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GAO-10-623R: 

United States Government Accountability Office: 
Washington, DC 20548: 

May 14, 2010: 

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

The Honorable Nita M. Lowey:
Chairwoman:
The Honorable Kay Granger:
Ranking 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 2008 and 2009: 

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.[Footnote 1] The United States had 
obligated more than $2.9 billion in bilateral assistance to the West 
Bank and Gaza focused on further developing the Palestinian economic, 
social services, and civil society sectors and on strengthening the 
processes, governance, and security-providing capacity of Palestinian 
Authority (PA) institutions from fiscal years 1993 through 2009. An 
additional $400.4 million is planned for fiscal year 2010. Since June 
2007, when Hamas-a U.S. designated terrorist organization-seized 
control of the Gaza Strip, the United States has directed most of its 
assistance to the West Bank.[Footnote 2] 

The U.S. Agency for International Development (USAID) is primarily 
responsible for administering Economic Support Fund (ESF) 
appropriations.[Footnote 3] Fiscal year 2008 and 2009 ESF funds 
support, among other things, priority needs identified in the 2007 
Palestinian Reform and Development Plan, as well as humanitarian needs 
in Gaza following the Israeli-Hamas conflict there from December 2008 
through January 2009.[Footnote 4] 

For fiscal years 2008 and 2009, 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 5] In response to 
these mandates, this report (1) examines the status of USAID's 
obligations and expenditures[Footnote 6] of the fiscal years 2008 and 
2009 ESF appropriations for the West Bank and Gaza and (2) describes 
how the USAID mission is obligating the fiscal years 2008 and 2009 
funds. In addition, in response to the mandate in the Consolidated 
Appropriations Act of 2008, we previously reported on the extent to 
which USAID has complied with its policies and procedures to help 
ensure that its programs do not provide support to entities or 
individuals associated with terrorism in the West Bank and Gaza. 
[Footnote 7] 

To address these objectives, we analyzed data provided by USAID for 
fiscal years 2008 and 2009 appropriations for assistance to the West 
Bank and Gaza as of December 31, 2009. We also met with USAID 
officials in Washington, D.C., and at the USAID mission (mission) in 
Tel Aviv, Israel, and reviewed relevant documents related to projects 
funded with fiscal year 2008 and fiscal year 2009 ESF funds. To 
determine whether the data were sufficiently reliable for purposes of 
this report, we requested and reviewed information from and 
interviewed officials at the USAID mission in Tel Aviv, Israel, about 
their procedures for entering contract and financial information into 
USAID's data system. We also requested and reviewed information from 
USAID officials at the Washington, D.C., headquarters about the 
underlying financial data system. We determined that the USAID data 
were sufficiently reliable for purposes of this report. 

We conducted our work from July 2009 to May 2010 and in accordance 
with all sections of GAO's Quality Assurance Framework that are 
relevant to our objectives. The framework requires that we plan and 
perform the engagement to obtain sufficient and appropriate evidence 
to meet our stated objectives and to discuss any limitations in our 
work. We believe that the information and data we obtained, and the 
analysis we conducted, provide a reasonable basis for the findings in 
this product. (Enclosure I contains a full discussion of our scope and 
methodology.) 

Summary: 

Of the approximately $1.17 billion in ESF assistance provided by the 
United States to the West Bank and Gaza from fiscal years 2008 and 
2009 ESF appropriations, USAID obligated a total of about $1.16 
billion and expended $678.5 million, as of December 31, 2009. More 
specifically, as of this date, USAID obligated 100 percent and 
expended over 80 percent of fiscal year 2008 ESF funds for the West 
Bank and Gaza.[Footnote 8] For fiscal year 2009, USAID obligated 
approximately 98 percent and expended 47 percent of the ESF funds, as 
of December 31, 2009. The USAID mission in Tel Aviv reported that it 
plans to obligate the remaining $8.3 million in fiscal year 2009 ESF 
funds prior to the end of fiscal year 2010. The total of $1.17 billion 
in ESF funds for fiscal years 2008 and 2009 represented a large 
increase from previous years' appropriations, which totaled $448.7 
million from fiscal years 2004 through 2007. 

USAID's West Bank and Gaza mission obligated $1.15 billion in fiscal 
year 2008 and 2009 ESF assistance primarily for projects in five 
sectors: water and infrastructure, democracy and governance, health 
and humanitarian assistance, private enterprise, and education. 
[Footnote 9] This assistance funds humanitarian, development, and 
reform projects mainly throughout the West Bank and, to a lesser 
extent, Gaza. Overall, USAID directed most of the fiscal year 2008 and 
2009 ESF funding to the water and infrastructure sector, followed by 
the democracy and governance sector and health and humanitarian 
assistance sector. In addition, USAID also provided a total of $500 
million from the $1.15 billion in obligations to the PA in three 
separate cash transfers for direct budgetary support. USAID officials 
stated that political and security conditions severely limited their 
ability to fund projects in Gaza in fiscal year 2008. A USAID official 
reported that USAID plans to commit up to $86 million in fiscal year 
2009 ESF funds for humanitarian assistance and recovery projects in 
Gaza; however, their ability to undertake all of these planned 
activities is uncertain. 

