SAACB Reservations on Final Accounts for Financial Years 2020–2021

●      The State Audit and Administrative Control Bureau (SAACB) audited the financial statements of the State of Palestine for the financial years ended 31-12-2020 and 2021, which consist of the "consolidated cash receipts and payments statements of the State of Palestine," the accounting policies and explanatory notes, and comparative schedules between budgeted amounts and actual amounts for the years 2020 and 2021. It issued a qualified opinion..!

●      This was stated in the report of the State Audit and Administrative Control Bureau (SAACB) (the independent auditor) on the final consolidated closing account of the State of Palestine for the financial years ended 31-12-2020 and 31-12-2021... issued on 2/2/2023, and the number of viewers of this report reached 100 viewers as of the date of preparing this post...

❖ Reservations related to budget execution for the financial years 2020 -2021 :

●      Exceeding the allocations of the general budget law allocated to all responsibility centers for the financial years 2020 and 2021 in items related to the social contributions item; for example.... the excess in this item in 2021 amounted to 55 million shekels.

●      Overspending in some programs compared to what is stipulated in the general budget law for the years 2020 and 2021, in items of salaries and wages, social contributions and other items.. for example, in the social contribution item in 2021, the overspending occurred in 145 programs, with an excess amounting to 67,176,484 shekels.

●      Expenditure on programs for which no allocations were recorded in the general budget law in the years 2020 and 2021.

❖ SAACB reservation regarding the Ministry of Finance's compliance with International Public Sector Accounting Standards - the cash basis of accounting, and some of these violations are as follows:

●      Failure to issue and approve instructions regulating the preparation of the consolidated closing accounts of the State of Palestine..!

●      Inaccurate disclosure of some items in Note No. 28, and failure to explain the differences between actual and budgeted amounts (budget vs. actual), that is, the reasons for the gap between the budget and actual execution.. such as total expenditure and net lending, budget support and development financing,

●      Failure to appropriate in the general budget law for the financial years 2020 -2021 the value of losses resulting from the operations of the Public Petroleum Corporation, where the value of this loss was charged directly to the public deficit (outside the process of preparing the closing account),

●      Failure to disclose all in-kind grants in the consolidated closing account of the State of Palestine for the financial years 2020 -2021.

●      Failure to disclose in the consolidated closing account of the State of Palestine for the years 2020 2021 Note on salaries and wages No. (13) the details of salaries and wages represented by (civilian salaries and allowances and related deductions, security forces salaries and allowances and related deductions, retirees, ministers' salaries, Members of the Legislative Council salaries, National Fund salaries)... etc.

●      Presentation of Note (No. 18) cash flows of the Public Petroleum Corporation net in the consolidated closing account of the State of Palestine for the financial years 2020 -2021.

❖ Reservations on Note (No. 3) regarding (clearing revenues) which include:

●      Failure of the Ministry of Finance to perform reconciliations for clearing revenues to reconcile the values of the clearing revenue items that the Israeli side transferred through clearing sessions with the values of revenues to be transferred according to the Ministry of Finance's records, since the differences between the customs revenue item from the clearing recognized by the Israeli side in the clearing sessions and the amount of revenue due according to the revenue report per the Israeli monthly transfer from the customs system were not addressed!

●      The State Audit and Administrative Control Bureau (SAACB) could not verify the nature and accuracy of the actual amounts transferred by the Israeli side for income tax withheld from the wages and salaries of Palestinian workers by the Israeli side, due to the Israeli side's lack of cooperation in providing the Ministry of Finance with supporting documents and details of the amounts transferred by the Israeli side to the clearing; therefore the Ministry of Finance could not perform the necessary reconciliations with what the Israeli side transferred, and consequently could not deduct receivables owed to the Ministry of Finance from the Israeli side. With regard to the income tax withheld from the wages and salaries of Palestinian workers by the Israeli side, its amounts were 76,227,530 shekels - 2020, and 206,045,248 shekels - 2021.

●      The Bureau could not verify the nature and accuracy of amounts withheld by the Israeli side for sewage treatment fees, due to the absence of a reference explaining how the deducted amounts were calculated and their legality, because supporting documents and references clarifying the calculation mechanism of the amounts deducted by the Israeli side were not available. The Israeli side did not provide the Water Authority with detailed invoices on the mechanism of calculating the treatment fee from quantitative and qualitative perspectives, and performs deductions without agreements with the Palestinian side; the amount deducted as sewage treatment fees was 99,140,480 shekels in 2020, and 93,993,424 shekels in 2021.

