Summary

This is an unclassified version of a GAO report issued in June 1995 on the Palestine Liberation Organization's (PLO) finances. That report (1) assessed the PLO's ability to help finance the Palestinian Authority's operations in the West Bank and Gaza Strip, (2) reviewed whether the international donors effectively analyzed the need to help fund the Palestinian Authority's operating and start-up expenses, and (3) determined whether appropriate controls had been implemented to ensure that donor funds would be adequately accounted for. GAO was unable to independently verify the PLO's current financial condition because the PLO was unwilling to provide GAO with requested accounting records and supporting documentation. GAO did, however, obtain unclassified and classified data on the PLO's finances. Most of the information supplied by the State Department is included in this report. With minor exceptions, none of the material GAO obtained from the Central Intelligence Agency could be declassified.

GAO found that: (1) it was unable to reach a definitive conclusion on PLO's ability to assist the Palestinian Authority with its operating expenses; (2) it was able to determine that some of PLO's administrative, military, and social welfare expenses have been subsumed under the Palestinian Authority's budget; (3) at the same time, several traditional PLO revenue sources were not included in the Palestinian Authority's budget; (4) in 1994, donor contributions accounted for $120 million, or 68 percent, of the Palestinian Authority's budget, and in 1995, donor contributions are expected to account for about $200 million, or 45 percent, of the budget; (5) in an effort to control and eventually eliminate the Palestinian Authority's need for external assistance, the donor community called on the Palestinian Authority and Israel to implement an action plan designed to increase domestic tax revenues and revenue transfers from Israel; (6) the donors have not paid equal attention to the Palestinian Authority's expenditure plans, which require significant outlays for a 30,000-member civil service and an 18,000-member police force; (7) most donor aid is being disbursed through traditional channels, which utilize established financial control procedures; (8) the donors implemented a number of financial controls to reduce the risk that operating funds provided directly to the Palestinian Authority will be mishandled; (9) these controls include: (a) a World Bank-managed trust fund, which relies on audits of filed claims to monitor the use of donor funds; (b) the establishment of a Palestinian Economic Council for Development and Reconstruction, which serves as a focal point for receiving and accounting for aid that is disbursed to the Palestinian Authority; and (c) a standard disbursement mechanism for police salary payments, with accounting and oversight controls provided by the United Nations Relief and Works Agency; (10) GAO has not independently determined that these controls are effective; and (11) GAO received documents having possible implications that some funds may have been diverted by the Palestinian Authority and is reviewing the matter.