Internal Audit Report 2016
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<strong>Internal</strong> <strong>Audit</strong><br />
Annual <strong>Report</strong><br />
<strong>2016</strong>
Who am I? Where I am?<br />
The question of “who am I” as part of existentialist philosophy and psychology has been occupying individual’s minds for<br />
centuries. The question of “who am I?” is related with identification. For one view, it is argued that identity is a process<br />
consisting two components; self-identification and recognition by others. Nietzsche posits that “the subject (“I”), is not<br />
something given, it is something added, invented and projected behind what there is”<br />
Positioning theory of philosopher Duveen argues that the answer to the question of “who am I?” can be found in relation to<br />
social representations. In other words, in order to understand “self”, we need “the other”. As an example, a new born baby<br />
in the beginning, has no identity, no self-image without the other, in this case “the mother”.<br />
A Company like a human being, needs other companies to describe its self. The question of how successful we are requires<br />
a comparison with others. In business language it is called benchmarking. Its meaning is to measure oneself with best<br />
practices. This year as a team we decided to understand where TAV <strong>Audit</strong> Team is and made a benchmarking study.<br />
Together with the achievements of <strong>2016</strong> we wanted to present how we position ourselves within the audit universe and see<br />
how well we are performing against our peers.<br />
We hope you enjoy <strong>2016</strong> TAV <strong>Internal</strong> <strong>Audit</strong> Annual <strong>Report</strong>.<br />
Sincerely yours<br />
TAV <strong>Internal</strong> <strong>Audit</strong>
?<br />
What Happened in <strong>2016</strong><br />
Recommendations and Risk Levels<br />
21<strong>Audit</strong>s<br />
High Risk; 17;<br />
6%<br />
Low Risk;29;<br />
11%<br />
246<br />
Recommendations<br />
Medium Risk;<br />
200; 83%<br />
Low Risk Medium Risk High Risk
Performed <strong>Audit</strong>s in <strong>2016</strong><br />
Revenues<br />
Finance<br />
Branch<br />
IT<br />
Procurement<br />
HR & Payroll<br />
Operations<br />
Special <strong>Report</strong>s
<strong>Audit</strong> Locations in <strong>2016</strong><br />
Skopje<br />
Istanbul<br />
Ankara<br />
Madinah
Benchmark<br />
Number of <strong>Audit</strong> Staff<br />
0 2 4 6 8 10 12 14 16 18 20<br />
TAV<br />
9<br />
Europe with Revenue (1-5 Billion USD)<br />
17,58<br />
Employee 5000+ with Revenue (1-5 Billion USD)<br />
16,31<br />
Service Companies with Revenue (1-5 Billion USD)<br />
13,94<br />
All Companies with Revenue (1-5 Billion USD)<br />
13,95<br />
<strong>Internal</strong> <strong>Audit</strong> Cost as Percentage of Total Expenses<br />
0,0000% 0,0500% 0,1000% 0,1500% 0,2000% 0,2500% 0,3000%<br />
TAV<br />
0,1096%<br />
Europe with Revenue (1-5 Billion USD)<br />
0,1599%<br />
Employee 5000+ with Revenue (1-5 Billion USD)<br />
0,2193%<br />
Service Companies with Revenue (1-5 Billion USD)<br />
0,1582%<br />
All Companies with Revenue (1-5 Billion USD)<br />
0,2785%
Benchmark<br />
Employees per <strong>Audit</strong>or<br />
0 200 400 600 800 1000 1200 1400 1600 1800 2000<br />
TAV<br />
1679<br />
Europe<br />
1007<br />
Employees: 5000+<br />
1767<br />
Services: with Revenue $1B to $5B<br />
1252<br />
Universe<br />
977<br />
External <strong>Audit</strong> Fees as Percentage of Total Expenses<br />
0,00% 0,02% 0,04% 0,06% 0,08% 0,10% 0,12%<br />
TAV<br />
0,03%<br />
Europe<br />
0,09%<br />
Employees: 5000+<br />
0,08%<br />
Services: with Revenue $1B to $5B<br />
0,07%<br />
Universe<br />
0,11%
Benchmark<br />
Average duration of each <strong>Audit</strong><br />
0 10 20 30 40 50 60 70<br />
TAV<br />
15<br />
15<br />
Europe<br />
28<br />
30<br />
Employees: 5000+<br />
26<br />
30<br />
Services: with Revenue $1B to $5B<br />
30<br />
27<br />
Universe<br />
29<br />
28<br />
Fieldwork<br />
<strong>Report</strong>ing
Reveneus
I have a dream<br />
Every success story starts with a dream. A dream becomes a goal<br />
when action is taken toward its achievement.<br />
Dreams of companies find body within organizations vision<br />
statements then should be shared with all the members.