●      The State Audit and Administrative Control Bureau (SAACB) reserves on the accuracy of the amount deducted by the Israeli side under the health item, where the amount deducted under the health item in 2020 amounted to 104,473,81 shekels, and 139,392,348 shekels in 2021, due to the following:

-        Failure of the Ministry of Finance to coordinate with the Ministry of Health to audit and review the accuracy of amounts deducted monthly, and to verify the validity of invoices and financial claims issued by Israeli hospitals.

-        Failure of the Ministry of Health to follow up on cases referred to Israeli hospitals in order to determine the medical needs of patients in Israeli hospitals, which directly affects the depletion of the financial resources of the public treasury of the State of Palestine!

●      Charging the public treasury of the State of Palestine with illegal expenses by paying invoices and expenses that should have been borne by the Israeli side, which led to loss of public treasury funds in the following cases:

-        Charging electricity and operating expenses of the Israeli artesian wells amounting to 1,377,516 shekels on the monthly water bill issued by Mekorot Israeli company for 2020, instead of being borne by the Israeli side..!

-        Charging monthly water bills during 2020 and 2021 with delay interest amounting to 843,177 shekels, and deducting it from Palestinian tax funds in favor of Mekorot company, instead of delay interest on water bill payments, while the bills are deducted from clearing revenues monthly and there is no delay!!

-        The Israeli side charged water bills amounting to 20,089,410 shekels during the years 2021 and 2021, under the salaries item!

❖ Reservation on Note (No. 8) on withheld receivables

●      Failure to perform the necessary reconciliations and periodic matching of trust accounts and balances.

●      The Ministry of Finance's violation of law by decisions regarding the Risk Mitigation and Agricultural Insurance Fund, with respect to transferring the value of trusts deducted from the tax refund amount due to farmers, in favor of the Risk Mitigation and Agricultural Insurance Fund in December of each fiscal year, where its balance amounted to 8,535,587 shekels in 2020 and 9,371,220 shekels in 2021.

●      The Ministry of Finance recorded withheld amounts as trusts through a monthly accounting entry for the total amounts deposited in the bank account, without linking each transaction that appears in the statement or the reference assigned to it.

●      The Ministry of Finance recorded amounts in trust accounts without specifying a reference, evidence, or supporting documents related to deposits or cases concerning these amounts, which led to inability to link these amounts to the entity entitled to the trust.

❖ Reservations on the notes related to public debt (10-19-20) for the following reasons: (We list below some of the reasons for the reservations on the notes related to public debt)

●      Monthly reports disclosed in the closing account 2020, 2021, and published on the website of the Ministry of Finance, due to inability to reach separate balances for each liability.

●      Inaccurate (non-disclosure) of indebtedness owed to some agencies and institutions in the monthly reports disclosed in the closing account for the years 2020 -2021 and published on the Ministry of Finance's website, and the following illustrates some of that: -

●    Non-disclosure by the Ministry of Finance of the indebtedness owed to the Palestinian Pension Authority among the amounts due to the Treasury arising from the failure to transfer certain amounts deducted from public employees' salaries, and the government's contribution to the contribution and benefit schemes of the Pension Authority in the fiscal years 2020 and 2021.

●    The amount due to the Palestinian Investment Fund from the Ministry of Finance was not disclosed. - The Ministry of Finance did not disclose the financial liability owed by it to the Palestinian Deposit Insurance Corporation for unpaid government contribution amounts in the monthly public debt reports, amounting to (7,615,186) dollars as at the end of 2020, and the same amount in dollars as at the end of 2021.

●    The Ministry of Finance incurred delay penalties as a result of failing to pay the amount owed by it to the Palestinian Deposit Insurance Corporation of (500) dollars for each day of delay for the period from 01/01/2015 until 31/12/2020 (2191 days of delay) and (2,556 days of delay) until 30/12/2021.

