The World Zionist Organization THE OFFICE OF THE ...
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ההסתדרות הציונית העולמיתThe World Zionist Organization THE OFFICE OF THE COMPTROLLER ANNUAL REPORT for 2014 to THE 37 th ZIONIST CONGRESS Jerusalem, October 2015
Transcript of The World Zionist Organization THE OFFICE OF THE ...
ההסתדרות הציונית העולמית
The World Zionist Organization
THE OFFICE OF THE COMPTROLLER
ANNUAL REPORT
for 2014
to
THE 37th
ZIONIST CONGRESS
Jerusalem, October 2015
The Office of the Comptroller:
14 Hillel St., P.O.B. 7063, Jerusalem 9107001
Tel: 972-2-6204500 Fax: 972-2-6204545
Delegates to the 37th
Zionist Congress,
I am honored to submit to the 37th Zionist Congress a Report on the
activities of the Office of the Comptroller for the year 2014 and since the
36th
Zionist Congress.
The volume includes reports that were discussed at the Subcommittee for
Control of the Zionist General Council Standing Committee for Budget and
Finance.
According to the Statutes of the Comptroller and the Control Office (18b),
the Chairman of the Zionist Executive should prepare a response to the
individual reports submitted by the Comptroller. Such a response has not
been received for each of the individual reports included in this volume.
The Comptroller's recommendations should be thoroughly reviewed by the
controlled bodies and implemented thereafter in order to improve ways of
management, use of human resources, and funds allocated to them.
I would like to thank the Chairperson of the Control Subcommittee and the
members of the Subcommittee for their assistance in pursuing the
implementation of my recommendations, as well as the Controlled bodies
for their cooperation. Thanks go also to my staff for their thorough work.
Asaf Sela
Comptroller
Jerusalem, October 2015
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Message of the Chairperson of the Subcommittee for Control
The World Zionist Organization
Standing Committee for Budget and Finance
1. The Comptroller of the National Institutions examines the activities
of the World Zionist Organization. Since the 36th
Zionist Congress
and following the election of the present Chairman of the World
Zionist Organization, the Comptroller and his staff have been
working to provide the members of the Subcommittee for Control
and the World Zionist Organization with reports that include
findings and recommendations for discussion and conclusion with
the reviewed entities.
2. The Subcommittee for Control regards the work of the Comptroller
and his staff as an important auxiliary tool for proper management
of the various institutions and organizations and emphasizes this
stand in its meetings.
Also, the Subcommittee, together with the Comptroller and in
coordination with the reviewed bodies, follows up on the
implementation of the recommendations specified in the
Comptroller's reports.
3. In view of the last two years' experience, I recommended to the
Chairman of the World Zionist Organization that it is appropriate to
grant an independent status to the Subcommittee for Control of the
Standing Committee for Budget and Finance. I was informed that a
resolution on the matter was approved at the XXXVI/5 Zionist
General Council, in February 2015. This decision constitutes
recognition of the importance of the work of the Comptroller and its
stature in facilitating proper management of the reviewed entities.
4. The Subcommittee expresses its appreciation of the thorough on
going work of the Comptroller and his staff in conducting the
examinations and preparing the reports, while constantly aspiring to
improve the activities of the World Zionist Organization.
5. I thank the members of the Subcommittee for Control for their
cooperation. Upon completion of our term, I would like to thank all
those involved in this important endeavor and wish success to those
who will follow us and serve on the independent Control Committee.
Baruch Levy, Ph.D.
October 2015
Table of Contents
Activities of the Office of the Comptroller during the Period
Covered by the Report ........................................................................... 11
List of Reports Prepared in the Years 2005–2015 ............................ 15
Comptroller's Reports:
The Zionist Federation in South Africa ............................................. 19
Objectives ............................................................................................... 21
Method and Scope .................................................................................. 21
Background ............................................................................................ 21
Support of Activities in South Africa ..................................................... 25
The World Zionist Organization Office in France ............................ 31
Objectives ............................................................................................... 33
Method and Scope .................................................................................. 33
Background ............................................................................................ 33
Legal Status ............................................................................................ 35
Budget .................................................................................................... 36
Finances .................................................................................................. 39
Banks ...................................................................................................... 43
Activities ................................................................................................ 46
Personnel and Reimbursement ............................................................... 51
T.L. Culture for Israel Ltd. ................................................................. 53
Introduction ............................................................................................ 55
WZO and the Ministry of Culture and Sport ......................................... 56
WZO and the Company ......................................................................... 58
Company Structure and Institutions ....................................................... 60
Company Operations .............................................................................. 63
Personnel ................................................................................................ 65
Budget and Finances (Company) ........................................................... 67
Income from Ministry of Culture ........................................................... 68
Activity and Program Expenses ............................................................. 68
General and Administrative Expenses ................................................... 70
Keren Kayemeth LeIsrael – Budget Preparation ............................. 73
Introduction ............................................................................................ 75
Background ............................................................................................ 78
Budget Preparation ................................................................................. 87
Assumptions in Preparing the Operating Activities Budget .................. 92
Budget Re-allocation .............................................................................. 95
Operating and Capital Expenditures Budget Approval Process ............ 98
Capital Expenditures Budget – Actual Performance ............................. 104
Fixed Costs Budget ................................................................................ 107
Keren Kayemeth LeIsrael – Spokesperson Unit ............................... 115
Introduction ............................................................................................ 117
Background ............................................................................................ 119
Budget Performance in 2014 .................................................................. 123
2014 Work Plan ..................................................................................... 128
Service Provider Contracts ..................................................................... 132
Overseas Communications Activities .................................................... 139
Procedures .............................................................................................. 149
Keren Kayemeth LeIsrael – Joint Programs with Organizations ... 153
Introduction ............................................................................................ 153
Budget .................................................................................................... 156
Decision-Making Process ...................................................................... 158
Budget Approval .................................................................................... 163
Contracts between KKL-JNF and the Organizations ............................. 165
Monitoring Compliance with the Organizations
Commitments towards KKL-JNF ................................................. 171
Reporting on the Utilization of KKL-JNF Funds .................................. 172
Transferring KKL-JNF Funds to Organizations .................................... 173
Funding for WZO Organizations ........................................................... 174
Fiscal Conduct ........................................................................................ 199
Summary ................................................................................................ 205
Keren Hayesod – Property Management ........................................... 207
Introduction ............................................................................................ 209
Background ............................................................................................ 212
Ongoing Property Management ............................................................. 215
Disposal of Properties ............................................................................ 233
Procedures .............................................................................................. 235
Identifying and Reclaiming Properties .................................................. 237
American Zionist Commonwealth Inc. Lands ....................................... 238
Statutes of the Comptroller and the Control Office,
The World Zionist Organization ........................................................ 243
Activities of the Office of the Comptroller
During the Period Covered by the Report
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Activities of the Office of the Comptroller
During the Period Covered by the Report
Functions of the Comptroller
The authority of the Comptroller of the Word Zionist Organization is drawn
from Article 60 of the WZO Constitution, which determines the independent
status and main functions of the Comptroller. Detailed provisions on the
functions and mode of operation of the Comptroller can be found in the
Statutes of the Comptroller and the Control Office, as passed at the Zionist
General Council, (brought below, in the last section of this book).
