thebudgetary position of agencies, and the Government budget. The informationcontained in the system data bases would provide the MOF and other corefinancial agencies a foundation for a comprehensive management informationrelated to the country's financial resources. MOF, Treasury and SPO would have

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access to a full set of data base. Other agencies would have access to portionsrelevant to their needs.

1. Maintain data according to the budget classification for as many past years asrequired, and allow projections of up to three years

m. Facilitate reconciliation between Financial Ledger System accounts and bankingdata by generating chronological lists of transactions in a form comparable tothose generated by the banks.

n. Ensure compatibility of the system with other systems, e.g., the budgetpreparation and management system, systems for tax and customs administration,the debt management systems of the Treasury.

o. Consolidate data at the Center and Provincial Accounting offices and othersources.

p. Consolidate data from all ministries/accountancies at a spending unit, town,provincial or central levels, as necessary.

q. Have facilities to restrict access only to duly authorized staff.

r. The consultants should specify the security class the system will support.

18. The system will need to be designed in accordance with generally accepted accountingprinciples and standards, a double entry accounting model and policies and procedures developedas part of preceding consultancies.

19. The FLS will be a fully automated accounting system, with data captured only once as anaccounting transaction progresses through the system. This system will be introduced along witha modern budget classification system and an appropriate chart of accounts, and would enableexpenditures and revenues to be recorded at a detailed level and related to specific programs andprojects. Data recorded at this level will then be directly available for use for program andproject management. This data will also be easily amenable to cross classification for financialand economic analyses. The introduction of an automated accounting system would ensurecompleteness of data capture (that is no transaction would be processed outside the system) andrigorous application of all relevant financial controls to all transactions processed by the system.

20. The FLS will be required to specifically produce the Financial and Management Reportsrequired by the Government as well as meet the requirements of the various users. This includesthe monthly civil accounts, annual appropriation accounts and combined finance and revenueaccounts as well as agency accounts for the respective agencies. In support of expendituremanagement the system will incorporate a reporting system to enable management to identifyproblems and bottlenecks in a timely manner. The reporting capability of the system shouldaddress all matters affecting the efficacy of the accounting function. In addition the systemshould have facilities for easy retrieval and reporting on data in the system data bases, in a

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variety of formats. The system will also enable user departments to download relevant data andperform required analysis and reporting.

21. At present there are about 1,700 accountancy offices (including about 400 taxaccountancies) within Turkey. They cover, inter-alia 76 provinces and 840 towns. The totalnumber of accountancies in Turkey is expected to be reduced as a result of the financial reformsundertaken as part of this project. However, setting up computer system for all remainingaccountancies across the country, even with a substantial reduction in the number, would be quiteexpensive. An analysis of the distribution of the volume of transactions by expenditure andrevenue, indicates that about 90 percent of the expenditures are incurred through about 150accountancies. It would therefore be appropriate to target these accountancies for automation inthe project. This approach would optimize the deployment of hardware and software.

22. It is therefore proposed that computer hardware and software will be located at the MOFin the center and the 76 provincial accountancies and additionally at those accountancies whichfall within the 90 percent limit described above. The remaining accountancies located in theprovinces would continue to forward non-automated documents to the provincial or computerizedtown accountancy offices for processing.

C. Personnel Management

23. The ability to exercise effective post/position control is important to regain control overcivil service employment. In addition, line agencies require systems to effectively manage thepersonnel on their rolls. To be able to implement the reform measures in the area of personnelmanagement it is necessary to implement the following systems:

a. A Position/Post Management System to maintain records of the authorizedposts/positions for government agencies, of authorizations to fill vacant positions,and of appointments to permanent positions.

b. A Personnel Information System to maintain the personnel data for which civilservants and all personnel actions related to these civil servants; includingretirements, resignations, removals, deaths and transfers. It would also maintaininformation to be able to produce manpower profiles including data on age,departmental distribution, skill categories, compensation and tenure etc.

c. An automated Payroll System, at the major accountancies to cover salary andrelated payments to civil servants.

24. This group of systems are essential for the government to regain control over civil serviceemployment. Effective control would be possibly by the following steps: The post managementsystem would ensure that all fresh recruitment is against appropriated and budgeted position.Personnel actions for civil servants on board will be recorded by the agency personnel systemsand used to calculate the payroll. The agency record of budgeted positions would be used toensure that no personnel are added to the payroll who do not have an authorized budgeted

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position. The payroll systems would be fully integrated with the FLS - Government Budgetingand Accounting system described above.

4. SCOPE OF WORK

25. The scope of work for this consultancy involves the tasks associated with the design,development and implementation of the high priority application systems described above atdesignated sites and with the procurement of related hardware and software for pilot site.

PnAsE I - SYSTEMS DESIGN AND ACQuISrrIoN OFREQUIRED HARDWARE AND SoFTWARE

A. Preparation of the detailed functional design, systems specifications, related manuals,and procedures for the specified systems.

26. The tasks involved in this activity would include:

a. Studying the functional processes including administrative procedures, transactiondocuments, forms and information flows, (including data flow statistics), related tothe Budget Preparation, Budget Execution Accounting and Reporting, Payroll,Position Control and Personnel Management currently in use, andrecommendations for changes made by any preceding consultancies.

b. Developing and defining a new set of functional processes, information flows,procedures, transaction types and associated documents and forms, and relatedorganization required to operate the proposed new systems.

c. Developing a full functional design and systems specifications for the computersystems required, including the specification of the major data bases and dataentities, the output reports, the input formats, transaction documents, input screendesigns, processing and controls for the systems required at various nodes of theinformation flow network, the interfaces and data flows between these nodes andwith external systems.

27. The functional analysis for the design of the various systems would need to be conductedjointly by one or more functional specialists such as e.g. Finance and Accounting Specialists, inthe case of the Budget Preparation Systems and the FLS, and by Human Resource andCompensation specialists in the case of the personnel related systems, on the one hand, who willdevelop the functional design and define the overall system from the functional point of view,and; systems development specialists, who will develop the systems specifications of thenecessary computer based software required to automate the systems. It is important to note thatthe new systems may need to be operated manually at some sites for some time before thecomputer based systems are designed an programmed, and implemented progressively across allsites. A full set of procedures and documentation will therefore need to be developed to operatethe manual systems.

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28. The consultants will undertake this analysis in consultation with counterpart GOT officialsdesignated for this purpose by the GOT. The consultants may be required to be part of, andadvise, one or more task forces to be set up by the GOT to define the legislative, administrativeand operational aspects required by the new systems. On completion, the results should bedocumented in a form that meets government approval.

29. The primary deliverables for this activity will be:

* Functional design documents for each of the Information Systems specified above

* Complete set of specimen transaction documents, reporting formats and a descriptionof procedures and associated manuals required for the implementation and operationof the systems.

* Application systems design and systems specifications, including the data model andthe data flow diagrams

B. Design of the Technology Architecture Required to Implement the Information Systems

30. This component would include drawing up specifications of the H/W and S/W to beinstalled at various nodes and the mode of interconnection of this Hardware and Software. Theoverall H/W, S/W strategy to be employed for implementation is determined by the fact that aGovernment wide accounting system will require a multi-tiered network with modules at thecentral, provincial and other accounts office levels. The system would require facilities forgenerating, storing, and processing data at each level and for exchanging data between levels.The data volumes encountered could vary widely across the nodes of the network, dictating thesize of the computer at each node. Application software should therefore be scaleable for small orlarge computers and usable on a variety of H/W platforms. The system should utilize adistributed computer architecture with computing power located at the various nodes of thenetwork. The software development environment should be portable to different platforms (UNIXbased) and use modern application development tools such as Relational Data Base ManagementSystems (RDBMS), Fourth Generation Languages (4GLs) and Graphical User Interfaces (GUIs).The system should have Turkish as a national language support (NLS). The consultants shouldensure that these aspects are kept in mind while developing the technology architecture thesystems.

31. This task would include:

a. The consultants will need to survey some sample sites. They will however workon the basis of data provided by MOF. This data would cover the associatedtransaction volumes (current and projected) and data requirements, to determinesizes and configurations of the H/W, S/W to be installed at these nodes and themode of the interconnection of the nodes between the Center, the Province andTowns to ensure accurate and timely data transfer between the nodes.

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b. Preparing the specifications for the hardware, systems software, applicationdevelopment software and the application software package (based on the earliertask), required at the various sites, for each phase of the project, for incorporationin tender documents.

c. Drawing up specifications for associated facilities required for the installation ofthe system, such as power stabilizers, Uninterrupted Power Supplies (UPSs),telecommunication interfaces, computer site requirements, for incorporation intothe tender documents.

d. Preparation of an implementation schedule for the computerization of selectedaccountancies.

32. The Deliverables of this activity will be:

* Specifications for Hardware and Software, Communications facilities and otherassociated facilities required for the implementation of the Computer Systems.

* Functional Specifications for the Application Software for each module of the requiredsystem.

* An implementation schedule for comupterization of accountancies.

C. Investigation of Alternatives for Application Software

33. On the basis of the functional analysis carried out as above the consultants will investigatealternatives for application software. This would include:

34. Investigating and ascertaining whether one or more 'off the shelf' software packages areavailable which can meet the functional requirements of one or more of the systems as definedabove. While conducting a review of software packages the consultants will ensure that:

a. The software package provides the required functionalityb. Local support is available for the package and it is possible to obtain and install

upgrades and/or changes to the packages in Turkey as they become availablec. The vendor for the package provides customization assistance as may be required,

or alternatively the package source code is available for making changes as maybe required

d. The costs associated with any customization are identified clearly in the total coste. The package runs on a range of hardware and operating software which is

compliant with the hardware/software strategy proposed for MOF systems (above)f. Adequate documentation is available to enable package installation and useg. Potential licensing arrangements can accommodate the use of the package at

multiple sites in Turkey.

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35. In case it is not found feasible or cost effective to purchase an off the shelf package tosatisfy the requirements of a particular system, the consultants will be required to develop a planfor the development of the application systems, and estimate the resources required to carry outthe development. In this case the consultants will also extend the functional and systems designcarried out above and develop the full systems and program specifications for the variousmodules of the systems mentioned above. These would then be used as the basis for the contractor in-house, development of the application software. These documents should be detailed andspecific enough to enable the software contractor to develop the software module without furtherrecourse to the end users.

36. The deliverables for this activity will be:

* The results of the application software package evaluation process withrecommendations for possible packages which could satisfy the functionalrequirements of the proposed systems.

* In the event that a package option is not found to be feasible, a full set of detailedsystems specifications and program specifications which could be used by MOF forcontracting the development of this software module by local software houses, or forin house development.

D. Preparation of Tender Documents for and Acquisition/Development of H/W and S/W.

37. During this activity, the consultants will assist the Government in the procurement of theH/W and S/W for pilot sites.

38. The consultants will:

a. Investigate the possibility of using for the project existing equipment within theMOF.

b. Incorporate the hardware and software specifications prepared as part of earliertasks into an RFP for procurement of the hardware and software. These tenderdocuments should be prepared in accordance with the Wold Bank procurementguidelines and procedures. It should be noted that it is proposed to procure theHf/W, S/W via a single integrated procurement package. The specifications forprocurement must include provision for maintenance and support of the hardwareand software for a period of 3 years, and for consumables for three years. HIWrequirements should also include associated facilities, such as UPSs, etc.

c. Develop criteria for the evaluation of vendor proposals.

d. Assist the government in the tendering process, in evaluating vendor proposals andselecting a preferred tendered.

e. Assist the government in the acquisition of the hardware and software.

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f. Assist the government in drawing up the specifications for, and monitoring theinstallation and carrying out quality assurance during the suppliers testing of thehardware and software procured for the project. In the case of procurement ofsoftware packages (if this is found to be a feasible alternative) the consultantswould be required to assist the Government in monitoring and ensuring qualityassurance of the suppliers testing of the software to ensure that the packages havethe required functionality. In case a package requires customization to meetspecified functional requirements, the consultants will specify the changes requiredand arrange for the changes to be implemented.

g. In the event that some of the systems modules are to be custom developed theconsultants will assist the Government in contracting with a selected softwaredevelopment firm and provide technical management and quality assurance andplan and prepare for data conversion, user training and systems acceptance testing.

h. In the event that in-house development is preferred, the consultants will assist thegovernment in supervising a team of local GOT staff in the programming, testingand implementation of the system modules.

39. The deliverables for this Activity will be:

* Specifications and RFP documents for the procurement of Hardware and Software forthe implementation.

* Specifications for the application software, taking into account the result of theevaluation of the application software packages.

* Evaluation Criteria for Hardware and Software, including test data required to ensurethe proper functioning of the application software;

* Assistance to the Government in the tendering process, in evaluating vendorproposals, contract negotiations, and in the acquisition of hardware and software.

* Technical management and quality assurance of the vendor's work in constructingsystems modules;

* Data Conversion Plan

* User Training Plan

* User Acceptance Test Plan

* Provide the supervision plan and acceptance plan for the software development phase.

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E. Development/Upgrading the MOF data processing organization.

40. The MOF will require the development/upgrading of its in-house data processing facilitiesto maintain and operate the treasury and associated systems developed as part of this project. TheMOF computer has a staff of competent analysts and programmers. A team of about 8-10 stafffrom this department will be designated by the government to work with the consultants on a fulltime basis. This staff will need to be involved in all tasks associated with systems design,software development, installation and operation. In the event that one or more software packagesare selected to satisfy the requirements of the Financial Ledger or other systems, the staff willneed to be trained in their use and maintenance. In the event that in-house development isrequired, staff will be required to undertake the in-house development of the system, or managethe work of the contractor if an outside contractor is selected (within the single H/W, S/Wprocurement package) to carry out the development.

41. The consultants will accordingly analyze the existing GOT/MOF EDP resources anddevelop a plan to upgrade the DP organization. This would include assisting the GOT, indeveloping a training program for its staff, including specialized training in the use of the varioustools such as operating systems, DBMSs application development facilities etc., and more generaltraining in EDP project management, maintenance and provision of end user support and trainingfor a country wide system treasury system, etc. The consultants will also assist the government inthe procurement of training services from specialized vendors and in setting up appropriatestructures to train end user department staff in the use of the system.

42. The deliverables for this Activity would be:

* A human resources plan for the first 5 years, including a training plan for the newhardware/software, training in EDP project management, end user support andcountry wide systems training.

PHASE II - PILOT SYSTEMS IMPLEMENTATION

43. Pilot Systems implementation will involve preparation of an implementation schedule,installation of hardware and systems software DBMS, and Application Development tools etc.,installation and testing of the application systems and training end users.

44. The consultants will assist the MOF in managing the installation of the hardware, systemssoftware, application development and package software. Each of these tasks are discussed indetail below:

a. The consultants will develop a detailed implementation plan and schedule listingall associate tasks and their logical dependencies. This schedule will show all tasksassociated with the procurement and installation of the hardware and software, aplan for in-house systems development, as may be required, including the design,development, programming, testing and implementation activities, training of localpersonnel, and installation of the system at selected sites.

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b. Installation of hardware: The consultants will assist MOF in supervising thesupplier in the installation and testing of the hardware procured. This wouldinclude supervision of site preparations for the hardware including electrical powerrequirements, voltage stabilizers, telecommunications, and other elements asrequired.

c. Installation of software: The consultants will assist the MOF in installation andtesting of the software. In the event that case package software is identified,assistance would include ensuring that any modifications required to the softwarehave been carried out, and installation of the software on the hardware acquiredabove, including setting up any code structures, files and data bases that may berequired by the software package. The consultant will be expected to design andconduct such tests as are necessary to ensure that the package provides therequired functionality.

d. The consultants will assist the government in developing necessary technical anduser documentation for the application systems modules.

45. Deliverables for this phase include:

3 Assistance to Government in the Installation and testing of the hardware and software.

* Ensuring that the H/W and S/W supplied by the selected vendors meets the designspecifications.

* Ensuring that tested systems modules, including the modules that will be implementedat the HQ, Provincial and other Accountancies, are fully functional.

* User manuals and other technical documentation to enable the full operation of thesystems.

* Training manuals for end users.

* Training of sufficient local staff to a level which will enable them to operate andmaintain the systems, and to provide necessary end user support.

* All documentation will be in the English and Turkish languages.

* The consultants will assist with procurement acceptance of the downstream hardwareand software.

5. LEVEL OF EFFORT ESTIMATES

46. It is estimated that this consultancy will require a total of about 70 consultant-months ofeffort.

Annex 2c

PUBLIC FINANCIAL MANAGEMENT PROJECT

Expenditure and Personnel Component

Detailed Cost Table

TurkeyPublic Financial Management Project

Expenditure and Personel Component - Detailed Coal (USS'OOO)

OMWNI TOTALBae Coa Due Toal O(ld4g

Usk t Flonkdw 1995 1996 1997 1998 Totad & Tazxe Ceutluclu Coetheand.)