ATU Istanbul Revenues<br />
As a retail company, sales revenues is one of the most important processes<br />
of the Company’s overall activities. Istanbul is the largest operation of ATU<br />
which represents 89% of all revenues in Turkey with approximately 560<br />
million Euro revenue as of <strong>2016</strong>.<br />
<strong>Audit</strong> activity focused on recording & collection of revenues and healthiness<br />
of information systems related to these processes. Since duty free<br />
operations are subject to specific laws and regulations audit activity paid<br />
special attention to compliance issues.
BTA Istanbul and Uniq Revenues<br />
With 800 million TL revenues, BTA has 14% share in TAV’s consolidated<br />
revenues. BTA İstanbul is the most revenue generating operation of BTA<br />
which represents 75% of all F&B revenues in Turkey with a budgeted<br />
turnover of 300 million TL in <strong>2016</strong>.<br />
UNIQ is the first operation of BTA where customers are not passengers and<br />
where BTA has the opportunity to introduce its brands to customers in city<br />
center.
TIBAH Revenues<br />
Tibah is the joint venture of TAV, Saudi Oger and Al Rajhi Group . The newly<br />
constructed airport terminal began its operations in 2015. Tibah is TAV’s<br />
largest airport operation outside of Turkey with a projected revenue of 173M<br />
Euro in <strong>2016</strong>.<br />
<strong>Audit</strong> activity evaluated the controls over aeronautical (charges paid by<br />
airlines and passengers for the use of airport facilities and services) and<br />
non-aeronautical (mainly landside and airside retail concessions) revenues.
Procurement
Man’s search for meaning<br />
Existentialism is a philosophy that emphasizes individual existence,<br />
freedom and choice. It is the view that humans define their own<br />
meaning in life.<br />
Companies have mission statements, a rational explanation to why<br />
they exist. Thus their employees find meaning in what they do.
Holding Procurement<br />
Procurement process aims to acquire goods at best prices and best quality<br />
with optimum quantity. Holding Procurement performs central purchasing for<br />
TAV Holding and 16 subsidiary companies. Approximately 103 million Euro<br />
worth of products or services was purchased within the process in 2015.<br />
Warehouse management is part of TAV Istanbul Terminal and responsible for<br />
taking delivery of purchased products and to deliver them to the related<br />
departments.<br />
Considering TAV’s huge procurement volume the audit engagement aimed to<br />
assess risks and controls over these processes. <strong>Audit</strong> activity paid special<br />
attention to compliance issues.
ATU Istanbul Procurement<br />
As a duty free company ATU brings together the three core competencies of<br />
the sector - airport operator, retailer and supplier. The Company purchases<br />
22 million units of goods amounted to approximately 218 million Euro a year.<br />
Due to the high volume of purchases, it is critical to provide assurance that<br />
the current risks associated with commercial & administrative procurement<br />
and warehouse management is efficiently and effectively controlled.
TIBAH Procurement<br />
Tibah is the largest airport operation outside of Turkey with projected<br />
expenditure of 58M Euro. Procurement operations of a terminal is utterly<br />
important to acquire the required goods and services which are needed to<br />
handle business operations without interruptions.<br />
<strong>Audit</strong> activity evaluated creation of purchase requests, selection of supplier,<br />
creation and tracking orders, receiving and physical storage of goods,<br />
accounting operations, payment process and information systems.
Finance
Wishes from the stars...<br />
Desire derives from the Latin desiderare, ‘to long or wish for’, which itself derives<br />
from de sidere, ‘from the stars’, suggesting that the original sense of the Latin is ‘to<br />
await what the stars will bring’.<br />
Motivation derives from desire and it is vital for reaching goals. *Neil Burton MD Psych Today
Holding Financial Affairs and <strong>Report</strong>ing<br />
TAV Holding is a publicly traded company who is listed on BIST (Istanbul<br />
Stock Exchange). The company reported 803 million Euro consolidated<br />
revenue and 3 billion Euro size of asset in 2015. TAV is subject to CMB<br />
(Capital Market Board), BIST and tax regulations. Considering the materiality<br />
of operations and the balance sheet size, the process is vital for the<br />
Company.<br />
Due to above mentioned facts correct preparation of financial statements<br />
and communication with the regulators are of utmost importance.<br />
The objective of the audit activity was to evaluate the controls over<br />
bookkeeping, financial statement preparation and tax process.