Background: 

The Palestinian territories, comprising the West Bank and Gaza, cover 
2,400 square miles and have a combined population of 4.0 million 
people, with over 1.5 million people in Gaza and approximately 2.5 
million in the West Bank.[Footnote 10] The Hamas-controlled de facto 
authorities operate in Gaza while both the PA and Israel administer 
areas within the West Bank.[Footnote 11] (See figure 1.) 

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

[Refer to PDF for image: map] 

The following are depicted on the map: 

West Bank: 
Ramallah. 

Israel: 
Haifa; 
Tel-Aviv; 
Jerusalem; 
Gaza; 
Gaza City; 
Golan Heights (Israeli occupied). 

UN Disengagement Observer Force Zone: 

Lebanon: 

Syria: 

Jordan: 

Egypt: 

Saudi Arabia: 

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

[End of figure] 

In 1993, the government of Israel and the Palestine Liberation 
Organization signed the Oslo Peace Accords,[Footnote 12] and USAID 
established its West Bank and Gaza mission. In September 2000, the 
second intifada began and the Oslo peace process unraveled. Peace 
efforts were renewed in June 2002 when the U.S. President outlined the 
principles for a performance-based strategy called the Roadmap for 
Peace, which calls for an independent Palestinian state coexisting 
peacefully with the State of Israel. The United Nations, the United 
States, the European Union, and Russia--known as the Quartet on the 
Middle East[Footnote 13]--as well as Israel and the PA endorsed the 
strategy in April 2003. 

In January 2005, the Palestinian people elected Mahmoud Abbas, a 
supporter of the peace strategy, to be president of the PA. In January 
2006, the Palestinian elections resulted in a Hamas majority in the 
Palestinian Legislative Council. Following the results of the January 
2006 election and the subsequent formation of a Fatah-Hamas unity 
government in 2007, 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. Hamas had not met these conditions and 
USAID reduced and restructured its direct assistance to the 
Palestinians. The United States no longer provided aid directly to the 
PA, but instead shifted the focus of aid to providing humanitarian and 
project assistance indirectly through international and non-
governmental organizations.[Footnote 14] 

In June 2007, Hamas forcibly took control of the Gaza Strip. This led 
President Abbas to issue an emergency decree suspending the operation 
of the PA government and appointing a new government to administer the 
affairs of the West Bank during the state of emergency, under a new 
Prime Minister, Salam Fayyad, who is not affiliated with either Hamas 
or Fatah. This newly formed government presented an opportunity for 
the United States to re-engage with the PA directly and led to 
increased levels of U.S. assistance aimed at improving the economic 
and security climate in the West Bank and increasing the capacity of 
the PA. In December 2007, Prime Minister Fayyad presented the 
Palestinian Reform and Development Plan that outlined the vision of a 
future Palestinian state and prioritized needs. The plan presented a 
private sector-led strategy for economic growth. In response to this 
plan, USAID has coordinated with the PA to identify a wide range of 
assistance activities that meet PA priority state-building needs and 
support a two-state solution by helping to create a peaceful and 
democratic Palestinian state. In August 2009, Prime Minister Fayyad 
released the "Program of the 13TH Government: Ending the Occupation, 
Establishing the State," which builds on the Palestinian Reform and 
Development Plan and describes the PA's priorities, over a 2-year 
period, for establishing the necessary institutions for governing a 
future Palestinian state. In Gaza, according to USAID, the 
prohibitions on providing assistance to Hamas or any entity controlled 
by Hamas limit assistance options to programs implemented through 
international organizations, U.S. non-governmental organizations, and 
vetted local partners. 

Status of U.S. Assistance to the West Bank and Gaza for Fiscal Years 
2008 and 2009: 

In fiscal years 2008 and 2009, the United States provided a total of 
about $1.17 billion in ESF assistance to the West Bank and Gaza 
through five separate appropriations. As of December 31, 2009, USAID 
had obligated a total of approximately $1.16 billion of this total 
U.S. assistance, of which it had expended $678.5 million. (See table 
1.) 

Table 1: Summary of Fiscal Year 2008-2009 ESF Assistance to the West 
Bank and Gaza as of December 31, 2009: 

(Millions of U.S. dollars): 

ESF appropriation: Fiscal year 2008; 
Allocated from ESF appropriation: $389.0; 
Total obligations: $387.5; 
Expended balance: $314.5; 
Obligated balance: $73.0; 
Unobligated balance: $0. 

ESF appropriation: Consolidated Appropriations Act, 2008, Pub. Law No. 
110-161; 
Allocated from ESF appropriation: $218.0[B]; 
Total obligations: $217.0[C]; 
Expended balance: $202.4; 
Obligated balance: $14.6; 
Unobligated balance: $0. 

ESF appropriation: Supplemental Appropriations Act, 2008, Pub. Law No. 
110-252; 
Allocated from ESF appropriation: $171.0; 
Total obligations: $170.5[D]; 
Expended balance: $112.1; 
Obligated balance: $58.4; 
Unobligated balance: $0. 

