PLO’s Ability to Contribute to Palestinian Authority Expenses Is Not Clear

Our review of available information did not lead to a definitive conclusion on whether PLO could financially assist the Palestinian Authority. Undoubtedly, there are other economic enterprises as well.”

		Certain PLO Expenses Subsumed Under Palestinian Authority’s Budget

Historically, PLO’s major expenses have included (1) an administrative staff in Tunis, Tunisia; (2) diplomatic missions in over 100 countries; (3) armed militias in several Middle Eastern states; (4) civil servant pensions and supplementary salary payments for certain Palestinian civil servants in the West Bank and Gaza Strip; and (5) several social welfare programs offering such benefits as free schooling, free health care, and martyr payments to compensate families of deceased fighters or those injured or disabled in fighting for the Palestinian cause. The Palestinian Authority’s budgets do not include references to any of these traditional PLO revenue sources—some of which have lapsed and some of which remain active. Later, however, it became apparent that the Palestinian Authority could not immediately finance its operations with local tax collections and revenue transfers from Israel. To meet the Palestinian Authority’s need for immediate cash assistance, the donors have spent $120 million to cover the Palestinian Authority’s operating deficit for 1994. Donor Attempts to Eliminate Future Calls for External Assistance

In an effort to control and eventually eliminate the Palestinian Authority’s reliance on external assistance, the donors have pressured the Palestinian Authority and the Israeli government to improve their revenue collection efforts. Nor is it clear why the Palestinian police force has grown to an 18,000-member force when the Gaza/Jericho Agreement between PLO and Israel stipulates a 9,000-member force for the Gaza/Jericho enclave. The action plan also noted the Palestinian Authority’s commitment to freeze salaries and hiring at existing levels and the need to hold expenditures to the levels outlined in the Palestinian Authority’s March 1995 budget. Donor concerns about accountability have tended to focus on the use of donor funds by the Palestinian Authority to pay for certain recurring and start-up costs. In response to these concerns, the donor community, in coordination with the World Bank and the United Nations, has developed a number of controls to monitor the expenditure of such funds. The World Bank’s Holst Fundensures transparency and accountability by (1) specifying the types of expenditures for which funds may be used, (2) using an established auditing firm to verify documentation of expenditures, and (3) stipulating that donor funds be channeled to the Palestinian Authority only to replenish approved and documented disbursements. PECDAR serves as a common address for all donor aid to be provided to the Palestinian Authority. This mechanism relies on a United Nations Relief and Works Agency-managed disbursement and accounting system. The United States disbursed $5 million for police salaries in 1994. We have not independently determined that donor-developed controls are effective. Scope and Methodology

The starting point for our review was an attempt to obtain financial information directly from the Palestine Liberation Organization (PLO).
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the Palestine Liberation Organization's (PLO) finances, focusing on whether: (1) PLO is able to help finance the Palestine Authority's operations in the West Bank and Gaza; (2) international donors have effectively analyzed the need to help fund the Palestinian Authority's operating expenses; and (3) appropriate controls are in place to ensure that donor funds are adequately accounted for.

What GAO Found

GAO found that: (1) it was unable to reach a definitive conclusion on PLO's ability to assist the Palestinian Authority with its operating expenses; (2) it was able to determine that some of PLO's administrative, military, and social welfare expenses have been subsumed under the Palestinian Authority's budget; (3) at the same time, several traditional PLO revenue sources were not included in the Palestinian Authority's budget; (4) in 1994, donor contributions accounted for $120 million, or 68 percent, of the Palestinian Authority's budget, and in 1995, donor contributions are expected to account for about $200 million, or 45 percent, of the budget; (5) in an effort to control and eventually eliminate the Palestinian Authority's need for external assistance, the donor community called on the Palestinian Authority and Israel to implement an action plan designed to increase domestic tax revenues and revenue transfers from Israel; (6) the donors have not paid equal attention to the Palestinian Authority's expenditure plans, which require significant outlays for a 30,000-member civil service and an 18,000-member police force; (7) most donor aid is being disbursed through traditional channels, which utilize established financial control procedures; (8) the donors implemented a number of financial controls to reduce the risk that operating funds provided directly to the Palestinian Authority will be mishandled; (9) these controls include: (a) a World Bank-managed trust fund, which relies on audits of filed claims to monitor the use of donor funds; (b) the establishment of a Palestinian Economic Council for Development and Reconstruction, which serves as a focal point for receiving and accounting for aid that is disbursed to the Palestinian Authority; and (c) a standard disbursement mechanism for police salary payments, with accounting and oversight controls provided by the United Nations Relief and Works Agency; (10) GAO has not independently determined that these controls are effective; and (11) GAO received documents having possible implications that some funds may have been diverted by the Palestinian Authority and is reviewing the matter.