●    Inaccuracy of the balance of loans granted by public institutions and disclosed in the monthly report 12/2021, where total loans were disclosed at (200,630,000) shekel (ILS), whereas the balances of these loans according to the received confirmations amounted to (203,053,019) shekel (ILS); these are financing from the Orphans' Funds Management and Development Institution with a balance of (219,53,053) shekel (ILS) and the balance of the Palestinian Fund for Compensation of Road Accident Victims loan (150,000,000) shekel (ILS), i.e., a reduction of borrowing by (2,423,219) shekel (ILS).

●    Reduction of the value of loans granted to the General Petroleum Corporation by several institutions such as the Palestinian Alimony Fund,  and the Orphans' Funds Management and Development Institution in addition to the loan of the Palestinian Fund for Compensation of Road Accident Victims within other public institutions' loans in the monthly report 12/2020, and the loan details were clarified in the report footnotes, where a discrepancy was found between the amounts stated in dollars and the value of the loans obtained in shekel (ILS) converted to dollars, due to the Ministry of Finance’s reliance on the transaction exchange rate on the date of movement—the year-end exchange rate—whereas the balances of these loans are a liability on the Ministry of Finance, not cash receipts, and the balance must be presented according to the year-end rate.

❖ SAACB reservations on indirect external loans in Note 10.b

●    The State Audit and Administrative Control Bureau (SAACB) reserves on the indirect loans disclosed in the consolidated financial statements and their related records as follows: -

●    Incorrectness of the disclosure of indirect external loans in the financial statements for the years 2020 -2021, through the non-matching of the balances of indirect loans granted by the Italian government (the Italian loan for Halhul Hospital indirect + Italian government loan / electricity network development + Italian loan to strengthen the housing sector – Gaza) as recorded in the accounting records on the government Bisan system with the balance shown in the confirmation received from the Italian government!

●    Non-matching of the balance of the German Kreditanstalt für Wiederaufbau (KfW) loan recorded in the accounting records on the government Bisan system with the balance of the confirmation received from the German Development Bank KFW as at 31 December for the fiscal years 2020-2021, as follows:

●    Failure to record the amounts transferred by the donor on the KfW loan / Industrial Cities Authority during 2020 in the Bisan accounting system, according to the transfer statement issued by the bank (these were shown in the following year 2021), and likewise for transfers in 2021...

❖ SAACB reservations on unwithdrawn external loans in Note )10.b(

●    The Bureau reserves on the unwithdrawn external loans disclosed in the financial statements for the fiscal years 2020 -2021, due to discrepancies between what was disclosed in the note on unwithdrawn external loans and what was recorded in the accounting records on the Bisan system and in the confirmations received from donors, which affected the accuracy of the financial information presented relating to the total unwithdrawn amounts of external loans.

●    The total unwithdrawn amounts from the KfW loan were not disclosed up to the end of the 2020 fiscal year.

●    Failure to record some transactions in the Bisan system related to the Italian government loan for Halhul Hospital amounting to 30,000 euros, and the Italian loan to the National Transport Company amounting to (105,298) euros during fiscal year 2020, noting that they were recorded during fiscal year 2021.

●    Failure to record some transactions in the Bisan system related to the Italian government loan (Strengthening the Housing Sector in Gaza) amounting to (820,539) euros, and the KfW loan amounting to (2,360,584) euros..!

●    The Bureau was not provided with the necessary confirmations from the donor entities for some external loans (OPEC for the years 2020 -2021, Islamic Development Bank – Jeddah for 2021), which does not provide assurance on the correctness of the balances of the external loans granted by those entities.!

❖ Reservations on Note (14) Non-wage Expenditures.

●    The State Audit and Administrative Control Bureau (SAACB) reserves on the above note for the reasons explained below:

●    The Palestine National Fund is considered one of the responsibility centers included in the laws of the general budget, and the audit of the Fund is to be conducted based on an assignment issued by His Excellency the President/Chairman of the Executive Committee of the PLO, pursuant to Presidential Decree No. (5) of 2017 insofar as it is an institution of the Palestine Liberation Organization; and given that the Fund constitutes a significant part of budget expenditures, and that the amounts transferred to the Fund from the Treasury accounts have a material effect on the financial statements..., and due to the Bureau not auditing these amounts, the State Audit and Administrative Control Bureau (SAACB) does not express an opinion on these amounts and on their conformity and compliance with the effective laws, regulations, and decisions.