It is the Comptroller's task to conduct an independent review of the WZO
departments, the National Funds and other bodies, as defined in Clause 10
of the Statutes, in order to ascertain whether they operate within the
desirable norms of legality, budgetary discipline, financial accountability,
administrative propriety and efficiency, and moral integrity. The Office of
the Comptroller also deals with complaints from the public concerning the
bodies coming under its purview.
The control findings, together with the Responses of the Chairman of the
Executive, are debated in the Standing Committee for Budget and Finance
of the Zionist General Council, which has set up a special sub-committee for
this purpose. The individual reports included in this Report to the 37th
Zionist Congress, have been debated in the sub-committee, yet without the
Responses to the Chairman of the Executive, that have not been submitted.
The WZO Comptroller, who is elected according to the Constitution by the
Zionist Congress, may also serve as Comptroller of the Jewish Agency, if so
elected by the Board of Governors of the Agency. This linkage of roles has
existed in practice for many years.
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One Office of the Comptroller –
Several Entities Under Purview
It is important to stress that the Office of the Comptroller functions as one
unit controlling the gamut of activities of the National Institutions. Thus it
achieves flexibility in placing control teams in the various controlled entities
and creates a possibility of implementing lessons drawn from control of one
entity to the other.
Reports of the Office of the Comptroller
Following the Comptroller's Report to the 36th
Zionist Congress of June
2010 which reviewed the control activities since the 35th
Zionist Congress
convened in June 2006, Annual Reports were submitted to the Zionist
General Council in June 2012, November 2013 and February 2015.
Annual Reports were also submitted to the Jewish Agency Board of
Governors in June 2010, June 2011, June 2012, November 2013, June 2014
and June 2015.
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Reports Prepared by the Office of the Comptroller
of The World Zionist Organization
in the Years 2005–2015
Arranged according to the year of publication
The World Zionist Organization
2005 The 34th
Zionist Congress
2005 Allocation to the World Zionist Unions
2005 The Zionist Federation in France
2006 The Department for Zionist Activity
2006 The Hagshamah Department – Payments to the Hagshamah
Movements
2006 Center for Religious Affairs in the Diaspora
2007 Allocations for Reform and Conservative Religious Services
2007 The Human Resources Division
2008 Herzl Center – Museum and Zionist College
2008 The Central Zionist Archive
2010 The Finance Department
2010 Short Term Shlichut at the World Zionist Organization
2010 The Zionist Council in Israel
2012 The 36th
Zionist Congress
2012 The World Zionist Unions – Use of WZO Allocation
2012 The Building at 17 Kaplan Street, Tel-Aviv
2012 Department for Diaspora Activities, Herzl Museum
2012 The Unit for Zionist Shlichut - The Shlichim Set up
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2013 The Hagshamah Movements – Use of WZO Allocation
2013 The Zionist Council in Israel
2013 Center for Religious Affairs in the Diaspora
2013 The Human Resources Division
Feb. 2015 The Unit for Morim Shlichim in the Diaspora
Feb. 2015 Habayta – Aliyah Promotion Unit
Oct. 2015 The Zionist Federation in South Africa
Oct. 2015 The WZO Office in France
Oct. 2025 Tarbut LeIsrael Ltd.
Keren Kayemeth LeIsrael
2005 Water Reservoirs
2006 Maintenance Division
2006 The Ben Shemesh Land Policy and Land Use Research Institute
2007 Land Development Authority, Land Reclamation Projects and
Roads
2008 Hemnuta Co. Ltd. – The Process of Letting Properties and
Handling the Maintenance Costs
2008 Land Development Authority – Forestry Division, Fire Prevention
2008 Land Development Authority – Arrangements with Land Bed
Haulage Contractor in the Southern District
2010 Communications and Public Relations Division
2010 The Shaar Hagay Khan (Carvansary)
2010 The Resources Development Division – Contribution Funded
Projects
2012 Voluntary Retirement in 2009
2012 The Education & Youth Division
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2013 Forest Contractors
2013 Short Term Shlichut
Feb. 2015 Salaries and Human Resources
Feb. 2015 Investment Management
Oct. 2015 Budget Building
Oct. 2015 Spokesperson Unit
Oct. 2015 Joint Programs with Third-Party Organizations
Keren Hayesod
2006 Missions and International Events Unit
2007 Human Resources and Emissaries Administration
2008 Legacies and Funds
2010 Short Term Shlichut
2012 Procurements and Contracts
2012 High Priority Projects
2013 Payment Security
2013 Salaries and Human Resources
Feb. 2015 Cash Management
Oct. 2015 Property Management
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Jewish Agency and Zionist Federation
Activities in South Africa
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02
02
Jewish Agency and Zionist Federation
Activities in South Africa
1. Objectives
Checking propriety of the following:
1.1 The Israel Center’s finances.
1.2 Administration of the World Zionist Organization’s funds in
South Africa.
2. Method and Scope
The audit was conducted in June 2013 in Johannesburg, at the offices
of the Israel Center, the South Africa Zionist Federation (SAZF), and
Beyachad. The audit also included meetings with relevant persons and
gathering of data, at the Jewish Agency's and World Zionist
Organization’s headquarters in Jerusalem.
3. Background
3.1 South Africa has undergone profound political, social, and
economic changes in the past twenty years. In 2013, South
Africa had a population of about 50 million. The fall of the
apartheid regime in the early 1990s led to the first multi-
racial democratic elections in the country, held in 1994.
Years of apartheid rule had left the nation’s wealth in the
hands of a small social elite, and had led to economic decline,
with 50% of the population living below the poverty line and
00
00
unemployment ranging from 25% to 40% according to some
reports. 1 The official unemployment rate is 28%.
Among other things, the country is coping with public health
problems (epidemics, disease, and a lack of medical
infrastructure), crime, and failing education, especially in the
city of Johannesburg.
3.2 There are approximately 70,000 Jews living in South Africa,
of which approximately 45,000 reside in Johannesburg,
15,000 in Cape Town, and the rest in Durban, Pretoria, and
Port Elizabeth.
According to Jewish Agency data, approximately 85% of the
youths in South Africa go to Jewish schools, most of which
are associated with the Orthodox community. The Jewish
community is traditional in its religious views, and Jewish
organizations such as Chevra Kadisha play an important role
in the structure of the local community.
3.3 Jewish youths have a hard time finding employment in the
various service industries, due to affirmative action favoring
Blacks. Business owners must also comply with various
affirmative action laws, which undermine productivity and
competitiveness.
Limits and quotas imposed on Jews due to affirmative action
are also felt in academic institutions.
Traditional anti-Semitism is quite rare. However, there is
ever-increasing hostility toward Israel, which is superseding
classical anti-Semitism.
