	Background

Since 1993, USAID has obligated more than $5 billion in bilateral  assistance to the Palestinians in the West Bank and Gaza, primarily using  funds appropriated through the ESF. Status of ESF Assistance to the West Bank and Gaza for Fiscal Years 2015 and 2016, Including Project Assistance and Payments to PA Creditors

As of March 31, 2018, USAID had obligated about $544.1 million (over 99  percent) and expended about $350.6 million (over 64 percent) of  approximately $544.5 million in ESF assistance allocated for the West  Bank and Gaza in fiscal years 2015 and 2016 (see table 1). USAID  obligated portions of the allocated funds for direct payments to PA  creditors—specifically, payments to two Israeli fuel companies, to cover  debts for petroleum purchases, and to a local Palestinian bank, to pay off  a line of credit used for PA medical referrals to six hospitals in the East  Jerusalem Hospital network. According to USAID documents, ESF project assistance for the West  Bank and Gaza for fiscal years 2015 and 2016 was obligated for three  USAID development objectives: Economic Growth and Infrastructure  (about $239 million), Investing in the Next Generation (about $107  million), and Governance and Civic Engagement (about $25 million). USAID Vetted PA Creditors and Conducted External Assessments and Financial Audits of PA Ministries

Before using fiscal years 2015 and 2016 ESF assistance to pay PA  creditors, USAID vetted the creditors to ensure that the assistance would  not provide support to entities or individuals associated with terrorism, as  required by its policies and procedures. USAID Commissioned External Assessments and Financial Audits of PA Creditors before Executing Payments

Although USAID concluded that the statutory requirement mandating  assessments of the PA Ministry of Finance and Planning did not apply to  direct payments to PA creditors, the West Bank and Gaza mission  commissioned external assessments of the PA Ministry of Health’s  medical referral services and Ministry of Finance and Planning’s  petroleum procurement system. These external  assessments identified weaknesses in both systems. However, after the  assessment report was issued, a USAID contractor worked with the  Ministry of Health to update, revise, and approve guidelines for  medical referrals. The memorandum also stated that the finding did not  affect USAID debt relief payments to the PA creditors. The audits did not identify any questioned or  ineligible costs, reportable material weaknesses in internal control, or  material instances of noncompliance with the terms of the debt relief  grant. Appendix I: Objectives, Scope, and Methodology

Appropriations acts for fiscal years 2015 and 2016 included provisions for  GAO to review the treatment, handling, and uses of funds provided  through the ESF for assistance to the West Bank and Gaza. This report  examines (1) the status of ESF assistance and projects provided to the  West Bank and Gaza for fiscal years 2015 and 2016, including payments  to PA creditors, and (2) the extent to which USAID conducted required  vetting of PA creditors to ensure that assistance would not support  entities or individuals associated with terrorism and assessed PA  ministries’ capacity to use ESF assistance as intended. In addition, we interviewed USAID and  State officials in Washington, D.C., and Tel Aviv. We also  reviewed the timing of USAID’s vetting of each PA creditor that received  payments, to ensure that, as required by Mission Order 21, the vetting  occurred within 12 months before USAID signed the relevant debt relief  grant agreement with the PA. Further, we reviewed external assessments  of the PA Ministries of Health and Finance and Planning and financial  audits of the PA Ministry of Finance and Planning, and we discussed the  assessments’ and audits with USAID officials responsible for payments to  PA creditors.
Why GAO Did This Study

Since 1993, the U.S. government has committed more than $5 billion in bilateral assistance to the Palestinians in the West Bank and Gaza. According to the Department of State, this assistance to the Palestinians promotes U.S. economic and political foreign policy interests by supporting Middle East peace negotiations and financing economic stabilization programs. USAID is primarily responsible for administering ESF assistance to the West Bank and Gaza.
Appropriations acts for fiscal years 2015 and 2016 included provisions for GAO to review the treatment, handling, and uses of funds provided through the ESF for assistance to the West Bank and Gaza. This report examines (1) the status of ESF assistance and projects provided to the West Bank and Gaza for fiscal years 2015 and 2016, including project assistance and payments to PA creditors, and (2) the extent to which USAID conducted required vetting of PA creditors to ensure that this assistance would not support entities or individuals associated with terrorism and assessed PA ministries' capacity to use ESF assistance as intended. GAO reviewed relevant laws and regulations and USAID financial data, policies, procedures, and documents. GAO also interviewed USAID and State Department officials.

What GAO Found

As of March 2018, the U.S. Agency for International Development (USAID) had allocated about $545 million of funding appropriated to the Economic Support Fund (ESF) for assistance in the West Bank and Gaza for fiscal years 2015 and 2016. USAID obligated about $544 million (over 99 percent) and expended about $351 million (over 64 percent) of the total allocations. Project assistance accounted for approximately $399 million of the obligated funds, while payments to Palestinian Authority (PA) creditors accounted for $145 million (see figure). USAID's obligations for project assistance in the West Bank and Gaza for fiscal years 2015 and 2016 supported three development objectives—Economic Growth and Infrastructure ($239 million), Investing in the Next Generation ($107 million), and Governance and Civic Engagement (about $25 million). In fiscal years 2015 and 2016, USAID made payments directly to PA creditors—two Israeli fuel companies, to cover debts for petroleum purchases, and a local Palestinian bank, to pay off a line of credit used for PA medical referrals to six hospitals in the East Jerusalem Hospital network.
USAID vetted PA creditors to ensure that the program assistance would not provide support to entities or individuals associated with terrorism and also conducted external assessments and financial audits of PA ministries of Health and Finance and Planning. USAID documentation showed that, as required, officials checked the vetting status of each PA creditor within 12 months before USAID signed its debt relief grant agreements with the PA. In addition, although USAID determined that it was not legally required to assess the PA Ministry of Health's medical referral services and the Ministry of Finance and Planning's petroleum procurement system, the agency commissioned external assessments of both ministries. These assessments found some weaknesses in both ministries' systems; however, USAID mission officials stated that these weaknesses did not affect USAID debt relief payments to the PA creditors. Nevertheless, USAID took additional steps to mitigate the identified weaknesses. For example, a USAID contractor worked with the Ministry of Health to update, revise, and approve guidelines for medical referrals. In addition, USAID commissioned financial audits of the debt relief grant agreements between USAID and the PA for direct payments to PA creditors in fiscal year 2015 and 2016. The audits did not identify any ineligible costs, reportable material weaknesses in internal control, or material instances of noncompliance with the terms of the agreements.

What GAO Recommends

GAO is not making recommendations in this report.