A. ClI Weab1. SitePuePaticn-F wocanstioSyutm bmyin GOT - 25.0 75.1 - 100.1 - 73 107.4

Subotal 25.0 75.1 100.1 - 7.3 107.4

B. Eqidpun1. H14 i and Syd Sowta hmy IBRD - 1,499.2 1,417.4 - 2,916.6 608.9 193.8 3,110.4Z DBMS aApica&. DevOm TD11k \a bap - 3D - 241.8 260.4 - 502.2 107.7 33.1 536.03. Appicatio So ) bb b1y - I RD 1,250.0 1,250.0 - 2,500.0 522.2 166.9 2,666.9

S ahttl - 2,991.0 2,927.1 - 5,911.1 1,231.8 394.5 6,313.3

C. Tra_gI. Budrtaryia b r,yM GOT - 100.1 100.1 - 200.2 - 13.4 213.6

x s - ~~~~~~~~~~2Qd. 150. _0. - ZL1 a) lAw C,,s hmp muy Gor 100.1 100.1 - 200.2 * 13.4 213.6b) SqputtoT..u'a 4p _nmu MRD - 50.0 50.0 - 100.0 - 6.7 106.7 a

3. StodyTown 2Oiaff BRD - 100.0 100.0 - 200.0 - 13.4 213.4

Scal - 350.2 350.2 - 700.4 - 46.9 747.3

DL Taled Ama' e

a) R3aWd Advir 20 p IwoB 3RD 30.0 170.0 170.0 30.0 400.0 - 27.1 427.1b) Shoat Tem Ce_ 27 paB medth IRD 20.0 250.0 250.0 20.0 540.0 - 36.3 576.3

2. 465.0timaJM 9.0 960. 22M 2,610.0 - 17. 2)S0.a) P _MIT_fl ut 30peranmoods GOT 15.0 60.0 60.0 15.0 150.0 * 10.3 1603b) Pool of coqdap 120 pon GOT -a 300.0 60.0 360.0 . 30.4 390.4c) GFMI1 Devalo t ad Pielo hpIamotio 701 Mcs BRD 450.0 900.0 600.0 150.0 Z100.0 129.7 2,22.7

Subtda 515.0 1,330.0 1,30.0 275.0 3,550.0 - 233.8 3,733.1

E Pejecd Suppot bay - GOT 20.0 40.0 40.0 - 100.1 6.1 106.2

TOTAL 5350 4,7862 4,773.1 275.n 109.4 1,23M8 6S36 11,10

\s Died Proo vib Wevey oma may be aocy to p a DBIW citble delopoot toc cunily available i tiw MOF.% Pitly Dimce p c ifam ideod adwa9 package m_eb fdioa e m\:STo be vo wue waIh bscai am1lbm_

Annex 2d

PUBLIC FINANCIAL MANAGEMENT PROJECT

Expenditure and Personnel Component

Implementation Schedules

CIL~~~~~I!! fX tit

*0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~b1I r1 ''111t Xl

............. ................................................................................................. ...... .......................... .......................................................

.............. ..................................................................................................................................................................................................... _ _

_ C9 _

1 ii | i| f0 i25;i aS S :S i X

II I' 1- iiiiItii

Z Z .D fS4~~I

..............

- S9 -

or

CO

C - C~~~~~~~~9

Publc Fiancial Mangreent PrctPubli Expenditure Managemnt lemetbtIon Plan

1996 1996 1997ID TaskNamne _ Duratlon Start FDuration Start Finish Q1 Q2 Q3 04 01 Q2 Q3 Q4 01 02 Q3 Q4 0145 Prepare functonal analysis 194d 11296 9/27196

46 Prepare tender for application (or customization of packages) 23d 9/30/96 10/30/96

47 Procurement for appication (or packges and customization) 21d 10/31/96 11/28/96

4U 2. Application Development or Custonilzation of Packages 195d 11/1/96 7131/97

49 Financial Ledger System 195d 11/1/96 7/31/97

50 Payroll and Post Management System 195d 11/1/96 7/31/97

61 Budget Preparation System 129d 2/3/97 7/31/97

62 3. Pilot site 435d 7/3/96 313/98

53 Prepare H/W and DBMS specifications 20d 7/3/96 7/30/96

64 Prepare tender for HNV for pilt ie 23d 23/97 3/5/97

65 Procurement for HAN and DBMS 22d 4/1/97 4/30/97

PNot site preparaion 85d 2/3/97 5/30/97 C.,

57 PMot site installabon 65d 6/2/97 8/29/97

59 Conduct trainhg for user staff at piot sites 132d 9/1/97 3/3/98

59 4. Assistance to System Design and knpiementation 610d 11/1/96 3/3/98 '

60 I.T. Advisor 610d 11/1/95 3/3/98 ---: -----

61 Pool of local experts 282d 2/3/97 3/3/98 -62 Ill. Project Managemt Support 653d 9/1/95 3/3/98

Task Milestw Roled Up Tak Rold Up Progre

Progres Surm _ y Rolled Up Mlbstone O

Amex 2e

PUBLIC FINANCIAL MANAGEMENT PROJECT

Expediture and Persnnd Management Component

Elembuts of the Govement Fiancdal Management Information System

The Logical Operation of a Financial Ledger Systemwithin a GFMIS

1. Presentation of a Financial Ledger System

1. The objective of this annex is to illustrate the logical operation of the FLS concept, not todefine in detail the operation of the system. Full functional analysis and system definition wouldbe the principal component of a consultancy to be executed under the project.

Conceptual Overview of a GFMIS

2. A broad indication of the modules or components involved in a fully integrated GFMIS isat Chart 1. The core of the system is the Financial Ledger System (FLS), which is bestdescribed as a set of self-balancing budgetary and proprietary (asset and liability) accountscovering all central government financial operations. (This section only addresses the budgetaryaccounts). Accounts would be formulated for consistency with the Government Finance Statistics(GFS) functional and economic requirements and would be organized on an administrative basisso that operations of different institutions could be processed without confusion of their varioustransactions or statements within the system and, most importantly, so that automaticconsolidation of such statements could take place.

3. The data bank constituting the GFMIS can also be viewed on a time line reflecting alsodifferent levels of aggregation. Chart 2 shows this relationship based on year zero (YRO) as theyear of budget execution. The GFMIS data bank thus contains information relating to a numberof years: for historical analysis purposes, and for budget execution and preparation, includingestimates for future years. The FLS component used for Budget Inplementation is furtherexpanded to show key control fields used in the budget execution process.

4. The proposed GFMIS would be structured in two levels, with a very clear functionaldistinction between the level 1 that would process and keep consolidated data and the level 2 thatwould execute operational functions and keep detailed data.

Information Ownership and Access

5. It is essential that all Government financial operations be included in one Financial LedgerSystem, so that the agencies responsible for financial management have access to the necessarydata for analysis and reporting purposes. That is not to say, however, that one agency shouldcontrol all the data. Indeed, the system should be designed such that sections of the LedgerSystem are controlled by the most appropriate agency (for instance in the case of public debtinterest payments, Treasury would be the logical control agency) with the overall systemmanaged by one agency; in this instance the Ministry of Finance.

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Chart 1: Govwnuant FanaiS Managment Iormation Systn-Moduflee

Budget Implementation

Budget ExecutionBudget Economic Trend - Appropriation

Preparation Analysis - Commitment- Verification- Funds allocation

Inv-stment. Financial PlanningPlanning - lllllllllllllll - Forecast of revenues

inancial Ledge and *xpenditure-- System - Forecast of debt

Fiscal Data Bank servicingReporting - Cash management

Financial Exocution- Inflows to Banks

Debt Management - outflows from BanksInternal - Internal - Paymentsand - External - Receipts

ExternalControls

Accounting- Chart of accounts- Accounting rul-e- Controls

Each niodue is a sa of opotins utilizing dh Financi Ledger Sydsm (Data Bank) (FLS) withinformation flowng both to and from the FLS.

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Chart 2: Govmnuent Flnancal Managunent Information Systu-Data

Aggregated Financial AggregatedLedger Ledger Ledger

Systm

YR -5 -4 -3 -2 -1 0 | 1 2 3

Budget

Historic Economic Execution Preparation Forward EstimateTrend Analysis

Financial Control Fields for EachBudget Item

Expenditure Appropriation Comimtment Verification Funds PaymentAllocation

(a) (b) (c) (d)

Revenues Revenue Not Not Not ActualEstimate Applicable Applicable Applicable Revenues

andReceipts

Ia) An appropriation is the maxirnum aount of pubic tund authorized by the Parwaent In the Dudget Law for *xp endl e on aparticuar purpose from the Governmnt Account.

(b) Commitment h the process of entering Into an arrangement that obigates the governmnt to make expenditures of pushlfunds.

(c) Vrifiation h the process of confirrnhg an obigation to pay.(d) Funds aIocatiorn I the process of alocsthg cash amounts to Miitries and pending units for expnditure from the

Govrment's Account in the tme period designated In the alocatlon advice.

- 74 -

2. Execution of budgetary expenditures

Overview

6. The various budget implementation activities (identified in Chart 1) are summarized ininformation flow terms in Chart 3. The process begins with the recording of the approvedbudget (and any amendments thereof) by the Ministry of Finance (MOF) in the FLS, byindividual appropriation item or revenue estimate. Using this as a basis, commitment limits mayalso be determined, against which spending units can make commitments (the commitment stage).A funds allocation limit will be determined periodically on the basis of cash availability, andentered by Treasury against an appropriate aggregation of appropriation items. (In the longerterm, once proper budgetary processes are in place this step may no longer be necessary) Whendeliveries have been made or services rendered, and invoices received, the spending unitacknowledges the fulfillment of the commitment and confirms an obligation to pay (theverification stage). In this final stage, the spending unit also prepares the documentation formaking the payment, for forwarding to the Accounting Office, where the payment is initiated andrecorded in the FLS.

Information flow

7. The General Directorate of Budget and Fiscal Control (GDBFC) prepares and registers inthe FLS the detailed allocation of budgetary appropriations by ministry, and advises ministriesaccordingly (flow 1). This should be done within the limits of appropriation approved by theParliament. The Directorate, in consultation with the General Directorate of Public Finance(GDPF), Treasury, may also set and register quarterly limits on commitments by ministry(flow 2) and by category of spending (at the level of aggregation deemed appropriate).Ministries would then advise budgetary appropriations and commitment limits to their respectivespending units and enter the limits in the system (flow 3).

8. Registration of actual commitments would be made by the ministries directly linked to thesystem (flow 4), or by the spending units (SU) not linked in a parallel system through aProvincial Accounting Office (PAO).' (flow 5). The SU will be periodically informed by thePAO of their limits (flow 6). In the verification stage, once all the requirements for a particularobligation have been met, the spending unit should confirm that the commitment is ready forpayment (Flow 4 and Flow 5).

9. It should be noted that the process outlined above can be simplified for certain types ofexpenditure, either administratively or by automated procedures in the FLS. For example, salarycommitments may be advised only once a year on an estimated basis and adjusted as necessaryduring the year. The commitment (and verification) of small expenditures (up to a predeterminedlimit) can be entered into the system simultaneously with the order for their payment. However,

1/ Accounting Offices will be established at a level below that of the Province and will be connected,electronically or manually, to the Provincial Accounting Office (PAO). This description, for simplicity, onlyaddresses operations from the Provincial level.

- 75 -

the system must know in advance which appropriation items allow such simplification, to preventmisuse.

10. Commitment control for the current component of the budget can be operatedsatisfactorily on a within year basis, primarily as an aid to sound cash management activities.However, in the case of the Investment component, where many projects have a financial life ofmore than one year, it is often useful to maintain an accurate record of the forward expenditurecommitment generated by undertaking the project. If this is done Government has a betterunderstanding of the flexibility available to it for future investment decisions. This process canbe accommodated in the FLS by extending the commitment control field against each investmentappropriation line item to cover 2 years beyond the budget year. As long term commitments areentered the financial impact is recorded, for budget and 'out' years.

11. To encourage advance planning of the larger expenditures, it may be appropriate forTreasury to propose limits on cash availability against spending unit expenditure items. Thesewould be advised to ministries (flow 7) in accordance with the financial plan developed by theGeneral Directorate of Public Finance, specified by category of spending. Ministries would, inturn, advise spending units (flow 7). The advance knowledge of indicative cash limits, as well asof quarterly commitments limits, will allow agencies to make the best arrangements and to setpriorities in a situation of scarce resources, so that any necessary cuts in expenditures by agenciescan be made in a more orderly and effective way. (The proposed cash limits component of theprocess (flow 7) is not shown in the FLS control fields in Chart 2.)

12. After taking into account the balance in the Central and Agricultural Bank accounts andthe balance in spending units' expenditure items in the system, the GDPF would make fundsallocations (set cash limits) to ministries for each category of spending (flow 8), thereby allowingthem to distribute these financial releases (limits) anong their respective spending units and enterthe limits in the system (flow 9).

13. Under ideal circumstances, the funds allocation would be consistent with the proposedcash limits advised to ministries earlier (flow 7). Both proposed and actual cash allocationquarterly limits would also be consistent with the quarterly commitment levels and budgetappropriation made on an annual basis, thereby minimizing the necessity to replan activities. Thedegree of consistency in the process will largely depend on the quality of the budget initialprepared, the initial financial planning process and the revenue collection outcome.

14. Following the verification for a given expenditure, ministries directly linked to the systemwould record the corresponding payment order in the system (flow 10). The system wouldautomatically check that the order falls within the funds allocation limit set for that Ministry.The spending units would process a payment order through the Provincial Accounting Office(flow 11). The latter would check the payment order issued by SU and register it in the FLS(flow 12).

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Chart 3: Logical Flows-Budget Expenditures

Treasury.~~~~~7 .

: SpefdingGDBFC u Unit

HOF : v.... 3....

Budget | 3MDirector- ... Ministry . 9 .

s rate1

M4OF

FLS~~~2 L

Level 2 12 ~ ~ ~ eve FLSLevel 1

6 :5 :11 Central Bank/(Central Unit) Agricultural Bank

Spending ~~ ~ ~~~~~~13 |Govern-|Spenkding16 mnUnit -=

Commercial15 Banks

Si.LWiersGovt public

....... s.......

Legen:I Information flow.Financial flow.System Registration (SR) or information provided by the system.

Entities Linked to the system

_ Entities not Linked to the system.

(SR- System Registration)

1. SR--Budget appropriation limits per ministry.2. SR--Quarterly Limits on commitments.3. SR--Budget appropriation and commitment Limits per spending unit, by quarter.4. SR--Actual comitments and verifications of ministries directly Linked to the system.5. Actual comitments and verifications of spending units indirectly Linked to the system, in a paraLlel

systm.6. Information on the budgetary and financial limits to the SU.7. Indicative cash Limits for subsequent months, specifying the main expenditures groups.8. SR--Financial releases (funds allocations) to the ministries, for each expenditure group, taking into

account the balances in the Government account nd in the ministries' expenditure items.9. SR--Financial releases to the SU accounts.

10. SR--Payment order (PO) to pay expenditures, subject to prior committment and verification.11. PO to pay the SU expenditures, subject to prior committment and verification.12. SR--POs Issued by the SU.13. Daily fiLe of the payments of Ministries and Spending Units.14. Credit to commercial banks of the amount authorized by the SUs for payment to central goverrment creditors

(suppliers, pubic employees, etc.)15. Credit to central government creditors' accounts.16. SR--Information on debits/credits made to the Government account.

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Payment Arrangements

15. At the same time as payment orders are registered in the FLS, the banking system must beadvised in order to make the necessary payment (that is to transfer funds from a CentralGovernment account to the creditor). In a fully developed system this can be done automatically.At the end of each day, the FLS would structure a file with complete information on the creditorsand payments to be made, as advised by ministries and spending units. This file would be sent tothe Central Bank or,by the Provincial Accounting Office to the Agricultural Bank, which holds theGovernment account (flow 13). The applicable Bank would transmit the relevant information (andfunds) to each commercial bank (flow' 14), to credit to the appropriate account (flow 15), and debitthe government account. The appropriate Bank would confirm to the FLS (through the PAO) thedebits in the Government account (flow 16).

16. Alternatively, and until banking arrangements have been reformed and the final structure ofthe Government account settled, the applicable Accounting Office could forward to the appropriatebank a consolidated listing of the registered payment orders requiring payment. Action by thebanking system would be as described earlier, but confirmation to the Accounting Office would bemanual.

17. One category of payment is worthy of special mention - namely Civil Service salaries. Intheory each payment of each civil servant could be treated as a discrete payment and processed inthe manner already described. However, given the number of individual payments involved, thesimilar structure of each payment, the regular occurrence of payments, and the addition personnelissues which need to be considered, it is preferable to develop a separate sub-system for processingsalary payments -- usually referred to a payroll system -- in a manner compatible with the overallexpenditure process.

