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entitled 'Foreign Assistance: U.S. Assistance to the West Bank and Gaza 
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March 5, 2007: 

The Honorable Patrick J. Leahy: 
Chairman: 
The Honorable Judd Gregg: 
Ranking Minority Member: 
Subcommittee on State, Foreign Operations, and Related Programs: 
Committee on Appropriations: 
United States Senate: 

The Honorable Nita M. Lowey: 
Chairman: 
The Honorable Frank R. Wolf: 
Ranking Minority Member: 
Subcommittee on State, Foreign Operations, and Related Programs: 
Committee on Appropriations: 
House of Representatives: 

Subject: Foreign Assistance: U.S. Assistance to the West Bank and Gaza 
for Fiscal Years 2005 and 2006: 

For decades, the United States has worked toward the resolution of the 
Israeli-Palestinian conflict, most recently under the 2003 Roadmap for 
Peace, which calls for an independent Palestinian state coexisting 
peacefully with the State of Israel. Since fiscal year 1993, the United 
States has provided more than $2.2 billion in assistance to the West 
Bank and Gaza to support the Middle East peace process and encourage 
progress in reforming the Palestinian Authority.[Footnote 1] 

In fiscal years 2005 and 2006 alone, the United States provided over 
$420 million in Economic Support Funds[Footnote 2] for the West Bank 
and Gaza; this funding is primarily administered by the U.S. Agency for 
International Development (USAID). About $200 million of this 
assistance was provided through a fiscal year 2005 supplemental 
appropriation.[Footnote 3] In the conference report accompanying the 
2005 supplemental appropriation legislation, the Congress directed that 
the assistance be allocated to two broad development categories-- 
economic revitalization and infrastructure development--each with five 
subcategories.[Footnote 4] The Congress did not provide similar 
direction for the remaining funds appropriated in fiscal years 2005 or 
2006[Footnote 5]--about $223 million. 

In January 2006, Hamas--designated a terrorist organization by the 
United States and others--won a majority of the seats in the 
Palestinian parliament. On January 30, 2006, the United Nations (UN), 
the United States, the European Union, and Russia--known as the Quartet 
on the Middle East--stated that they would provide support and 
assistance to the Hamas-led government only if it agreed to 
nonviolence, to recognize the State of Israel, and to respect previous 
Israeli-Palestinian peace agreements.[Footnote 6] In June 2006, the 
Congress directed that the Department of State (State) submit a new 
assistance plan; State provided that on July 21, 2006.[Footnote 7] 

For fiscal years 2005 and 2006, the Congress mandated that the 
Comptroller General of the United States report to the Congress on U.S. 
assistance to the West Bank and Gaza.[Footnote 8] In response to this 
mandate, we reported in September 2006 on the steps USAID had taken to 
help ensure that U.S. assistance did not support terrorist activities 
in the West Bank and Gaza.[Footnote 9] In this report, also in response 
to the mandate, we examine the status of (1) USAID's obligations and 
expenditures[Footnote 10] of the fiscal years 2005 and 2006 
appropriations for the West Bank and Gaza and (2) the fiscal year 2005 
supplemental appropriation in greater detail to determine whether USAID 
allocated the funds in accordance with congressional guidance. 

To address these objectives, we analyzed data provided by USAID for 
fiscal years 2005 and 2006 appropriations for assistance to the West 
Bank and Gaza as of December 31, 2006. We asked for and obtained 
additional information on how the 2005 supplemental appropriation had 
been allocated to the congressionally directed categories and 
subcategories. To determine whether the data were sufficiently reliable 
for purposes of this report, we interviewed officials at the USAID 
mission in Tel Aviv, Israel, about their procedures for entering 
contract information into USAID's data system. We also interviewed 
USAID officials at the Washington, D.C., headquarters about the 
underlying financial data system. We verified much of the USAID project 
information with similar data we had developed and verified with USAID 
project officers at USAID's Israel mission for a previous engagement 
related to awards for the West Bank and Gaza. We determined that the 
USAID data were sufficiently reliable for purposes of our report. See 
enclosure I for a more detailed description of our scope and 
methodology. We conducted our review from October 2006 through March 
2007 in accordance with generally accepted government auditing 
standards. 

