Internal Audit Report 2016

Internal Audit
Annual Report
2016

Who am I? Where I am?
The question of “who am I” as part of existentialist philosophy and psychology has been occupying individual’s minds for
centuries. The question of “who am I?” is related with identification. For one view, it is argued that identity is a process
consisting two components; self-identification and recognition by others. Nietzsche posits that “the subject (“I”), is not
something given, it is something added, invented and projected behind what there is”
Positioning theory of philosopher Duveen argues that the answer to the question of “who am I?” can be found in relation to
social representations. In other words, in order to understand “self”, we need “the other”. As an example, a new born baby
in the beginning, has no identity, no self-image without the other, in this case “the mother”.
A Company like a human being, needs other companies to describe its self. The question of how successful we are requires
a comparison with others. In business language it is called benchmarking. Its meaning is to measure oneself with best
practices. This year as a team we decided to understand where TAV Audit Team is and made a benchmarking study.
Together with the achievements of 2016 we wanted to present how we position ourselves within the audit universe and see
how well we are performing against our peers.
We hope you enjoy 2016 TAV Internal Audit Annual Report.
Sincerely yours
TAV Internal Audit

?
What Happened in 2016
Recommendations and Risk Levels
21Audits
High Risk; 17;
6%
Low Risk;29;
11%
246
Recommendations
Medium Risk;
200; 83%
Low Risk Medium Risk High Risk

Performed Audits in 2016
Revenues
Finance
Branch
IT
Procurement
HR & Payroll
Operations
Special Reports

Audit Locations in 2016
Skopje
Istanbul
Ankara
Madinah

Benchmark
Number of Audit Staff
0 2 4 6 8 10 12 14 16 18 20
TAV
9
Europe with Revenue (1-5 Billion USD)
17,58
Employee 5000+ with Revenue (1-5 Billion USD)
16,31
Service Companies with Revenue (1-5 Billion USD)
13,94
All Companies with Revenue (1-5 Billion USD)
13,95
Internal Audit Cost as Percentage of Total Expenses
0,0000% 0,0500% 0,1000% 0,1500% 0,2000% 0,2500% 0,3000%
TAV
0,1096%
Europe with Revenue (1-5 Billion USD)
0,1599%
Employee 5000+ with Revenue (1-5 Billion USD)
0,2193%
Service Companies with Revenue (1-5 Billion USD)
0,1582%
All Companies with Revenue (1-5 Billion USD)
0,2785%

Benchmark
Employees per Auditor
0 200 400 600 800 1000 1200 1400 1600 1800 2000
TAV
1679
Europe
1007
Employees: 5000+
1767
Services: with Revenue $1B to $5B
1252
Universe
977
External Audit Fees as Percentage of Total Expenses
0,00% 0,02% 0,04% 0,06% 0,08% 0,10% 0,12%
TAV
0,03%
Europe
0,09%
Employees: 5000+
0,08%
Services: with Revenue $1B to $5B
0,07%
Universe
0,11%

Benchmark
Average duration of each Audit
0 10 20 30 40 50 60 70
TAV
15
15
Europe
28
30
Employees: 5000+
26
30
Services: with Revenue $1B to $5B
30
27
Universe
29
28
Fieldwork
Reporting

Reveneus

I have a dream
Every success story starts with a dream. A dream becomes a goal
when action is taken toward its achievement.
Dreams of companies find body within organizations vision
statements then should be shared with all the members.

ATU Istanbul Revenues
As a retail company, sales revenues is one of the most important processes
of the Company’s overall activities. Istanbul is the largest operation of ATU
which represents 89% of all revenues in Turkey with approximately 560
million Euro revenue as of 2016.
Audit activity focused on recording & collection of revenues and healthiness
of information systems related to these processes. Since duty free
operations are subject to specific laws and regulations audit activity paid
special attention to compliance issues.

BTA Istanbul and Uniq Revenues
With 800 million TL revenues, BTA has 14% share in TAV’s consolidated
revenues. BTA İstanbul is the most revenue generating operation of BTA
which represents 75% of all F&B revenues in Turkey with a budgeted
turnover of 300 million TL in 2016.
UNIQ is the first operation of BTA where customers are not passengers and
where BTA has the opportunity to introduce its brands to customers in city
center.

TIBAH Revenues
Tibah is the joint venture of TAV, Saudi Oger and Al Rajhi Group . The newly
constructed airport terminal began its operations in 2015. Tibah is TAV’s
largest airport operation outside of Turkey with a projected revenue of 173M
Euro in 2016.
Audit activity evaluated the controls over aeronautical (charges paid by
airlines and passengers for the use of airport facilities and services) and
non-aeronautical (mainly landside and airside retail concessions) revenues.

Procurement

Man’s search for meaning
Existentialism is a philosophy that emphasizes individual existence,
freedom and choice. It is the view that humans define their own
meaning in life.
Companies have mission statements, a rational explanation to why
they exist. Thus their employees find meaning in what they do.