Annex 3a

PUBLIC FINANCIAL MANAGEMENT PROJECT

Customs Modernization Component

Implementation Plan

Annex 3aCustoms Modernization Component

Implementation PlanTable of Contents

I. The Customs Modernization Component ............. ................ 83A. Objectives and Scope ...................................... 83B. Description . ...................................... 84C. Project Costs and Financing Plan ................................... 0D. Accounting and Audit Plans ..................................... 92

II. Implementation Arrangements .................................... 93A. Responsibilities of the Implementing Agencies ........ .................. 93B. Inter-Agency Coordination ...................................... 95C. Role of World Bank Supervision ............................... .. . 95

111. Implementation Activities ....................................... 97A. Implementation Schedules ..................................... . 97B. Procurement Arrangements and Schedules ............. .. ... .. .. .. .. . . 97C. Disbursement Arrangements and Schedules ........... .. .. .. . .. .. .. . . . 101

IV. Benefits and Risks ......................................... 103A. Benefits ....................... ..... ..... ..... .... ..... . 103B. Main Project Risks ......................................... 103C. Other Factors Affecting Project's Success ........... .. .. .. . .. .. .. . . . 103

V. Monitoring and Evaluation ................................. ... . 105A. Monitoring and Evaluation .................................... . 105B. Indicators.. ........................................ 105C. Reporting Arrangements ...................................... 106

Box1: Customs Modernization Component--Major Tasks ......... .. . . .. . . .. . . . . 85

Tables1: Costs Summary by Expenditure Accounts ............. ... .. .. .. .. ... . 912: Financing Plan.. ...................................... 923: Proposed Procurement Arrangements .................. ... ... .... .. . 994: Procurement Implementation Plan ................... .... .... .... . 1005: Estimated Bank Disbursements .......................... ...... . . 101

I. THE CUSTOMS MODERNIZATION COMPONENT

A. OBJEcTIvEs AND SCOPE

1. The Turkish Customs Administration is reorganizing its operations with a view tomodernizing its administration to become more efficient. The primary impetus for the change isthe entry of Turkey into a customs union with the European Union (EU) in 1996. At the sametime, the administration, is facing the same issues and problems of other customs administrationsincluding: increases in the volume of trade; changes in the types of goods being traded;application of complex regulations of other government departments; and, more sophisticatedmeans of smuggling.

2. As a first step towards modernization, the administration was removed from the Ministryof Finance in July 1993 and created as a separate Ministry of State. Several other measures havealso been undertaken, including the implementation of anti-dumping legislation, introduction ofthe GATT Valuation Agreement, and the review of the current Customs Law to identify areaswhere it is necessary to introduce amendments to bring it in line with EU requirements. One ofthe most important requirements of the customs union is the requirement for the CustomsAdministration to apply the EU common external tariff to goods originating from outside the EU.In this regard, the administration will be required to apply not only the rates of duty in the tariffbut also its commercial policy provisions (e.g., EU quotas). '

3. The Customs Administration is now developing the changes in legislation, procedures,organization, and computerization that are necessary to support modernization. These changeswill enable the administration to both comply with the EU legislative and procedural requirementsand provide support to the Turkish trade commnunity to compete in the customs union. This isvery important as the trade regime has already been liberalized significantly and importers andexporters are facing, already, increased competition. It will even more important after Turkeyjoins in the customs union, as importers and exporters will become more and more concernedwith the costs of doing business. Through simplification and automation, Customs has theopportunity to reduce these costs while, at the same time, to increase the effectiveness of itscontrol and revenue collection responsibilities.

4. The major outcome of the Customs Modernization Component will be to shift theCustoms organization from its present costly and inefficient ex ante, full coverage, sanctioningapproach to a more efficiency-seeking stance, supportive of the trade community yet still capableof gathering appropriate revenues and enforcing relevant national and international laws. Toachieve the desired results, the objectives of the plan are to:

* Implement modern, up-to-date customs legislation.* Simplify and automate customs procedures.* Introduce greater reliance on post release controls.

' The Customs Administration received technical assistance from the EU to identify the legislative andprocedural changes required by Customs to implement the customs union requirements (the program beganin September 1993 and included experts visiting Turkey to assess the needs and Customs sending officers tothe Community members to review customs procedures).

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* Provide good service to the trade community.* Delegate increased responsibilities to regional and local offices.

B. DESCRIPrlON

5. The Customs Modernization Component will take almost four years to develop andimplement at a total cost of approximately US$68 million. It will require a major investment ininformation technology (about US$56 million) which will be complemented by investments inadvisory services, human resource management and training, site preparation and projectmanagement support services.

1. Principles for Development

6. The Customs Modernization Component will be developed based on the followingprinciples: self-assessment; selectivity for physical inspection and document review;strengthening of the post release review function; simplification of procedures as a pre-requisiteto automation; reduced reliance on physical controls (more trust in the trade community tocomply); and, rationalization of controls of other government departments.

7. The modernization plan has been developed by responding to the following questions:what procedures are to be simplified to benefit from automation; how are the systems to bedeveloped; what are the priority components of the system; and, how are the benefits ofmodernization to be delivered to the trade community.

2. Major Subcomponents

8. In order to develop and implement the Modernization Component, four subcomponentshave been identified: (i) legislation and procedures; (ii) computer systems development andimplementation; (iii) human resource management and training; and (iv) advisory and projectmanagement support services. Box 1 provides a breakdown of the major activities to beundertaken within each of these subcomponents.

9. Legislation and Procedures. For the most part, laws and procedures related to customsadministration are governed by international rules, conventions, and codings. For Turkey, withthe entry into a customs union with the EU, the customs administration must not only be able toapply the usual international standards but, at the same time, they must also apply certain EUlegislation. In addition, the customs procedures must be similar to those applied in the EU.Consequently, the automated systems must be able to support administration of certain EU laws(e.g., application of the common external tariff) and procedures.

10. Drafting of the Customs Law is complete and awaits passage through Parliament. Manyparts of the required new legislation are being promulgated expeditiously through decree laws.The Customs Tariff Legislation is being modified to ensure that it conforms to EU commonexternal tariff and is scheduled for completion in September 1995. New regulations would bepublished once the legal framework is in place.

- 85 --

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P.-Yelp .::. ::. %. .;....:..::.:::.-.m � ''.. �:::::i::::.;.::.::.::::::::::::::::::.::.......:: .:::: :::..::. .: :.::.::.::..' -...:.: . ..... ;..:...::..:.:.;. :.......*: . . .p detsiW11 aTat-..-.m :: -.:.: ......

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11. As part of the process of developing the plan for modernization, with the assistance of theBank, a review of the customs procedures was undertaken (using the principles for developmentdescribed above). The new procedures meet both international and EU standards. Theprocedures, when implemented, will simplify significantly the import and export customs regimesand will lead to successful implementation of automated systems. Procedures have beendeveloped for:

* Import processing- Transit and cargo reporting- Declaration processing- Physical inspection- Payment of duty and release of goods- Post release checks

* Export processing

A detailed description of these procedures is provided in Annex 3e.

12. Computer Systems Development and Implementation. Headquarters, 18 regions and 45customs offices will be automated over a three and a half year period. The 45 customs officesaccount for 90 percent of workload and 90 percent of revenue (non-automated offices willforward documents to automated offices for processing). The following subsystems will provideautomated processing at the customs offices:

* Import declaration processing* Export declaration processing* Revenue accounting* Manifest* Transit* Warehousing* Management information* External interfaces.

13. Automated support will be provided to headquarters to produce management informationand trade statistics, perform analyses, and receive and distribute updates to the EU integratedtariff. The regions will be supported by automation to perform post release reviews and monitorlocal office activities. In addition, headquarters and the regions will be supported by officeautomation.

14. After implementation of these subsystems at the automated customs offices, a secondautomation phase will extend automation to other customs offices and the following additionalsubsystems will be developed:

* Enforcement analysis* Passenger processing* Appeals, refunds, and rulings

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Although these sub-systems are not included in the scope of the component, the design of thesystem includes provision for their future development and implementation.

15. Automation is to be based on the "community system" approach. It is to be developedusing an open computer architecture to permit ease of interconnection with members of the tradecommunity and other government ministries using electronic data interchange (EDI).2 Theobjective of these systems is to provide the opportunity for all participants in the trade system tosubmit and receive informnation electronically. Verification activities are carried out prinarilythrough the use of automated selection criteria to determine which goods require physicalinspection, documents requiring review, and audits of the books and records of enterprises.

16. The proposed system is comprised of a three-tier (headquarters, region, and local office)network of computers with higher organizational levels containing a subset of lower leveldatabases.3 To support this approach, a UNIX operating system is recommended to operate witha relational database. Initially databases will be updated daily by file transfer using an X.25network and on-line access to databases will be by dial-up. After implementation of the newsystem, a feasibility study will be performed to determine whether on-line updating of theheadquarters database would be cost effective.

17. The information technology (IT) department has limited experience with the recommendedUNDX environment and with data base management systems. In addition, the system must bedeveloped in a short period of time to support administration of the EU legislation andprocedures. Therefore, developing application software 'from scratch" is not a practical option.In recognition of this fact, the Customs Administration has entered into a bilateral agreement withFrench Customs to acquire the SOFIX application software which is based on French Customsautomated system software.4 By using this software, the customs administration will be assuredthat the tariff and supporting procedures are compatible with EU requirements. The softwarewill operate in the recommended architecture. In addition, SOFIX is supported by French IT andcustoms administration experts who will assist in adapting the software to Turkey's specificrequirements, the pilot implementation and with initial IT training. Even before the signing ofthe formal protocol in July 1995, significant joint preparatory activities was being carried out bythe two customs agencies for the pilot.

18. Human Resource Mananement and Training. Customs modernization involves not onlynew systems and procedures and the integration of automation into the work place but alsoimplies increased delegation and responsibility for regional and local management. It will have

2 Information regarding imports and exports by enterprise will be shared with the Revenue Directoratefor tax enforcement purposes. This collaboration would be facilitated considerably by the use of the securTaxpayer Identification Number that is being developed by the General Directorate of Revenues.

3 Thirteen regional computer systems will support the eighteen regions (smaller regions will share acomputer system).

4 The acronym for the software is based on the French Systeme d'Ordinateurs de Fret International(S.O.F.I.).

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an immediate, significant impact on human resource management and training within theorganization.

19. The key human resource management issues to be addressed as Customs undertakes themodernization effort are:

* Orgfanization structure. The new organization structure must be designed in a way thatwill best deliver the new program. The principles envisaged in the new structure include:decision making delegated to the lowest possible level to support better service; strongmonitoring at the regional level; and, policy formulation, monitoring and internal audit atheadquarters.

* Number of staff required at headquarters. regions. and local offices. The relative size ofheadquarters, regions, and local offices will change to reflect increased delegation, theintroduction of effective post release controls, and the use of selectivity. It is alsoanticipated that much fewer total staff will be required in the administration once the newsystems and procedures are in place.

* New skills. The systems and procedures introduced to support modernization will requirestaff with skills not now present or in short supply in Customs (e.g., computer systemsdevelopment, audit, and analysis).

3 Training. The training requirements of the organization are multi-dimensional. Re-training of all customs professional staff will be required to support the new systems andprocedures resulting from changes in legislation, simplification of procedures, and theintroduction of computerization. In addition, training will be necessary to support entirelynew requirements (e.g., audit) and new approaches to supervision and management. Themajor training requirements are, as follows:

- Local offices--systems and procedures related to cargo manifests, TIR transit, importand export declaration processing, tariff classification, valuation, and physicalinspections.

- Regions--systems and procedures related to analysis of information to developselection criteria for physical inspection and for detailed documentary checks andaudit. Training is also required to develop the technical expertise required for in-depth tariff classification and valuation review and for the audit of the books andrecords of enterprises.

- Headquarters--analysis skills related to using information from the computer system tohelp identify problem areas, develop national selection criteria, monitor staffperformance, and identify areas for staff re-allocation.

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- IT--use and operation of 4th generation languages, UNIX operating systems, relationaldatabases, CASE tools, and EDI. In addition, IT staff will require training related tothe modification and maintenance of the application software (SOFIX).

20. Advisory and Project Management Services. Technical assistance requirements have beenidentified for four major areas: customs administration; information technology; human resourcemanagement; and project management support.

Customs Administration Adviser. Technical assistance is required from a variety ofsources and it is important that it be coordinated to ensure that it supports the overallmodernization plan. For this reason, Customs will appoint an in-house Senior CustomsAdministration Advisor (SCAA) to provide specific advice related to customsadministration and to coordinate all technical assistance. The responsibilities of theSCAA will also include: (a) the development of detailed implementation plans and theability to monitor progress against these plans; (b) identification of other technicalassistance needs; and (c) developing and implementing evaluation criteria. This advisorwill be selected and supervised by the IMF. The terms of reference for the SCAA aredescribed in Annex 3b.

Information Technology Adviser. Similar assistance would be provided by the IMFthrough an Information Technology Adviser (ITA) to coordinate the automated systemsdevelopment, including the writing of software, acquisition of equipment, and siterenovations. Specifically, the support would include: reviews and assessment of existinginformation systems; assessing the skills of the IT staff and recommending training;establishing the IT structure and organization; writing tender documents for acquisition ofhardware and software; and, evaluating tender bids. The terms of reference for the ITAis also contained in Annex 3b.

Short Term Advisers. In addition to the SCAA and ITA functions described above, othertechnical assistance would be required to support: (a) development and implementation ofsimplified regulations and procedures; (b) use of risk analysis and development ofselection criteria for physical inspections and documentary review; (c) use of automationfor valuation and tariff classification post release reviews; (d) improved enforcement withthe introduction of mobile inspection teams and in-depth inspections; (e) rationalization ofinspection procedures with other government departments; and (f) development of apublic information program for the trade community. The detailed terms of reference forthese advisers will be developed by the SCAA in consultation with Customs and the IMF.

Human Resource Management. Technical assistance would also be provided to support:(i) training of managers to operate in an automated environment; (ii) development ofstaffing plans related to the new procedures; (iii) development of training plans;(iv) development of a new organization structure; and (v) identification of the approachesto rationalize staff requires. The detailed terms of reference for these advisors will bedeveloped by the SCAA in consultation with Customs and the IMF.

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Project Management Support Services. A project of the size and complexity beingundertaken by the Customs Administration requires full time project management support.A Project Management Support Services (PMSS) contractor will be procured to assistCustoms with the following requirements: (a) development of the detailed implementationplan, including identification of interdependencies among key milestones and integrationof the automated system into the operation; (b) the writing of tender documents andcomponent reports; (c) the evaluation of bids, negotiations and contracting; and (d) thetracking of component budget and financial expenditures. The terms of reference for thisassignment is contained in Annex 3b.

C. PROJECT COSTS AND FiNANCING PLAN

21. Cot. The total cost of the Customs Modernization Component is estimated at aboutUS$68.3 million equivalent, including contingencies. Project costs include goods and equipment,advisory services, civil works, training services and materials, project management supportservices and a refund of that part of the US$2 million advance from the Bank's ProjectPreparation Facility allocated to this component.

22. The total baseline cost is estimated at US$62.3 million. Physical contingencies areestimated at US$2.7 million or 5 percent of the baseline costs of equipment, software, othermaterials and public works. Price contingencies are estimated at US$3.3 million or 5 percent oftotal baseline costs over the period of component execution. These are based on the assumptionsof an average local inflation rate of 51 percent in 1995-96, and 15 percent thereafter. Priceincreases for foreign costs (estimated in US dollars) are assumed at 1.6 percent in 1995-96, and2.6 percent each year thereafter. Cost calculations assume an average exchange rate of 66,000Turkish Lira to US$1.00 for the 1995-99 component execution period. Foreign currency costs,including contingencies, are estimated at US$49.7 million or 73 percent of total cost. Local costsare estimated at US$18.6 million equivalent, and are mostly for civil works and local training.Of the local cost amount, taxes and duties are estimated at about US$10.9 million or 16 percentof total cost. A summary breakdown of costs by expenditure category is shown in Table 1. Amore detailed presentation is contained in Annex 3c.

23. Financing. The proposed Bank loan would finance US$44.4 million of the costs of theCustoms component, 65 percent of total component costs (see Table 2). It also would meet 89percent of foreign exchange requirements. The Government's contribution (US$18.6 million)would finance the acquisition and pilot implementation of the SOFIX customs software, as wellas a variety of local costs, notably site preparation. Assurances were received from theGovernment during negotiations that adequate budgetary provisions will be made to meetcounterpart financing requirements throughout the period of project execution.