Results in Brief: 

As of December 31, 2006, USAID had obligated $300.8 million and 
expended $109.1 million of the $422.9 million in assistance provided by 
the United States to the West Bank and Gaza from fiscal years 2005 and 
2006 appropriations. After Hamas won a majority of the seats in the 
Palestinian parliament in January 2006, USAID slowed and, in April 
2006, selectively suspended assistance to the West Bank and Gaza to 
prevent U.S. assistance from potentially benefiting a terrorist 
organization. USAID resumed assistance in July 2006 after the 
Department of State notified the Congress of its new U.S. assistance 
plan, along with a revised spending plan, for the West Bank and Gaza in 
response to the June 2006 congressional mandate. The revised spending 
plan emphasized humanitarian projects, private sector support, and 
democracy/civil society programs directed to the Palestinian people. In 
February 2006, USAID requested that the Office of the President of the 
Palestinian Authority return $50 million in fiscal year 2005 
appropriations. The Palestinian Authority returned $45 million, and 
USAID has since reobligated these funds to other projects.[Footnote 11] 
The remaining $5 million funded road projects that USAID canceled. 
According to a mission official, as of January 30, 2007, USAID and the 
Palestinian Authority had not yet resolved the value of the pre- 
cancellation construction, close-out and security costs, and the 
remaining funds to be returned. 

USAID obligated the fiscal year 2005 supplemental appropriations for 
projects in the West Bank and Gaza almost equally between the two 
congressionally directed categories: economic revitalization and 
infrastructure development. However, as a result of the parliamentary 
election and the subsequent shift in U.S. strategy for assistance to 
the West Bank and Gaza, USAID's obligations to the 10 subcategories 
differed from the allocations originally put forward by the Congress. 
Before the election, the U.S. assistance plan supported the 
administration of the Office of the President of the Palestinian 
Authority with a wide range of development projects; after the 
election, all funds going to the Palestinian Authority were canceled 
or, in the case of existing obligations, withdrawn and funneled through 
other organizations. Examples of specific projects funded in part with 
the 2005 supplemental funds include labor-intensive construction 
projects to improve infrastructure and generate employment, and the 
training of doctors to improve medical care in the region. The results 
of these projects included new classrooms being built, doctors being 
trained, and facilities being rehabilitated. 

Background: 

The Palestinian territories, comprising the West Bank and Gaza, cover 
about 2,400 square miles and have a combined population of 3.8 million 
people.[Footnote 12] The Palestinian Authority administers Gaza while 
both the Palestinian Authority and Israel administer areas within the 
West Bank. 

Figure 1: Map of West Bank and Gaza and Surrounding Countries: 

[See PDF for Image] 

Source: GAO (data); CIA and Map Resources (map). 

[End of figure] 

In 1993, the Oslo Peace Accords[Footnote 13] were signed, and USAID 
established its West Bank and Gaza mission. In September 2000, the 
second intifada (uprising) began and the Oslo peace process unraveled. 
Peace efforts were renewed in June 2002 when President George W. Bush 
outlined the principles for a strategy called the Roadmap for Peace. 
The Quartet on the Middle East,[Footnote 14]as well as Israel and the 
Palestinian Authority, endorsed the strategy in April 2003. In January 
2005, Mahmoud Abbas, a supporter of the peace strategy, was elected 
president of the Palestinian Authority. A year later, in January 2006, 
the Palestinian people elected a Hamas majority to the Palestinian 
parliament. 

Since establishing its mission in the West Bank and Gaza in September 
1993, USAID has directed assistance to the Palestinians toward five 
development sectors: economic growth, water and infrastructure, 
democracy and governance, health, and higher education. It has 
supported these objectives through efforts such as job creation 
programs, construction of reservoirs and roads, election support 
projects, projects to improve maternal and child health, and university 
scholarship programs. 

The January 2006 Elections: 

In January 2006, Hamas won a majority of the seats in the Palestinian 
parliament. On January 30, 2006, the Quartet on the Middle East stated 
that its members would continue to provide support and assistance to 
the Hamas-led government only if the government would agree to 
nonviolence, recognize the State of Israel, and respect previous 
Israeli-Palestinian peace agreements. As of March 2006, Hamas had not 
accepted these conditions. 

In June 2006, the Congress directed that no Economic Support Funds in 
2006 or any prior appropriation for foreign operations, export 
financing, and related programs be obligated for assistance to the West 
Bank and Gaza until the Secretary of State reported to the 
appropriations committees (1) how the funds would be spent and (2) that 
appropriate measures were in place to ensure that no funds would 
support terrorist activities.[Footnote 15] The Department of State 
released its new assistance plan on July 21, 2006. 

Status of U.S. Assistance to the West Bank and Gaza for Fiscal Years 
2005 and 2006: 

In fiscal years 2005 and 2006, the United States provided a total of 
$422.9 million in bilateral assistance to the West Bank and Gaza 
through three separate appropriations.[Footnote 16] After Hamas won a 
majority in the Palestinian parliament in January 2006, USAID slowed 
aid pending a review of how to proceed. 

