General Petroleum Corporation of Palestine

The State Audit and Administrative Control Bureau (SAACB) conducted an audit review of the work of the General Petroleum Corporation for the years 2018 and 2019, and the audit covered topics such as: the indebtedness (liabilities) of the Corporation to third parties, the Corporation’s purchases and sales of fuels, gas and other petroleum derivatives, etc.

· Corporation indebtedness:

The indebtedness (liabilities) of the General Petroleum Corporation amounted to 1,836,520,715 shekels, as of 31-12-2019, distributed as follows:

- Banks and financial institutions: 1,099,413,840 shekels

- Fuel-supplying companies: 737,106,875 shekels.

- The indebtedness (liabilities) due by the General Petroleum Corporation resulted in interest and commissions in excess of 100 million shekels during 2018 and 2019, as a result of the Corporation obtaining facilities from banks and financial institutions and the Corporation’s failure to pay for its fuel purchases within the credit period (35 days) in favor of the supplying companies (the companies B and B A), noting that there were no available data at the time of the audit on the details of all interest amounts due in favor of company B for 2018 and 2019.

- Financial losses resulting from differences between withdrawn fuel quantities and required quantities:

- The Corporation exceeded the permitted variance (+- 7%) up and down for the supplied quantities compared with the monthly required quantities for certain fuel types from one of the fuel-supplying companies, while the permitted variance (increase or decrease) was not exceeded by the other company; rather, it did not withdraw the minimum amount.

- The General Petroleum Corporation incurred amounts totaling 5,106,762 shekels during 2017–2019 as penalties arising from price differences in favor of the fuel-supplying companies.

- The Corporation did not prepare the monthly studies required for gas purchases so as to take into account the conditions contained in the agreements signed with the gas-supplying companies (company B and company B A) and the costs borne by the Corporation in comparison with those conditions.

- The Corporation did not verify the shares of the supplying companies from domestic gas to ensure the delivery of the full share of the General Petroleum Corporation of domestic gas, which may impose additional financial burdens on the Corporation given the higher price of imported gas compared with the price of domestic gas in most months of the year.

· Credit ceilings, cash disbursements and checks...

- The credit ceilings granted by the Corporation to fuel stations are not approved by the competent authorities, nor do they take into account the financial solvency of those companies, in addition to the Corporation’s lack of guarantees sufficient to preserve its rights in the event these stations default on their obligations to the Corporation. The Corporation grants credit ceilings (grace periods) to fuel stations at different monetary levels, some reaching 25,000,000 shekels (the highest credit ceiling granted to a station).

- The Corporation granted the company (M L T) a credit ceiling exceeding 1,800,000 shekels as of August 2019, despite the Corporation dealing with that company on a cash basis regarding the purchase of gas, contrary to Cabinet Decision No. 20/197/17/MO/RH for 2018 concerning cash payment of fuel prices to include all fuel stations.

- The General Petroleum Corporation supplied some fuel stations with which it deals on a cash basis by issuing postdated checks before collecting the value of those checks into the Corporation’s accounts related to the Corporation’s sales to those stations, contrary to the Corporation’s policy of dealing with those stations on a cash basis, which exposes the Corporation’s funds and rights to collection risk.

- Some stations are supplied with fuel despite their checks being returned or withdrawn, which led to exceeding the credit ceilings granted to some companies, the accumulation of outstanding receivable balances due from some stations, and the risk of their default and failure to pay the checks due on them, thus wasting public funds and causing the Corporation to incur additional interest as a result of resorting to borrowing and current account overdrafts. The Bureau’s 2020 report did not state any figures on the receivables due from some fuel stations, but we referred to the Bureau’s 2018 report, which indicated these receivable balances at that time, where the total indebtedness due to the Corporation from fuel stations in both the West Bank and the Gaza Strip, according to what is recorded in the Bisan program as of 31-3-2018, amounted to: 381,292,242 shekels, 46,898 dollars, and 4,950 dinars — noting that this indebtedness does not include the value of checks received from these stations that were not collected (checks for collection), because the Corporation reduced the indebtedness by the value of checks for collection received from the stations on the date of receipt, not when their value was collected..! Checks for collection amounted up to 31-3-2018 to 272,243,028 shekels, and thus the actual indebtedness due from the stations on that date, including the checks for collection, was 653,535,270 shekels, 46,898 dollars and 4,950 dinars.

- The General Petroleum Corporation incurred high interest as a result of its policy of allowing indebtedness to accumulate at stations and then rescheduling some returned checks, which increases the debit current balances granted to them by banks by the amounts of the returned checks, since they are rescheduled to later periods.

· Balance of Company D.