1 http://www.themarker.com/news
02
3.4 The Jewish community is known for its strong and extremely
positive ties to Israel. Support of Israel bridges geographic
locations and religious views. Israel is a dominant issue on
the community’s agenda, with SAZF and Israel Center events
attended by many thousands of people throughout the year.
The community invests significant resources in maintaining
its ties with Israel, through a variety of channels.
3.5 In the first years of the new millennium, Jewish organizations
in Johannesburg, including the Jewish Agency, the SAZF, the
local Keren HaYesod (IUA) campaign, WIZO, and others,
joined together to establish an umbrella organization known
as Beyachad.
Beyachad, a local entity, provides each of its member
organizations administrative and logistical services, from a
shared building. These services include: building security and
maintenance, rent, and financial administration services.
Beyachad's finance department manages funds and provides
accounting services for all member organizations, through
Beyachad’s accountant, while keeping the financial data for
each organization separate. Thus, each organization operates
through its own personnel and organs, and remains
administratively independent.
The fact that the organizations’ offices are all located in the
same building allows for easy and immediate contact
between organizations and their personnel, which fosters
collaboration.
In addition to the use of office space, the building hosts
events and activities for the member organizations.
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02
3.6 In 2002, the Israel Center was established. The Israel Center
carries out the Jewish Agency's and the SAZF’s operations in
South Africa. As such, the Israel Center is the most
significant organization dealing with the local Jewish
community's needs on issues such as Jewish/Zionist identity,
and the Jewish Agency's core themes.
3.7 When the Israel Center opened in Johannesburg, the various
Jewish/Zionist organizations in South Africa started
operating under a single roof, receiving financial and
infrastructure services from Beyachad. The building
administered by Beyachad provides office space for
personnel, and also hosts activities and events.
As aforesaid, Beyachad provides member organizations
financial services through its accounting department and an
accountant which serves as finance director for each
organization, including the local Keren HaYesod (IUA-
IUCF) Campaign, SAZF, the Jewish Agency, etc. The
various organizations using the building pay Beyachad for its
management services, accounting services, and infrastructure.
3.8 The work carried out by the various organizations through
Beyachad is carried out in full cooperation with the local
community.
The Israel Center is regarded as an integral part of the local
community. The Israel Center and the Jewish Agency’s
representative enjoy a great deal of freedom in their actions.
The Israel Center oversees all Aliya-related matters, the Masa
program, the youth movements, Partnership Together (P2G),
short-term programs in Israel such as Encounter, and liaises
with the local Jewish Agency office consisting of community
shlichim, and youth movement shlichim.
02
4. Support of Activities in South Africa
4.1 Budgetary support from the World Zionist Organization
The World Zionist Organization supports and finances the
Jewish community’s activities through the SAZF and the
Israel Center in South Africa. This funding supports the day-
to-day activities and special events, and covers part of the
shlichim’s expenses.
Support includes an allocation by the World Zionist
Organization’s Executive, by the Department for Zionist
Activities in the Diaspora, and by the Unit for Religious
Affairs in the Diaspora. The Zorim Tzionut project receives
more than half of all funds provided by the World Zionist
Organization for activities in South Africa. The project is
primarily funded by the Ministry of Education which has
ownership of the project and credits the World Zionist
Organization for the project’s expenses. The project is also
supported by the youth movements.
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02
The following table details the World Zionist Organization’s
financial support of the SAZF and the Israel Center (the
aforementioned budgets do not include shlichim-related costs
in the Israel Center and SAZF):
2012 (USD) 2013 (USD)
Budget Expenditure Budget Expenditure
A World Zionist
Organization
Budget
060666 190995 100666 100666
B Transfer to the
Israel Center
500666 500666 050666 060,02
Zorim Tzionut
(operating
expenses and
shlichim salaries)
523,49 773075 50,3559 5003527
Ben-Ami (Zorim
Tzionut)
23409 53554 2 2
Zionist Calendar
(Zorim Tzionut)
053224 5,3224 43497 43275
C Total for Zorim
Tzionut
500001, 900001 5200,10 52501,0
Total Support 590001, 5000020 0600,10 0600019
After the World Zionist Organization’s support is determined
(Section A), instructions are issued to the local IUA
campaign (in Johannesburg) which transfers the funds to the
SAZF. Keren HaYesod then charges the World Zionist
Organization for the transfer.
02
Transfer of funds for Sections B and C are effected by bank
transfer from the World Zionist Organization's headquarters
in Jerusalem.
Fund transfers to the SAZF are composed of a fixed
component and a variable component. The variable
component depends on receipt of reports from the SAZF and
supporting documents for the expenses.
The Office of the Comptroller found that the
Department for Zionist Activities in the Diaspora
receives reports and supporting documents for
expenses in connection with the Zorim Tzionut
project and for support for the Israel Center’s
operations. Propriety was found.
The Office of the Comptroller found that data are not
received from the SAZF concerning the
implementation of the work plan. Thus, the World
Zionist Organization cannot implement proper
supervision and control over the utilization of the
funds it provides the SAZF (referring to Section A in
the table).
Support for activities in South Africa includes, as
aforesaid, several components, and they are presented
under separate budget items. The Office of the
Comptroller found that there is no single database
which could present management a full picture of all
support for activities in South Africa.
4.2 The SAZF’s Operations
The SAZF has a work plan which includes activities and
projects involving the Jewish community. Activities are
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04
usually carried out in cooperation with the Israel Center, with
the help of the Center’s professional staff.
The SAZF’s work plan lists the projects and activities
planned for each month, including their composition.
According to the understanding between the organizations,
the Jewish Agency, through the Israel Center, handles issues
such as Aliya, Masa programs, or other youth programs such
as Encounter. The SAZF is active in special events (holidays,
Yom Hazikaron, Yom Ha’atzmaut, Yom Yerushalaim,
conferences, etc.), and shares in the funding of joint projects
with the Israel Center. Furthermore, the SAZF covers part of
the costs for the youth movement shlichim (Netzer, Beitar,
and Habonim Dror/ Zorim Tzionut in Johannesburg and Cape
Town).
The SAZF’s management meets every month to coordinate
decisions for the coming month.
A review of the minutes from the meetings which took place
in May and March 2013, found that in each meeting, the
minutes from the previous month’s meeting were approved.
Meetings were attended by the SAZF's management and the
director of the Israel Center. In addition, updates were made
concerning key events and upcoming projects.
The reviewed minutes also included highlights from the
discussions in the SAZF’s education committees. The Israel
Center's director also reported on planned activities.
02
4.3 The SAZF’s budget
The SAZF’s budget for 2012–2013 was as follows:
Annual Revenues (ZAR)
0650 0652
Grant for operating activities –
IUA
2395,3222 237203490
Educational programs – IUA – 5223222
Yom Ha’atzmaut grant – IUA 0403222 0923222
Youth movement grant – IUA 2,23222 2,23222
Regional grant – IUA 5,93222 5,93222
Additional grant – IUA – 5023222
Local grants 0923222 –
Special income for Yom
Ha’atzmaut
– 2573222
Revenues from local activities ,223,54 ,293922
Total 10950099,
(0900550)$
00006029,
(0060666)$
As detailed in Section 11.1 above, each year the World
Zionist Organization provides the SAZF with budgetary
support (Section A in the above table).