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Table 1. Costs Summara By Exnenditure Accounts

(CL bl_s) (US $ 'oe)

Of Whikh Of Whh % FoNrsiDo". & % Forcim % Total Du". & Echmpge I ToWa

Lal Foreip Total Tx Fxchane Bes Cos LocIa Foreiga Total Tax Bm Cein

Civil Works 264 0 264 0 0 9 5,471 0 5,471 0 0 9

Equipum-M 47S 1,992 2,470 478 Sl 82 9,905 41,272 51,197 9,897 81 82

Vehiclna 1 3 4 1 81 0 14 60 74 14 81 0

Training

alAr. 86 0 56 0 0 3 1,775 0 1,775 0 0 3

hErndomlod 0 38 33 0 100 1 0 778 773 0 100 1

Suueald 86 33 124 0 30 4 1,775 778 2,553 0 30 4

TechalAl Azdoame

htanotlbYm 0 75 75 0 tOO 2 0 1,560 1,560 0 100 2

Projea Support 0 72 72 0 0 2 0 1,500 1,500 0 100 2

BASE COSTS a1s 2,180 3,M 479 72 10 17,165 45,170 62335 9,911 72 109

Phyd Caomitqm 32 96 123 22 75 3 666 1,917 2,653 449 75 4

PGce C t_tamias 1,101 3,424 4,525 753 76 149 765 2,550 3,315 567 77 5

TOTAL COSTS 1,961 5,749 7,1 1,25 74 25S 13,I9% 49,707 6 10,927 73 I1

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24. Preparatory activities for the PFMP as a whole have benefitted from a Japanese PHRDgrant in the arnount of Yen 128 million (approximately US$1.3 million). The FrenchGovernment has also provided a grant of about US$132,000 specifically for preparatory studiesfor the Expenditure and Personnel Management component. The Government has obtained anadvance in the amount of US$2 million from the Bank's Project Preparation Facility. Thesemonies have allowed the timely initiation of the most time-sensitive preparatory activities.

Table 2. Customs Modernization Component: Finandi PIan(US$ million equivalent)

Local Foreign Total % of Total

IBRD 0.00 44.4 44.4 65.0

Government 18.6 5.3 23.9 35.0

Total Financing 18.6 | 49.6 | 68.3 100.0

D. ACCOUNTING AND AUDIT PLANS

25. A project account and special account will be established for each of the threeimplementing agencies. The Project Management Unit of each of the implementing agencies willprepare quarterly statements of expenditures, consolidate component accounts, and prepare andsubmit disbursement withdrawal applications for project expenditures (beginning from the date ofLoan Effectiveness). The project accounts and special accounts would be audited annually byindependent auditors acceptable to the Bank. The audit reports will contain a separate opinion onthe use of Statements of Expenditure. During negotiations, the Government confirmed that anannual audit of all project and special accounts would be undertaken by an independent auditor inaccordance with the Bank's Guidelines for Financial Reporting and Auditing of Projects Financedby the World Bank., March 1982 . Audit reports in English will be submitted to the Bank notlater than six months after the end of each fiscal year (December 31). Details of the schedule forproject reporting and annual reviews are presented in Table 4.7 of the Main Report.

IL IMPLEMENTATION ARRANGEMENTS

A. REsroNsi Es OF IMPLEMENTNG AGENCIES

26. The borrower is the Republic of Turkey which is represented by the Undersecretariat ofTreasury (Treasury). The Undersecretariat of Customs (Customs) in the Prime Ministry willhave overall responsibility for implementation of the Customs Modernization Component of thePFMP. The Customs Undersecretary has established a Project Management Unit (PMU), headedby a Deputy Undersecretary, to supervise and coordinate implementation of the ModernizationComponent. Actual implementation is being carried out by seven Working Groups.

27. The Deputy Undersecretary will be responsible for the day-to-day management andsupervision of the Customs Modernization Component of the PFMP. Specifically, the DeputyUndersecretary will oversee, guide and approve the requirements, specifications, operational andorganization proposals and other changes that result from the study, analysis and design activitiesconducted as a part of the Customs component. The Undersecretary will establish such reviewcommittees as he deems appropriate, or may be recommended by the State Minister for Customs,to review and evaluate the results of work done in component activities. Through this process, itwill be ensured that the activities conducted under this component remain consistent with theobjectives that have been established and with Government intentions. The responsibilities of thePMU as a whole are as follows:

* Ensuring the training, assignment, and placement of Customs staff and consultants asrequired by activity work plans.

* Providing liaison with the Bank and involved Government units for project administrationand supervision.

* Assisting Working Groups in the preparation of procurement strategies, plans, and tenderdocuments, and ensuring compliance with Bank procurement guidelines in the acquisitionof products and services.

* Preparing and distributing quarterly reports to the Undersecretary and the Bank, and (asrequired) to other Governmental units covering the progress, problems encountered andcorrective actions needed, and activity and financial status of tasks.

* Ensuring the movement of official documents and contracts through approval processesand undertaking measures to expedite their release.

* Supporting component activities by providing necessary translation and administrativesupport.

* Monitoring availability of funds, project costs and expenditures, processing loandisbursement applications and tracking disbursements of the Bank loan and GOT funds.

* Preparing a Component Completion Report within six months of the completion of thecomponent, which will be incorporated eventually into the Project Completion Report.

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The PMU will be assisted in the above tasks by the PMSS contractor.

28. As noted above, the Undersecretary of Customs has established seven Working Groupsthat are responsible for carrying out component activities with the assistance of contractedtechnical advisors. Additional short-term teams may be formed from time to time to assist withthe preparation of tender documents and with the evaluation of proposals. The specific taskresponsibilities of the main Working Groups are as follows:

* Tariffs Working Group. After completion of the preparatory work for the integratedtariffs by the Directorate General of EU Affairs and Foreign Relations and the DirectorateGeneral of Customs, members of this Group will redesign the Turkish Tariff Schedule.A format will be prepared of the tariff schedule to be used in the Customs AutomationSystem. This format will include tax (tariff) rates, special permissions that will apply toorganizations, and all explanations.

* Trade Documents Harmonization and Standardization Working Group. This Group willdevelop a Turkish version of the Single Administrative Document (SAD), which will beused as from January 1, 1996, the scheduled date of entry into the Customs Union, andany other documents that may be required as a result of the new Customs Regulations.

* Customs Procedures and Organization Working Group. The work to adapt the CustomsLaw and the Customs Regulations to the Customs Legislation of the EU is beingconducted by this Group. Upon completion of this work, the same Group, incollaboration with the information technology Working Group (see below) will determinethe process, workflows and the user needs for future automation, consistent with theenvisaged simplified procedures and organizational changes.

* Information Technology Working Group. This Group, consisting of informationprocessing staff only, will carry out work to specify the computer hardware and softwarerequirements that will be established as a result of the user needs and analysis workundertaken by the Procedures and Organization Group. The work of this Group will takethe form of research and feasibility studies, culminating in the drawing up of thespecifications necessary for issue of tenders.

* Technical Assessment Group. This group, consisting of information processing staff, willdeternine the criteria necessary for tenders to be held and assessed in accordance withWorld Bank guidelines.

* National Implementation Working Group. This Group will be responsible forcoordinating the nationwide implementation of the organizational and IT changes that willbe defined and piloted by the foregoing groups.

* Training Working Group. Two subgroups will be responsible respectively for training ofIT personnel and for end-user training in the new procedures and systems.

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B. INTER-AGENCY COORDINATION

29. Components are essentially independent of each other and will proceed according toseparate component implementation plans. The implementation of the Customs component willbe undertaken solely by the Undersecretariat of Customs. Consequently, there are no substantialrequirements for coordination with the other agencies implementing the other two components.Any necessary coordination among the organizations will be effected at the ministry level by theUndersecretaries of Customs and Finance.

C. ROLE OF WORLD BANK SUPERVISION

30. Bank supervision of project implementation will concentrate on the consistency ofcomponent activities with agreements reached during appraisal, performance of the implementinggroups and assessment of emerging needs for adjustments to project parameters. The day-to-dayimplementation and monitoring will be carried out by the PMUs. The basis for Bank monitoringwill be quarterly progress reports prepared by the PMUs. The reports will describe the status,deviation, if any, from the implementation plans, reasons for deviations as well as correctiveactions being taken. In addition, Bank supervision missions will hold substantive discussionswith the Working Groups implementing the various subcomponents as well as higher echelonofficials. Annual work and procurement programs will also be required to be agreed with theBank each year, and will include quarterly benchmarks for monitoring and evaluating progress inimplementation.

31. Implementation of the proposed project, and the extent to which it is achieving its statedobjectives, will be reviewed and evaluated annually and upon its completion. In addition, therewill be three formal joint Bank-Government reviews. The first of these would be conductedearly in 1996, about four months after Loan Effectiveness, to provide a basis for proceeding withpreappraisal of the proposed follow-up investment operation for the Ministry of Financecomponents of the PFMP, and for making any early adjustments as may be necessary in projectparameters. The second (in FY1997) would cover the formal assessment of the pilotimplementation of the new Customs system, and the third (FY1998) the assessment of the pilotGovernment Financial Management Information System (GFMIS) for the Expenditure andPersonnel Management Component. A proposed schedule of supervision and review missions isprovided in Table 4.7 of the Main Report. During negotiations, the Government agreed to ajoint-Bank review of project implementation in October/November of each year for assessingprogress toward achievement of agreed policy, institutional, financial and physical targets and fordetermining and agreeing on needed budget resources (both local funds and Loan proceeds) to berequested for the next fiscal year.

32. The Bank's supervision efforts concerning the Customs component will be substantiallyenhanced by the fact that Customs has decided to engage the IMF to help it implement thetechnical components of its modernization plan. An agreement to engage the IMF's FiscalAffairs Department (FAD) to provide this technical assistance is to be arranged through anexchange of letters between Customs, the Bank and the IMF, and financed under the loan. FADwill supervise the Customs Administration Adviser and Information Technology Adviser that willbe appointed under the agreement as well as short term advisors appointed to provide specific

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technical assistance. As a result of this arrangement, the PMU's quarterly reports will besupplemented by monthly reports from the Technical Advisers to FAD, copies of which will beprovided to the Bank. There will also be regular inspection visits by FAD (approxinately everysix months). The assessment of the pilot customs operation will also be assisted by FAD.

III. IMPLEMENTATION ACVIT

A. IMPLEMENTATION SCHEDULES

33. The three components of the PFMP are essentially independent of each other and wouldproceed according to separate Implementation Plans--see Annex la for Tax and Annex 2a forExpenditure and Personnel. There are no substantial requirements for coordinating thecomponents at the implementation level. Any needed coordination among the organizations willbe effected at the ministry level by the Undersecretaries of Customs and Finance, with theassistance of the Treasury. Annex 3d shows the major activities to be undertaken in thiscomponent, including the tasks related to each subcomponent.

34. The Customs Modernization Component will be implemented over a period of almost fouryears. The schedules in Annex 3d take into account the work that has been carried out duringproject preparation. In particular, new legislation and regulations are already under preparation,as is the pilot customs operation using SOFIX. Terms of reference for major consultancy andother technical assistance assignments to be financed under the loan have also already beenprepared (see Annex 3b).

B. PROCUREMENT ARRANGEMENTS AND SCHEDULES

35. Procurement arrangements and schedules have been prepared independently for eachcomponent. The executing agencies' capabilities and purchasing regulations and procedures werereviewed during Appraisal. It was determined that the Customs Undersecretary would benefitfrom the services of a professional procurement specialist familiar with the Bank's procurementguidelines. This support is to be provided under the PMSS contract.

36. All procurement of goods and material to be financed from the Bank loan proceeds wouldbe carried out in accordance with the Bank's Guidelines: Procurement Under IBRD Loans andIDA Credits (January 1995) and procurement of services, including the selection of consultantsfor technical assistance and training, would be in accordance with the Guidelinesfor the Use ofConsultants by World Bank Borrowers and by the World Bank as Executing Agency (August1981). Project procurement would be limited to the purchase of goods, material and services,including training. The former consists mainly of the hardware and software for the ITsubcomponents (including substations, personal computers and peripherals).

37. Contracts for goods and material with a value of more than US$300,000 equivalent percontract will be arranged in accordance with the Bank's procedures for international competitivebidding (ICB). In that event, goods manufactured in Turkey and procured through ICB may begranted a margin of preference of 15 percent in accordance paras. 2.54 and 2.55 of the Bank'sGuidelines and paras. 1-6 in Appendix 2 of the Bank's Guidelines. Contracts below US$300,000equivalent per contract will be procured under the Bank's procedures for international shopping.The Bank's Standard Bidding Documents will be used for all procurement under ICB.

38. Contracts for equipment and material estimated to cost US$300,000 equivalent or moreand any direct procurement contracts would be subject to the Bank's prior review of procurementdocumentation and approval of contract award. This would result in the prior review of 99

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percent of Bank financed contracts. Other contracts would be subject to ex post review aftercontract award.

39. Procurement of sgvices, including the selection of consultants, would be based mainly ona shortlisting of firms. The exceptions are the advisory services contract with the IMF andproposed study tours, which are to be sole sourced. The services of individual specialists not toexceed US$50,000 per contract may also be contracted for diverse tasks of short duration (up tosix months). The total value of services to be procured is estimated to be US$4.01 million.Prior review of consultant contracts would not apply to contracts estimated to cost less thanUS$100,000 equivalent per contract for firms and US$50,000 per contract for individuals.However, the terms of reference for all contracts will be pre-reviewed by the Bank.

40. Items will be grouped into packages to encourage competitive bidding and permit bulkprocurement. Major procurement categories include: about US$49.8 million equivalent to beprocured through ICB; US$230,000 equivalent through international shopping; US$2.2 millionequivalent through shortlisting of consultant firms; and US$1.81 million through sole sourcing.

41. Customs will furnish the Bank quarterly procurement reports indicating: (a) changes inindividual contracts' cost estimates, including best estimates for physical and price contingencies;(b) revised timing of procurement actions, including advertising, bidding, contract award andcompletion time of individual contracts; and (c) compliance with aggregate limits on specifiedmethods of procurement. Further, the annual project operating plans would include any revisionsin the agreed implementation schedule regarding employment of consultants. A summary of theprocurement arrangements for the major categories of the component are shown in Table 3.Details of the procurement packages for the Customs Modernization Component, by category andshowing the estimated costs, procurement method and relative timing of different procurementactions are shown in Table 4.

42. There are several procurement actions in the Customs Modernization Component thatmust be effected by Customs. The most important of these is the acquisition of the SOFIXsoftware and related equipment and technical assistance for the pilot implementation. As notedearlier, the entire pilot package is to be procured through a bilateral arrangement between theGovernments of Turkey and of France. This includes the equipment for the pilot. The Bank willreview the hardware system design of the pilot both prior to installation of pilot equipment andupon completion of the pilot installation in order to ensure the strictest standards for competitivebidding on the downstream equipment procurement for nationwide replication.

43. A study has already been conducted to define the functional and information requirementsof new systems that will meet EU customs administration requirements, the required overallsystems architecture and technology architecture (including hardware, systems software,identification of already developed software application to be used, and data networkingcommunications requirements). It is envisaged that, in order to complete the required automatedinformation systems in a timely manner, and to obtain early benefits from the envisagedCustoms' automated systems, the main IT elements would be procured, as much as feasible, inturnkey contract arrangements through international competitive bidding with the contractorresponsible for delivering a working network of systems.

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Table 3. Customs Modernization Component: Proposed Procurement Arrangements(US$ million equivalent)

Item International Other ' N.B.F.' TotalCompetitive CostBidding

1.Civil Works 5.76 5.76(0.00) (0.00)

2.Equipment/Goods 49.76 0.23 6.51 56.50(40.14) (0.04) (0.00) (40.18)

3.Training 0.64 1.91 2.55(0.64) (0.00) (0.64)

4.TechnicalAssistance/Advisory 1.67 1.67Services (1.67) (1.67)

5.Project Management 1.00 1.00Support Services (1.00) (1.00)

6. PPF 0.85 0.85(0.85) (0.85)

Total 49.76 4.39 14.18 68.33(40.14) (4.20) (0.00) (44.34)

a/ Other includes intemational shopping (US$0.23 million); shortlisting of firms (US$2.2 million); and solesourcing (USS1.81 million).

b/ Not Bank FinancodNote: Numbers in parenthesiB are the respective amounts financed by the Bank loan.

Differences due to rounding.

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Table 4: Procurement Im0lementation Plan(US$ million)

TOTAL Prepare(Including Procurement Tender Bid Award Contract

Contingencies) Method Documents Invitation Contrct Completion

1. Information Technology 49.76 ICB 11/96 2/97 5/97 6/99a) Hardware and System Softwareb) Auxiliary Equipmentc) Initial Consumable Productsd) Hardware nd Software

Maintenancee) Office Automation Equipment

2. Office Automation Equipment &Supplies for PCU 0.15 IS 9/95 10/95 11/95 3/96

3. Vehicls 0.08 IS 4/96 7196 9/96 12/97

TOTAL Prepare Letter(Including Procurement Terms of of Award Contract

Contingencies) Method Reference Invitation Contract Completion

B. T1. Information Technology 0.16 SL 12/96 2/97 4/97 6/992. Translation of Training Material

(Multi Media) 0.54 SL 12/96 2V97 4197 61993. Cutono Operations & Study Tours 0.14 SS TBD TBD TBD TBD

C. Thnkal ace1. In-Houwe Advisor 1.67 SS 8/95 8/95 9/95 5/99

a) Customs Administration Advisorb) I.T. Advisorc) Short Term Consultants

D. Priwt MaRmeumi SuaiWort

PMSS Contractor 1.50 SL 8/95 10/95 12/95 6/99

low 54.00

a/ Includes duties nd taxes esimated at US$9.66 million, which are to be financed by the Government

ICB - lwnstional Competitive BiddingIS - hiernatioal ShoppingSS o Sle SourcedTBD - To Be Determined

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C. ISBURSMENT ARRANGEME Am ScREDuLs

44. The Loan would be disbursed separately for each component. Table 5 shows thedisbursement forecast for the Customs Modernization Component by semester. Disbursementsfor this component are expected to be completed by December 31, 1999, approximately sixmonths after the end of component execution. Loan Closing will be June 30, 2000, allowingample time for the processing of final withdrawal applications.