- The balance of Company D on the Bisan government program is not correct, which indicates inaccurate accounting records in addition to the inaccuracy of the reports issued by the General Petroleum Corporation, since the company’s balance on the program is inflated and does not show the actual balance. In addition, there are differences totaling 265,592,741 shekels between the receivable balance of Company D appearing in the certification submitted by the company and the balance recorded on the Bisan program; we were not provided with reasons and justifications for the differences, and the records have not been reviewed since 2011 up to the audit date — due to weak control procedures over records in the Corporation, which does not provide assurance about the accuracy of the two receivables opened for the company on the program. Consequently, the Bureau reserves its opinion on the receivable balances of Company D and Company D A A recorded on the Bisan program..!

· Licenses

- The Corporation has not renewed operating licenses for fuel stations since the dates they were originally granted by the Corporation, noting that Article (11) of Cabinet Decision No. 17 for 2008 concerning the licensing system issued by the General Petroleum Corporation addressed the procedures for renewing operating licenses, which require the beneficiary to obtain a clearance certificate from the Financial Department in the General Petroleum Corporation as a condition for license renewal. The Corporation does not take the measures necessary to ensure that fuel and gas stations comply with renewing their licenses..!

- The Corporation granted licenses to some existing and operating fuel stations and approved the transfer of some stations contrary to the provisions of the licensing system regarding the procedures to be followed to obtain a license, namely that the relevant party submits a written application, pays the required fees, and that the application be studied by the technical committee to verify the suitability of the proposed site for establishing the station with the approved conditions according to the licensing system, in order to decide whether to grant the initial approval to establish the stations or to reject it — and that the specialized operations committee in the Corporation decide on the approval to operate the station after confirming its compliance with the approved conditions and specifications of the competent authorities. The Corporation granted operating licenses to some stations without following the licensing procedures stipulated in the system and imposed a fait accompli policy represented by the establishment and operation of some noncompliant stations..!

· Discrepancies at Na’lin warehouse

- There were fuel losses at the Na’lin warehouse and the discharge point in the Gaza Strip during 2019, in addition to discrepancies between purchase quantities recorded in the Bisan program from the supplying companies and the fuel quantities shown in the 2019 certifications, in addition to the failure to record the inventory balance in the Bisan program and to reconcile goods balances for all warehouses. The Corporation also did not inventory the gas warehouses in Na’lin for 2018 and 2019..!

· Rescheduling of Station (F) indebtedness

- The Corporation rescheduled the debts due from Station F without taking the legal measures necessary to collect the Corporation’s rights due from that station, which amount to 1,937,058 shekels, and without the necessary guarantees to collect that indebtedness, noting that the Corporation did not take into account previous corruption suspicions concerning the station owner as detailed in the Bureau’s report on the General Petroleum Corporation issued in 2013, which provided the Corporation legal cover to reopen the mentioned station after it had been closed, without guarantees, with the Bureau stressing that the station in question deals in the sale of smuggled fuels..!!

- The Authority did not reconcile and match the entries on the intermediary account (Gaza collections – Petroleum)..with the receivables of Gaza stations, on the DOS program..despite the reduction of receivables of some fuel stations, fictitiously, in the intermediary account ...(Gaza collections – Petroleum), in 2010, (which was revealed by the SAACB in 2013), where this account was exploited to reduce an amount of 16,417,135 shekels from the receivables due to the Authority from some fuel stations in the West Bank fictitiously...and to record collections from those receivables on the intermediary account (Gaza collections – Petroleum), by preparing and posting accounting entries for that purpose, as a result of the Authority opening an intermediary account on the Bisan program, under the name (Gaza collections – Petroleum), carrying number 92355 dated 1-5-2009, where what was collected in cash and what is being presented as checks for collection, collected from Gaza Strip stations, was recorded in this account, noting that the balance of this account is a credit of 4,183,868,786 shekels, up to 31-12-2019. The credit balance of this account results from the failure to record petroleum sales on the receivables of Gaza Strip stations on the Bisan program up to 31-12-2016, and the recording of sales on another accounting program (Bisan DOS), which does not provide confirmation of the correctness of the Gaza stations’ receivable balances...!