Fiscal Years 2005 and 2006 Appropriations: 

As of December 31, 2006, USAID had obligated $300.8 million and 
expended $109.1 million of the total U.S. assistance provided to the 
West Bank and Gaza in fiscal years 2005 and 2006. (See table 1.) 

Table 1: U.S. Appropriations, Obligations, and Mission Expenditures for 
West Bank and Gaza, Fiscal Years 2005 and 2006: 

Dollars in millions: 

Fiscal year 2005; 
Appropriations: $74.4; 
Obligations: $74.4[A]; 
Expenditures: $27.6. 

Fiscal year 2005 supplemental;  
Appropriations: 200.0; 
Obligations: 200.0[B]; 
Expenditures: 79.4. 

Fiscal year 2006; 
Appropriations: 148.5[C]; 
Obligations: 26.4; 
Expenditures: 2.1. 

Total; 
Appropriations: $422.9; 
Obligations: $300.8; 
Expenditures: $109.1. 

Source: USAID: 

[A] Includes a $36 million transfer to the United Nation Relief and 
Works Agency that is not reflected in mission expenditures. 

[B] Includes $27.35 million in Washington, D.C.-based obligations that 
are not reflected in mission expenditures. 

[C] Includes $33.3 million in direct allocations to other agencies. 

Note: Economic Support Funds are available for 2 years for obligation 
and for 5 years for expenditure. Expenditures are exclusively mission- 
directed project expenditures. 

[End of table] 

The combined total 2005 appropriations of $274.4 million--the largest 
yearly amount of U.S. bilateral assistance for the West Bank and Gaza 
since the second intifada--was provided, among other purposes, to 
support the President of the Palestinian Authority, elected in January 
2005, and to facilitate the Israeli disengagement from four northern 
West Bank settlements and Gaza. 

 In December 2004, the United States provided $75 million in 
assistance to the West Bank and Gaza through the fiscal year 2005 
annual appropriation. A subsequent 0.8 percent rescission reduced that 
appropriation to $74.4 million. 

 In May 2005, the United States provided an additional $200 million to 
the West Bank and Gaza in a fiscal year 2005 supplemental 
appropriation, which was accompanied by a conference report that 
allocated the funds to 10 different subcategories[Footnote 17] under 
the two broad categories of economic revitalization and infrastructure 
development. 

Additionally, in November 2005, the United States provided $150 million 
in assistance to the West Bank and Gaza through the fiscal year 2006 
annual appropriation. A subsequent 0.99 percent rescission reduced that 
to $148.5 million. The legislation authorizing the 2006 assistance did 
not contain the same congressional directives relating to categories of 
assistance as the conference report accompanying the fiscal year 2005 
supplemental appropriation. 

USAID Response to the Change in the U.S. Assistance Plan for the West 
Bank and Gaza: 

After the January 2006 parliamentary elections, USAID slowed assistance 
to the West Bank and Gaza pending a comprehensive review. In April 
2006, in concert with State, USAID notified its implementing partners 
that it intended to suspend certain activities. On July 21, 2006, the 
Secretary of State issued a new assistance plan with a revised spending 
plan totaling $468 million,[Footnote 18] about a third of which had 
previously been obligated, focused primarily on democracy and 
governance, health, and higher education. This revised spending plan 
affected the use of all three appropriations from fiscal years 2005 and 
2006. 

USAID Deobligated Certain Funds from the Fiscal Year 2005 Annual 
Appropriation: 

Along with the revised spending plan, USAID requested the return of $50 
million from its fiscal year 2005 annual appropriation of $74.4 million 
that had been obligated for the use of the Palestinian Authority. 
Between March 1, 2006, and May 8, 2006, the Palestinian Authority 
returned a total of $45 million, which USAID reobligated. The remaining 
$5 million funded road projects that USAID canceled. According to a 
mission official, as of January 30, 2007, USAID and the Palestinian 
Authority had not yet resolved the value of the pre- cancellation 
construction, close-out and security costs, and the remaining funds to 
be returned. 

USAID Shifted the Emphasis of the Remaining 2005 Supplemental 
Appropriations: 

USAID's obligations of U.S. assistance to the West Bank and Gaza varied 
from the allocations set forth in the conference report to the fiscal 
year 2005 supplemental appropriation because the revised assistance 
plan that State presented to the Congress on July 21, 2006, redirected 
some funds to humanitarian assistance. While U.S. assistance before the 
January 2006 election supported the administration of the Office of the 
President of the Palestinian Authority with a wide range of development 
projects, all funds going to the Palestinian Authority after the 
election were canceled or, in the case of some obligations, withdrawn 
and funneled through other organizations. For example, State notified 
the Congress that food fortification and nutrition management programs 
would be redirected from the Palestinian Ministry of Health to 
individual private mills and the Palestinian Association of Food 
Industries. Funds for one existing activity were redirected away from 
pubic infrastructure works to ensure that the Palestinian government 
would not benefit and to shift support away from the Palestinian 
Authority. As of December 31, 2006, USAID had obligated the full $200 
million from the supplemental appropriation. Those obligations included 
$27.35 million made by USAID in Washington, D.C. The West Bank and Gaza 
mission expended about $79.4 million. 