ESF appropriation: Fiscal year 2009; 
Allocated from ESF appropriation: $776.0; 
Total obligations: $767.7; 
Expended balance: $364.0; 
Obligated balance: $403.7; 
Unobligated balance: $8.3. 

ESF appropriation: Supplemental Appropriations Act, 2008, Pub. Law No. 
110-252 (Bridge Funds)[A]; 
Allocated from ESF appropriation: $150.0; 
Total obligations: $150.0; 
Expended balance: $150.0; 
Obligated balance: $0.0; 
Unobligated balance: $0. 

ESF appropriation: Omnibus Appropriations Act, 2009, Pub. Law No. 111-
8; 
Allocated from ESF appropriation: $75.0; 
Total obligations: $74.4[E]; 
Expended balance: $12.6; 
Obligated balance: $61.8; 
Unobligated balance: $0.6. 

ESF appropriation: Supplemental Appropriations Act, 2009, Pub. Law No. 
111-32; 
Allocated from ESF appropriation: $551.0; 
Total obligations: $543.3; 
Expended balance: $201.4; 
Obligated balance: $341.9; 
Unobligated balance: $7.7. 

ESF appropriation: Total; 
Allocated from ESF appropriation: $1,165.0; 
Total obligations: $1,155.2; 
Expended balance: $678.5; 
Obligated balance: $476.7; 
Unobligated balance: $8.3. 

Source: GAO analysis of USAID data. 

[A] These bridge funds are ESF funds that were made available starting 
October 1, 2008, and remained available until September 30, 2009. 

[B] Original allocation was $218.5 million; however, in response to an 
across-the-board rescission, USAID lowered the amount by $0.5 million 
to approximately $218.0 million. In addition, USAID headquarters asked 
the mission to convert $2 million of these funds from program to 
operating expense account funds to cover the administrative expenses 
required to carry out programs in the West Bank and Gaza, as allowed 
for in the appropriations act. 

[C] Includes de-obligations totaling $1,001,297. According to the 
mission, once funds are de-obligated they do not necessarily get 
realloted to the mission. In this case, the funds that were de- 
obligated were not realloted to the mission. 

[D] Includes de-obligations totaling $516,092. 

[E] Includes de-obligations totaling $391. 

[End of table] 

Of the total fiscal year 2008 appropriations of $389 million, USAID 
obligated all available funds,[Footnote 15] of which it expended 
$314.5 million, as of December 31, 2009. The Congress provided the 
fiscal year 2008 ESF funds through two separate appropriations. 

* From the ESF funds appropriated in the 2008 Consolidated 
Appropriations Act, USAID was allocated $218 million for the West Bank 
and Gaza.[Footnote 16] Of this amount, $2 million was used for USAID 
administrative expenses to carry out programs in the West Bank and 
Gaza as allowed for in the ESF appropriations language in the act. 

* From the ESF funds appropriated in the 2008 Supplemental 
Appropriations Act, USAID was allocated an additional $171 million for 
the West Bank and Gaza.[Footnote 17] 

Of the total fiscal year 2009 appropriations of $776 million, USAID 
obligated approximately $768 million, of which it expended $364 
million, as of December 31, 2009. The Congress provided the fiscal 
year 2009 ESF funds through three separate appropriations. 

* From the ESF bridge funds appropriated in the 2008 Supplemental 
Appropriations Act, USAID was allocated an additional $150 million in 
funding for the West Bank and Gaza to be made available to USAID for 
fiscal year 2009.[Footnote 18] 

* From the ESF funds appropriated in the 2009 Omnibus Appropriations 
Act, USAID was allocated $75 million in funding for the West Bank and 
Gaza.[Footnote 19] As of December 31, 2009, the USAID mission had 
approximately $600,000 available to be obligated by the end of fiscal 
year 2010. USAID reported that it plans to fully obligate the 
remaining funds by September 30, 2010. 

* From the ESF funds appropriated in the 2009 Supplemental 
Appropriations Act, USAID was allocated an additional $551 million in 
funding for the West Bank and Gaza.[Footnote 20] As of December 31, 
2009, approximately $7.7 million remained unobligated. USAID reported 
that it plans to fully obligate the remaining funds by September 30, 
2010. 

The combined total of about $1.17 billion for fiscal years 2008 and 
2009 represented a large increase from previous years' appropriations, 
which totaled $448.7 million combined from fiscal years 2004 through 
2007.[Footnote 21] USAID directed the funding toward, among other 
things, supporting the PA in the West Bank and the priority reform and 
development needs outlined in the Palestinian Reform and Development 
Plan. 

USAID Obligations of Fiscal Year 2008 and 2009 ESF Assistance Fund 
Various Projects and Budgetary Support, Primarily in the West Bank: 

USAID's West Bank and Gaza mission obligated $1.15 billion in fiscal 
years 2008 and 2009 ESF funds primarily among five development 
sectors: water and infrastructure, democracy and governance, health 
and humanitarian assistance, private enterprise, and 
education.[Footnote 22] (See table 2.) USAID also provided $500 
million, from the $1.15 billion in obligations, as direct budgetary 
support to the PA. Most 2008 and 2009 USAID assistance is for the West 
Bank, as assistance to Gaza is primarily limited to humanitarian 
assistance. 