Table S. Estiuated Bank Disbursanents(US$million Equivalent)

IBRD Fia Year FY96 FY97 FY98 FY99 FYOO

I II I |I I I I | I I]

Annual - 0.9 1.1 1.2 4.5 4.8 8.0 8.0 9.0 6.9

rumulative - 0.9 2.0 3.2 7.7 12.5 20.5 28.5 37.5 44.4

45. In order to facilitate disbursements, the Bank's share of project expenditures for theCustoms Component would be disbursed through a Special Account which would be opened inthe Central Bank, and managed by the PMU. The authorized allocation for the Special Accountwould be US$1.3 million, equivalent to an estimated four months of component expendituresunder the Bank loan. However, initially this level of allocation would not be allowed until theproject has disbursed an aggregate amount of US$8.7 million. Until such level of disbursementsis reached, the Special Account deposit would be limnited to US$650,000.

46. To ensure that critical initial project activities are not delayed, provision has also beenmade for retroactive financing of up to US$6.2 million for all eligible project expenditures (forthe whole PFMP) between September 29, 1994 and the expected date of loan signing.Disbursements are expected to commence immediately at Loan Effectiveness with the initialdeposits into the Special Accounts along with the refinancing of the PPF advance. Alldisbursements would be fully documented, except for expenditures on contracts for equipmentand material of less than US$300,000 and contracts for services of less than US$100,000/50,000with firms/individual consultants. In these cases, disbursements will be made against statementsof expenditures, whose documentation will be retained by the PMU until at least one year afterdte Bank has received the audit report for the fiscal year in which the last withdrawal from theLoan Account or payment out of the Special Account is made.

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47. The Government has agreed to the specific loan conditions for the Customs ModernizationComponent described below (see also Main Report, paras. 6.4 b. and 6.5 c.):

Condition of Disbursement

* The Customs Administration shall have entered into a technical assistance agreement withthe IMF, including the customs administration adviser and the information technologyadviser, both of whom shall be assigned permanently in the Customs administration.

Dated Covenants

* By December 31, 1996, the Customs Administration shall issue new and/or revisedcustoms regulations.

* By December 31, 1996, the Customs Administration shall have conducted a successfulimplementation of the pilot customs operation, with the success of implementation to beassessed on the basis of criteria agreed with the Bank, including: (i) simplification ofprocedures; (ii) reduction of release times from customs control; (iii) improvement in theaccuracy of duty and tax calculations; and (iv) reduction in the rate of physicalinspections.

* By June 30, 1997, the Customs Administration shall furnish the Bank a satisfactory planfor the reorganization of the Customs Administration (headquarters, regional and localoffices) prepared on the basis of the new regulations and automated systems.

IV. BENEFITS AND RISKS

A. BENEFITS

48. A modem Turkish Customs Administration will be based on up-to-date legislation, a newstreamlined organization, and simplified, fully automated customs procedures developed inpartnership with the trade community. The benefits to be expected from modernization include:

* More efficient revenue collection* More effective customs controls* Better service to the trade commnunity* Uniform application of customs laws* Better use of personnel resources* Efficient production of trade statistics.

B. MAIN PROJECT RISKS

49. The main project risk is that a final agreement between Turkey and the EU related to thecustoms union may be delayed, with a consequent loss of momentum for reform. Nevertheless,modernization of the Customs Administration, including computerization, is still necessary tosupport the trade community and to meet the Government's revenue effort. Consequently, evenif agreement on the customs union is delayed, the project should proceed. Nevertheless, aprotracted delay would mean that implementation of the EU common external tariff will not takeplace and development of the tariff module of the automated system will take longer thancurrently planned (i.e., the SOFIX tariff module will require significant modifications). Theproject development and implementation schedule will have to be revised substantially and it islikely that there would be extensive delays in implementation of the pilot site and the nationalsystem.

C. O1WR FACTORS AFFEcTING PRoJEcT's SuccEss

50. Other factors affecting the success of the project include:

* Coordination of the advice and assistance being provided to the project isextremely important in order to ensure that it supports the overall implementationplan. To ensure that all activities are coordinated, the SCAA, supervised byFAD, will provide advice directly to the Deputy Undersecretary responsible forthe project on all matters related to the project. The SCAA will be responsiblefor coordinating the activities of the other consultant groups providing assistancein this component.

* Resistance to the strategy to simplify significantly the regulatory and proceduralregime--The simplification of the trade regime is key to reducing costs forimporters and exporters to enable them to compete in an environment where tariffbarriers are being eliminated with a significant number of Turkey's trade partners(i.e., the EU). For this reason, it is believed that the Customs Administration iscommitted to this aspect of the Project. Nevertheless, if there is a perception that

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control is being sacrificed or jobs are threatened by simplification, there may beresistance. One of the most important activities of the SCAA will be to ensurethat simplification is pursued rigorously.

* Lack of support from the Government for organizational change in the CustomsAdministration. including staff reductions, where warranted--The CustomsAdministration realizes that a modem administration must include a streamlinedand rationalized organization. However, its efforts must be supported by the othergovernment agencies responsible for civil service rules and regulations.

* Technical risks associated with implementation of a large national computernetwork--Risks associated with implementation of a nation wide computerizedsystem will be minimized through the 'turnkey" approach to hardware andsoftware acquisition and implementation. The Customs Administration, with theassistance of the IT adviser and PMSS contractor, should be able to manage thiscontract successfully.

V. MONITORING AND EVALUATION

A. MONITORING AND EVALUATION

51. To assess progress and to determine whether or not the project is achieving the intendedresults, objective and measurable project evaluation criteria are needed. Furthermore, it isimportant that the criteria be agreed upon before development and implementation of the projectand that certain information be gathered prior to any changes being made. This will ensure thatvalid comparisons can be made following implementation of the changes. The intended results ofthe project are to provide more efficient revenue collection; more effective customs controls;better service to the trade community; uniform application of customs laws; better use ofpersonnel resource; and, efficient production of trade statistics.

52. The following specific criteria will be used to evaluate the functional success of the pilotcustoms operations:

* Declaration processing procedures are simplified based on the principle of selfdeclaration by the importer and exporter (or their agent). The number of formsand processing steps are reduced to a minimum and are similar in most respects tothose in operation in the European Union.

e Customs formalities are completed for 90 percent of shipments within 24-48 hoursfrom arrival of the shipment

* A physical inspection rate of no more than 20 percent for imports and 1-2 percentfor exports for which there is no duty drawback

* Appropriate and adequate information is made available to the trade community soas to enable it to comply with the required changes in a timely manner

* 90 percent accuracy rate in tariff classification and valuation at time of declarationprocessing.

B. INDICATORS

53. The intended results of the overall project component which will be used to determine itslong term success are:

* 90 percent of shipments are released within 24-48 hours from arrival of theshipment.

* Reduce the physical inspection rate to no more than 20 percent for imports and 1-2 percent for exports for which there is no duty drawback.

* Trade community is well informed about the changes being introduced and is ableto comply with the required changes in a timely manner.

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* Workload per officer is similar to customs administrations in the EU.

* Staff is reduced to match workload.

* Reduce the number of refunds to no more than 10 percent of declarationsprocessed.

* Achieve 95 percent accuracy in tariff classification and valuation at time ofdeclaration processing.

* Staff at the local offices are able to administer the legislation in a manner that isacceptable both to Turkey and to the EU.

* Improve the ratio of re-assessments to declarations reviewed.

* Increase the ratio of detections to physical inspection.

* Increase the detection of serious infractions.

* Complete and accurate information is data entered.

* There will be no degradation in the accuracy or timeliness of the trade statistics.

54. Annex 3f provides details of the evaluation criteria, key indicators related to the currentsitation, the method of measurement and the intended results.

C. REPoRN ARRANGENSEr

55. Based on the methods of measurements described in Annex 3f, reports will be preparedfor each site that has been implemented on a quarterly basis to determine actual performanceagainst the intended results. A major review will be undertaken four to sixn months afterimplementation of the pilot site operation to determine if the criteria have been met. Someadjustment to the criteria may be required, at this time, prior to national implementation.

Annex 3b

Public Financial Management Project (PFMP)Customs Modernization Component

Undersecretariat of Customs (Customs)

Terms of Reference

Annex 3bCustoms Modenization Component

Undersecretariat of Customs (Customs)Terms of Reference

Table of Contents

Consultancy 1: Introductory Information Technology Training ............ 111

Consultancy 2: In-House Advisory Services ...... 121

Consultancy 3: Project Management Support Services ....... 127

Republic of TurkeyPrime Ministry

Undersecretariat of Customs (Customs)Department of Data Processing and Communication (DPC)

Public Financial Management Project (PFMP)Customs Modernization Component

Terms of Reference

CONSULTANCY 1:PROVISION OF CONSULTANCY SERVICES FOR

INFORMATION TECHNOLOGY (IT) INSTRUCTOR(S)TO CONDUCTIN-HOUSE INTRODUCTORY TRAINING SESSIONS

BACKGROUND

1. The Government of Turkey (GOT) has received a grant of approximately US$1.3 millionfrom the Japanese Government to help finance preparatory activities for a modernization andreform program in the area of public financial management sector, including Customs, TaxAdministration, and Public Expenditure and Personnel Management.

2. As part of the Customs modernization program, GOT intends to finance from theproceeds of the Japanese grant a four-week generic training session of Customs' existing ADPstaff in the following four major subjects of modern computing:

- Introduction to Relational Data Base Management System (RDBMS)e UNIX Operating Systemi Introduction to Client/Server Computinge Telecommunications and Wide Area Networking (WAN).

3. At present the Customs is carrying out a plan to replace its existing computer systemswith modern computer systems nation-wide utilizing the Client/Server computing as well asLANs and WANs. In order to prepare the existing and new ADP staff to participate in thismodernization program, Customs would like to proceed with the basic training program as soonas possible. There are currently 15 ADP staff programmed to attend the above generic trainingcourses. 25 additional ADP staff will be recruited in July 1995. If time permits, some of thenew ADP staff may also be assigned to attend the training sessions. The existing Customs' ADPstaff are very familiar with the application systems development methodology under the thirdgeneration computer systems and programming tools as well as the use of office automationsoftware products under DOS and Windows environment. They will need to upgrade theirtechnical skills in order to be productive in the modem computer system environment. It isanticipated that all initial training sessions will be conducted in-house with all training facilitiesand related equipment to be provided by the Customs.

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SUMMARY OF OVERALL REQUIREmENTS

4. This terms of reference outlines the required technical assistance to carry out the generictraining sessions of the above subjects. It includes the scope of training, deliverables, timing andlevel of effort, and qualification of the IT instructor(s). The successful bidder's participation inthis project will be limited to this activity. However, this assignment can be extended by mutualagreement between the contracting parties. Specifically, the successful bidder is prohibited frombidding on procurement of equipment and software products under this project.

SCOPE OF TRA1NNG REQUIREMENTS

5. Based upon the above general background, the Customs seeks the service of ITinstructor(s) with a broad experience in providing technical training classes and seminars inTurkey and elsewhere. The IT instructor(s) are expected to work closely with the Director of theCustoms' Data Processing and Communication Department and conduct training sessionsaccording to the schedules, priority order, and locations to be established by the Director. Thisassignment is estimated to required about four weeks duration.

6. For this particular training assignment, the required topics to be covered by the ITInstructor(s) for each of the four subjects are listed in the Attachment. At a minimum, the ITInstructor(s) must cover all topics listed.

DELIVERABLES

7. The major deliverables of this contract is the presentation of detailed technical materialsin the form of IT professional short courses or seminars as being provided in the computingindustry.

S. Specific deliverables of this engagement are:

a. All required training subjects will be presented to trainees in sequential order asspecified in the Attachment

b. All required training materials will be given to each trainee for future references

c. If training equipment and related software products are provided for some selectedtopics by Customs, then the IT Instructors must also provide workshops/hand-onexercises for the trainees.

REPORTING AND COMMUNICATIONS

9. The Instructor(s) will work closely with the Director of ADP. At the completion of thistraining assignment, in consultation with the ADP Director, the Instructor(s) will evaluate eachtrainee's technical skills and make recommendations for further training to be provided to eachtrainee in various advanced subjects at a later stage.

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TIMNG AND LEVEL OF EFFoRT

10. The first training subject is expected to start as soon as possible and no later than August1, 1995. It is anticipated that four weeks of instructions, average one week per subject, wouldbe required from the IT Instructor(s).

QUAL;IFCATIONS

11. The IT Instructor(s) to be selected for this training assignments are expected to have thefollowing minimum qualifications:

a. Comprehensive technical knowledge and training experiences in the requiredsubjects stated above with a minimum of 5 years training experiences as aprofessional IT instructor

b. A sound technical knowledge of various type of application software systemsdevelopment with emphasis on modern RDBMS-based client/server architecturesuitable for use in a centralized Customs environment

c. Demonstrated relevant experience in training of IT personnel operating andsupporting information systems utilizing X.25 PSDN and other datacommunication facilities nationally and internationally

d. All IT Instructors must offer fluency in Turkish language.

ATTACHMENT (1)

A LiST oF REouTRED Topics To BE CovEREPD By Suimmr=

1. Introduction to the Relational Data Base Management System (RDBMS). Ihis subjectshould be designed to provide the trainees with the knowledge to:

* Work confidently in a Relational Data Base environment* Develop a data model to describe and application's data* Design a relational data base using data modeling and normalization* Use SQL to access data in a relational data base* Work with a relational data base in a Client/Server environment* Evaluate the strengths and weaknesses of RDBMS.

Content:

(i) Introduction

* An overview of DBMS technology* Three-level information architecture (external, conceptual, and internal schemes)* DB server/user toolkit architecture (query languages, report writers, 4GLJapplication

generators, data-modeling CASE tools

(ii) How a relational DBMS works

3 Relational technology fundamentals3 Components of a relational DBMS3 Comparison with hierarchical and network data bases

(iii) Designing relational data bases

* A step-by-step approach and techniques3 Entity-relationship modeling* Normalization techniques* Physical data design

(iv) Accessing a relational data base

* Using SQL to access the data base* Programming vs. interactive access

(v) Data base directions

* Data bases in a client/server architecture* Distributed data bases

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* Evolution of SQL* Impact of object-oriented technology* Review of representative DBMSs

(vi) Trends

2. UNIX Operating System. This subject should be designed to provide the trainees with theknowledge to:

* Apply key services and utilities of UNIX operating system V* Employ the system V shell, the korn shell, the C shell, scripts, pipes and filters* Use the X Windows system, Motif, OpenLook and applications* Perform key maintenance functions (backup/restore)* Use UNIX mail and UNIX network commands* Browse and search online documentation.

Content:

(i) Introduction and overview

* The UNIX operating system: understanding and using features* Present versions* Standards

(ii) Commands, files and filters

* Commands, arguments and options* Using UNIX files* UNIX filter programs* Reading online documentation

(iii) The UNIX file system

* Organization of data in UNIX files* Directory hierarchy

(iv) The UNIX shells

* System V (Bourne) shell* C shell* Korn shell

(v) X Window system and application

* X Window system concepts* Window managers and applications

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(vi) Shell and filter programming

* Advanced filters, regular expressions* Shell programming

(vii) The programming environment

* The C programming language* About the programmer's workbench

(viii) Local and network communication

* Mail, write, and talk

(ix) UNIX system administration

3. Introduction to Client/Server Computing. This subject should be designed to provide thetrainees with the knowledge to:

- Eevaluate the benefits of a client/server approach vs. traditional data processing3 Migrate legacy applications to client/server- Compare major client/server architectures3 Adapt software design approaches to the client/server model3 Apply the client/server model to the distributed computing environment (DCE)3 Test and tune client/server applications3 Identify the key client/server vendors and their products.