State Retained a Significant Proportion of Fiscal Year 2006 Funds 
Appropriated for Use in the West Bank and Gaza: 

In its July 2006 revised spending plan, State notified the Congress of 
its intent to retain approximately $83 million of the $148.5 million 
fiscal year 2006 appropriation for the West Bank and Gaza, transfer or 
directly provide about $33 million to other U.S. entities,[Footnote 19] 
and allocate $31.9 million to USAID's West Bank and Gaza mission. As of 
December 31, 2006, USAID had obligated approximately $26.4 million and 
expended approximately $2.1 million in fiscal year 2006 funds for 
projects in the West Bank and Gaza. On January 30, 2007, State notified 
the Congress of its intent to obligate $86.4 million in fiscal year 
2006 funds to carry out security measures in the West Bank and Gaza. As 
of the date of this report, the Congress and State continue to discuss 
the use of those funds and, as a result, these funds have not been 
obligated. 

USAID-Funded Projects Highlight Areas of Humanitarian Aid and 
Infrastructure Development: 

After the election and the change in the U.S. assistance plan for the 
West Bank and Gaza, USAID restructured its assistance to place an 
increased emphasis on humanitarian projects and to shift funds away 
from the Palestinian Authority. The West Bank and Gaza mission provided 
us with detailed information about the use of the fiscal year 2005 
supplemental funds for the 10 subcategories of assistance directed by 
the Congress. Table 2 shows these subcategories for the fiscal year 
2005 supplemental appropriation with USAID's actual obligations of 
those funds, the percentage differences between the congressional 
direction and USAID's obligations, and USAID's expenditures. It should 
be noted that the table displays the congressional allocations 
(determined prior to the January 2006 election) and USAID West Bank and 
Gaza mission obligations and expenditures (as of December 31, 2006), 
which reflect USAID's restructured plan after the election. 

Table 2: U.S. Economic Support Funds Obligated per Congressional 
Allocation for the West Bank and Gaza, Fiscal Year 2005 Supplemental 
Appropriation, as of December 31, 2006: 

Dollars in thousands: 

Category and subcategory: Economic revitalization post-disengagement; 
Congressional allocation: $110,000; 
Obligations: $101,291; 
Percentage difference from congressional allocation: (8); 
Expenditures[A]: $35,729. 

Category and subcategory: Support for production and marketing in 
Palestinian agriculture; 
Congressional allocation: 15,000; 
Obligations: 15,209; 
Percentage difference from congressional allocation: 1; 
Expenditures[A]: 9,219. 

Category and subcategory: Trade promotion and capacity building; 
Congressional allocation: 24,000; 
Obligations: 6,693; 
Percentage difference from congressional allocation: (30); 
Expenditures[A]: 8,932. 

Category and subcategory: Home construction financing; 
Congressional allocation: 1,000; 
Obligations: 1,000; 
Percentage difference from congressional allocation: 0; 
Expenditures[A]: 989. 

Category and subcategory: Job creation, with emphasis on construction 
of schools and community centers; 
Congressional allocation: 20,000; 
Obligations: 18,389; 
Percentage difference from congressional allocation: (8); 
Expenditures[A]: 5,284. 

Category and subcategory: Improved flow of people and goods; 
Congressional allocation: 50,000; 
Obligations: 50,000; 
Percentage difference from congressional allocation: 0; 
Expenditures[A]: 11,305. 

Category and subcategory: Economic, social, political, and security 
infrastructure development; 
Congressional allocation: 90,000; 
Obligations: 98,709; 
Percentage difference from congressional allocation: 10; 
Expenditures[A]: 43,712. 

Category and subcategory: Basic infrastructure (roads and water); 
Congressional allocation: 48,500; 
Obligations: 33,196; 
Percentage difference from congressional allocation: (32); 
Expenditures[A]: 18,181. 

Category and subcategory: Democratic reform and government; 
Congressional allocation: 17,500; 
Obligations: 14,932; 
Percentage difference from congressional allocation: (15); 
Expenditures[A]: 7,232. 

Category and subcategory: Support to confront terror and violence; 
Congressional allocation: 3,000; 
Obligations: 3,500; 
Percentage difference from congressional allocation: 17; 
Expenditures[A]: 2,415. 