Table 2: Total Mission Obligations by ESF Appropriation Source, Fiscal 
Years 2008 and 2009 as of December 31, 2009: 

(Millions of U.S. dollars): 

Development sectors: 

Water and Infrastructure; 
Consolidated Appropriations Act, 2008, Pub. Law No. 110-161: $13.0; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252: $100.3; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252 (Bridge 
Funds): $0; 
Omnibus Appropriations Act, 2009, Pub. Law No. 111-8: $22.0; 
Supplemental Appropriations Act, 2009, Pub. Law No. 111-32: $206.4; 
Total 2008-2009: $341.7. 

Democracy and Governance; 
Consolidated Appropriations Act, 2008, Pub. Law No. 110-161: $12.2; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252: $28.3; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252 (Bridge 
Funds): $0; 
Omnibus Appropriations Act, 2009, Pub. Law No. 111-8: $21.0; 
Supplemental Appropriations Act, 2009, Pub. Law No. 111-32: $40.0; 
Total 2008-2009: $101.5[A]. 

Health and Humanitarian assistance; 
Consolidated Appropriations Act, 2008, Pub. Law No. 110-161: $14.8; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252: $11.2; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252 (Bridge 
Funds): $0; 
Omnibus Appropriations Act, 2009, Pub. Law No. 111-8: $11.6; 
Supplemental Appropriations Act, 2009, Pub. Law No. 111-32: $59.1; 
Total 2008-2009: $96.7. 

Private enterprise; 
Consolidated Appropriations Act, 2008, Pub. Law No. 110-161: $13.8; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252: $23.6; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252 (Bridge 
Funds): $0; 
Omnibus Appropriations Act, 2009, Pub. Law No. 111-8: $7.2; 
Supplemental Appropriations Act, 2009, Pub. Law No. 111-32: $17.8; 
Total 2008-2009: $62.3. 

Education; 
Consolidated Appropriations Act, 2008, Pub. Law No. 110-161: $7.5; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252: $0.6; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252 (Bridge 
Funds): $0; 
Omnibus Appropriations Act, 2009, Pub. Law No. 111-8: $7.7; 
Supplemental Appropriations Act, 2009, Pub. Law No. 111-32: $16.3; 
Total 2008-2009: $32.1. 

Cash transfers/support/other: 

Cash transfers; 
Consolidated Appropriations Act, 2008, Pub. Law No. 110-161: $150.0; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252: $0; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252 (Bridge 
Funds): $150.0; 
Omnibus Appropriations Act, 2009, Pub. Law No. 111-8: $0; 
Supplemental Appropriations Act, 2009, Pub. Law No. 111-32: $200.0; 
Total 2008-2009: $500.0. 

Program support; 
Consolidated Appropriations Act, 2008, Pub. Law No. 110-161: $2.9; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252: $6.6; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252 (Bridge 
Funds): $0; 
Omnibus Appropriations Act, 2009, Pub. Law No. 111-8: $4.7; 
Supplemental Appropriations Act, 2009, Pub. Law No. 111-32: $0.2; 
Total 2008-2009: $14.3. 

Field support/direct transfers; 
Consolidated Appropriations Act, 2008, Pub. Law No. 110-161: $0.8; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252: $0; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252 (Bridge 
Funds): $0; 
Omnibus Appropriations Act, 2009, Pub. Law No. 111-8: $0.1; 
Supplemental Appropriations Act, 2009, Pub. Law No. 111-32: $3.5; 
Total 2008-2009: $4.5. 

Total; 
Consolidated Appropriations Act, 2008, Pub. Law No. 110-161: $215.0; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252: $170.5; 
Supplemental Appropriations Act, 2008, Pub. Law No. 110-252 (Bridge 
Funds): $150.0; 
Omnibus Appropriations Act, 2009, Pub. Law No. 111-8: $74.4; 
Supplemental Appropriations Act, 2009, Pub. Law No. 111-32: $543.3; 
Total 2008-2009: $1,153.2[B]. 

Source: GAO analysis of USAID data. 

Note: Totals may differ due to rounding. 

[A] A portion of the Democracy and Governance funding during these 
years was redirected to the emergency needs of the Gaza population 
following Operation Cast Lead. Of the total Democracy and Governance 
obligation, USAID redirected approximately $37 million to these 
humanitarian operations. 

[B] Total does not include $2 million in operating expense account 
funds used to cover the administrative expenses required to carry out 
programs in the West Bank and Gaza. 