The SAZF’s budget bears no mention of the World Zionist
Organization’s support, which is included in the local IUA's
transfers to the SAZF.
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,2
Recommendations:
a. To prepare a comprehensive budget that will present
all allocation of funds for activities in South Africa,
both for the SAZF and to the Israel Center, including
sub-items, according to the various activities and the
utilization of these resources.
b. To supervise the utilization of funds transferred by
the World Zionist Organization to the SAZF, based on
implementation reports of the SAZF’s work plan.
April 2014
13
World Zionist Organization
Office in France
13
11
Word Zionist Organization
Office in France
1. Objectives
To check propriety of the following:
1.1 Fiscal management in the World Zionist Organization’s
(“WZO”) office in France.
1.2 The office’s activities in France.
2. Method and Scope
The audit was conducted in WZO’s office in France in June 2014. The
audit also included meetings with relevant persons and data gathering
in WZO’s headquarters in Jerusalem.
3. Background
3.1 The Jewish community in France is estimated at half a million
Jews with hundreds of thousands more entitled to make Aliyah.
In the last 60 years, there has been an increase in the number of
Jews attending Jewish schools, which are mostly associated with
the conservative Jewish community. Today, 30,000 children
attend these schools, about one third of Jewish children in this
age group. Almost all these schools are public and supported by
the French government, with the French Education Ministry
enforcing uniform requirements for general subjects.
3.2 Recently, hundreds of thousands of people in France have
started sympathizing with anti-Semitic messages. This follows a
sixty-year grace period where anti-Semitic discourse was
considered taboo. Blatant anti-Semites have started breaking the
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bounds of Holocaust denial and advocate the right to anti-Jewish
discourse. French comedian Dieudonne, who identifies with
Nazi ideology, has more than 600,000 followers on Facebook.
His online videos have been watched more than 23 million
times.
3.3 Recent years have seen a rise in the popularity of reactionary
right-wing parties. These parties preach nationalism, sometimes
ranging into anti-Semitism and xenophobia.
3.4 There are several umbrella-organizations working together in
the Jewish community in France:
Fond Social Juif Unifie – The main organization for
education, welfare and fundraising in the Jewish
community.
CRIF – Conseil Representatif des Institutions – The
council of Jewish communities, representing the
communities before the French government.
Consistoire Central Israelite de France – The executive
body for Jewish religious institutions in France.
3.5 Towards the end of 2012, WZO decided to open regional offices
to better achieve its vision and goals. The office in France was
established to achieve these goals, and especially in promoting
Aliyah.
As part of its Aliyah-promoting activities, the WZO executive
decided to encourage Aliyah to settlements. An agreement was
accordingly signed between WZO and the Settlement Division
which was granted a special government budget for this matter.
Activities are carried out through the Unit for Promoting Aliyah
and supervised by the Office of the Chairman of the Zionist
Executive.
13
WZO’s office in France is situated in Paris. The office employs
local employees, along with a head shaliach. In addition to its
main branch in Paris, the office also operates in additional cities
across France.
Findings and Recommendations
4. Legal Status
Since 2012, WZO has operated a local office in Paris, which carries
out Zionist activities throughout France. WZO’s representative
conducts these activities together with his staff, from an office located
in a rented office building where additional Jewish/Zionist
organizations are based.
The office sought to formalize its legal status in France, and register
as a non-profit organization. To this end, the office prepared draft
articles for an NPO, which were then submitted to the Jerusalem
headquarters for approval.
Since the start of its operations, WZO’s Paris office has enlisted the
aid of the Jewish Agency, whose Paris office is a registered non-
profit. The WZO office uses the Jewish Agency’s office to conduct
financial transactions such as rental payments, insurance, etc.
As of the audit date, no progress had been made in formalizing the
legal standing of WZO’s office. The NPO’s articles of association had
not been approved, no constituent documents had been established,
and thus, the office was not registered in France and its legal standing
has yet to be formalized.
The legal standing of WZO’s office in France, and implications of
its legal standing, should be reviewed together with the legal
counsel.
13
5. Budget
WZO has offices around the world which carry out its vision and
goals. Activities in France are carried out through the following
budgets:
1. The Department for Zionist Activities in the Diaspora.
2. The Unit for Promoting Aliyah.
3. The Department for Activities in Israel and Countering Anti-
Semitism.
4. The Zorim Tzionut Project (funded by the Ministry of
Education and operated by WZO).
5. Additional budgets (Unit for Teaching Shlichut in the
Diaspora, Promoting Zionist Identity, etc.)
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Budget and expenditure details (as of November 2014):
2013 (USD) 2014 (USD) No. Budget Expenditure Budget Expenditure
(Balance)
1 Section 708.50.38 – Promoting Aliyah
Seminars 000111 031 300,11 ,89
Fairs 0,0111 0101,1 000011 330,30
Prep visits and missions 080911 080080 – 109
Misc. 80911 30780 010111 –
Total – Promoting
Aliyah
000666 (166%)
490693 (85%)
580666 (166%)
480843 (33%)
3 Section 713 – WZO Office Salary 0090339 0000110 03107,1 ,0017,
Office 900111 1773, 710811 9,0801
Activities 1,0111 380807 900111 000010
Total – Section 713 3300448 (166%)
3350196 (94%)
3890896 (166%)
1000691 (03%)
1+3
Total – WZO Office and
Promoting Aliyah
4140448 (166%)
3000353 (58%)
4330896 (166%)
3610034 (85%)
4 Section 701 – Jewish Federation Current budget 190111 190111 300911 0800,7
Activities – – 390111 10003
4 Total – Section 701 080666 (166%)
080666 (166%)
000866 (166%)
330436 (40%)
3 Sections 920-921 – Zorim Tzionut Zorim 300011 090890 970011 3,0700
Hebrew – – 300111 30130
8 Section 702 – Dpt. for Activities in Israel and Countering Anti-Semitism Countering Anti-
Semitism
100911 0,0,11 – –
0 Section 701.03.00.102 – Zionist Identity Project 00911 00911 – –
0 Section 930.00.38 – Teachers Unit Teachers conf. – – 00111 00009
4-0 Total – Federation and
Projects
1060366 1040383 1800066 050416
1-0 Total budget 3040848 (166%)
3460840 (91%)
8610396 (166%)
3090944 (83%)
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The data indicate:
5.1 WZO budgets both the Paris office and the Zionist
Federation. Funds are transferred separately to these two
organizations, according to their individual plans for projects
and expenses. Each organization manages its budget
separately.
5.2 The WZO office’s budget grew in 2014, as compared to
2013, even though the 2013 budget was not fully utilized. Of
particular note – the budget for promoting Aliyah was not
fully utilized.
ERP system data from November 2014 indicate that the
budget for promoting Aliyah will again not be fully utilized
in fiscal 2014, even though these activities were among the
cornerstones for establishing the Paris office.