Content:

(i) Attribute of client/server systems

- Defining client/server systems* Benefits

(ii) Client/Server architecture

* Distributed processing architecture* Client/Server technology

(iii) Designing successful client/server applications

* Segmenting and allocating functions* Design considerations

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(iv) Client/Server connectivity

* Client/Server communications* Client/Server protocols

(v) Implementing client/server applications

* Programming support* Testing strategies* Migration strategies* Performance and optimization

(vi) Client/Server system management

(vii) DCE and the client/server model

* Distributed computing environment (DCE)* DCE services

(viii) Vendors and visions

3 Traditional platforms3 Client/Server software

(ix) Emerging trends

4. Telecommunications and Wide Area Networking (WAN). This subject should bedesigned to provide the trainees with the knowledge to:

* Relate fundamental voice and data concepts to real-world wide area networking* Make sense of current and future WAN/telecom technologies* Select analog and digital transmission options for cost, performance, and reliability* Use WAN services to interconnect LANs* Benefit from open standards such as ISDN, TAPI, TSAPI, X.25, TI/El, V.34, and

V.42bis* Evaluate cost-saving approaches including frame relay, ATM and voice/video/data

compression.

Content:

(i) Getting started

* The drive towards WAN/telecom integration* Basic telephony* Basic data communications

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(ii) How WANs work

* WAN system components* Transmission basic* Switching approaches* Multiplexing

(iii) Voice services

* Assessing your needs* Telephony APIs for PCs* Carriers

(iv) Network signaling and routing

(v) Impairments and error control

(vi) Circuit-oriented data services

* Leased lines and private lines* International linksX Dial-up standards* Switched digital services

(vii) Optimizing bandwidth

* Sharing services* Compression approaches

(viii) Packet-switched data services

* Profile of packet services- Frame relay* X.25* Other packet services

(ix) Summary

* Building and managing networks* Application examples and product review

Republic of TurkeyPrime Ministry

Undersecretariat of Customs (Customs)

Public Financial Management Project (PFMP)Customs Modernization Component

Terms of Reference

CONSULTANCY 2:IMF TECHNICAL ASSISTANCE

IN-HOUSE AND SHORT-TERM ADVISERS

1. In response to a request from the Turkish authorities for technical assistance in improvingcustoms administration, the Fund would provide advice to the authorities to assist in theimplementation of the plans put forward in the World Bank Staff Appraisal Report, Republic of7hurkey: Public Financial Management Project, Annex III: Customs Modernization. Theprinciple areas for which advice would be provided are: legislation and procedures; computersystems development and imnplementation; and human resource management and training. Thisadvice is to be provided through the recruitment and supervision of a long term Senior CustomsAdministration Advisor (SCAA), a long term Information Technology Advisor (ITA), and otherexperts responsible for advising on specific technical and organizational topics. The technicalassistance is to be delivered over an 18 month period, beginning in November 1995.

BACKGROUND

2. The Turkish Customs Administration is reorganizing its operations with a view tomodernizing its administration to become more efficient. The primary reason for the change isthe entry of Turkey into a customs union with the European Union (EU) by the end of 1995. Atthe same time, the administration, is facing the same issues and problems of other customsadministrations including: increases in the volume of trade; changes in the types of goods beingimported and exported; application of complex regulations of other government departments; and,more sophisticated means of smuggling.

3. As a first step towards modernization, the administration was removed from the Ministryof Finance in July 1993 and created as a separate Ministry of State. Several other measures havealso been undertaken, including the implementation of anti-dumping legislation, introduction ofthe GATT Valuation.Agreement, and the review of the current Customs Law to identify areaswhere it is necessary to introduce amendments to bring it in line with EU requirements. One ofthe most important requirements of the customs union is the requirement for the CustomsAdministration to apply the EU common external tariff to goods originating from outside the EU.In this regard, the administration will be required to apply not only the rates of duty in the tariffbut also its commercial policy provisions (e.g., EU quotas).

4. The Customs Administration is now developing the changes in legislation, procedures,organization, and computerization that are necessary to support modernization. These changeswill enable the administration to both comply with the EU legislative and procedural requirementsand provide support to the Turkish trade community to compete in the customs union. This is

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very important as the trade regime has already been liberalized significantly and importers andexporters are facing, already, increased competition. It will even more important after Turkeyjoins in the customs union, as importers and exporters will become more and more concernedwith the costs of doing business. Through simplification and automation, Customs has theopportunity to reduce these costs while, at the same time, to increase the effectiveness of itscontrol and revenue collection responsibilities.

OBJECTIVES

5. The major outcome of the Customs Modernization Component will be an organizationthat is flexible and capable of responding quickly to the needs of the government. To achieve thedesired results, the objectives of the project are to:

* Implement modern, up-to-date customs legislation* Simplify and automate customs procedures* Introduce greater reliance on post release controls* Provide good service to the trade community* Delegate increased responsibilities to regional and local offices.

6. The advisors would assist the authorities to implement the plans put forward in the IBRDStaff Appraisal Report 'Republic of Turkey: Public Financial Management Project'. Morespecifically, the advisors would provide project management advice to the Undersecretariat ofCustoms and overall direction to the modernization project. The advisors would ensure that thecomponents developed and implemented at the local offices, regions, and headquarters inCustoms are compatible and that all technical assistance is coordinated (e.g., ensure that the plansfor the implementation of the SOFIX system are integrated with the total plan for modernization).Specific responsibilities are as follows:

* The SCAA would work directly with the Deputy Undersecretary responsible for themodernization project and provide advice related to the overall direction to themodernization project. This would include: directing the advice being provided by allIMF advisors; ensuring that a detailed project plan is in place to provide for themonitoring of progress on the project; identification of types and timing of other expertassignments; and developing and implementing project evaluation criteria. The advisorwould also ensure that the components developed and implemented at the local offices,regions, and headquarters in Customs are compatible and that all technical assistance iscoordinated (e.g., ensure that the plans for the implementation of the SOFIX system areintegrated with the total plan for modernization). The SCAA would work closely with theIT expert(s) to ensure that the plans for development of the computerized system supportthe simplified procedures. The expert would assist the authorities to identify suitabletraining both in country and overseas.

* The IT advisor would work directly with the Head of the Electronic Data ProcessingDepartment responsible for the computer systems development to support themodernization project and provide advice related to the overall IT strategy. This wouldinclude reviewing and assessing: the existing and proposed information systems;

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implementation plans and schedules; IT organization; staffing and training; IT standardsand procedures; and the preparation and completion of Bidding Documents. Particularattention would be paid to the development and operation of the automated system, usingthe SOFIX software, to support the pilot office operation. The Advisor would review thetechnical specifications for the hardware used for the pilot and ensure that theInternational Competitive Bidding requirements are met for procurement of the hardwarefor implementation of the system on a nationwide basis.

* The other technical assistance, to be provided through short term expert assignments,would cover specific areas, such as:

(a) Development and implementation of simplified regulations and procedures

(b) Use of risk analysis and development of selection criteria for physical inspectionsand documentary review

(c) Use of automation for valuation and tariff classification post release reviews

(d) Improved enforcement with the introduction of mobile inspection teams and in-depthinspections

(e) Rationalization of inspection procedures with other government departments

(f) Development of a public information program for the trade community

(g) Development of a detailed IT migration plan

(h) Preparation and completion of Bidding Documents for all ICB procurementpackages.

(i) Development of the office automation systems for regional and headquarters users

0) Training of managers to operate in an automated environment

(k) Development of staffing plans related to the new procedures

(l) Development of training plans

(m) Development of a new organization structure

(n) Identification of approaches to rationalize staff requirements

STRATEGY AND PLAN OF ACTION FOR MODERNATION OF THE CusTOMS ADmriITRoN

7. The strategy for modernizing the customs administration includes: legislation andprocedures, computer systems development and implementation, and human resource

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management and training. The SCAA will ensure that a plan of action is in place for each one ofthe major project components.

1. Legislation and Procedures

8. The laws and procedures will be based on international rules, conventions, and codingsand will be compatible with EU requirements. As part of the process of developing the plan formodernization, a review of the import and export procedures has been completed and an outlineof the new procedures was developed. It will be used by the SCAA as a basis for developingnew detailed procedures for the following:

* Import processing

- Transit and cargo reporting- Declaration processing- Physical inspection- Payment of duty and release of goods- Post release checks

* Export processing

2.. Computer Systems Development and Implementation

9. Headquarters, 18 regions, and 45 customs offices will be automated over a three and ahalf year period. The 45 customs offices account for 90 percent of workload and 90 percent ofrevenue (non-automated offices will forward documents to automated offices for processing).The following subsystems will provide automated processing at the customs offices:

* Import declaration processing- Export declaration processing- Revenue accounting* Manifest* Transit* Warehousing* Management information* External interfaces

10. The SCAA and ITA will work closely together to ensure that the plans for developmentof the computerized system support the simplified procedures. Of particular importance will bethe review of the SOFIX pilot operation and the changes that are required in the software tosupport the procedures being developed for Turkish customs.

3. Human Resource Management and Training

11. The SCAA will provide advice related to the key human resource management issues tobe addressed as Customs undertakes the modernization and, in particular, the following:

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* Organization structure* Number of staff required at headquarters, regions, and local offices* New skills* Training

FIELD VISITS

12. The advisers may, when necessary, visit customs offices outside Ankara. The consultantswill notify the Fund in advance each time they plan to be out of the capital for 48 hours orlonger.

COORDINATION

13. The advisers will work in close cooperation with the Deputy Undersecretary of Customsand other senior officials in the Customs Undersecretariat, as well as with other governmentalunits whose work relates to the assignment. The advisers will also cooperate with Fund andWorld Bank missions at their request, and maintain contact with the other agencies involved intechnical assistance.

CoNsULTATIoN AND CORRESPONDENCE WITH FUND HEADQUARTERS

14. The advisers will submit a work plan at the end of the second month of the assignment,and report monthly thereafter to the Tax Administration Division. Copies of these reports will besent by the Tax Administration Division to the World Bank, and formal reviews and assessmentsof the progress achieved will be made on an annual basis.

Republic of TurkeyPrime Ministry

Undersecretariat of Customs (Customs)

Public Financial Management Project (PFMP)Customs Modernization Component

Terms of Reference

CONSULTANCY 3:PROVISION OF CONSULTANCY

FOR PROJECT MANAGEMENT SUPPORT SERVICES

INTRODUCTION

1. The Government of Turkey (GOT) is embarking upon a program that will modernizesubstantially its Customs administration system. This process is fairly advanced, and a numberof seminal studies, conducted under the auspices of a grant from the Government of Japan, havemade extensive recommendations for modernization and reform (see Annex le). Implementationis to be funded by the GOT as one part of an omnibus project--the Public Financial ManagementProject (PFMP). The PFMP consists of the following major components:

L. Customs Administration1I. Tax AdministrationIll. Expenditure and Personnel Management.

BACKGROUND

2. The customs administration in Turkey is in the process of reorganizing its operations witha view to modernizing procedures and becoming more efficient. The primary reason for thechange is the entry of Turkey into a customs union with the European Union (EU) by the end of1995. As a first step, the administration was removed from the Ministry of Finance in July,1993 and created as a separate Ministry of State. Customs is now developing the changes inlegislation, procedures, organization and computerization that are necessary to support a modernadministration that will be able not only to administer the EU common external tariff but alsoprovide support to Turkish importers and exporters as they compete in the customs union. Inaddition to the requirements for change related to the entry into the customs union, Customs inTurkey is facing the same issues and problems of other customs administrations including:increases in the volume of trade; changes in the types of goods being imported and exported;application of other government department regulations; and, more sophisticated means ofsmuggling.

3. In preparation for entry into the customs union, several measures have already beenundertaken including the implementation of anti-dumping legislation; introduction of the GATTValuation Code; and the review of the current Customs Law to identify areas where it isnecessary to introduce amendments to bring it in line with EU requirements. One of the mostimportant requirements of the customs union is the administration of the EU common externalintegrated tariff and, in this regard, Customs will be required not only to apply the rates of duty

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in the tariff but also its commercial policy provisions (e.g., EU quotas). To address this need,Customs received technical assistance from the EU to identify the legislative and proceduralchanges required by Customs to implement the customs union requirements. (The program beganin September 1993 and included experts visiting Turkey to assess the needs and Customs sendingofficers to the Community members to review customs procedures).

PRoECT OBJECTTVES AND DEscRIPToN

4. The objective of the component is to assist in introducing a modern customs system basedon up-to-date legislation, a new streamlined organization and full automation of customsprocedures in partnership with the trade community. To achieve the desired results, subsidiaryobjectives of the project are, as follows:

* Technology supported customs procedures* Greater reliance on post release controls* Service orientation and good relations with the trade community* Delegation of authority and responsibility to regional and local levels.

The benefits to be expected from modernization include:

- More efficient revenue collection* More effective customs controls- Better service to the trade community* Uniform application of customs laws* Better use of personnel resource* Efficient production of trade statistics.

5. While modernization requires automation, it is not enough to introduce the mostsophisticated technology as this alone will not guarantee successful modernization. All of thecomponents of the modernization program must be in place, including the legislation and neededoperational procedures; organizational structure and management systems; and human andfinancial resources. Substantial technical assistance will be need to ensure that the necessarycoordinated action plan is carried out.

6. The main customs procedures to be automated are cargo inventory control; import andexport declaration processing; customs enforcement; revenue accounting; and, external tradestatistics. The key components of the future modernized system are:

* Improvement of legislation and procedures* Computer system development and implementation* Human resource management and training* Project management support.

7. The total cost of the Customs component is about US$72.9 million, of which US$47.5million is to be financed by the World Bank. A fuller description of the Customs component isgiven in Annex 3a of the Staff Appraisal Report.

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8. The project will be implemented by the relevant departments of the Undersecretariat ofCustoms, under the overall management and coordination of a Project Management Unit (PMU).Project implementation will be phased over three and a half years, including initial technicaldesign, implementation of a pilot project, and then extension nationwide. The PMU will need tobe staffed with personnel with skills in project management and planning, accounting,procurement, contract monitoring, information processing, and other relevant fields. Externalassistance will be provided as required. These terms of reference describe an assignment toprovide professional project management support services to the Customs PMU.

PROJECT MANAGEMENT SUPPORT SERVICES

9. The Undersecretariat of Customs has decided to procure support project managementservices during the implementation of defined activities of this component under the followingcategories:

* National and international consultants* Subcontracts* Local training activities* Overseas study tours* Operational support services

AcTIvIiEs AND EXPECTED OUTPUTS

10. The responsibilities of the contractor in relation to the five categories of activity under theProject Management Support Services (PMSS) are described below.

11. National and international Consultants. This category covers the recruitment andremuneration of national and international consultants and project support staff. Specifically, thePMSS contractor will be responsible for undertaking the following activities, all in consultationwith the Head of the PMU.

a. Negotiating and determining contractual arrangements and signing contractualdocuments with international and national consultants approved by the GeneralDirector. The terms of reference for each consultant will be prepared by the PMUand approved by the World Bank

b. Undertaking all kinds of administrative tasks such as regular payment to theconsultants, insurance and relevant taxes

c. Undertaking all kinds of administrative tasks for the staff of the PMU, both GDRofficials and consultants, such as travel arrangements, payments and per diems; inrelation to project related field trips and attendance to national and internationalmeetings, seminars, etc.

d. Keeping financial and accounting records and regular reporting to the Head of thePMU and Director General.

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12. Sntracts. This category covers the contract management of planned studies andresearches to support the changed procedures, new technology acquisition and implementation,and institutional development of the Customs' modernization program; supervision of trainingprograms, including management training; development and production of public informationmaterials and other project services as may be required. Specifically, the contractor will beresponsible for undertaking the following activities, all in consultation with the Head of thePMU.

a. Issue of Requests for Proposals (RFPs) to the selected firms according to the Termsof Reference (TORs) and the shortlist of firms proposed by Customs and approved bythe World Bank

b. Undertaking necessary activities related to the evaluation of bid proposals,amendments in TORs as requested by Customs upon the approval of the World Bank;and negotiating and contracting with the successful bidder upon the final approval ofthe Deputy-Undersecretary of Customs

c. Undertaking all kinds of administrative tasks such as payments to the subcontractor(s)based on the payment plan agreed in their contract and upon the final confirmation ofthe Deputy Undersecretary of Customs

d. Keeping financial and accounting records and reporting to the PMU regularly.

13. Training Programs. This category covers the management support services for theimplementation of all training programs to be organized for Customs personnel under thiscomponent. Specifically, the contractor will be responsible for undertaking the followingactivities, all in consultation with the Head of the PMU.

a. Undertaking all kinds of administrative tasks such as advance payments, reconciliationof advance payments and final payments to the regional and local staff and also to thePMU, as the case may be, based on the global training program to be prepared byCustoms and approved by the World bank

b. Keeping financial and accounting records and reporting to the Head of the PMUregularly.

14. Study Tours. This category covers the management support services to theimplementation of overseas study tours, which will be provided for management and technicalpersonnel.

a. Undertaking all kinds of administrative tasks such as travel arrangements andpayments for each of the fellow and the host institution(s) selected by Customs andapproved by the World Bank

b. Keeping financial and accounting records and reporting to the Head of the PMUregularly.