[End of table] 

USAID Directed Project Assistance across All Five Development Sectors 
in the West Bank: 

Through funds allocated from the fiscal years 2008 and 2009 ESF 
appropriations, USAID has funded various projects, primarily in the 
West Bank, across all five development sectors. In order to describe a 
cross section of these projects, we chose a project from each sector 
that (1) represented the largest financial obligation under that 
sector and (2) also received funding from at least 1 of the fiscal 
years 2008 and 2009 appropriations.[Footnote 23] 

Water and Infrastructure: The Emergency Water and Sanitation and Other 
Infrastructure Program: 

In September 2008, USAID awarded a cooperative agreement to American 
Near East Refugee Aid, a U.S. headquartered non-profit organization, 
to develop and implement the Emergency Water and Sanitation and Other 
Infrastructure Program. USAID estimates total costs for the program of 
$60 million, including $16.2 million in fiscal year 2008 and $21.7 
million in fiscal year 2009 ESF funding. According to USAID documents, 
this program provides rapid response and emergency relief primarily in 
the water and sanitation sectors, and in other sectors as needed, to 
address the basic infrastructure needs of the Palestinian people. The 
program aims to rehabilitate, expand and upgrade small-and medium-
scale water and sewage systems and deliver potable water to needy 
communities. The program will also target the construction of small- 
scale infrastructure to support USAID's implementation of other 
programs. Examples of USAID-reported accomplishments under this 
program include: 

* Completed 18 water and sanitation projects, including laying 42,730 
linear meters of water networks, installing 1,400 linear meters of 
rainwater drainage pipes, and providing 203,000 persons with a clean 
and regular supply of potable water at an affordable price. 

* Completed the renovation of 141 classrooms and other educational 
facilities. As a result of this activity, more than 5,000 additional 
students will have access to improved education facilities. 

* Upgraded the water and sanitation facilities of three schools to 
address the lack of a proper supply of potable water as well as 
deteriorated infrastructure. 

Democracy and Governance: Palestinian Authority Capacity Enhancement 
Project: 

In September 2008, USAID awarded a contract to Chemonics 
International, a large U.S. based international development consulting 
firm, to implement a program to support PA public sector reform 
efforts. USAID estimates total costs of $20 million for this project, 
including $10 million in fiscal year 2008 ESF funding and $6 million 
in 2009 ESF funding. The program assists the PA in its efforts to 
strengthen the operational and management capability of key ministries 
and public sector institutions to govern more effectively. The overall 
goal of the program is to create a more professional and competent 
public administration and civil service within the PA that provides 
more effective, efficient and responsive services and benefits to the 
Palestinian people. Activities consist of short-and medium-term 
capacity building, including training in areas such as leadership, 
communications, fiscal management, technical assistance, and the 
provision of equipment. Objectives of the program include the improved 
delivery of key services that result in immediate tangible benefits to 
citizens; increased financial transparency and accountability in 
public finance management; and strengthened public communications 
about, and participation in, PA decision-making. Examples of USAID-
reported accomplishments under this project include: 

* Conducted in-depth assessment on ways to increase revenue collection 
by the customs and value-added tax departments and supported a 4-week 
in-depth course for customs officials on classification and tariffs. 

* Provided information technology and technical support to bring 
passport and national identification card services for over 70,000 
residents in the Tubas area. 

* Partially renovated the Ramallah, Hebron, and Nablus licensing 
bureaus to ensure more efficient and effective provision of key public 
services, and established a computer lab to automate driver testing 
and report immediate results. 

Health and Humanitarian Assistance: The Palestinian Health Sector 
Reform and Development Project (The Flagship Project): 

In September 2008, USAID awarded a contract to Chemonics International 
to implement the Flagship Project. USAID estimates total costs for its 
Flagship Project at $85 million, including obligations of $18 million 
in fiscal year 2008 and $27 million in fiscal year 2009 ESF funding. 
The Flagship Project is a 5-year initiative funded by USAID, designed 
in close collaboration with the Palestinian Ministry of Health. The 
project's main objective is to support the ministry, select 
nongovernmental organizations, and select educational and professional 
institutions in strengthening their institutional capacities and 
performance to support a functional, democratic Palestinian health 
sector able to meet its priority public health needs. The project 
works to achieve this goal through three components: (1) supporting 
health sector reform and management, (2) strengthening clinical and 
community-based health, and (3) supporting procurement of health and 
humanitarian assistance commodities. Examples of USAID-reported 
accomplishments under this project include: 

* Supported the Ministry of Health as it conducted a health system 
needs assessment and finalized a 5-year Institutional Development Plan 
based on the results of the assessment. The plan was used as a tool to 
update the Ministry's National Strategic Health Plan and for donor 
coordination. 

* Trained 354 Ministry of Health and nongovernmental organization 
staff on identified needs including leadership and management, health 
finance, costing and pricing, supervision, first responder training 
for ambulance drivers, advanced trauma life support, monitoring and 
evaluation, procurement, community mobilization, and behavior change 
communications. 

* Procured $703,962 worth of medical equipment and $476,157 worth of 
pharmaceuticals for Ministry of Health facilities and warehouses. 

