Creativity and Excellence Under Oversight

 

Supreme Council for Creativity and Excellence and its affiliated Support Fund:

Supporting creativity and excellence represents one of the important investments in the future of society and the economy, especially when it comes to incubating ideas and transforming them into projects and start-ups. Therefore, the institutions that undertake this mission need not only vision and the ability to discover creators, but also a strong system of governance, transparency and oversight that ensures resources reach their rightful beneficiaries, and that funding and investment decisions are made according to clear and verifiable criteria.

The Supreme Council for Creativity and Excellence was established in 2013, and it is one of the institutions of the Palestine Liberation Organization (PLO), and the Council is considered the supreme official umbrella that represents the creativity sector in Palestine, and the Council is concerned with all fields of scientific and artistic creativity directly related to science and technology

In this context, the State Audit and Administrative Control Bureau (SAACB) conducted a financial audit of the work of the Supreme Council for Creativity and Excellence for the fiscal year ending 2022, and it also conducted an audit of the Support Fund for Creativity and Excellence, which was established in 2016 and is affiliated with the Council and is considered its financial arm in financing creative projects and investing in them.

The results of the two reports reveal a clear gap between the importance of the role played by the two institutions and the level of institutional, financial and oversight framework that the SAACB found.

The Council: Weakness in the financial and oversight foundation

Among the most prominent findings recorded by the SAACB was that the Council had not been preparing final budgets or financial statements since its establishment, nor were its accounts subject to audit by an external statutory auditor. The report pointed to the inaccuracy of the opening balances for 2022 as a result of not recording all accounting transactions, the mismatch of the bank balances shown in the trial balance, and the failure to close prior fiscal years in the accounting software!

The problem extends to internal control. Access rights in the accounting software were not sufficiently segregated, as the accountant and the financial manager had full privileges for data entry and posting. Bank reconciliations were not performed monthly, reconciliation forms were not printed and signed by the preparer and reviewer, and bank items carried over from previous years remained unaddressed!

The SAACB also recorded incomplete accounting entries, including transfers to the National Fund in the amount of 190,352 dollars, and a grant in the amount of 249,904 dollars to finance the Creativity and Excellence building project, despite their appearance on a bank statement, in addition to disbursements made without original supporting invoices!

More tellingly, the Council does not have a unit or an employee specialized in internal control, nor is there a committee of the Board of Directors assigned to this task, despite the diversity of the institution's activities!

Governance is no less important than accounting

The SAACB's observations were not limited to the financial aspect. It recorded the absence of systems that define the specifications and expertise of Board members, or criteria that ensure their independence, alongside the Council's shortcomings in performing some of its responsibilities, including resource mobilization and setting policies and procedures supportive of creativity!

It also pointed to the insufficiency and inadequacy of the existing laws and regulations, the absence of written work manuals to organize the departments, and the failure to establish monitoring and evaluation mechanisms with measurable indicators to implement the national strategy for creativity!

Here a fundamental issue emerges: the institution that plays a national role in supporting creativity needs itself a clear institutional system that measures its results and holds it accountable for its performance!

Financing: Where do the criteria begin and where does negotiation end?

Perhaps one of the most sensitive observations lies in the method of evaluating projects and making financing decisions. The SAACB found that projects are not evaluated after the end of support to verify their success or failure and to extract lessons learned, and there is no detailed documented technical form that specifies the creative aspects and the rates of success and failure!

It was not evident that there was a documented financial opinion from specialists on which to base the decision to accept or reject funding!, nor did the finance division and its committee study the financial data prior to making funding decisions in a way that ensures the quality of the decision and limits financial risks!

More importantly, the SAACB did not find defined and documented criteria to determine the value of the investment and the Fund’s share in companies!, as funding and share determination were being based on the feasibility study, then through verbal negotiation and agreement between the applicant and the central evaluation committee, with an unjustified disparity in funding percentages among some companies!

This is not a marginal procedural matter; public funds or funds allocated to achieve a national objective should not have their allocation decisions depend on verbal negotiation without written and reviewable criteria.!

The Fund: The financial arm faces the transparency test

Some risks recur more clearly in the Support Fund for Creativity and Excellence. The SAACB recorded insufficient assurances about the accuracy and fairness of recognizing the value of the Fund’s investments and their revenues or losses, due to not obtaining the financial statements of the companies invested in, except for one company, and the Fund’s failure to audit the accounts of those companies itself or through an independent auditing firm!

The Fund also did not commit to preparing its annual budget, and there was no evidence of policies, regulations, work plans and mechanisms to control and organize support and investment, nor were sufficient criteria approved for selecting project applications. There was no clear financial procedures manual defining the conditions and mechanisms of financing, disbursement, documentation and the allocation of authorities!

On the governance side, the SAACB noted a potential conflict of authorities, as members of the Fund’s Board of Directors themselves were chairs of committees and members of the Board of the Supreme Council for Creativity and Excellence. The Fund also lacks an organizational structure or a dedicated staff, which caused it to rely on the Council’s employees and committees!

Investment: Money is not enough; follow-up is fundamental

The observations also showed that the Fund did not fully follow the procedures for tracking the disbursement of support, and that it incurred a loss on its investment in one start-up due to its failure!, and the SAACB found discrepancies between the value of some of the Fund’s investments announced in its financial statements and what is registered with the Ministry of Economy!.

It also recorded an instance in which a company declared a paid-up capital less than the amount paid by the Fund, which indicates risks affecting the Fund’s rights, in addition to the fact that the return on the Fund’s investments in ten companies during the period 2020–2022 was not commensurate with the size and value of the investment. Technical and financial reports to evaluate an in-kind contribution to one company were not available, and the SAACB pointed to risks related to subcontracting agreements that could lead to inflating the value of the contribution.!

What is required: Transition from correction to building a sustainable system

The management of the Council and the Fund expressed their readiness to work on rectifying the observations contained in the two reports. But the importance of these reports lies not only in addressing each individual observation, but in building a system that prevents their recurrence!

The SAACB recommended preparing regulations, manuals and procedures, appointing an external statutory auditor for the Council, preparing financial statements annually, enhancing the independence of the boards of directors, establishing an organizational structure for the Fund, obligating the companies it invests in to submit audited financial statements annually, documenting the Fund’s ownership and shares, and setting clear criteria for selecting projects and companies.

Creativity needs a free and encouraging environment, but it also requires strict governance. The more an institution deals with funds allocated to support creators, the greater the need for written standards, documented decisions, clear segregation of authorities, and independent assessment of risks and results!.

And the most important question after the report’s issuance is not only: What did the SAACB find? but also: What changed after the SAACB reported what it found?

For this is the true value of oversight: that it does not end with recording the observation, but that the observation is transformed into a lasting institutional reform, especially in institutions that are supposed to be a model of the excellence they seek to spread in society!