Category and subcategory: Expanding education opportunities; 
Congressional allocation: 8,000; 
Obligations: 6,032; 
Percentage difference from congressional allocation: 25; 
Expenditures[A]: 1.285. 

Category and subcategory: Provision of social services to the poor; 
Congressional allocation: 13,000; 
Obligations: 41,048; 
Percentage difference from congressional allocation: 215; 
Expenditures[A]: 14,599. 

Total; 
Congressional allocation: $200,000; 
Obligations: $200,000; 
Percentage difference from congressional allocation: 0; 
Expenditures[A]: $79,441. 

Source: USAID (data) and GAO (analysis). 

[A] Expenditures are exclusive to the USAID mission in the West Bank 
and Gaza and do not include USAID expenditures by its Washington, D.C. 
headquarters officials. The mission is wholly responsible for project 
expenditures. 

[End of table] 

USAID obligated the $200 million fiscal year 2005 supplemental 
appropriation almost equally between the two congressionally directed 
categories. USAID further obligated the funds to approximately 40 
different awards under the 10 subcategories directed by the Congress, 
including some ongoing contracts that had been initiated as early as 
2004. The average award size was about $4.2 million. As discussed 
earlier, the January 2006 parliamentary election resulted in USAID 
shifting the focus of its assistance to humanitarian projects. For 
example, following the redirection of funds, the category receiving the 
largest funding was health care and food assistance projects ($41 
million). A $50 million allocation to border security measures--labeled 
"improved flow of people and goods" in table 2--was specified in the 
congressional allocations and was not affected by the change in the 
U.S. assistance plan for the West Bank and Gaza. 

Based on information provided by the West Bank and Gaza mission, 13 
awards had been completed for projects using some portion of the fiscal 
year 2005 supplemental appropriation funds. We selected two awards that 
were completed or well established with preliminary results from each 
of the two major congressional categories--economic revitalization and 
infrastructure development--in order to get a cross section of the 
types of projects being completed. The four awards represented projects 
classified under 4 of the 10 congressional subcategories set out in the 
fiscal year 2005 supplemental appropriations conference report. 
Descriptions of the projects we chose follow. 

Palestinian Economic Opportunity Program for Lending and Economic 
Development: 

USAID awarded a total of $8.6 million, including $1 million in fiscal 
year 2005 supplemental funds, to a contractor to continue its 
Palestinian Economic Opportunity for Lending and Economic Development 
program. This program seeks to provide housing solutions that are 
technically appropriate and meet basic standards of livability and 
safety. The program gives 12-to 42-month microfinance loans for home 
improvements to low-income Palestinians to repair, expand, or improve 
their homes. All loans are extended at market rates and under strict 
repayment conditions to families with a demonstrated ability to repay. 
Monthly loan installments are limited to 33 percent of income to ensure 
repayment capacity. Since the program began, the contractor has opened 
site offices in Ramallah, Nablus, Hebron, Khan Younis, Jenin, 
Bethlehem, and Tulkarem and hired qualified staff in all required 
positions. According to USAID reports, as of September 30, 2006, the 
program had disbursed home improvement loans totaling $21.7 million and 
generated over 648,000 person days of employment, almost exclusively in 
the construction sector, far exceeding the 595,200 days projected by 
the contractor. 

Partnership for Expanded Access to Quality Maternal and Neonatal Health 
Care for Palestinian Women and Infants: 

USAID awarded a total of $3.5 million, all in fiscal year 2005 
supplemental funds, to the Holy Family Hospital of Bethlehem for a 
project to provide quality maternal and child health services, 
especially for high-risk pregnancies and newborns. The project also 
seeks to expand its current services in response to evolving community 
needs, promote sustainability of the facility's specialized care 
capacity, and enhance the quality of existing maternal and neonatal 
services. Project components included expanded access to advanced 
neonatal health care, expanded access to gynecology services, expanded 
access to health education services for families, expanded access to 
training for health care professionals, and expanded support for 
essential equipment and supplies. According to USAID, program 
achievements, as of September 30, 2006, include the following: 

 a contract was awarded for the construction of a labor ward, 
emergency department, and nursery/day care unit, with construction 
started on the new labor ward; 

 a new part-time gynecologist was hired for the Well Women program; 

 two obstetric/gynecologist resident doctors began board certification 
training; 

 two pediatric resident doctors were chosen and began to receive long- 
term training; 

 three student midwives were currently studying at Bethlehem 
University; and: 

 the hospital procured a vehicle and medical equipment. 