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15. Operational Support Services. This activity covers the procurement of translationservices, office equipment, furniture, and supplies for the PMU to facilitate project activities.

a. Undertaking procurement procedures for translation services, office equipment,furniture and supplies according to the technical specifications and itemized list ofrequirements prepared by the PMU and approved by the World Bank, and contractingwith the successful bidder upon the final approval of the Head of the PMU

b. Undertaking necessary activities related to the evaluation of bid proposals,amendments in technical specifications as requested by the Head of the PMU upon theapproval of the World bank, and negotiating and contracting with the successfulbidder upon the final approval of the Head of the PMU

c. Undertaking all kinds of administrative tasks such as payments to the subcontractor(s)based on the payment plan agreed in their contracts and upon the confirmation of theHead of the PMU

d. Keeping financial and accounting records and reporting to the PMU regularly.

INPUTS FROM UNDERSCRETARIAT OF CUSTOMS

16. The Project Management Unit (PMU) of the Undersecretariat of Customs as theimplementation agency is charged with the responsibility to carry out necessary administrativeand support activities including the preparation of Terms of Reference, short lists, obtaining no-objections from the World Bank, and any other official clearances as required, approval ofcontracts, technical review of consultant's performance, and outputs as per the relevant rules andregulations established by the World Bank.

17. Customs will provide adequate funds in a timely manner from the proceeds of the IBRDloan and its own budget to meet component costs, including the PMSS contractor's administrationfee.

CONTRAcToR's ADMINsIRATIoN FEE

18. The contractor shall indicate, in its proposal, the fee for services such as accounting,payroll, financial reporting, computer time, secretarial and other assistance to be provided. The'administration fee' must be justified by the staffing plan. Any increase or decrease in theamount of administrative costs resulting from increases or decreases in the amount of the servicesto be provided will be mutually agreed by Customs and the contractor.

REviSIONS

19. The following types of revisions may be made to these TOR upon the mutual agreementof both Customs and the contractor:

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a. Revisions which do not involve significant changes in the immediate objectives,outputs or activities of a project, but are caused by the rearrangement of inputsalready agreed to or by cost increases due to inflation

b. Mandatory annual revisions which alter the delivery of agreed project inputs orincreased expert or other costs due to inflation.

20. In the event of any other changes in the Loan Agreement that cause a significant changein the type and amount of services to be provided by the contractor, the administrative fee maybe rearranged upon the mutual agreement of Customs and the PMSS Contractor.

REPORTING, REVIEW, AND EVALUATION

21. The consultants will report to the Head of the PMU. The lead consultant would serve asan ex officio member of the PMU. The assignment will also require close liaison with the SeniorCustoms Administration Advisor. The consultants will be required to assist the PMU to prepareperiod reports covering procurement, disbursement and audit issues to be submitted to the WorldBank. The PMSS arrangement would be subject to annual review. Extension of the initialcontract (for one year at a time) would be subject to a satisfactory review.

TIMNG AND LEVEL OF EFFORT

22. This consultancy will be conducted in the capital city of Ankara, in the Republic ofTurkey. A team of two-three professional project management specialists, equipped with theknowledge and skills-to ensure the timely provision of support services for the successfulimplementation of project activities, is required to assist Customs throughout the period ofcomponent execution. Short term consultants would be added on an as needed basis, e.g.,translation services.

23. The assignment is expected to start by September 1, 1995 and will last until April 30,1999, through a series of annual contracts.

QUALIFICATIONS

24. Bidders will be required to submit qualification profiles for the consultant who will carryout the assignment. The profile will form an important part of the bid evaluation. Theconsultants must be fluent in both the English and Turkish languages. Prior experience withWorld Bank projects is an advantage. The selected consultants would be able to demonstratesuperior professional and technical capacity, as well as experience in:

a. Managing and coordinating complex projects of similar magnitude, preferably in thefinancial complex of large organizations

b. Undertaking large volumes of financial transactions with several different entitieswithin a limited time period.

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SPECIAL CONSIDERATIONS

25. The Project Management Unit of the Undersecretariat of Customs (PMU) has overallresponsibility for the management and coordination of the customs component of the PFMP.However, all of the activities covered under the component and described in this document willbe implemented in accordance with the rules and regulations of the World Bank and within theterms and conditions set forth in the Loan Agreement. In case of conflict between rules andregulations of the contractor and the World Bank, the latter shall prevail.

26. Since the project aims to improve the quality of customs administration includingservices provided to the public and to other Government agencies, contractors are expected togive special consideration to the development of an institutional capacity in project managementand implementation, at the central, regional and local office levels of the Undersecretariat ofCustoms. Timely provision of services and flow of resources by the contractor will be verycritical for the successful implementation of the Project, since training on changed procedures,improved facilities and technology, will be implemented in a large number of locations throughthe life of the project (headquarters, 18 regional offices and 45 customs offices to be automated.)

Annex 3c

PUBLIC FINANCIAL MANAGEMENT PROJECT

Customs Modernization Component

Undersecretariat of Customs (Customs)

Detailed Costs Table

TurkeyPublic Flncil Managem nt Project

Cuftm. Modemnzaton Cmnpont - Detailed Cotad (USS'OOO)

O(XWM TOTALBD Cod De TobI (Iuadudg

Ult Rb_dw 199f 19W 1997 199S 199 TOW * Tam C _geodu Ca _dnmdm)A. CMl Wwb

1. Sim Bm,m 9s L471 50311 602 Q Qs) H.dqii1. haws= GOT 189 337 65 0 0 591 0 31 621b) Rq*muuOffi huVmm OOT 125 223 43 0 0 390 0 20 411c) LolOffim hmsp ,OOT 476 U 47 163 0 0 1,4g7 0 77 1564d) C40W hmp mm OOT 961 1.712 330 0 0 3003 8 156 1159

SuMawl 1,751 3,118 602 0 0 5.471 0 2g5 5,755

L Iu Teeoskg 3qpm._. fin. omQ g 7 13472 Li Q 1sS 1.113467

a)DwaopmmtSyd- I MlRD 0 37 149 186 0 372 79 34 406b)C _ummkaoS Sw I 3RD 0 74 298 372 0 744 157 67 8IIC)B aqf Syi I MRD 0 37 149 186 0 372 79 34 406d LAN 4 IRD 0 4 17 21 0 42 9 4 46e) PaUmmIC qWs 150 mRD 0 56 223 279 0 558 S 50 60Sf) Ta 300 3RD 0 37 149 16 0 372 79 34 406g) I_Prhim 50 11RD 0 12 50 62 0 124 26 11 1351) k Pixpribm 100 MRD 0 12 50 62 0 124 26 11 135) LinePthauu 2 IBRD 0 4 16 20 0 40 8 4 43

j) Cammuic 25 - k ,X255 w 4Mo ) h u IBRD 0 62 24S 310 0 620 131 56 676Q 2.07 IOS28 I123u Q 27 071 , 2.45

s) Syp_o Type A 7 3RD 0 434 1.736 2,170 0 4.340 916 392 4,732b) Syiim Typ B 15 3RD 0 651 2604 3,255 0 6.510 1,374 588 7.091C) SN T> C 34 3RD 0 1.054 4,216 5.270 0 10,541 2.220 952 11.4924 Sy Typ D 600 3RD 0 m 293 1.116 0 2.232 471 202 2,434G)).tPri.iuu 700 IBRD 0 87 347 434 0 i68 133 78 946)L1_Pkim 100 IBRD 0 25 99 124 0 248 52 22 270d) Lin Pim. 5 IBRD 0 10 40 50 0 99 21 9 IOth)Tetnih 1.00 3RD 0 223 t93 1,116 0 2.232 471 202 2434

3. 0p_Spt : M131 2 0 I615 Q 2 m 119 a)Cs.(25616 U-) 1 BRD 0 4 16 20 0 40 a 4 43b)LI-rRmgmu(128t.U) a 3RD 0 23 91 114 0 228 48 21 249c) Mt&CaS.ARa(64tha) 14 3RD 0 33 132 165 0 330 70 30 360dS=IIWR^ia(32 U-) 20 IRD 0 37 149 16 0 372 79 34 406e)S _IIRc1 kw(I6U-) 16 BRD 0 26 103 129 0 25t 54 23 281O)CAwDOS?IOVLL alidmmD 2 3RD 0 1 4 5 0 10 2 1 11

S)Cui UNIX 2 3RD 0 1 4 6 0 11 2 1 12h)Co- &Ro--Sp-S tAd 10 BRD 0 1 3 3 0 7 1 1 7i)Cua&Rjio -W ordPt 20 BRD 0 1 4 5 0 10 2 1 11j)Cer& Re-DiaCommt 10 3RD 0 1 5 6 0 12 3 1 14k) C w - C Cc r I MRD 0 0 0 1 0 1 0 0 I1)Ca - OCBOI C _Ci I IRD 0 0 0 I 0 1 0 0 1u)C-X h Whmou I mm 0 0 1 1 0 2 1 0 3n CaasW-dawWukCfr i(p 30 3RD 0 2 7 9 0 19 4 2 20o) OdwA fflmSdwuPi 1mp BRD 0 1 5 6 0 12 3 1 14

P1W.

OftWm TOTALB_ Cod Do" Tow aI._*g

Ul. Ea1 199 1997 1996 199 TaI A Tar Csubpudsa C_d.ma)4 B Sa uinu Q ZL 2J. LA 9 A Q 5L.2 5

a)Pff&a:ii(I61hUa) 15 IRD 0 44 176 219 0 439 93 40 473b) Pto&mA(32 U-) 20 3RD 0 109 435 543 0 1.0t7 229 93 1,1t5C)PM&Knim(64 Ut ) 14 BRD 0 143 573 716 0 1.432 302 129 1,561d)Prod.imQ2ltU ) 3 am 0 164 654 333 0 1,636 345 148 1.784s)Pftxbcnm(S12Ut=) I 13RD 0 62 24 310 0 620 131 56 676f a.a3q (32Lhm) I BRD 0 13 S2 65 0 130 2 112 142g)P mduiia~sLAN-16 Ua) 3 BRD 0 7 27 34 0 6t 14 6 75bh)D-kp.W(PCSLAN- 16 U ) I mm 0 5 1I 23 0 46 10 4 50

134 914 9 Q Q LS27 376 L£41a) 30 KWA 2 3RD 37 37 0 0 0 74 15 3 77b)20KWA t D3RD 147 147 0 0 0 294 60 14 30tc) SK KWA Is EIRD 0 254 254 0 0 509 105 34 543d)1OKWA 33 3RD 0 455 455 0 0 911 It 3 61 971a)PCsLANUPS 4 wRD 0 20 20 0 0 40 3 3 42

6AWinyEq t hmp m3RD 0 12 50 62 0 124 26 11 1357. hiICwtwmblePmdu&a l.p m 3RD 0 12 50 62 0 124 26 11 135t."Ndmv&So*wu.1.km a lp* m I3RD 0 0 0 5.196 0 5.196 1,172 1.410 647239. Ofca Awwt&im Eqwhpt & &wba for PCU hup am BRD 0 50 193 243 0 496 105 45 54110. SaxPi1g Siadw & Sot_w kw* OOT 2.046 4,154 0 0 0 6.200 1.259 305 64506

Sd X2230 3.63 15,911 24,173 0 51.177 10.912 5.257 56.551

C2 V R /aD2m 0 37 37 0 0 74 15 5 79 w

L_L_ Q 2 1 9 27 m Qc) Ahinl Iu frb ff 13sff 3RD 0 56 38 33 19 150 0 13 163b) TaM1b adfk.hm(mhu1d. Ami) hum I BRD 0 133 125 125 63 500 0 42 542c) Comm, imumdAUPin wII, 13 3BRD 0 48 32 32 16 123 0 11 139

_ eMAIMWM Q IM 444 444 Q if75 9 11 I"a) Om" lir flof G ', OOT 0 1352 76 76 0 303 0 22 326b) Cog-, u On Rm&W(3 . 4 wm hm GOT 0 736 368 363 0 1.472 0 109 1,580

S lbWW 0 1,179 63t 638 97 X553 0 196 2.749

K Tk A,m1.H.o m Ad,ow 12puo 3BRD 20 160 30 30 0 240 0 15 2552. LT. AM,i 12pm -rA IERD 20 140 30 30 20 240 0 17 2573.9Shut TaCm a h _wm 3MRD 0 601 270 210 0 1.030 0 77 1,157

S l3 40 901 330 270 20 1.560 0 108 1.663

F. F, Mmq.ind kpph.t hB mm 3RD 50 400 400 40 250 I,SOO 0 0 1.500

TOTAL 4S71 14,49 17,91U 2548 367 63356 1f7 WIt51

/ a For purp

*J

Annex 3d

PUBLIC FINANCIAL MANAGEMENT PROJECT

Customs Modernization Component

Undersecretariat of Customs (Customs)

Implementation Plan

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I~~~~~~~~l 8

Public Financial Mpnagement ProjectCustoms Impmnentation Plan

1995 1996 1997 1998 1999ID Task Name Duration Start Finish 0Q2Q3 Q4 01 1Q21030Q4101 JQ2 Q30Q4JQ1 IQ21Q3104Q01 |Q20Q310410139 d. Develop public information program 849d 1/1/96 4/1/99

40 4. Advisory ServIces 191.8w 9/1/95 6/5/99

41 a. IT advisory services 57w 9/1/95 10/3/96

42 b. In- House customs T.A advisor & s. term customs advisors 90w 11/1/95 7/22/97

43 c. Develop detailed implementation plan 57d 11/1/95 1/18/96

44 d. Develop and inplement the project evaluation criteria 174.6w 1/1/96 5/5/99

46 i. design evaluation crfteria and data colltion techniques 86d 1/1/96 4/29/96

46 ii. colect data In plot site prior to implementation of change 65d 3/1/96 5/30/96

47 iii. colct data duing operation of the piot 1 32d 7/1/96 12/31/96

, . ~H48 lv. redesign evaluation criteria & data collection as necessary 588d 2/N97 5/5/99 .

49 6. Project Management Support Service 191.2w 11/1/95 6/30/99

Task Summary Rolled Up Progres

Progress Roled Up Taok

Mlsats Rolled Up MWstons

Anoe3.

PUBLIC FINANCIAL MANAGMENT PROJECT

Customs Modernization Component

SimpUfled Customs Opertional Procedures

Customs Modernization Component

Simpliried Customs Operational Procedures

IMPORT PROCESSING PROCEDURES

1. The import processing system has been developed based on procedures that are in linewith EU operations.

Transit and cargo reporting

TIR carnet

2. The proposed system relies on: use of the TIR carnet data for reporting cargo; computermatching of data; increased responsibility of customs officers; local and regional responsibilityfor investigations and legal proceedings; and, increased managerial responsibilities for deputydirectors.

* Upon arrival of the truck, the driver presents to Customs the carnet, attacheddocumentation, and an identity document.

* Customs keys the carnet data into the computer system.

* A team headed by an officer, assisted by examining officers. carries out the physicalcontrols. '

* Based on information available in the computer (e.g., previous cases against thecarrier/driver, intelligence reports, etc.) the officer decides (a) to verify the seals andreplace them and/or (b) inspect the goods. Cab checks can take place at this time.

e The officer signs/endorses the carnet, detaches the entrance counterfoil, and the driverproceeds to the exit gate.

* The officer enters the findings (e.g., new seals, and seal number) into the computer.

* A customs guard checks, at the compound exit, that the carnet is properly stamped,and the truck exits.2

'Physical control is a generic expression covering the activity of Customs when the goods am under cutomcontrol. It may not include physical inspection.

2 Further monitoring could be achieved through a computerized ticket, delivered by Customs at the etry gte mdnretrieved at the exit gate of the compound. However, this system is only rocommended when there is a lramount of traffic, and when several customs 'regimes" are mun in paralll (transit, outright clearnco for domediccon_mption, etc.)

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* The entrance counterfoil is filed in batches by date at the customs office.

At te point of destination:

* The driver presents the carnet at the office.

* The carnet number is entered into the computer system and the system verifies thenumber and displays the carnet data. The officer compares the hard copy carnetinformation with the computer data.3

* The officer decides whether or not to inspect the truck or attend the unloading at thewarehouse (e.g., an inspection may be necessary if there is a discrepancy betweenentrance data and the carnet). The inspection findings are entered into the system.4

* The discharge copy of the carnet is filed locally. This will be used for casesrequiring legal proceedings. Copies are destroyed at the end of the legal retentionperiod.

In order to ensure that all TIR's are accounted for and to follow up on those that are outstanding:

* The system generates daily printouts of unmatched transactions after a predetermineddelay (e.g., the authorized duration of transit, which can be set by the computer) atthe office of initial report of the goods.

* The deputy directors initiate investigations. This action takes place at the officewhere the goods were allowed into the country as this office is responsible forfollowing up on their own actions.

3 The deputy directors set profiles for checks and examinations (e.g., firms with arecord of poor compliance and/or certain countries of origin).

* A record of outstanding carnets is maintained by the computer, so that whenever atruck belonging to the same carrier enters the country, Customs can hold the shipmentuntil the outstanding query is satisfied.'