5.3 Fixed costs (salaries, infrastructure) account for a material
portion of the overall budget.
5.4 WZO allocates about half a million USD annually to the
office and the Federation, but does not manage to generate
activities matching its budget investments.
5.5 As aforesaid, WZO, through various budgetary channels,
allocates funds to the office and the Federation, to support
activities. WZO’s headquarters in Jerusalem does not have a
supervisory staff position responsible for overall oversight of
WZO’s budget allocations to the various organizations in
France.
Recommendations:
a) To examine the reasons for budget under-, particularly as
concerns activities.
13
b) To manage WZO’s budget in France as a single unit,
consolidating the various budgets and expenses for the various
activities under one table (such as the one above). This will
enable better management and supervision of WZO’s various
activities in France.
6. Finances
6.1 As aforesaid, WZO’s office operates from rented space in
Paris and is responsible for paying its suppliers. The Finance
Department in WZO’s headquarters has sent the Paris office
a finance procedure to establish clear responsibilities and key
workflows.
Lacking an office treasurer, the procedure instructs the office
manager on the following responsibilities:
Budget management
Cash flow management
Supervision over bank accounts
Supervision and control over financial transactions,
including liaising with the Finance Department in
Jerusalem.
Supervision over procurement
Concerning payments, the procedure states that the office
manager must obtain prior approval from the Jerusalem
headquarters for non-current expenses or any expense over
EUR 1,000.
6.2 There are three payment options:
Direct payment by the headquarters in Jerusalem
34
Payment through the Jewish Agency’s NPO (Paris
office)
Direct payment by WZO’s Paris office.
6.3 In practice, the office’s operating expenses are paid as
follows:
In general, payment from a French bank account is
made after prior approval by the Office of the
Chairman of the Zionist Executive and the Finance
Department in Jerusalem.
After the office manager pays for an operating
expense, he asks the Office of the Chairman of the
Zionist Executive and the Finance Department in
Jerusalem to approve reimbursement through the
bank account in Paris.
Direct payment to a supplier by the Finance
Department in Jerusalem and approval by the Office
of the Chairman of the Zionist Executive.
The following expenses are paid through the Jewish
Agency’s Paris office: mobile phone, office
insurance, landline, and participation in joint
activities.
6.4 Procedure
The finance procedure does not provide for the following:
Opening and closing bank accounts, including how to
transfer funds for activities from the office manager’s
bank account.
33
Transfers and recordkeeping for funds transferred
from the Jewish Agency office to suppliers providing
goods and services to the WZO office.
Periodic financial reporting by the Paris office
manager to the Jerusalem headquarters.
The controls which the Finance Department in
Jerusalem must implement over fiscal management in
the Paris office.
6.5 Budgetary controls
WZO’s Finance Department manages the Paris office’s
budget by typing in revenue and expense data, based on the
amounts approved by the headquarters and actual transfers.
Documentation for payments made by the Jewish Agency
(according to agreements and understandings approved by
the headquarters) is also submitted to the Finance
Department, and data are entered in the ERP system.
Based on these data entries, an ongoing budget performance
report is generated for the Paris office. This report details
budgetary items and relevant activities.
6.6 Expense documentation and fiscal controls in the Paris office
Expenses are approved as aforesaid by either the Office of
the Chairman or the Finance Department in Jerusalem. The
Paris office does not have an ERP system to manage its
finances, and all office expenses are recorded by the office
manager in an internal MS Excel file.
33
For internal auditing purposes, the office prepares a
consolidated monthly expense report listing all revenues and
expenses.
Each report specifies the opening start-of-month bank
balance and the end-of-month closing balance. This allows
the office manager to stay on top of the office’s cash flow
while presenting inflow and outflow data.
The Office of the Comptroller examined the following
documents/reports:
Expenses statement for November 2013.
Current expenses for December 2013.
January – March 2014.
April 2014.
6.6.1 All the above documents included opening and
closing bank balances based on bank statements.
Propriety was found.
6.6.2 All documents matched the consolidated expense
statement, as recorded in the office manager’s Excel
file. Propriety was found.
6.6.3 All documents matched the invoices received for the
office’s activities. Propriety was found.
6.6.4..All expenses recorded on the examined documents
were approved in advance by the Jerusalem
headquarters. Propriety was found.
The Office of the Comptroller recommends supplementing the
procedure with the missing provisions as aforesaid.
31
7. Banks
7.1 Lacking a treasurer, the office manager is directly
responsible for managing WZO’s Paris office’s finance. This
includes paying suppliers (fixed and variable costs), expense
reimbursements, and salary payments.
7.2 The Paris office does not have a bank account, as it is not
registered as an NPO or other legal entity.
7.3 Cash outflows and inflows are made, as aforesaid, through
three channels:
a) Directly through the Jerusalem headquarters.
b) Through the Jewish Agency office in Paris.
c) Payment through the office manager’s personal bank
accounts in Paris.
The office manager has a personal bank account (“Personal
Account A”), and another account (“WZO/Personal Account
B”) used for WZO-related activities.
7.4 As these are personal accounts, the office manager is the sole
authorized signatory in both.
7.5 The office manager’s salary is transferred to Personal
Account A.
7.6 Funds are transferred to WZO/Personal Account B for
outgoing payments to suppliers.
7.7 The Jerusalem headquarters does not transfer a fixed amount
each month to WZO/Personal Account B. Transfers are only
made following specific requests.
33
Thus, lacking a payable balance in WZO/Personal Account
B, the office manager uses Personal Account A to pay for
such expenses as travel, refreshments or activity-related
expenses (supplier payments). Payment is made in cash or
using the office manager’s personal credit card, and invoices
are receipts are kept for expenses.
7.8 Once a month, the office manager prepares a revenues and
expenses report, with the help of the accounts manager, who
examines fund transfers, recordkeeping and documentation
(invoices and bank statements).
7.9 Based on this monthly report, the office manager requests
reimbursement from the Jerusalem headquarters for amounts
paid out of Personal Account A.
7.10 Subject to approval of such expenses by the headquarters in
Jerusalem, funds are then transferred from Jerusalem to
WZO/Personal Account B, and from there back to Personal
Account A.
7.11 Bank statements for WZO/Personal Account B are not
examined by the Finance Department in Jerusalem, as an
additional control to that applied by the accounts manager.
7.12 Under the current system, there is no control over the
personal bank account used to pay for the office’s activities.
Transfers to a personal bank account for office activities may
present a risk due to anti-money laundering legislation.
7.13 It is noted that, in all its examinations, the Office of the
Comptroller found proper documentation (invoices and
receipts) and expenses were approved by the headquarters in
Jerusalem.
33
7.14 Upon opening his bank accounts in Paris, the office manager
was issued a credit card, bearing his name. The card was
given to the account owner as a benefit for a period of two
years and has not been used since its issue (the bank account
is charged annual card management fees).
The card was issued without approval by the Finance
Department in Jerusalem. Following the Office of the
Comptroller’s audit, the office manager stated that the card
has been cancelled and returned to the bank.