· I note here that the recommendations of the State Audit and Administrative Control Bureau (SAACB) regarding the work of the General Petroleum Authority are recurrent in many successive annual reports for a long time..I reviewed the SAACB annual report for 2019, where it appears that the report wrote recommendations and observations..regarding the net cash flows of the General Petroleum Authority, and the Bureau showed in its observations on the notes to the state’s final account for 2014, note No. (18), similar to those we cite in some episodes of the Bureau’s 2020 report. These observations and recommendations also appeared in the Bureau’s 2018 report, which I reviewed, and was a report on inventorying the warehouses of the General Petroleum Authority at the end of 2016...it showed a material difference in the balances of some fuel categories between the actual balance and the book balance at the end of 2016..it also showed that fuel purchases were not recorded and reconciliations were not performed on a daily basis, and that purchase invoices were posted to the accounting program after several months...!, which resulted in the inaccuracy and unreliability of the data, and the report added that the receivables of fuel stations in the Gaza Strip were not recorded on the accounting program, nor were the Authority’s fuel sales to these stations recorded..which produced a fictitious inventory balance..which affects the Authority’s financial data...The Council of Ministers had requested a report on the Authority’s indebtedness for the period from 2012 until 31-3-2018..where the Bureau wrote the summary of its report, which stated in part that it was found that the Authority did not transfer the outstanding debt balances due from fuel stations prior to 1-7-2003..amounting to 84,460,511 shekels..from the old DOS system to the currently used Bisan system..which could lead to the loss of part of these entitlements...Also there is the SAACB annual report for 2017..which repeats the same observations..etc., therefore..we hope that the Council of Ministers will correct the situation of the General Petroleum Authority...which showed a lack of seriousness in changing course in accordance with the Bureau’s recommendations..as evidenced by the repetition of the same observations..and recommendations..!!

· Legal framework of the Authority:

- There is no law or specific regulation organizing the work of the General Petroleum Authority, as the draft law of the General Petroleum Authority was approved at the second reading in 1997, but it has not been ratified to date..particularly since the existing situation of the Authority being part of the Ministry of Finance does not fit the nature of its work as a government business enterprise, since it practices commercial activities, whereby the Financial System for Ministries and Public Institutions, the public debt law, the Public Procurement Law, and the laws and regulations applied in public sector institutions are applied to the Authority....which makes the Authority carry out its assigned tasks in a disorganized manner, and based on the discretion of employees, which taints the Authority’s work with many malfunctions and errors, due to the absence of a specific regulation that takes into account the nature of the Authority’s commercial activities “such as specifying the entity authorized to license stations and transfer ownership and close them” as well as regarding the Authority’s work in terms of debt scheduling, contracting with supplying companies, consumer prices, subsidies (the tariff), and the relationship with stations, noting that a Council of Ministers decision was issued in 2018 to form a board to manage the Authority, in addition to the issuance of many decisions to work on separating the Authority as an independent government business enterprise, practicing commercial activities in accordance with specific laws and regulations that organize its work...

· Reports on the Authority’s performance:

- The General Petroleum Authority does not issue monthly reports on its operational results for decision makers and for the entities responsible for planning and monitoring the government’s financial situation, noting that the Petroleum Authority finances part of its expenditures through the general budget, and that its obligations are considered part of the public debt, and its financial data are disclosed in the government final accounts, and since the Authority practices commercial activities different in nature from government services, monthly reports must be issued showing the financial position, results of operations, and cash flows on a monthly basis, to measure the Authority’s financial performance and to inform decision makers of the monthly operating results in addition to annual reports.....!

· Obtaining facilities before their approval by the competent authorities:

- After reviewing the supporting documents and attachments related to the facilities granted to the Authority by the Arab Islamic Bank, in the amount of 175 million shekels, it appears that the mentioned facilities were obtained before their approval by the legal advisor, as the facilities were approved by the legal advisor (on 3-5-2018), while these facilities were obtained on (26-12-2017)....and until 26-12-2018...!

- Obtaining retroactive approval from the legal advisor for the Arab Islamic Bank facilities in the amount of 225 million shekels, represented by the period from 26-12-2018 until 26-12-2019, where these facilities were approved by the legal advisor (on 1-7-2019), noting that the financing ceiling was raised by 50 million shekels on 24-6-2019...!

- The financing agreement from the Arab Bank in the amount of 175 million shekels was not renewed, and a Council of Ministers decision was obtained (retroactively), where the renewal period was from 4-11-2018 until 4-11-2019, and the Council of Ministers decision was obtained on 13-11-2018.!

- The financing agreement from Bank Safa in the amount of 75 million shekels was renewed, and a Council of Ministers decision was obtained (retroactively), where the renewal period was from 9-3-2018 until 9-3-2019, and the Council of Ministers decision was obtained on 12-3-2018.!

· Delay in posting purchase invoices…:

- The General Petroleum Authority delayed posting fuel purchase invoices in its accounting records, which may lead to a delay in detecting errors and the loss of funds to the Authority, in the event of errors in purchase invoices, since the agreement with the supplying companies provides that the Authority must object to errors in purchase invoices within 60 days of their date...!

· Monthly reconciliations of purchases from Baz Company:

- The Authority did not perform monthly reconciliations for its purchases from Company B (Al-Baz), the supplier of fuels and gas, which may lead to errors in purchase invoices that are difficult to detect, thus imposing financial costs and burdens on the Authority, in addition to there being no confirmation regarding the correctness and accuracy of the amounts recorded as liabilities of the Authority in favor of the company..