Holding Procurement
Procurement process aims to acquire goods at best prices and best quality
with optimum quantity. Holding Procurement performs central purchasing for
TAV Holding and 16 subsidiary companies. Approximately 103 million Euro
worth of products or services was purchased within the process in 2015.
Warehouse management is part of TAV Istanbul Terminal and responsible for
taking delivery of purchased products and to deliver them to the related
departments.
Considering TAV’s huge procurement volume the audit engagement aimed to
assess risks and controls over these processes. Audit activity paid special
attention to compliance issues.

ATU Istanbul Procurement
As a duty free company ATU brings together the three core competencies of
the sector - airport operator, retailer and supplier. The Company purchases
22 million units of goods amounted to approximately 218 million Euro a year.
Due to the high volume of purchases, it is critical to provide assurance that
the current risks associated with commercial & administrative procurement
and warehouse management is efficiently and effectively controlled.

TIBAH Procurement
Tibah is the largest airport operation outside of Turkey with projected
expenditure of 58M Euro. Procurement operations of a terminal is utterly
important to acquire the required goods and services which are needed to
handle business operations without interruptions.
Audit activity evaluated creation of purchase requests, selection of supplier,
creation and tracking orders, receiving and physical storage of goods,
accounting operations, payment process and information systems.

Finance

Wishes from the stars...
Desire derives from the Latin desiderare, ‘to long or wish for’, which itself derives
from de sidere, ‘from the stars’, suggesting that the original sense of the Latin is ‘to
await what the stars will bring’.
Motivation derives from desire and it is vital for reaching goals. *Neil Burton MD Psych Today

Holding Financial Affairs and Reporting
TAV Holding is a publicly traded company who is listed on BIST (Istanbul
Stock Exchange). The company reported 803 million Euro consolidated
revenue and 3 billion Euro size of asset in 2015. TAV is subject to CMB
(Capital Market Board), BIST and tax regulations. Considering the materiality
of operations and the balance sheet size, the process is vital for the
Company.
Due to above mentioned facts correct preparation of financial statements
and communication with the regulators are of utmost importance.
The objective of the audit activity was to evaluate the controls over
bookkeeping, financial statement preparation and tax process.

TAV Operation Services Accounting
TAV Opera tion Services provides value added services to TAV customers.
Service include Primeclass services (meet & assist, lounge operations),
travel services (TAV Tourism), loyalty card membership program (TAV
Passport Card). The Company is also responsible for rental of commercial
areas, leasing of advertisement and promotional areas at the airports.
Accounting process of the Company inherits high operational risks due to
handling of various type of revenue streams and intensive manual
interventions.
Audit Activity evaluated bookkeeping, revenue recording, collection and
financial statement preparation process.

Holding Project Finance
Involving various business units during tender preparations, Project Finance
plays one of the most critical roles before, during and after the projects.
Finding the best possible funding, preparing the most accurate business
model and following up compliance with project requirements are the
Department’s key responsibilities. To date, Project Finance processed 9
projects amounting approximately 2 billion Euros.
Its key role in business requires strong internal controls. Audit Activity
evaluated whether necessary internal controls are in place and are working
effectively.

HR & Payroll

Gestalt
According to Gestalt psychologists, the whole is greater than sum of its parts.
Organization’s culture is crucial to combine individual efforts and direct them to the same goal.
Culture is determined by a paradigm consisting of symbols, routines and rituals, controls,
stories, power structures and organizational structures

Holding HR & Payroll
Payroll is one of the most significant processes among Holding’s operational
activities as it concerns 2,748 employees and 194.3 million TL yearly salary
payment. Our engagement covered TAV Holding, domestic terminals, TAV
Operations Management and TAV IT’s payroll processes.
High payroll amount, the complexity of the law & regulations and the
vulnerability to interpretation make the payroll process important in terms of
the risks exposed. Compliance to regulations and Holding procedures,
correct calculation of salaries and taxes, time keeping system have been
considered the most critical areas within the scope of the audit activity.

ATU HR & Payroll
Human Resource Management (HRM) plays a strategic role in managing
people and the workplace culture. Effective HRM can contribute greatly to
the overall company to accomplish its goals and objectives.
Considering the fact that a new SAP application is being implemented and
payroll operations are carried out for 1700 personnel with a yearly cost of 36
million Euros, Internal Audit included the process in the yearly engagement
plan.

TIBAH HR & Payroll
Tibah has approximately 475 employees to handle operations in both
terminal and airside. Staff wages and salaries forms a significant part of
operating costs (52,7M SAR).
Human Resources manages the workforce of the company, which is the
primary source of its business success. Within this context, it is important
that HR activities like recruitment, training and compensation is aligned with
the company’s strategic objectives.
Since the “Applied Labor Law” and the fact that the employees are in 3
different groups as Saudi, non-Saudi and expat, to control and follow the
Laws and Regulations effectively are indispensable.

Branch

When was the last time you did something for the first time?
In business, competitive strategy is not about destroying your opponents. It is however, doing
something different than your competitiors.
To sustain, organizations need to be adaptive and disruptive.