Labor-intensive Building for Education, Recreation, and Training of 
Youth: 

USAID awarded a total of almost $2 million, including about $184,000 
from fiscal year 2005 supplemental funds, to a contractor to improve 
educational and youth infrastructure, thereby generating critically 
needed employment in the most deprived areas of Gaza. This program also 
leveraged an additional $800,000 from other sources to increase the 
scope of activities. According to USAID, the program provided immediate 
job opportunities for Palestinians in southern Gaza through a series of 
labor-intensive infrastructure interventions that generated 
approximately 48,000 days of employment. These interventions included 
the building of classrooms and the beautification and rehabilitation of 
local schools. The program also improved educational and youth 
facilities through the implementation of several educational 
infrastructure development projects including the construction, 
expansion, renovation and minor upgrading of several schools and the 
construction of multipurpose youth centers and kindergartens. According 
to USAID reports, 

 86 classrooms were built, 

 20 schools were beautified, 

 22 additional classrooms were rehabilitated, 

 1 multipurpose hall was constructed, 

 3 sports fields and 3 sanitation units were built, 

 4 new kindergartens were constructed, and: 

 2 youth and sporting clubs were rehabilitated. 

Emergency Assistance to Palestinians through Nongovernmental 
Organizations: 

USAID awarded a total of $28.2 million, including $7 million in fiscal 
year 2005 supplemental funds, to a contractor to extend its Emergency 
Assistance through Nongovernmental Organizations program. According to 
USAID, this program provided highly targeted grants to address urgent 
needs of Palestinians in the West Bank and Gaza, using existing locally 
based nongovernmental organizations of various sizes and capabilities 
as the main vehicle for service delivery. Emphasis was placed on 
reaching the poorest sectors and marginalized groups of Palestinian 
citizens, frequently those living in remote areas, enclaves that 
experienced recurrent and prolonged closures, and regions severely 
affected by occupation. Over 100 subprojects valued at $10.2 million 
have been completed or are being implemented, addressing general 
humanitarian assistance, environment, education, infrastructure, 
conflict mitigation, economic growth, and health. Activities supported 
include aid to the disabled, agricultural revitalization, shelter for 
the abused, and basic social services infrastructure. Specific projects 
included the following: 

 supporting the establishment of a Palestinian pediatric surgery unit 
to provide high-quality heart surgery for children in Palestinian 
hospitals; 

 establishing the first Palestinian eye bank and helping raise the 
awareness of the importance of corneal donations; 

 providing sunshades and water fountains for six schools; and: 

 constructing, maintaining and improving sanitary units, washing 
facilities, drinking water taps, classrooms, playgrounds, and outdoor 
spaces at 11 public schools. 

Agency Comments: 

USAID provided written comments on a draft of this report (see enc. 
II). Overall, USAID was pleased that the report emphasized the changed 
political situation following the January 2006 parliamentary elections 
and the resultant shift in the allocation of resources. USAID also 
provided two clarifications that we incorporated. In addition, USAID 
provided technical comments and updates, which we have incorporated 
throughout the report as appropriate. 

Copies of this report are being sent to the Secretary of State, the 
Director of Foreign Assistance and USAID Administrator, relevant 
congressional committees, and other interested parties. We will also 
make copies available to others upon request. In addition, the report 
will be made available at no charge on GAO's Web site at 
http://www.gao.gov. 

If you or your staff have any questions about this report, please 
contact me on: 

(202) 512-3149 or at GootnickD@gao.gov. Contact points for our Office 
of Congressional Relations and Office of Public Affairs may be found on 
the last page of this report. 

Signed by: 

David Gootnick: 
Director, International Affairs and Trade: 

[End of section] 

Enclosure I: Scope and Methodology: 

To determine the status of appropriations, obligations, and 
expenditures of the U.S. Agency for International Development (USAID) 
assistance to the West Bank and Gaza in fiscal years 2005 and 2006, we 
relied on appropriations legislation, including related conference 
reports, and USAID data provided separately by USAID's West Bank and 
Gaza mission (the mission) and USAID's Washington, D.C., headquarters. 
The mission is responsible for allocating its appropriated funds to 
specific projects in the West Bank and Gaza, and headquarters controls 
obligations of funds to the Palestinian Authority and other 
institutions, such as the Office of Transition Initiatives at USAID. 
The mission provided data on obligations and disbursements for each 
contract and specific information on its management of each contract 
(the start and end dates and specific appropriations that funded each 
contract). We reviewed legislative documents to determine congressional 
policy goals for assistance to the West Bank and Gaza and changes in 
those goals after the election of Hamas to the Palestinian parliament. 
The mission and Washington, D.C., USAID officials described the steps 
they took immediately after the January 2006 parliamentary election and 
later actions in response to congressional legislation and the 
Department of State's new U.S. assistance plan for the West Bank and 
Gaza. Headquarters staff provided supporting documentation for 
notifications to the Congress on the revised spending plan for the West 
Bank and Gaza released in July 2006. 

