Black Holes in Public Finance: Uses of Public Money — Ministry of Finance and Planning in Palestine

Episode number (2)

●      Reports of the State Audit and Administrative Control Bureau (SAACB) in Palestine confirm the existence of "black holes" in the management of public funds, manifested in unsound financial mechanisms, a lack of transparency and disclosure, and the continued depletion of public resources without radical remedy. The continuation of these practices exacerbates the public finance crisis and weakens the government's ability to manage resources effectively.

●      From my review of the State Audit and Administrative Control Bureau (SAACB) annual report for 2024 and previous annual reports, it was noted that many reservations and observations were repeatedly raised about the performance of the Ministry of Finance in issuing the state's financial statements and implementing the state's general budget (final account), which includes the state's expenditures and revenues.. the latest issuance audited by the Bureau was in 2023.. and these reservations and observations were received by the Ministry of Finance in the Bureau's audit reports, and the same observations and reservations appeared almost identically in audit reports in many previous years. We cite some of them below:

●      First: the recurring reservation on the accounting policies followed by the Ministry of Finance in carrying out the purchase of petroleum products from the Israeli side: The Ministry of Finance discloses the petroleum levies and value added tax on purchases of petroleum products from suppliers on the Israeli side: the Ministry of Finance and Planning recognizes during the preparation of the state's annual closing financial statements (current account) – for the year 2023 .. for example .. the amounts collected from petroleum levies and value added tax on purchases of petroleum products and gas are recognized as revenue within the clearance, noting that these amounts are amounts paid to the supplying companies by the General Petroleum Corporation, and 98.5% of them are recovered within clearance revenues, and they do not fall under the definition of revenues collected through clearance. Since the General Petroleum Corporation's purchase of petroleum products and gas inclusive of levies and value added tax burdens the Treasury with large bills as a result of borrowing from banks to pay the supplying companies, it weakens the Treasury's liquidity, and 1.5% is deducted from the levies and value added tax by the Israeli side as a collection fee, noting that the Ministry of Finance recognizes the results of the General Petroleum Corporation's operations as amounts of payments for purchases and receipts from sales regarding the net cash flows of the General Petroleum Corporation!

●      Therefore, this leads to confusion in the cash liquidity of the Palestinian side (Ministry of Finance), and consequently the Ministry of Finance is forced to borrow from banks in addition to bearing the Israeli collection commission of 1.5% - 3% annually, without justification, in addition to the interest borne by the General Petroleum Corporation to banks as a result of borrowing from banks to provide liquidity to pay the prices of petroleum purchases annually. In addition to borrowing from public funds such as the Public Expenditure Fund, and institutions such as the Orphan Institution.... these are large sums, and such matters were not resolved with the Israeli side in previous years, and they continue to drain public funds. An example of the financial data regarding the purchase of petroleum products, taxes and levies for 2023: the levy tax on petroleum purchases for 2023 amounted to 3,699,032,606 shekels; regarding value added tax on petroleum purchases 2023, it amounted to 1,261,653,996 shekels, in addition to a collection commission for the Israeli side amounting to 75,543,450 shekels (1.5%) collection fee, while interest expenses borne by the General Petroleum Corporation to banks as a result of borrowing from banks and financial institutions amounted to 68,494,438 shekels in the same year 2023.

●      Second: recurring observations and reservations on the method of calculating amounts deducted by the Israeli side, under the health item referred to in Explanatory Note No. 3 (clearance revenues) for the year 2023, where the State Audit and Administrative Control Bureau (SAACB) reserved on the correctness of the amounts deducted by the Israeli side under the health item, where the value of the amount deducted under the health item was 180 million shekels during the fiscal year 2023, and the reason for the recurring reservation over the years is the Ministry of Finance's failure to coordinate with the Ministry of Health to audit and review the correctness of the amounts that were deducted on a monthly basis and to verify the validity of invoices and financial claims issued by the Israeli hospitals, and the Ministry of Health's failure to follow up on cases referred to Israeli hospitals in order to determine the medical needs required for patients in Israeli hospitals, which directly affects the depletion of financial resources of the Palestinian public treasury.

●      Third: repeated reservations on the Ministry of Finance's explanatory notes related to public debt

·       The indebtedness due to some bodies and institutions was not disclosed in the monthly reports shown in the final account for the fiscal year 2023 and published on the Ministry of Finance's website, for example, the Ministry of Finance did not disclose the indebtedness due to the Pension Fund within the amounts due to the Treasury, resulting from not transferring some of the amounts deducted from public employees' salaries, and the government's contribution to the contribution and benefit systems of the Pension Fund during 2023, nor did the Ministry of Finance disclose the debit balance of the Gaza Electricity Generation Company within the public debt reports in the final account for the fiscal year 2023 and the difference in the balance between the Ministry of Finance's records and the company's audited financial statements, in addition to not disclosing the amount due to the Palestine Investment Fund, and the financial liability due to the Palestine Deposit Insurance Corporation on the Ministry of Finance, which are amounts of the government's unpaid contributions in the monthly public debt reports, and delay penalties, and the Ministry of Finance also did not disclose the balance of amounts due to the General Petroleum Corporation to the supplying companies within the public debt reports in the final account for the fiscal year 2023

·       The failure to disclose these agreements and their obligations and their material effect on the financial statements affects understanding the nature of the amounts of liabilities and the government's financial plans.