TAV Operation Services Accounting<br />
TAV Opera tion Services provides value added services to TAV customers.<br />
Service include Primeclass services (meet & assist, lounge operations),<br />
travel services (TAV Tourism), loyalty card membership program (TAV<br />
Passport Card). The Company is also responsible for rental of commercial<br />
areas, leasing of advertisement and promotional areas at the airports.<br />
Accounting process of the Company inherits high operational risks due to<br />
handling of various type of revenue streams and intensive manual<br />
interventions.<br />
<strong>Audit</strong> Activity evaluated bookkeeping, revenue recording, collection and<br />
financial statement preparation process.
Holding Project Finance<br />
Involving various business units during tender preparations, Project Finance<br />
plays one of the most critical roles before, during and after the projects.<br />
Finding the best possible funding, preparing the most accurate business<br />
model and following up compliance with project requirements are the<br />
Department’s key responsibilities. To date, Project Finance processed 9<br />
projects amounting approximately 2 billion Euros.<br />
Its key role in business requires strong internal controls. <strong>Audit</strong> Activity<br />
evaluated whether necessary internal controls are in place and are working<br />
effectively.
HR & Payroll
Gestalt<br />
According to Gestalt psychologists, the whole is greater than sum of its parts.<br />
Organization’s culture is crucial to combine individual efforts and direct them to the same goal.<br />
Culture is determined by a paradigm consisting of symbols, routines and rituals, controls,<br />
stories, power structures and organizational structures
Holding HR & Payroll<br />
Payroll is one of the most significant processes among Holding’s operational<br />
activities as it concerns 2,748 employees and 194.3 million TL yearly salary<br />
payment. Our engagement covered TAV Holding, domestic terminals, TAV<br />
Operations Management and TAV IT’s payroll processes.<br />
High payroll amount, the complexity of the law & regulations and the<br />
vulnerability to interpretation make the payroll process important in terms of<br />
the risks exposed. Compliance to regulations and Holding procedures,<br />
correct calculation of salaries and taxes, time keeping system have been<br />
considered the most critical areas within the scope of the audit activity.
ATU HR & Payroll<br />
Human Resource Management (HRM) plays a strategic role in managing<br />
people and the workplace culture. Effective HRM can contribute greatly to<br />
the overall company to accomplish its goals and objectives.<br />
Considering the fact that a new SAP application is being implemented and<br />
payroll operations are carried out for 1700 personnel with a yearly cost of 36<br />
million Euros, <strong>Internal</strong> <strong>Audit</strong> included the process in the yearly engagement<br />
plan.
TIBAH HR & Payroll<br />
Tibah has approximately 475 employees to handle operations in both<br />
terminal and airside. Staff wages and salaries forms a significant part of<br />
operating costs (52,7M SAR).<br />
Human Resources manages the workforce of the company, which is the<br />
primary source of its business success. Within this context, it is important<br />
that HR activities like recruitment, training and compensation is aligned with<br />
the company’s strategic objectives.<br />
Since the “Applied Labor Law” and the fact that the employees are in 3<br />
different groups as Saudi, non-Saudi and expat, to control and follow the<br />
Laws and Regulations effectively are indispensable.
Branch
When was the last time you did something for the first time?<br />
In business, competitive strategy is not about destroying your opponents. It is however, doing<br />
something different than your competitiors.<br />
To sustain, organizations need to be adaptive and disruptive.
TAV Esenboğa<br />
Esenboga Airport is the second busiest airport managed by TAV. Esenboga<br />
Airport is expecting 12.7 million passengers in <strong>2016</strong> which will generate 54<br />
million Euro revenues. Ankara has share of approximately 4% of TAV<br />
Holding's consolidated revenues.<br />
<strong>Audit</strong> Activity evaluated the revenue, procurement, human resources<br />
operations, financial affairs and reporting, budgeting, treasury management,<br />
contract management, information systems and technical operations.
TAV Macedonia<br />
TAV Macedonia had a double-digit passenger growth rate with 22% in 2015<br />
and it is estimated to increase by 13% and reach 1.7 million passenger until<br />
the end of <strong>2016</strong>. Toge ther with commercial growth several changes in<br />
operational level has taken place.<br />
<strong>Audit</strong> Activity evaluated operational and technical control mechanisms<br />
regarding the risks on revenue, accounting, human resources and contract<br />
management processes.
IT
Being a goose or else<br />
A goose is an animal that can swim, fly and walk. But it is not the best in neither one of these<br />
treats. It may be good for geese in the wild though.<br />
However business life is different as there is uncertainty and harsh competition.<br />
Understanding core competence, i.e areas that the company is most capable, helps to figure<br />
out sustainable advantage.