To determine USAID's use of the fiscal year 2005 supplemental 
appropriations and whether it obligated the funds in response to the 
congressional guidance, we reviewed legislative documents and detailed 
data provided by the mission, including information on specific awards 
as of December 31, 2006. To assess the reliability of the data provided 
by mission and headquarters staff, we spoke with agency officials at 
headquarters and reviewed technical documentation about the agency data 
systems. We also conducted interviews with mission staff to determine 
how they implemented USAID operating procedures for entering, 
verifying, and processing data. For purposes of this report, we 
determined that USAID's data were sufficiently reliable. For the 
project information that we include in this report, we relied on data 
provided by the mission. Because the Congress allocated funds to 10 
categories of assistance, the mission had detailed data for projects 
using fiscal year 2005 supplemental funds. We examined the start and 
end dates for all projects to identify projects that had been under way 
long enough to demonstrate results. We also interviewed mission staff 
on the status of projects, and the mission provided us with quarterly 
reports of the project results. We verified much of the information 
provided with similar data we developed and verified with USAID project 
officers at its Israel mission for a previous engagement related to 
awards for the West Bank and Gaza. These data provided award amounts 
and contractor information. 

[End of section] 

Enclosure II: USAID's Comments: 

USAID: 
From The American People: 

Feb 2 8 2007: 

Mr. David Gootnick: 
Director: 
International Affairs and Trade: 
U.S. Government Accountability Office: 
441 G Street, N. W. 
Washington, D.C. 20548: 

Dear Mr. Gootnick: 

I am pleased to provide the U.S. Agency for International Development's 
(USAID) formal response on the draft GAO report entitled Foreign 
Assistance: USAID Assistance to the West Bank and Gaza for Fiscal Years 
2005 and 2006 (GAO-07-443R) (March 2007). I would like to thank the GAO 
staff for their hard work and professionalism. The USAID staff enjoyed 
working with GAO on this report and appreciates the highlights of some 
of our most important project accomplishments. USAID is particularly 
pleased that the GAO emphasized the change in the political situation 
that took place following the January 2006 Palestinian parliamentary 
elections which resulted in a major shift in the allocation and 
obligation of resources. 

Statements Requiring Clarification: 

The draft report includes a few statements that warrant clarification, 
including the following: 

1. FY 2006 Allocations and Obligations:_ On page 10, second paragraph, 
the report discusses FY 2006 obligations and expenditures. USAID feels 
it is important to note that while $150 million was originally 
appropriated to fund U.S. efforts in the West Bank and Gaza for FY 
2006, the Secretary of State retained $83 million of that amount 
pending a decision about how to proceed given the political ascendancy 
of Hamas. The State Department also transferred an additional $35 
million to other entities such as the Overseas Private Investment 
Corporation, Office of Middle East Partnership Initiatives, Office of 
Inspector General and Office of Transition Initiatives. 

While some of this money may have benefited the West Bank and Gaza 
program, none of these funds are accounted for at the Mission level. 
Only the remaining $32 million in FY 2006 funds was actually allowed to 
the USAID Mission for implementation. Although USAID halted assistance 
to the Palestinian Authority in March 2006, the Mission was able to 
obligate over $25 million of the $32 million the State Department 
allocated to the Mission in accordance with the Secretary of State's 
revised Palestinian Assistance Strategy from July 2006. The funds were 
obligated and approximately $2.1 million expended for projects in the 
West Bank and Gaza as of December 31, 2006. 

2. USAID suspension of activities: On page three, second sentence under 
Results in Brief, the report states that between January 2006 and July 
2006 USAID halted assistance to the West Bank and Gaza. This same 
assertion is made in the middle of page seven. On page nine the report 
states USAID did not make a single obligation for six months. This 
depiction of events is not correct. Many activities slowed down after 
the elections due to uncertainties, but official U.S. government action 
took place only after Hamas took power in March. In concert with the 
Secretary of State's announcement on April 7, 2006, USAID sent out a 
notice on April 26, 2006 to partners detailing our intent to 
selectively suspend activities. With the agreement of the State 
Department, USAID then took actions (a) to close out selected 
activities which no longer met program requirements, and (b) to 
continue food aid activities as well as other activities (e.g., health 
activities) that had "notwithstanding authority" associated with their 
funding. 

Thank you for the opportunity to respond to the GAO draft report and 
for the courtesies extended by your staff in the conduct of this 
review. 

Sincerely, 

Signed by: 

Mosina H. Jordan: 
Counselor to the Agency: 

GAO's comments on USAID's letter: 

The following are GAO's comments on USAID's letter dated February 28, 
2007. 

