Palestine Lending and Development Company (FATEN)

● The General Directorate for the Oversight of Non-Governmental Organizations (NGOs), at the State Audit and Administrative Control Bureau (SAACB) in Palestine, conducted in its 2021 annual report a comprehensive audit of the company's operations for the fiscal year ended 2019, and concluded with observations, which are listed below:

● The company was established in 1998 as a private limited shareholding company, non-profit, and is considered the largest lending and specialized financing institution in Palestine, with a loan portfolio amounting to $100,536,800...at the end of 2019...and it has 37 branches in Palestine..and a staff of more than 300 employees...

● The company does not provide benevolent loans, or low-interest loans, funded from the company's own funds, which amount to $36,772,036...., and restricts the provision of benevolent loans to the terms of the funding party only, which affects the company's ability to achieve its objectives related to empowering Palestinian society, especially marginalized and poor groups.

● High interest rates on certain types of loans granted to citizens, due to the absence of a comprehensive policy for professionally pricing interest..

● The policy adopted for managing the borrowing process from banks and international and local institutions is unclear, especially given that the institution has obtained high-cost loans, while there was an opportunity to obtain low-cost loans from local banks...!

● (Borrowers' Solidarity Fund)..

● Imposing additional financial burdens on borrowers due to the establishment and activation of the "Borrowers' Solidarity Fund" (with the approval of the Palestine Monetary Authority, and without a legal basis for its establishment), and transferring the burden of non-performing loans (resulting from the borrower's death, or disasters and damages caused by the occupation) to the other borrowers, instead of the burden being borne by FATEN...!!

● The institution did not allocate a separate bank account for the Borrowers' Solidarity Fund, in addition to the absence of a separate audited financial statement for the fund, and the commingling of the institution's current account funds, which led to using their funds in other lending operations, contrary to the fund's internal regulations...!

- (Bank Reconciliations)

● The company closed some borrowers’ outstanding payments (of unknown source) into Other Profits account...., without follow-up, which may lead to imposing additional financial burdens on borrowers.., by requiring them to pay additional installments instead of those unrecorded installments on the borrower's account..!

● The institution did not perform continuous periodic follow-up of ledger balances, which led to the accumulation of these balances, and consequently difficulty in following them up for more than 3 years, which negatively reflects on the financial statements..!

● It was observed that there are a large number of inactive ledger and actual bank accounts, numbering 52 bank accounts, without carrying out the necessary reconciliations for them, which leads to the absence of effective control over them..!

- credit facilities granted (loans)

● Violation of the issuance conditions set out in the credit policy, as the company did not adhere to issuing some loans at a unified interest rate for all borrowers...!

● The company did not adhere to issuing some loans with a specified financing ceiling for all borrowers, which prevents the unification of procedures and conditions for issuing loans for each program separately, in addition to violating the instructions set forth in the institution's credit policy..!

- Family Financing Program

● No field visits were conducted for projects financed under the Family program (especially segments A & B), in addition to the absence of other supporting documents attached to the loan application, and therefore there are no confirmations regarding the uses of these loans for the purpose for which they were granted....

● Housing Improvement Financing Program

- There is no real cost study for housing improvement loans that shows the expected construction and housing improvement costs to verify the correctness of the requested loan amount, which may lead to the possibility of using part of the financing for purposes that violate the contractual terms governing the issuance process

● "Bigger With Us" Financing Program

- There are no properly approved economic feasibility studies that show the expected development costs to verify the correctness of the requested loan amount, which may lead to the possibility of using part of the financing for purposes that violate the contractual terms governing the loan issuance process..!

● (Islamic Finance Management)

- There are no price quotations or tax invoices from suppliers of goods and services financed by the company for some loan files that were issued under the Islamic financing instrument, and therefore there is no confirmation of the correctness of those issuances, since they violated the instructions regulating this type of financing..!

● (Salaries and Employee Benefits)

- The institution granted employees a 10% tax reduction from taxable income (as a transportation allowance), regardless of their actual transportation expenses, or the high value of some of their salaries, and despite some of them possessing cars at the institution's expense..!

- (Tax File)

- The tax amounts payable by the institution and recognized in the financial statements did not match the amounts approved by the Ministry of Finance, where the total tax amounts payable according to the financial statements amounted to 10,867,820 shekels, while the total amounts payable by the institution and approved by the Ministry of Finance up to 2016 amounted to 64,547,882 shekels..!

- FATEN did not comply with submitting periodic payroll statements related to value-added tax on wages for the entire tax period from 1998 until 2020, except for the period from 4-2017 until 11-2019, and did not reconcile its tax file for that same period, which weakens the institution's ability to settle its tax file and pay what is due in installments..!

• I noted that the financial audit of FATEN carried out by the Bureau was for the fiscal year ended in 2019, which is a relatively distant time, as the audit should have been more recent and closer to the year in which the Bureau issued its latest annual report..which is 2021..

• My view.. according to the substance of the report:

I was shocked, based on the report, by the institution's establishment of the (Borrowers' Solidarity Fund)..to place on borrowers the responsibility for each other's defaults resulting from general...and sudden circumstances that affect everyone...and this is unacceptable from a credit and banking operational standpoint...as the purpose of establishing this fund...is to absolve the institution from bearing any portion of the risk in extending its credit to borrowers..!..I was also astonished by the Palestine Monetary Authority's approval to establish this fund..which is illegal – as the report stated-..!

• In addition, not separating this solidarity fund from the institution’s current accounts is an unsuitable practice and does not conform to norms, as the report stated that the institution exploited some of the fund's money, contrary to the terms of its internal regulations and the very purpose of its establishment...to grant its credit...to other borrowers..and in some of those loans...at high interest rates..!..as the report also indicates that the institution collected high interest rates...on some loans..!.

• The institution's neglect of its tax file and the failure to make regular payments of its tax liabilities - as the report stated -...is unjustified...., in addition to granting benefits to employees regarding the transportation allowance (10%) to reduce their income tax..regardless of their granted privileges - according to the report - and without coordination with tax directorates on this matter...which deprived the public treasury.... of public funds that should have been paid according to proper procedures by the institution, which was not done..!