Private Enterprise: Expanded and Sustained Access to Financial 
Services Program: 

In September 2008, USAID awarded a cooperative agreement to the 
Academy for Educational Development, a U.S.-based non-profit 
organization, to implement a program that is to contribute to the 
development of a dynamic private sector in the West Bank and Gaza by 
improving the access of Palestinian households and small-and medium-
sized businesses to financial services, especially credit, and 
stimulating investment in already profitable Palestinian businesses. 
USAID estimates total costs of the program at $36 million, including 
$13 million in fiscal year 2008 and $15 million in fiscal year 2009 
ESF funding. The purpose of the program is to improve and expand 
sustainable access to financial services through the development of an 
efficient, inter-linked financial system and viable institutions. By 
assisting in the development of this system, these institutions are 
expected to efficiently mobilize local financial resources and provide 
investors with the lending facilities Palestinians need. Activities 
undertaken through this program include providing technical assistance 
and training to financial institutions to help them improve their 
credit management policies, business planning strategies, and lending 
practices; financing some capacity building needs of Palestinian 
credit providers, financial institutions, and relevant associations 
and agencies; mitigating financial risks through the development and 
provision of insurance products; and helping set up land and 
collateral registers in the West Bank and Gaza. Examples of USAID-
reported accomplishments under this program include: 

* Developed partnerships with 13 different institutions, facilitated 
$30.5 million in lending to 3,664 clients, and created 9,217 jobs. 

* Assisted the Palestinian Monetary Authority, Capital Market 
Authority, and Ministry of National Economy with improving consumer 
protection regulations; developing procedures for the registration of 
non-bank financial institutions; building the capacity of their staff; 
and reviewing, revising, and developing procedures to implement a 
secured transaction law. 

* Helped 100 farmers build greenhouses, which led to over $100,000 in 
increased produce sales. 

Education: The Model Schools Network Program: 

In September 2007, USAID awarded a cooperative agreement to American- 
Mideast Educational and Training Services (AMIDEAST), a U.S.-based non-
profit organization, to implement the Model Schools Network Program. 
USAID estimates a total cost of $20 million for this program, 
including obligations of $2 million in fiscal year 2008 ESF and $13.2 
million in fiscal year 2009 ESF funding. The Model Schools Network 
program will create a network of 20 private schools, which is able to 
design and develop educational concepts and practices for measurably 
improving students learning outcomes. The program focuses on four 
types of initiatives: 

(1) professional development, which focuses on the development of 
teachers and administrators at the model schools, particularly in the 
areas of English, math, and science; 

(2) physical capacity building, which includes computer and science 
lab upgrades and a small grants program providing an opportunity for 
member schools to apply for funds for other improvements; 

(3) professional networking, which includes an annual national 
conference, and local peer-to-peer exchanges; and: 

(4) student and community involvement, whereby schools involved in the 
program actively work with parent-teacher associations and engage in 
an after-school youth enrichment program, and students participate in 
summer English, math, and science camps. Examples of USAID-reported 
accomplishments under this program include: 

* Launched the professional certificate programs for math, science, 
and English classroom teachers. Ten of 16 modules were taught to 
approximately 140 private school teachers. In addition, all teachers 
received training on critical thinking and the virtual learning 
environment. 

* Upgraded computer and science labs and procured 100 netbooks for 
math, science, and English teachers at the 17 private schools. 

* Implemented after-school youth enrichment programs at 57 public and 
private schools. 

USAID Provided $500 Million to the PA for Direct Budgetary Support: 

Out of the $1.15 billion in 2008 and 2009 ESF mission obligations, 
USAID provided three separate cash transfers, totaling $500 million, 
to the PA for direct budgetary support. According to USAID documents, 
given the gap between revenues and expenses for the PA, donor 
assistance to the PA in 2009 had been insufficient to meet its fiscal 
needs, falling short of PA's budgeted commitments by $30 million per 
month. These cash transfers were provided as follows: 

* In February 2008, the President issued a waiver to allow USAID to 
provide $150 million in fiscal year 2008 ESF funds directly to the PA 
to avert an impending financial crisis.[Footnote 24] 

* In October 2008, the President issued another waiver to allow USAID 
to provide $150 million in fiscal year 2009 ESF bridge funds from the 
2008 supplemental appropriation to the PA for budgetary assistance. 

* In July 2009, the President issued a waiver allowing USAID to 
provide $200 million in fiscal year 2009 supplemental ESF funds to the 
PA for budget support. USAID provided this funding to meet the PA's 
urgent cash liquidity needs caused by larger than expected budget 
deficits exacerbated by the December 2008-January 2009 conflict in 
Gaza. 

USAID's Limited Assistance to Gaza Has Focused on Humanitarian Needs: 

According to USAID officials, since Hamas seized control of Gaza in 
June 2007, USAID has directed most ESF assistance to programs in the 
West Bank, with programs in Gaza focused entirely on humanitarian 
needs. According to the USAID mission, the political and security 
conditions that existed in Gaza during the fiscal year 2008 
implementation period severely limited their ability to support 
programs there, resulting in fiscal year 2008 obligations for 
activities in Gaza of only approximately $1.7 million. The situation 
in Gaza then changed in December 2008 and January 2009 with the 
Israeli-led Operation Cast Lead. The humanitarian crisis that 
developed in Gaza resulted in USAID redirecting some fiscal year 2008 
funding and supplementing that with fiscal year 2009 funds to support 
emergency distributions of both food and non-food items. This 
emergency assistance committed a total of $24 million in fiscal year 
2008 and 2009 ESF funds to Gaza. 