TAV IT Database & Operating Systems<br />
Database and Operating Systems are vital infrastructure systems supporting<br />
business applications. TAV IT provides intensive technology support for<br />
terminals to manage aeronautical and non-aeronautical revenues,<br />
procurement, accounting and human resources operations. The security of<br />
infrastructure systems is important due to the fact that failure in the<br />
installation, configuration and management of operations can affect the<br />
whole operations in business side.
TIBAH IT General Controls<br />
Info rmation Technology (IT) general controls serve as the foundation for all<br />
other IT controls as they apply to all computer activities. General controls<br />
help ensure the reliability of data generated by IT systems and support the<br />
assertion tha t systems operate as intended and that output is reliable. They<br />
include controls over the development, modification, and maintenance of<br />
computer programs and controls over the use of and changes to data<br />
maintained on computer files.<br />
The primary objective of the audit activity was to provide reasonable<br />
assurance to management over following IT General Controls.
TAV IT - ISO 27001<br />
TAV IT obtains a certification of ISO 27001 Information Security<br />
Management Systems in 2011. This certificate includes information security<br />
controls for TAV IT which enables services throughout TAV IT, TAV Holding<br />
and branches correspondingly.<br />
ISO 27001 management system should be revised annually. In accordance<br />
with TAV IT advisory request, Intenal <strong>Audit</strong> Activity performed an ISO 27001<br />
international standards compliance audit of information security management<br />
processes.
Operations
Who will bell the cat?<br />
The fable concerns a group of mice who debate plans to nullify the threat of a marauding cat. One of them proposes placing a<br />
bell around its neck, so that they are warned of its approach. The plan is applauded by the others, until one mouse asks who<br />
will volunteer to place the bell on the cat.<br />
Without execution a strategy is worthless. Researches show not surprisingly that a successful execution starts with correct<br />
information flows, proceed by decision rights, motivators and structure. Existence of competent staff is also non-negligible
HAVAŞ Ground Handling Operations<br />
Havas operates in 32 airports in Turkey and abroad. In <strong>2016</strong> Havas provided<br />
ground handling services for nearly 128.000 flights. The operations are<br />
subject to various local & international regulations and contractual<br />
requirements.<br />
In addition to ground handling and passenger operations, Havaş also<br />
provides warehouse services at Istanbul Atatürk, Ankara Esenboga and İzmir<br />
Adnan Menderes Airport.<br />
<strong>Audit</strong> Activity focused mainly on compliance with international safety<br />
standards, laws and regulations as well as meeting customer expectations.
Special <strong>Report</strong>s
Am I on the right track?<br />
Positioning theory of philosopher Duveen argues that the answer to the question of “who am I “ can be found in relation to<br />
social representations. In other words, in order to understand “self”, we need “the other”.<br />
A Company like a human being, needs other companies to describe its self. The question of how successful it is, requires a<br />
comparison with others. In business language it is benchmarking.<br />
A Company should measure its business results against previously agreed performance factors and industry to se how well it<br />
is doing.
Telecommunication Expenses<br />
TAV Holding and its subsidiaries use telecommunication Technologies<br />
extensively due to the need for communication and daily data transmission.<br />
Currently, the number of active phone lines is approximately 1,000 with a<br />
yearly expenditure of 1 million TL in 2015.<br />
The process inherits high operational risk due to the complexity of GSM<br />
tariffs, complicated invoicing process and staff circulation. Through this<br />
audit, <strong>Internal</strong> <strong>Audit</strong> Activity aimed to evaluate the cost efficiency of the<br />
telecom expenses and identify any obsolete telecom lines.
Letter of Guarantees<br />
Due to contractual requirements letter of guarantees have been provided to<br />
commercial companies and govenment authorities. These letters of<br />
guarantee should be withdrawn when the business relationship ends or when<br />
the contracts are no longer valid.<br />
TAV Holding and its subsidiaries have provided letter of guarantees valued<br />
TL 1.8 billion, of which TL 1.7 billion was given to the official institutions and<br />
TL 117 million to commercial companies.<br />
Inte rnal <strong>Audit</strong> Activity performed the evaluation of current status of<br />
outstanding letter of guarentees covering TAV Holding and its subsidiaries.
Power of Attorneys<br />
Representation process of TAV Holding, domestic terminals and subsidiaries<br />
are carried out by proxy certificates and signature circulars. Due to the<br />
complexity of the process and inherent control difficulties, <strong>Internal</strong> <strong>Audit</strong><br />
included the process in the yearly plan.<br />
The <strong>Internal</strong> <strong>Audit</strong> Activity aimed to assess coverage, validity and issuance<br />
process of power of attorneys.
Our Team