TAV Esenboğa
Esenboga Airport is the second busiest airport managed by TAV. Esenboga
Airport is expecting 12.7 million passengers in 2016 which will generate 54
million Euro revenues. Ankara has share of approximately 4% of TAV
Holding's consolidated revenues.
Audit Activity evaluated the revenue, procurement, human resources
operations, financial affairs and reporting, budgeting, treasury management,
contract management, information systems and technical operations.

TAV Macedonia
TAV Macedonia had a double-digit passenger growth rate with 22% in 2015
and it is estimated to increase by 13% and reach 1.7 million passenger until
the end of 2016. Toge ther with commercial growth several changes in
operational level has taken place.
Audit Activity evaluated operational and technical control mechanisms
regarding the risks on revenue, accounting, human resources and contract
management processes.

IT

Being a goose or else
A goose is an animal that can swim, fly and walk. But it is not the best in neither one of these
treats. It may be good for geese in the wild though.
However business life is different as there is uncertainty and harsh competition.
Understanding core competence, i.e areas that the company is most capable, helps to figure
out sustainable advantage.

TAV IT Database & Operating Systems
Database and Operating Systems are vital infrastructure systems supporting
business applications. TAV IT provides intensive technology support for
terminals to manage aeronautical and non-aeronautical revenues,
procurement, accounting and human resources operations. The security of
infrastructure systems is important due to the fact that failure in the
installation, configuration and management of operations can affect the
whole operations in business side.

TIBAH IT General Controls
Info rmation Technology (IT) general controls serve as the foundation for all
other IT controls as they apply to all computer activities. General controls
help ensure the reliability of data generated by IT systems and support the
assertion tha t systems operate as intended and that output is reliable. They
include controls over the development, modification, and maintenance of
computer programs and controls over the use of and changes to data
maintained on computer files.
The primary objective of the audit activity was to provide reasonable
assurance to management over following IT General Controls.

TAV IT - ISO 27001
TAV IT obtains a certification of ISO 27001 Information Security
Management Systems in 2011. This certificate includes information security
controls for TAV IT which enables services throughout TAV IT, TAV Holding
and branches correspondingly.
ISO 27001 management system should be revised annually. In accordance
with TAV IT advisory request, Intenal Audit Activity performed an ISO 27001
international standards compliance audit of information security management
processes.

Operations

Who will bell the cat?
The fable concerns a group of mice who debate plans to nullify the threat of a marauding cat. One of them proposes placing a
bell around its neck, so that they are warned of its approach. The plan is applauded by the others, until one mouse asks who
will volunteer to place the bell on the cat.
Without execution a strategy is worthless. Researches show not surprisingly that a successful execution starts with correct
information flows, proceed by decision rights, motivators and structure. Existence of competent staff is also non-negligible

HAVAŞ Ground Handling Operations
Havas operates in 32 airports in Turkey and abroad. In 2016 Havas provided
ground handling services for nearly 128.000 flights. The operations are
subject to various local & international regulations and contractual
requirements.
In addition to ground handling and passenger operations, Havaş also
provides warehouse services at Istanbul Atatürk, Ankara Esenboga and İzmir
Adnan Menderes Airport.
Audit Activity focused mainly on compliance with international safety
standards, laws and regulations as well as meeting customer expectations.

Special Reports

Am I on the right track?
Positioning theory of philosopher Duveen argues that the answer to the question of “who am I “ can be found in relation to
social representations. In other words, in order to understand “self”, we need “the other”.
A Company like a human being, needs other companies to describe its self. The question of how successful it is, requires a
comparison with others. In business language it is benchmarking.
A Company should measure its business results against previously agreed performance factors and industry to se how well it
is doing.

Telecommunication Expenses
TAV Holding and its subsidiaries use telecommunication Technologies
extensively due to the need for communication and daily data transmission.
Currently, the number of active phone lines is approximately 1,000 with a
yearly expenditure of 1 million TL in 2015.
The process inherits high operational risk due to the complexity of GSM
tariffs, complicated invoicing process and staff circulation. Through this
audit, Internal Audit Activity aimed to evaluate the cost efficiency of the
telecom expenses and identify any obsolete telecom lines.

Letter of Guarantees
Due to contractual requirements letter of guarantees have been provided to
commercial companies and govenment authorities. These letters of
guarantee should be withdrawn when the business relationship ends or when
the contracts are no longer valid.
TAV Holding and its subsidiaries have provided letter of guarantees valued
TL 1.8 billion, of which TL 1.7 billion was given to the official institutions and
TL 117 million to commercial companies.
Inte rnal Audit Activity performed the evaluation of current status of
outstanding letter of guarentees covering TAV Holding and its subsidiaries.

Power of Attorneys
Representation process of TAV Holding, domestic terminals and subsidiaries
are carried out by proxy certificates and signature circulars. Due to the
complexity of the process and inherent control difficulties, Internal Audit
included the process in the yearly plan.
The Internal Audit Activity aimed to assess coverage, validity and issuance
process of power of attorneys.

Our Team