December 10, 2013 8:10 pm

Brussels criticised for paying non-working Gaza civil servants

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The EU has been paying the wages of thousands of civil servants in the Gaza Strip who have not worked for up to six years, according to a critical audit of the bloc’s multibillion-euro Palestinian aid programme.

The European court of auditors report, seen by the Financial Times, will catalogue serious shortcomings in Brussels’ management of the EU’s flagship direct aid programme, which is the Palestinian Authority’s biggest source of outside income.

While the European Commission has defended the payments as a “political instrument” to keep alive the goal of a two-state solution, the findings will stir debate over the execution of ambitious EU aid programmes at a time of domestic austerity.

Since 2007, the EU has awarded around €2.9bn to projects in the Palestinian territories, which represents almost a fifth of support extended under the bloc’s so-called “neighbourhood policy” – a decade-long effort to influence countries on its southern doorstep.

The criticism, to be published on Wednesday, comes in the wake of a separate spending probe into €1bn of aid to Egypt, which found little evidence the programme achieved its stated aims of promoting democracy and human rights.

The main element of the Palestinian programme – named Pegase – was an attempt to offer direct support to the population by authorising funds for named individuals, circumventing the Hamas administration in Gaza which the EU lists as a terrorist organisation.

The lion’s share of Pegase – some €1.4bn since 2007 – directly subsidised the wage bill for PA civil servants. While it was known that many PA staff in Gaza no longer worked following the split between Hamas and the ruling Fatah movement in the West Bank, the audit for the first time confirms that wages were directly subsidised by EU taxpayers.

“While Pegase is intended to support public services for the benefit of the Palestinian population, the payment of non-performing civil servants does not serve this objective,” the report states.

It recommends the commission “undertake a major review” of the system, stop funding unemployed civil servants in Gaza, introduce competitive tendering when appointing groups to monitor the payments and link the funds to progress in PA reforms.

In its submission to the auditor, the commission strongly defended its decision to “politically support” the PA, which “decided to continue paying all eligible workers in both the West Bank and Gaza Strip regardless of their working status, which is in any event, very difficult to clarify.”

“Any decision to stop contributing to salaries in Gaza is expected to be politically very sensitive,” it added.

Ingeborg Grässle, a member of the European Parliament’s budget control committee, said she found it “unbearable” that the EU paid staff “who in fact don’t even go to work”. “That was not what we agreed on and it leads to nothing,” she added.

A 2011 commission report estimated that there were around 2,000 civil servants in education and health “on standby and ready to resume work”. Brussels has not made clear before that they were still partly paid by the EU. Any move to cut wage support in Gaza would be a heavy blow to an already ravaged economy.

The watchdog also questions whether “sufficient attention” was paid to the “fungibility” funding, which potentially freed the PA to pay staff who were ineligible for EU support, including the security forces – a claim Brussels says is unfounded.

The informal nature of these information channels between Gaza civil servants and the PA in Ramallah makes the payroll system prone to corruption by actors at all levels

The audit focused on the Pegase programme since 2008, which brings together payments to public servants, vulnerable families, reconstruction and support for the government in paying private companies. Around €1bn was spent in total during the four-year period.

While the watchdog says Brussels “succeeded” in providing direct support, it notes the programme did not adapt despite a steady increase in beneficiaries and non-attendance. The no-strings-attached policy lacked performance indicators, included no explicit reform requirements, and no systematic checks on whether eligible civil servants were actually working, it said.

While the narrow eligibility checks for PA staff were found to be “robust”, the audit questions Brussels awarding no-bid contracts to International Management Group and Big Four audit firms. IMG was paid around €16m since 2008, according to the commission. A daily fee of €1,642 was paid to the team leader of an audit firm, which was “substantially higher” that other rates in the region, the audit report found.

Gaza civil servants are supposed to communicate changes affecting their pay and allowances to PA staff, who in some cases “cannot operate openly towards the Hamas-led administration”, the report found. “The informal nature of these information channels between Gaza civil servants and the PA in Ramallah makes the payroll system prone to corruption by actors at all levels.”

One payment highlighted in the report pertained to a VAT refund of €2.5m to a luxury hotel in Gaza, which represented almost a quarter of all payments made directly to companies. While companies receiving money are supposed to provide a “public service”, when the auditors visited the hotel in October 2012 “the hotel was barely operating”.


Letter in response to this report:

Vital support for Palestinian Authority / From Mr Stefan Füle

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