We added information to this report regarding State's decision to 
retain: 

$83 million out of the total $150 million for fiscal year 2006 in the 
West Bank and Gaza. 

We modified the text to reflect USAID's comment. 

Enclosure III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David Gootnick (202) 512-3149: 

Staff Acknowledgments: 

Albert H. Huntington, III; Judith K. Knepper; and Michael Maslowski 
made key contributions to this report. In addition, David M. Bruno, 
Martin de Alteriis, Etana Finkler, Reid L. Lowe, and Grace P. Lui 
provided technical assistance. 

(320460): 

FOOTNOTES 

[1] These funds included $121 million in direct budget support for the 
Palestinian Authority and $1.3 billion to the United Nations Relief and 
Works Agency. 

[2] According to a Department of State publication, the Economic 
Support Fund promotes the economic and political foreign policy 
interests of the United States by providing assistance to allies and 
countries in transition to democracy, supporting Middle East peace 
negotiations, and financing economic stabilization programs. Also, 
legislation authorizing the Economic Support Fund provides 2 years to 
obligate the funds; that is, USAID does not have to obligate the funds 
appropriated in fiscal year 2005 until the end of fiscal year 2006, or 
September 30, 2006. In addition, none of the funds appropriated for 
assistance under the West Bank and Gaza program may be made available 
for the purpose of recognizing or otherwise honoring individuals who 
commit, or have committed, acts of terrorism (Consolidated 
Appropriations Act of 2005, Pub. L. No. 109-102,  559(c), 118 Stat. 
2809, 3019 (2004)). 

[3] Emergency Supplemental Appropriations Act for Defense, the Global 
War on Terror, and Tsunami Relief, 2005, Pub. L. No. 109-13, 119 Stat. 
231 (2005). 

[4] H.R. Conf. Rep. No. 109-72, at 132 (2005). 

[5] Pub. L. No. 108-447, 118 Stat. 2809 (2004) and Consolidated 
Appropriations Act of 2006, Pub. L. No. 109-102, 119 Stat. 2172 (2005). 

[6] As of March 1, 2006, Hamas had not accepted these conditions. 

[7] Emergency Supplemental Appropriations Act for Defense, the Global 
War on Terror, and Hurricane Recovery, 2006, Pub. L. No. 109-234,  
1304, 120 Stat. 418, 435 (2006). 

[8] Pub. L. No. 109-13,  2103, 119 Stat. at 266; Pub. L. No. 109-102, 
 559, 119 Stat. at 2222. 

[9] GAO, Foreign Assistance: Recent Improvements Made, but USAID Should 
Do More to Help Ensure Aid Is Not Provided for Terrorist Activities in 
West Bank and Gaza, GAO-06-1062R, (Washington, D.C.: Sept. 29, 2006). 

[10] In this report, we use "expenditures" to mean cash disbursements. 

[11] According to a USAID mission official, the Palestinian Ministry of 
Finance returned $30 million on March 1, 2006, and $15 million on May 
8, 2006. 

[12] The West Bank has a land area of 2,263 square miles and a 
population of about 2.4 million. Gaza has a land area of 139 square 
miles and a population of about 1.4 million. 

[13] The accords called for the withdrawal of Israeli forces from parts 
of Gaza and the West Bank and affirm the Palestinian right to self- 
government within those areas through the creation of the Palestinian 
Interim Self-Government Authority. Palestinian rule would last for a 5- 
year interim period during which a permanent agreement would be 
negotiated (beginning no later than May 1996). 

[14] The quartet is involved in mediating the peace process between the 
State of Israel and the Palestinian Authority. 

[15] Pub. L. No. 109-234, 1304, 120 Stat. at 435. 

[16] Pub. L. No. 108-447;  595, 118 Stat. at 3039; Pub. L. No. 109-13, 
 2111, 119 Stat. at 268; and Pub. L. No. 109-102  596, 119 Stat. at 
2239. 

[17] The 10 subcategories are (1) Palestinian agriculture and 
agribusiness production and marketing; (2) trade promotion and capacity 
building; (3) home construction financing; (4) job creation, with an 
emphasis on construction of schools and community centers; (5) improved 
flow of people and goods into Israel; (6) roads and water; (7) 
democratic reform and the rule of law; (8) community policing; 

(9) education, including vocational training; and (10) health care and 
food assistance. 

[18] Although the fiscal year 2006 supplemental appropriation act 
required a revised plan for unobligated Economic Support Funds for the 
West Bank and Gaza, State also included some programs funded from other 
sources or from already obligated Economic Support Funds in the revised 
spending plan. 

[19] These included the Overseas Private Investment Corporation, 
USAID's Office of Transition Initiatives, and State's Near East Asia 
Middle East Peace Initiative, among others. 

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