Of the fiscal year 2009 funds that the mission has obligated, a 
mission official said USAID intends to use up to $86 million for 
humanitarian assistance and recovery programs in Gaza. According to 
mission officials, the contracts and agreements under which they have 
obligated these funds allow the mission to use them in either the West 
Bank or Gaza. However, a USAID official stated that their ability to 
implement that amount of funded activities in Gaza remains uncertain. 
The official cited difficulties in carrying out programs in Gaza 
including long delays in gaining Government of Israel approval for 
necessary shipments of materials, obstacles to staff movement in and 
out of Gaza, and interference with U.S. supported programs by the 
Hamas-led de facto authorities in Gaza. 

Agency Comments: 

We provided USAID with a draft copy of this report for review and 
comment. USAID provided no written comments on the draft, but did 
provide technical comments, which we incorporated as appropriate. 

Copies of this report are being sent to the USAID Administrator, 
relevant congressional committees, and other interested parties. In 
addition, the report will be made available at no charge on GAO's Web 
site at [hyperlink, 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: 

Enclosures: 

[End of section] 

Enclosure I: Scope and Methodology: 

To determine the status of appropriations, obligations, and 
expenditures of the Economic Support Fund (ESF) assistance to the West 
Bank and Gaza in fiscal years 2008 and 2009, we relied on 
appropriations legislation, including related conference reports, and 
financial data provided by USAID's West Bank and Gaza mission (the 
mission). The mission provided data on obligations and disbursements 
of all ESF funds for the West Bank and Gaza provided for in the fiscal 
years 2008 and 2009 annual and supplemental appropriations, as of 
December 31, 2009. USAID provided financial data to GAO in the form of 
total obligations and expenditures. For reporting purposes we 
converted total obligations into an obligated balance by subtracting 
expenditures from the total obligations reported by USAID. We also 
reviewed relevant USAID documents, including notifications to the 
Congress on the use of appropriated funds. To assess the reliability 
of the data provided by the mission, we requested and reviewed 
information from and interviewed officials at the mission about their 
procedures for entering contract and financial information into 
USAID's data system. We also requested and reviewed information from 
USAID officials at the Washington, D.C., headquarters about the 
underlying financial data system. 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 the data provided by the mission on their obligations of fiscal 
year 2008 and 2009 ESF funds for West Bank and Gaza. We chose projects 
that: (1) represented the largest financial obligation under that 
sector; and (2) contained obligations from one of the five fiscal year 
2008 and 2009 appropriations. We reviewed the relevant agreements and 
accomplishment report information for each selected project. We 
provide project descriptions and accomplishments for illustrative 
purposes only. All programs selected were started in fiscal year 2008 
or later. Accomplishments reported by USAID under these programs cover 
the period from the beginning of fiscal year 2008 through March 2010. 
USAID provided a summary list of major accomplishments for each 
selected project. From this list we provided several examples to 
illustrate the effects of each program. We did not independently 
verify the accomplishments USAID reported for the selected projects. 

We conducted our work from July 2009 to May 2010 and in accordance 
with all sections of GAO's Quality Assurance Framework that are 
relevant to our objectives. The framework requires that we plan and 
perform the engagement to obtain sufficient and appropriate evidence 
to meet our stated objectives and to discuss any limitations in our 
work. We believe that the information and data we obtained, and the 
analysis we conducted, provide a reasonable basis for the findings in 
this product. 

[End of section] 

Enclosure II: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David Gootnick (202) 512-3149 or at gootnickd@gao.gov: 

Staff Acknowledgments: 

Cheryl Goodman, Assistant Director; Michael Maslowski; B. Patrick 
Hickey; Mary Moutsos; Martin De Alteriis; and Joseph Carney made key 
contributions to this report. 

[End of section] 

Footnotes: 

[1] "A Performance-Based Roadmap to a Permanent Two-State Solution to 
the Israeli-Palestinian Conflict," (UN Document S/2003/529, dated May 
7, 2003). Among other things, this agreement obligated the Israelis 
and Palestinians to undertake a series of coordinated steps to 
disengage Israeli troops from areas in the Palestinian territories 
occupied after the 2000 intifada and replace them with consolidated 
and retrained Palestinian Authority (PA) security forces operating 
under the direction of the PA Interior Minister. 

[2] Provisions in U.S. annual appropriations acts have placed 
restrictions on funds being provided to Hamas. The most recent 
provision placed restrictions on funds being provided to Hamas, a 
Hamas controlled entity or any power sharing government of which Hamas 
is a member, though assistance may be provided to such a power-sharing 
government if the President certifies that Hamas has taken certain 
steps such as publicly acknowledging the Jewish state of Israel's 
right to exist, or for national security reasons. See Consolidated 
Appropriations Act, 2010, P.L. 111-117, December 16, 2009. Likewise, 
U.S. law also places restrictions on assistance to a Hamas-controlled 
Palestinian Authority unless the President certifies that certain 
steps have been met or for national security reasons. See 22 U.S.C. § 
2378b. 