3 A printout, serving as a nmifest, could be geneated at this stage, allowing for transition between prosontlegiation and a future paper free environment.

Altbnatively, the driver proceeds diretly to the warehouse, whero there is a computer terminal and a customstem (inspector, clefk and examining officers). All operations ua handled from this unit in the me mannerdescribed for the customs office. The advantage of this system is that Customs have closer control over the goods,ad the driver saves time.

S This is a very efficient way of ensuring proper compliance.

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3. Regional Headquarters receive reports of unmatched transactions, and monitor the tracingcarried out at local level. The Region initiates legal proceedings where the tracing action hasbeen unsuccessful. Headquarters (Directorate General of Audit) receive reports of outstandingcases, and are in charge of (a) foreign contacts, and (b) initiating action against the guaranteeheld by the Chamber of Commerce.

4. The advantages of this system are, as follows:

* Increased responsibility to staff at lower level, and effective monitoring bymanagement

* Faster flow of goods

* Reduced headquarters operational workload

* Compatible with the European Union Community Transit scheme.

Cargo Reporting-Seaports

5. It is the responsibility of the captain of the ship to report the arrival of the ship toCustoms. These reports are supported by regular reports from the harbor master's office whichshould be verified on a regular, random basis by visits to the office.

* Unloading--enforcement teams are present when ships are unloaded (these teams may bepresent on an unannounced, planned basis). These teams should receive a copy of themanifest or any other shipping document listing the cargo, and, on a random basis,compare the packages to the reported cargo as they are taken into the warehouse.

* Documentation--the initial report is the ship's manifest (submitted in a customs approvedformat) from which data is entered into the customs system (manifest module). Theshipping agent could key the information into the customs computer or provide the data tocustoms on diskette (automatic data transmission would follow).

* Manifest clearance--relies a match between manifested and declared goods. Daily reportsof outstanding manifest items (i.e., goods not declared within the legislated timeframe)are produced and traced by Customs, at the initial office of report.

* Inventory contr1l--enforcement teams carry out random inventory control checks, toensure that goods not declared are still in warehouse. 6

' Under present operations, the Istanbul Port Authority gives Customs a list of continers and their location,however, there are frequent difficulties in locating containers. Closer monitoring of warehouse movements byCustoms would increase the reliability of this data.

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Declaration processing

Presentation of declarations

6. All declarations are completed based on the principle of self-declaration whereby they arefully completed, including the tariff classification and value, by the importer or agent. Thisapproach: reduces the workload of Customs; ensures responsible for the accuracy of the data;complies with European Union standards; and, allows declarations to be prepared before thearrival of goods.7

7. The computer system carries out the required validity checks (e.g., means of transportand port of entry). To ensure good quality information, importers and agents making frequenterrors would be informed, warned, and eventually fined. A fining policy should, therefore, bedrafted, and operated at local level for minor cases, and at regional level for more serious orrepeated offenses. 8

Declaration processing and controls

8. The system would provide assistance to the customs officer by providing information inthe following areas.

9. Tariff classification--access to the integrated tariff will enable officers to detect, forexample, adjacent tariff lines with higher rates of duty, thus pointing out possible misdescription.

10. Valuation checks--declared values can be checked against a valuation data base showingpreviously recorded transaction values for identical or similar goods. This data base should beorganized according to tariff headings and importers.

11. Risk analysis and selectivity--the computer system can provide the officers with:

e Sensitive goods that have been previously identified in fraud cases, or likely to besmuggled or mis-declared

* Countries from which sensitive goods are likely to be exported

* Importers and/or agents with a delinquent record with Customs

7 The declarations can be presented to Customs when the agent is aware when the goods will arrive, and storedin the system. The declaration would be automatically validated when the goods are reported to Customs. Usingthis process there is no need for a hard copy of the declaration, although some supporting documentation would haveto be submitted to Customs (invoice, certificates, bill of lading). Alternatively, the importer and/or clearing agentcould be requested to keep a signed copy. These procedures require legislation, to establish clearly theresponsibility of the agents in the absence of a signed document.

7 In more serious cases, the agents' licenses could be suspended or even canceled.

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* Carriers known for not properly discharging transit documents* Newly established importers whose reliability has not yet been dek2rmined

* Container registration number checks.

12. This data can be processed to establish risk profiles. When a declaration matching theseprofiles is processed, the system can select it for further scrutiny. The system must also selectdeclarations at random to ensure that all goods not otherwise selected have an equal opportunityfor close scrutiny.

Physical inspections

13. At present, declarations are allocated to individual officers by the deputy directors whoare responsible for ensuring that the workload is evenly divided. Deputy directors provideinspection instructions after scanning the declaration. It appears that deputy directors oftenrequest physical inspections that they know are unnecessary because the current rules state that allgoods must be inspected. Officers may ignore these instructions if, for example, similar goodsfrom the same importer have already been inspected on the same day.

14. When an inspection takes place, it is often limited to checking quantities, marks, andnumbers. No serious inspections of the goods for tariff classification purposes take place, due to:

D Poor inspection facilities

* Too heavy reliance on laboratory analysis to validate tariff classification

* Officers doing routine inspections not knowing what to look for.

They may also not have the necessary technical skills to determine the declared tariff heading.

15. Present inspection reports are limited: customss and/or examining officers simply stateon the declaration form that they have inspected the consignment according to instructions, andthat their findings are satisfactory.

16. Customs now inspect all goods inside the Customs compound, when they first arrive.This is not always convenient, because there may not be enough space, working conditions maybe unsatisfactory, all the goods come in simultaneously and, in some cases, inspections requirespecial care and equipment.

17. The objective of changes in the physical inspection system is to have fewer but moreproductive inspections. When an officer does an inspection, it should be done thoroughly, withthe assistance of examining officers and possibly enforcement staff.

* The officers decide whether or not to inspect a consignment based on: thedocumentation; their experience; and, information about the importer, commodity, and/oragent.

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* Deputy directors set the inspection guidelines based on risk profiles. Computer selectioncriteria may be based on national guidelines as updated based on knowledge of localsituations. These local criteria should be updated regularly using, for example, riskanalysis conferences with officers. The underlying principle is that physical inspectionsshould never be routine. They should only take place when there are good reasons tosuspect the importer and/or agent has made a mistake or is committing fraud or therehave been problems with the commodity.

18. An estimated one in three declarations are currently referred to the Customs laboratory.This figure is high by other European Union standards and contributes to slow release times.Many of the laboratory analysis are for the same goods from the same importers. Laboratoryanalysis should be limited to case where there is:

* Insufficient information from the physical inspection and documents to determine theexact tariff classification

* A legal requirement for an analysis (e.g., under European Union or other regulations)

* A dispute between Customs and the importer.

19. In most cases, the analysis should take place after the release of the goods (in certain ofthese cases, it may be necessary to secure additional revenue). Customs could also accept theanalysis by approved private facilities (e.g., importers' laboratories).

20. The inspection report is an essential element of the declaration and clearance process,because it certifies that the declaration to Customs is correct (or incorrect). It can be used insubsequent court proceedings, and is an important part of mutual assistance procedures (i.e.,information provided by one customs service to another).

21. The inspection report should provide the marks and numbers of identified parcels, theones that have been opened and the number of individual items inspected, with their serialnumbers, if applicable. The reports should be coded and data entered. One of the roles ofdeputy directors would be to review selected reports, to make sure that the instructions wereunderstood and carried out. From time to time, deputy directors could recheck consignments thathave already been inspected.9

22. Many customs administrations carry out a substantial part of physical inspections at theimporter's premises. This has several advantages, for example, containers are entirely emptied atthe premises, so Customs officers can have a close look at the full consignment, and inspect thecontainer (e.g., to detect false walls) and comprehensive inspections at this stage do not impedethe commercial process. The opportunity to inspect goods on the premises should be offered toimporters, provided certain conditions were met. A case by case study of importers' needs, and

9 This is to prevent collusion between tho inspector and the agent/importer, and to ensure that inspection reportsare correct.

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the facilities they can provide, should be carried out and customs and importers would enter intoa written agreement related to the inspection procedures.

Payment of duty and release of goods

23. Customs has two responsibilities, (a) making sure that the goods are released afterpayment is made, or secured, and (b) making sure that the funds are properly credited to agovernment account.

24. Currently, importers and their agents must pay by certified check or cash, for eachtransaction. This system lacks flexibility and does not support fast release of goods. The newpayment procedures, as detailed in the draft legislation, provide for periodic payment. Tosupport this new method of payment, the operational procedures should provide for:

* Agents opening an account with Customs, supported by a bank guarantee, for a"release credit'

* Goods are released as they are cleared with one payment for all transactions at the endof the approved period (e.g., thirty days).

25. The credit is calculated by the clearing agent based on the average transactions andapproved by Customs. It is incremented after each transaction, and the available balancerecalculated by the computer. When the balance is insufficient to permit release of a shipment,the agent is informed, and pays according to present procedures or increases the credit.Customs could charge a fee for this service (for instance, a percentage of the used credit).

26. Another significant simplification would be to allow credit worthy importers and agents topay by uncertified check. This would be supported by a bank guarantee (should the check beunpaid, the bank would agree to cover it).

27. Under current procedures, when the clearance process is completed, importers or agentsreceive three documents: a copy of the entry, a release note and a receipt from the Treasurycashier. These should be combined into one document, preferably a computer generated copy ofthe entry endorsed by Customs and the cashier. Under a computerized system, the warehousekeeper and Customs guards would receive electronic notification of release and would enter amessage into the system when the goods are removed.

Post release checks

28. Many of the checks carried out by Customs can take place after the goods have beenreleased. Data on the declaration and associated documentation can be investigated, andcompared to other sources of information. Post release verification, including audit, isparticularly useful for:

* Verifying tariff classification and the quantities imported (e.g., reviewing themanufacturing process and the quantities used)

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* Valuation checks as; verification can be lengthy (Mutual Administrative Assistanceprocedures take time), the inspection of goods is not essential, and an audit of theaccounts of the importer can show how much was paid for the goods.

29. All declarations should be sent to the regional post release unit, or reported through thecomputer system. Specific selectivity criteria should be established by regions. Transactionsmeeting those criteria would then be reviewed, and supporting documents kept at the localcustoms offices would be retrieved.

30. The other use of post release checks is to monitor that Customs field personnel apply thelaws, and regulations correctly.

Export processing

31. The current system for exports is similar to the import procedures:

* Declarations are lodged and registered* A deputy director provides inspection instructions* The goods are inspectedX The officer signs the certificates of origin when necessary* An examining officer seals the consignmentX The declarations are keyed in the statistical computer system* Declarations are registered, stamped, and separated in the manifest section• Declaration number and manifest are matched following presentation of the manifest

(within 48 hours).

32. Simplified procedures and tighter security are required and can be attained byimplementing the following changes:

* The number of copies of the declaration presented varies from one exporter toanother. Sometimes, exporters hand in up to twenty copies of the declaration, andsupporting documentation, although the legal requirement is much lower. There isalways a risk of fraud when Customs stamp unnecessary copies of documents. 10

Customs should, therefore, only accept the legally required number of copies, andreduce that number to two (one for Customs and one for the exporter), or possiblythree if the export declaration is combined with a Community transit exportprocedure.

* Some containers are loaded in the warehouses, under Customs control while othersare loaded at the exporters premises (with prior authorization from Customs and in thepresence of an officer). Approved exporters should always be allowed to loadcontainers on their premises, provided they give Customs advance notice of their

10 There have been cases when exporters took advantage of extra copies to claim additional export refunds.

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intention. Customs would make a decision when to attend the loading. Occasionalspot checks within the harbor area would suffice to ensure compliance.

* Customs requires an export manifest in a specified format. This duplicates thecommercial manifest and serves no purpose. It should be eliminated.

* In ports, the declarations are stamped before evidence of the ships departure isprovided. There is, therefore, no guarantee that the goods were actually taken out ofthe country. Customs should only certify the export of the goods (e.g., for VATrefund purposes) when an official or commercial document (shipmate's receipt, ornotice from the Harbor Master's office) certifles that the goods were taken on boardand the ship has sailed. This is particular important for European Union procedures,as many commercial or fiscal measures are determined by the date of sailing.

* Customs do not monitor the loading of ships. There should be occasional spot checksby enforcement teams.

Annex 3f

PUBLIC FINANCIAL MANAGMENT PROJECT

Customs Modernization Component

Monitoring and Impact Indicators

Customs Modernization Component

Monitoring and Impact Indicators

EVALUATION CRITERIA: SERVICE

Key Indicators | Method of | IntendedCurrent Situation Measurement Result

Release time survey--Before andRelease Time--the most significant after implementation of theimprovement that Customs can automated import declaration 90 percent ofintroduce is the reduction in the processing, measure the time taken shipments aretime it takes to release goods from (a) from arrival of the goods to released within 24-48customs control. These presentation and processing of the hours from arrival ofreductions will lower costs to manifest (b) from presentation of the shipment.importers, thereby, improving the declaration to customs untiltheir competitive position. release of the goods (c) total time

for (a) & (b)

Physical Inspections--100 percent Physical Inspection Rate-- Reduce the physicall of import and export shipments Determine the physical inspection inspection rate to noofipr. n xpr hpet rate for imports and exports before npcinrttooare inspected by customs, ran afr introtond .o a ehsia more than 20 percentresulting in delays and additional inspection program based on for imports and 1-2costs to the trade community. selectivity. percent for exports.

Trade Community Information--Today the trade communityreceives little information otherthan the legislation (tariff andcustoms code). Introduction of Provision of Information to the Trade community Isnew legislation and procedures Trade Community--Determine the the changes beingresulting from entry into the type and frequency of information the anges ablecustoms union and the provided to the trade community todc d ais abeintroduction of a self declaration before and after the introduction of to coreply with thesystem supported by automation the public information program. timely manner.will require significant changes onthe part of the trade communitywhich should be supported by aneffective information program

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EVALUATION CRITERIA: EFFICIENCY

Key Indicators Method of IntendedCurrent Situation Measurement Result

Workload--In comparison with Determine the Workload Per Workload per officerother customs administrations, Officer--For key indicators is similar to customsCustoms produces less outputs per including declaration processing; administra-officer. With full automation of physical inspections; and manifest tions in the EU.the customs procedures, it is processing before and afterexpected that even less staff will implementation of the new Staff is reduced tobe required for routine processing procedures. match workload.functions.

EVALUATION CRITERIA: EFFECTIVENESS

Key Indicators Method of IntendedCurrent Situation Measurement Result

Revenue Collection--With the Refunds--Measure the number of Reduce the number ofintroduction of the common refunds before and after refunds to no moreexternal tariff for the EU, rates of implementation. than 10 percent ofcustoms duty in Turkey will be declarationsreduced and other charges on processed.imports will be eliminated.However, revenue from imports Import Declaration Processing -- Achieve 95 percentwill still be important and Sample declarations and review to accuracy in tariffassessment and collection determine if the correct tariff classification andprocedures should be improved to classification and valuation valuation at time ofensure that the proper amounts of provisions have been applied. declarationrevenue are collected. processing.

Post Clearance Review--Measure Improve the ratio ofbefore and after implementation the re- assessments tonumber of re-assessments and the declarationssignificance of change, including reviewed.uplifts in value, through postrelease review.

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Key Indicators Method of IntendedCurrent Situation Measurement Result

Implementation of European Passage and Implementation of Staff at the localUnion Requirements--Significant Legislative Requirements offices are able tochanges in legislation and administer theprocedures will be introduced Trained Staff--Staff are able to legislation in awhich must be effectively understand and apply the new manner that isadministered. requirements. acceptable both to

Turkey and to theAassessment of Implementation-- EU.Review, on a sample basis at 3, 6and 12 months for the first yearand, annually thereafter,declaration and transit procedures.

More Effective Physical "Hit" Rate Measurement-- Increase the ratio ofInspections--The type of physical Implement a new program of detections to physicalinspections today are cursory in physical inspections based on inspection.nature and produce little in terms selectivity and intensiveof, for example, additional inspections. Measure the number Increase the detectionrevenue of infractions and revenue of serious infractions

assessments per inspection beforeand after implementation.

Rejection of Incomplete or Declaration Reject Rate--All agents Complete andInaccurate Declarations--Under must meet a 95 percent accuracy accurate informationpresent procedures, declarations rate for declarations keyed into the is data entered.are not self-assessed and no system. This will be measured bydeclarations are returned to the the system on a daily basis.customs agent for correction.

Trade Statistics--Produced by a Trade Statistics Will Meet or There will be noseparate system and are timely Exceed Today's Standard for degradation in theand accurate. Customs provides Accuracy and Timeliness--At each accuracy or timelinessthe raw data to the national office, the trade statistics system of the trade statistics.statistical agency. will continue to operate, in

parallel, until there is agreementthat the operational system meetsthe accuracy and timeliness criteriaat that office.

I MACI NG

Report No: 14656 TI!Type: SAP