Turkish municipalities face debt crisis: Over $2.5B owed to Social Security Institution 

In 2023, the Turkish Court of Accounts (TCA), or Sayistay, submitted comprehensive audit reports on public institutions, including general, external, activity, and financial audits, as well as specific reports on public administrations to Parliament.

TCA is a constitutional institution responsible for auditing public administrations’ financial operations in Türkiye. It reports directly to the Turkish parliament and ensures that public funds are managed in accordance with the law and principles of efficiency, economy, and effectiveness.

Municipalities and budgetary constraints: Contradiction 

Despite austerity measures introduced by the Ministry of Treasury and Finance to curb public spending, Turkish municipalities have struggled to implement these measures effectively. According to the TCA’s 2023 audit report, the Social Security Institution (SGK) has a total receivable of ₺72.6 billion (approximately $2.68 billion) from municipalities, their affiliated entities, and municipal companies. This debt represents 3.14% of SGK’s total budget revenues for 2023. 

Outstanding social security premium debts 

• Municipalities: $566.5 million

• Affiliated entities: $25.5 million

• Municipal companies: $2.1 billion 

Structural problems highlighted by TCA 

The TCA highlighted several systemic issues affecting the SGK’s ability to collect debts from municipalities and their subsidiaries: 

Insufficient debt reduction mechanisms: Although some progress has been made in debt collection, the TCA noted that the measures are inadequate. It suggested that the deduction of debts from the tax revenues allocated to municipalities should not be included in the limit ratios until the debt stock is significantly reduced. 

Lack of debt collection methods for municipal companies: While deductions from tax revenues can be made for municipal debts, no similar mechanism exists for municipal companies. The TCA recommended that deductions be made from the general budget tax revenues allocated to municipalities, or from payments due to municipal companies, to secure SGK’s receivables. 

Legal adjustments required: The TCA proposed legal changes to ensure that SGK’s receivables are protected. This could involve holding municipalities responsible for transferring funds to cover their companies’ debts or developing new deduction methods. 

Additional findings from TCA report 

• Automated debt collection inefficiencies: The SGK has an automated system for transferring unpaid debts to enforcement proceedings. However, this system has not been used regularly, resulting in delays in notifying debtors and issuing liens on properties. 

• Issues with asset and liability reporting: The TCA identified errors in SGK’s reporting of assets, liabilities, and operational results. The incorrect recording of collections and transfers led to discrepancies in the financial statements. 

• Long-term lease agreements: Properties leased for one year were found to be extended for up to 45 years without proper rent updates or security adjustments. This has caused significant financial losses. 

• Improper use of security accounts: Funds collected were initially recorded in the “333 Trust Accounts” instead of the appropriate accounts, distorting the SGK’s financial position. 

• Over 500,000 files referred to enforcement: As of the end of 2023, SGK had referred 503,157 files to enforcement for collection. The total debt amount was $2 billion while the amount collected through enforcement was $847.5 million.

• Mismanagement of public property sales: The sale and accounting of public properties did not comply with regulations, leading to irregularities. 

Key statistics from report 

• Debt stock: $2.68 billion

• Percentage of budget revenue: 3.14% 

• Number of enforcement cases: 503,157 

• Debt referred to enforcement: $2 billion  

• Debt collected: $847.5 million

Incorrectly reported trust account balances: 

• 2021: $504.9 million

• 2022: $469.2 million

• 2023: $827.5 million

Recommendations for improvement 

The TCA suggested the following to address these issues: 

Enhanced legal framework: Introduce regulations to include municipal companies’ debts in deduction mechanisms. 

Regular use of automated systems: Utilize automated enforcement systems consistently to improve collection efficiency. 

Accurate reporting: Update financial recording practices to ensure accurate reflection of SGK’s financial status. 

Monitoring of long-term lease agreements: Reassess and renegotiate long-term leases to reflect current market values and enforce compliance with contract terms. 

The TCA’s 2023 audit report highlights significant financial mismanagement and inefficiencies in the collection of municipal debts. Despite austerity measures, municipalities continue to struggle with high debt levels, undermining SGK’s financial stability. The TCA’s recommendations focus on strengthening legal frameworks and improving operational efficiency to protect public finances and ensure sustainable debt management.