Recommendations:
a) To consider, together with the Legal Counsel, whether to open
a commercial bank account for the Paris office, with two
authorized signatories. Consideration should also be given to
the risk involved in conducting the Paris office’s activities
through two personal bank accounts.
b) To supervise, through the WZO Finance Department in
Jerusalem, transactions in WZO/Personal Account B.
Response of the WZO Paris Office Manager
Lacking a registered NPO using a formal fiscal management system,
and in order to carry out activities, the office manager was forced to
open a personal account in his name, called Simcha Felber WZO. The
Finance Department in Jerusalem was notified of the plan to open this
account and approved it accordingly
The account is managed (again – for lack of a better alternative) as an
NPO account for all intents and purposes. Payments are only made in
reimbursement and following approval by both the Office of the
Chairman and the Finance Department.
33
8. Activities
The office in France conducts activities geared toward the following:
Promoting Aliyah
Supporting local Zionist movements
Jewish-Zionist education in schools and Hebrew studies
Forming settlement-bound Aliyah groups
Activities are carried out in collaboration with the Jewish Agency,
KKL-JNF, the Zionist Federation in France, the Klitah Ministry,
additional organizations, or independently.
Activities include the following:
8.1 Planning and reporting
The office manager has prepared a work plan for
WZO’s office in France for both 2013 and 2014. The
plan was prepared together with WZO’s headquarters
in Jerusalem.
The office manager has provided the organization’s
management, the organization’s CFO, and the
accounts manager in the Paris office reports on the
six-month work plan. Data is derived from the annual
work plan.
The office manager keeps records of ongoing
activities, and submits monthly summary reports to
WZO’s management.
8.2 Database
One of the office’s main goals is to operate throughout
France to promote Aliyah among eligible individuals.
33
The Office of the Comptroller’s examination of the Paris
office’s activities in 2013 and in the first six months of 2014
found that fairs and conferences had been organized for the
Jewish community in France. The office took part in these
activities together with other Jewish organizations, including
the Jewish Agency.
The Office of the Comptroller’s examinations found that, in
all the above activities, no record was kept of participants’
names. Thus, it was not possible to:
establish a database of participants/prospective
candidates.
conduct follow-up activities
assess the scope and efficacy of these activities.
8.3 Key Activities
Key activities in which the office took part, and WZO’s share
in the costs, were as follows:
0103
Aliyah fairs, usually conducted together with the
Jewish Agency. For example: Israel Fair, share in
costs – USD 3,714; and Aliyah Promotion Fair, share
in cost – USD 3,398.
0100
Israel Today and Tomorrow, conducted together with
KKL-JNF – USD 6,773.
France Fair, conducted together with the Jewish
Agency – USD 8,284.
33
Paris Fair – USD 3,294.
ICUBE Fair in Marseilles – EUR 1,208.
Israeli Independence Day celebration.
Ulpan Olim in Marseilles, participation of USD 1,000
(out of a total cost of EUR 7,000).
Ulpan Gar’in Bouglogne – EUR 1,400 (out of a total
cost of EUR 3,500).
8.4 Collaboration with the Jewish Agency
General
Examination of WZO’s Aliyah-promoting activities found
that the Paris office conducts Aliyah-promoting activities as
detailed in Section 8.3 above. These include Aliyah fairs, as
well as other Zionism-oriented activities.
The Jewish Agency is responsible for the actual Aliyah
process, and for granting eligibility to make Aliyah. Over the
past year, the Jewish Agency’s Paris office has increased its
Aliyah-related activities in the Jewish community. The
Jewish Agency has a dedicated staff for handling Aliyah-
related matters. The staff employs an IT system in managing
these activities, including a database of Aliyah candidates,
actions taken with each candidate, and records of documents
received for Aliyah and eligibility purposes.
The Office of the Comptroller found that meetings
are occasionally held between the WZO and Jewish
Agency representatives. However, joint meetings
have not been established as formal operating
procedure.
33
The Office of the Comptroller found that data is not
shared across the Jewish Agency and WZO IT
systems.
After examining Aliyah-related, the Office of the
Comptroller found the same activities conducted by both the
WZO and Jewish Agency offices, without formal
coordination.
As the Jewish Agency is the leading organization in France
for Aliyah-related matters, it does not seem that the WZO
office in France plans its activities as an auxiliary
organization assisting the major organization conducting
Aliyah activities.
Response of WZO’s Representative in France:
WZO’s purpose in France is clear, and was made clear to the
Jewish Agency representatives: to draw as many Jews as
possible to the Jewish Agency’s offices, to initiate Aliyah
proceedings. This purpose was established uniformly by the
WZO Executive for all countries.
The WZO Executive made promoting Aliyah a major goal
after the Jewish Agency stopped promoting Aliyah in the
Diaspora, including in France, in 2010.
8.5 Ashkelon
As part of the work plan, a meeting took place in 2013
between city hall representatives from Ashkelon with the
WZO representative in France and the director of the Unit for
Promoting Aliyah. The goal of this meeting was to offer an
attractive destination to Aliyah candidates from France.
Thus, secondary issues were specified for further
clarification, ranging from municipal Aliyah benefits, to
informational material, appointing a POC for WZO, etc.
34
There was no actual follow-up to the meeting, and none of
the secondary issues were seen through, so that the city could
be presented to Aliyah candidates.
Response of the WZO Representative in France:
WZO is not responsible for the delay. In 2013, municipal
elections were held which prevented the municipality from
pursuing the matter. After these elections, a WZO delegation
met with the new mayor and his team.
8.6 Settlement Groups
Under WZO’s agreement with the Settlement Division, a
work plan was drafted as aforesaid. The work plan specified
that the Paris office is responsible, among other things, for
establishing ‘settlement groups’.
An examination conducted in June 2014 could not find that
such settlement groups had been established.
Furthermore, it is not possible to know how many olim (if
any) reached the settlements through plans implemented by
the Paris office to date, nor to which settlements they moved,
or if they stayed in these settlements or relocated.
Upon inquiry with the representative, the Office of the
Comptroller found that actions have been taken to establish
three community-based Aliyah groups:
Boulogne, destined for Modi’in
Creteil, destined for Netanya or Kfar Yona
Eretz Moledet, destined for Be’er Ganim (Hof
Ashkelon Regional Council)
33
These community-based Aliyah groups have not yet reached
the point of making Aliyah.
The Office of the Comptroller recommends examining the reasons
for the partial implementation of pre-determined activities. The
Office of the Comptroller further recommends establishing
criteria for assessing the efficacy of Aliyah-promoting activities.
9. Personnel and Reimbursement
The representative assumed his position in France on October 14,
2012. The representative has recruited a team which assists in daily
duties, comprising the following:
Secretary – local employee.
A Department for Diaspora Activities employee (Zorim
Tzionut activities), since 2014.
Accounts manager.
9.1 The accounts manager formerly served as treasurer for the
Jewish Agency Paris office. Today, lacking a treasurer in
WZO’s Paris office, the accounts manager examines and
supervises records of office inflows and outflows.
