Foreign Assistance:

Controls Over U.S. Funds Provided for the Benefit of the Palestinian Authority

NSIAD-96-18: Published: Jan 8, 1996. Publicly Released: Jan 8, 1996.

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Pursuant to a congressional request, GAO reviewed the financial controls that govern U.S. assistance funds to certain Palestinian organizations for budget support purposes, focusing on: (1) the financial controls set up by the World Bank and the Agency for International Development (AID) to monitor the use of U.S. funds by the Palestinian Authority, Palestine Economic Council for Development and Reconstruction (PECDAR), and the Palestine Liberation Organization (PLO); and (2) AID controls over other project funds earmarked for the benefit of the Palestinian Authority.

GAO found that: (1) accountability concerns over the use of U.S. funds for budget support purposes should be mitigated by the extensive financial controls implemented by the World Bank and AID; (2) most notably, donor funds provided to the World Bank's Holst Fund in 1994 were audited and accounted for by a team of Touche Ross, Saba & Co., auditors located in Israel and the self-rule territories; (3) according to Bank officials, Touche Ross agents reviewed 10 percent of all salary payments, 25 percent of all other payments, and all contracts valued in excess of $25,000 in 1994; (4) in the case of the $5 million the United States spent on Palestinian Authority police salaries in 1994, AID hired an Egyptian audit firm to accompany the PLO's paymaster to verify individual payment records and to provide an overall accounting of disbursed funds; (5) AID project assistance funds were distributed to a wide variety of recipients, including other U.S. government agencies, private contractors, nongovernmental organizations, private voluntary organizations, and the United Nations; (6) no project funds were directly disbursed to Palestinian Authority, PECDAR, or PLO officials; (7) AID's contracts, grants, cooperative agreements, and memorandums of understanding with funds recipients incorporated standard U.S. assistance provisions such as grant and project officer oversight, incremental funding, monthly or quarterly financial status reports, progress reports, and auditing provisions; (8) AID's audit provisions call for annual audits of each contractor's overhead rate, contract-specific audits on an as-needed basis, and close-out audits of contracts valued in excess of $500,000; and (9) nonprofit organizations receiving funds through grants and cooperative agreements are subject to the Office of Management and Budget's A-133 audit process.

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