[3] According to the Department of State, the ESF 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. Funds appropriated to the Economic 
Support Fund generally remain available for two years; that is, USAID 
would generally have two years from the time the funds were 
appropriated to obligate the funds. In addition, there are various 
restrictions placed on funds provided to the West Bank and Gaza 
programs in the annual appropriations acts. For example, the 2009 
Omnibus Appropriations Act prohibits certain funds, including funds 
appropriated to the Economic Support Fund, from being used for the 
purpose of recognizing or otherwise honoring individuals who commit, 
or have committed, acts of terrorism. See Omnibus Appropriations Act, 
2009, Pub. Law No. 111-8, 123 Stat. 881, Sec. 7039(c), March 11, 2009. 

[4] On December 27, 2008, Israel launched a military campaign called 
"Operation Cast Lead" against Hamas in the Gaza Strip. The Israeli 
offensive came in response to markedly increased Palestinian rocket 
fire following the expiration of a six-month cease-fire on December 
19. On January 3, 2009, Israel began a ground offensive into Gaza. 
Despite international pressure to halt the fighting, the conflict 
continued until January 18, when Israel unilaterally ceased fire. 
Hamas ceased fire shortly thereafter. 

[5] Consolidated Appropriations Act, 2008, Pub. Law No. 110-161, Sec. 
657(e)(2), Dec. 26, 2007 and Omnibus Appropriations Act, 2009, Pub. 
Law No. 111-08, Sec. 7039(e)(2), March 11, 2009. 

[6] For this report, we use the term "expenditures" to mean cash 
disbursements. 

[7] GAO, Foreign Assistance: Measures to Prevent Inadvertent Payments 
to Terrorists under Palestinian Aid Programs Have Been Strengthened, 
but Some Weaknesses Remain, [hyperlink, 
http://www.gao.gov/products/GAO-09-622] (Washington, D.C.: May 19, 
2009). 

[8] Approximately $1.5 million in fiscal year 2008 obligations were 
later de-obligated and not re-allotted to the mission. 

[9] USAID obligated $18.8 million, from the $1.15 billion in 2008 and 
2009 ESF fund obligations, for program and field support activities 
and direct transfers. 

[10] Central Intelligence Agency World Factbook. 

[11] In June 2007, fighting between the two major political parties 
within the PA, Fatah and Hamas, resulted in Hamas forcibly seizing 
control of the Gaza Strip, creating a Hamas-led de facto government in 
Gaza. 

[12] The accords called for the withdrawal of Israeli forces from 
parts of the Gaza Strip and West Bank and affirmed 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. 

[13] The Quartet is involved in mediating the peace process between 
the State of Israel and the PA. 

[14] GAO previously reported on changes to U.S. aid to the 
Palestinians as a result of the January 2006 elections. See Foreign 
Assistance: U.S. Assistance to the West Bank and Gaza for Fiscal Years 
2005 and 2006, [hyperlink, http://www.gao.gov/products/GAO-07-443R] 
(Washington, D.C.: Mar. 5, 2007). 

[15] Obligations of fiscal year 2008 ESF funds totaled $387.5 million; 
however, this does not include roughly $1.5 million in deobligations 
of previously obligated 2008 ESF funds that were not realloted to the 
mission. 

[16] Consolidated Appropriations Act, 2008, Pub. Law No. 110-161, 
December 26, 2007. Originally, Congress had appropriated not more than 
$218.5 million in ESF funding for the West Bank and Gaza. However, in 
response to an across-the-board rescission, USAID lowered the amount 
by $0.5 million to approximately $218.0 million. See Section 699P of 
Division J of the Consolidated Appropriations Act, 2008, Pub. Law No. 
110-161, Dec. 26, 2007. 

[17] Supplemental Appropriations Act, 2008, Pub. Law No. 110-252, June 
30, 2008. 

[18] Supplemental Appropriations Act, 2008, Pub. Law No. 110-252, June 
30, 2008. 

[19] Omnibus Appropriations Act of 2009, Pub. Law No. 111-8, March 11, 
2009 

[20] Supplemental Appropriations Act, 2009, Pub. Law No. 111-32, June 
24, 2009. 

[21] As a result of carry-over funds from previous years, mission 
obligations from fiscal years 2004 through 2007 totaled $725 million. 

[22] USAID obligated $18.8 million of 2008 and 2009 ESF funds for 
program and field support activities and direct transfers. 

[23] All contracts selected began in fiscal year 2008 or later. USAID- 
reported accomplishments under these contracts cover the period from 
the beginning of fiscal year 2008 through March 2010. We did not 
independently verify the accomplishments USAID reported for the 
selected projects. 

[24] Consistent with language in the 2008 Consolidated Appropriations 
Act, before more than $100,000,000 of ESF funds were made available 
for cash transfer assistance to the PA, the Secretary of State 
certified and reported to the Committees on Appropriations that the PA 
had (1) established a single treasury account for all PA financing and 
all financing mechanisms flow through this account, (2) eliminated all 
parallel financing mechanisms outside of the PA treasury account, and 
(3) established a single comprehensive civil service roster and 
payroll. See Pub. Law No. 110-161, 121 Stat. 2298, Dec. 26, 2007. 

[End of section] 

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