9.2 These examinations are made in the Paris office at least once
a month. The accounts manager conducts additional
examinations in the Paris office, as applicable and as
instructed by the representative.
9.3 The accounts manager is paid a total of EUR 600 a month.
This amount is transferred directly to his bank account from
the WZO bank account in Jerusalem.
33
This expense is not recorded in the Paris office’s expense
statements. Furthermore, no pay slip is issued for the
accounts manager, nor is an invoice received for this
expense.
In effect, the Paris office does not document in any way the
services rendered by the accounts manager or the fact that he
is employed by the office.
By working in the above method, the Paris office is exposed
to risk from the French tax authorities.
9.4 Representation fees
The representative in Paris is paid a total of EUR 210 a
month. Propriety was found.
9.5 Petty cash
The Paris office does not maintain a petty cash account, and
all reimbursements are recorded and paid as detailed in
Section 6 above. Propriety was found.
9.6 Rental fees
The Office of the Comptroller examined rental payments
made to the representative and the Department for Zionist
Activities employee in the first half of 2014. The
examination found these payments to be properly made.
The issue of payment to the accounts manager and
compliant record-keeping in WZO’s Paris office must be
addressed.
January 2015
T.L. Culture for Israel Ltd.
45
44
T.L. Culture for Israel Ltd.
Introduction
T.L. Culture for Israel Ltd. (“the Company”) was established by the World
Zionist Organization (“WZO”) on April 18, 2010, and began operations on
June 1, 2010.
The Company is a wholly-owned WZO subsidiary. On December 5, 2010,
the Company was registered as a private community interest company under
the Companies Law (Amendment 6), 2007, and the Trusts Law, 1979.
The Company’s main goals as set forth in its constituent documents are to
promote cultural activities in outlying areas, put on shows and events
supported by the Ministry of Culture and Sports in outlying areas, and
increasing access to cultural activities for under-privileged and special-focus
populations, which do not commonly participate in cultural activities.
To achieve these goals, the Company consults townships on cultural
matters, organizes and implements numerous cultural and arts-focused
projects in such diverse fields as: music, dance, theater, literature, cinema,
and the plastic arts.
As aforesaid, these projects seek to curate and reinforce a high-quality local
cultural-artistic repertoire and present it to the general public, with special
emphasis on supporting equal cultural opportunity in outlying areas, in the
Arab sector, and along the border. The Company serves as an operational
arm, leveraging and channeling the local authorities’ cultural administration
budgets.
Activities are carried out with the help of Ministry of Culture and Sports
(“Ministry”) budgets, as well as budgets provided by local authorities
seeking to conduct such projects.
45
At the time of the audit, in the first half of 2015, the Company operated in
202 towns throughout the country, among both Jewish and Arab
populations.
Support for a given project is determined based on several Ministry-
established criteria, according to the town’s geographic region, the number
of residents, distance from the country’s center, and the socio-economic
profile of the given population.
In 2013, the Company’s activities totaled NIS 65 million, of which NIS 18
million came from Ministry budgets, and the remainder coming from local
authority budgets.
In 2014, the Company’s activities totaled NIS 85 million, of which NIS 20
million came from Ministry budgets, about NIS 3 million from Mifal
HaPayis (Israel Lottery), and the remaining coming from local authority
budgets.
In 2015, the Company’s budget was set at NIS 94 million, of which NIS 25
million came from Ministry budgets, and the rest coming from local
authority budgets.
The audit was conducted in the first half of 2015, and focused mainly on
2013, 2014, and 2015.
The audit was based on meetings with relevant employees in WZO and the
Company, examining relevant work flows, procedures, documents, and
entries in the Company’s and WZO’s ERP systems.
WZO and the Ministry of Culture and Sport
WZO’s work with the Ministry is based on an agreement initially signed on
March 23, 2010, for spreading cultural activities from the central region to
the outlying areas of the country.
45
To carry out these activities, WZO established Culture for Israel Ltd. on
April 18, 2010, and the Company began operations on June 1, 2010.
On March 23, 2011, the Ministry and WZO signed an agreement concerning
the project, aimed, as aforesaid, at promoting cultural activities in outlying
areas.
After about one year of operation, WZO was required to submit to a tender.
The Ministry’s Tenders Committee subsequently chose WZO through a
public tender (712012) on November 28, 2011.
WZO’s agreement with the Ministry allows the parties to extend it for 10
years. The agreement is extended annually.
The Office of the Comptroller found that the agreement was extended
through December 31, 2015. Furthermore, the Ministry signed an expansion
of the agreement to a total value of NIS 25 million.
The Office of the Comptroller examined the agreements and expansions,
and found them to be in proper order, duly signed, and effective through
December 31, 2015, as aforesaid.
Under WZO’s said agreement with the Ministry, the latter transfers WZO
funds subsidizing the Company’s operations. These amounts are deposited
in WZO’s general account, and not in a separate account.
The Office of the Comptroller recommends that the subsidies WZO
receives from the Ministry, supporting the Company’s operations, be
deposited in a separate account, to facilitate supervision and control
over the utilization of Ministry funds by the company.
The director of WZO’s Finance Department stated that he
does not accept the Office of the Comptroller’s
recommendation that subsidies received by WZO from the
Ministry be held in a separate account.
45
WZO and the Company
As aforesaid, WZO established the Company as a wholly-owned subsidiary
on April 18, 2010, in order to carry out those goals set forth in WZO’s
agreement with the Ministry:
- Promoting cultural activities in outlying areas, including
producing shows by Ministry-supported cultural institutions in
outlying towns.
- Increasing access to cultural activities for under-privileged
populations and special-focus communities which do not
commonly participate in cultural activities in the country’s
center.
As aforesaid, the Company began operations on June 1, 2010.
The Office of the Comptroller notes that no agreement was signed between
WZO and the Company.
The Office of the Comptroller believes WZO should sign an agreement
with the Company regulating the parties’ interaction. Despite the
Company being a wholly-owned WZO subsidiary, the Company still
constitutes a separate, independent legal entity. It is thus necessary to
ensure, among other things, that WZO’s ties to the Company would not
cause WZO to incur such debt as may be assumed by the Company.
The director of WZO’s Finance Department stated that the
recommendation is accepted and that the contract will be
prepared by WZO’s Legal Counsel.
The Office of the Comptroller found that WZO provides the Company with
several services, such as: communications, computers, accounting services,
handling the Company’s employees’ employment contracts, and legal
services.
45
The Office of the Comptroller further found that WZO has signed the lease
for the Company’s offices. In practice, WZO pays the rental fees, and then
charges them back from the Company.
Upon inquiry as to why WZO has signed the lease instead of the Company,
the Office of the Comptroller was told this was required by the landlord, as
the Company was newly-established when the lease was signed, and had not
yet begun operations.
The Office of the Comptroller believes the lease should be between the
Company and the landlord, and not between WZO and the landlord.
The Company is a separate legal entity, which has been operating for
five years, and should be responsible for its contract with the owner of
its office space.
As aforesaid, the Company reimburses WZO for rental fees. In practice,
WZO offsets these fees from the Ministry’s subsidies for the Company’s
operations.
The Office of the Comptroller examined if WZO’s credit and debit accounts
in the Company’s ledgers match with those of the Company in WZO’s
ledgers. In 2013, these accounts matched fully.
In the period starting January 1, 2014 and until the time of the audit on
February 9, 2015, various mismatches were found in expenses such as
telephone costs, bank fees, Ministry of Justice fees, guarantee fees, etc.
These mismatches, to a total amount of NIS 220,000 were due to sums not
yet recorded in the Company’s ledgers, which had already been recorded by
WZO, as detailed below.
The Office of the Comptroller notes that the Company pays WZO NIS
180,000 annually for various services. This amount is based on part-time
position calculations for legal services which WZO provides the Company.
56
As aforesaid, lacking a formal agreement between WZO and the Company,
it is not possible to examine and verify the contractual terms between the
parties.
Furthermore, upon inquiry, the Office of the Comptroller was told that final
reconciliation of accounts is made when preparing the annual financial
statements. At the time of the audit in June 2015, audited financial
statements were not yet available for 2014.
The Office of the Comptroller believes that accounts and entries in the
Company’s and WZO’s ledgers should be reconciled monthly.
Company Structure and Institutions
As aforesaid, the Company is a wholly-owned WZO subsidiary. At the time
of the audit, the Company had 11 board members (including the chairman),
representing WZO, local authorities, and the public.
The Company has four committees, as follows:
- Executive Committee, comprising nine members who convene
quarterly, receive reports, and approve various plans.
- Internal Audit Committee
- Repertoire Committee
- Pricing Committee
The Office of the Comptroller reviewed minutes from the Company’s
general meetings in the past three years. According to these minutes, the
general meeting convened to approve the Company’s financial statements.
There were no other matters on the agenda. The minutes were duly dated
and signed.
56
The Office of the Comptroller notes that, according to the Companies Law
(154 B), a company auditor must be appointed in each annual general
meeting.
Minutes from the Company’s general meeting indicate that the
Company did not appoint an auditor as required by law.
Following repeated requests, the Office of the Comptroller received six
minutes from Company management meetings, held every three-four
months between June 2013 and early 2015. The minutes from one of these
six meetings was not dated, and four minutes were not signed.
The Office of the Comptroller recommends that minutes be kept for
Company management meetings, and that these be duly dated and
signed.
The director of WZO’s Finance Department and the
Company accepted the Office of the Comptroller’s
recommendation. The Company will make sure that minutes
are duly signed.
The Company’s general meeting appointed an audit committee as required
by law for community interest companies. Among its first actions, the
Committee appointed an internal auditor for the Company. The same CPAs
firm has served as the Company’s internal auditor since it was first
established in 2010.
Minutes from management and general meetings indicate that reappointing
the internal auditor, who has been serving in this position for five years, was
not discussed.
The Office of the Comptroller believes there is room to periodically
review the Company’s engagement with its internal auditor, as common
for contracts with suppliers, even if this is not strictly required by law.
56
The director of WZO’s Finance Department and the
Company accepted the Office of the Comptroller’s
recommendation to periodically renew the contract with the
Company’s internal auditor.
The Office of the Comptroller reviewed minutes from an Audit Committee
meeting which took place in June 2013. No additional minutes were
received. It is unclear whether the Committee had any additional meetings
or if this was the only time the Audit Committee convened in the
Company’s five years of operation.
In the Company’s five years of operations, the internal auditor submitted
only two audit reports: one for 2011 (submitted on December 18, 2012)
concerning “leading projects” in the Company; and the other for 2014
(submitted on April 28, 2015), concerning “salary payments to Company
employees”.
The reports are detailed and cite data as required. They also include
Company responses.
The Office of the Comptroller notes that according to the Companies Law
345(i)(b), “The internal auditor will provide the board of directors a
proposal for an annual work plan…” The Office of the Comptroller found
that no annual work plan was submitted to the board for approval, as
required.
The Office of the Comptroller believes preparing two audit reports over
a five year period is insufficient. The Company should comply with
statutory requirements and submit annual audit plans, and increase
internal auditing activities.
The Company stated in response that it will make sure to
prepare annual audit plans and will increase internal auditing
activities.
56
Company Operations
As aforesaid, the Company operates in 202 towns, providing consultancy
and organization services, and operating cultural activities and special
projects.
The commissioning process begins with the local authority (municipalities
and townships) contacting the Company in writing, specifying the various
shows and cultural activities it wishes to order.
The Company’s website lists the shows and cultural activities offered,
including all details and conditions for ordering. The website also details
prices and subsidy conditions for each activity or show.
As aforesaid, entitlement and subsidies are dictated by the towns’
classification by group, according to distance from the country’s center, the
socio-economic profile of its residents, the number of residents, etc. Criteria
are specific and well-defined. Information is detailed and easily accessible.
As aforesaid, the criteria and subsidy brackets used by the Company are
dictated by the Ministry.
The Local Authorities use Company-employed coordinators, who consult
them in selecting shows. After selecting the desired activity or show, the
local authority signs a contract with the Company. The contract specifies all
the applicable terms and details for the order.
One of the main and most important conditions is a commitment to pay for
the shows in advance.
The Office of the Comptroller examined order work flows in contracts with
20 local authorities. Propriety was found, and work flows complied with the
applicable procedures.
The Office of the Comptroller found that according to section 13 to the
contract, authorities are to provide the Company with ‘show feedback’
55
forms. These forms should include details on the show and the authority’s
level of satisfaction.
The Office of the Comptroller found that the Company does not ensure
that authorities submit their show feedback forms, with only some
authorities submitting these forms.
The Office of the Comptroller recommends that compliance with this
section be maintained, as it provides the Company an important
managerial and supervisory tool.
The Company stated in response that changes were made to the
agreement, so that feedback on shows is provided over the
phone, without need to send in a written form.
The Company has a database of Ministry-approved organizations providing
shows and events. These organizations do not require additional approval by
the Company. The Company’s database also includes shows and events by
organizations not approved by the Ministry, but rather by the Company’s
Repertoire Committee.
The Company’s Repertoire Committee comprises relevant professionals.
Upon inquiry, the Office of the Comptroller was told that no written criteria
are used to guide the Committee in its decisions, and shows are
approved/rejected solely based on the Committee members’ professional-
artistic assessment.
The Repertoire Committee coordinator receives a written opinion from the
Committee members, which includes detailed explanations. Shows and
events approved by the Committee are included in the Company’s database.
Even though decisions do not require additional Ministry approval, the
Ministry may veto inclusion of a show/event in the Company’s database.
Ministry interventions in the Company’s activities are subject to approval
by the Ministry’s legal counsel.
54
Once a year, the Company conducts ‘showcase’ days for cultural
coordinators from local authorities. Participants are given explanations,
lectures, and information on the various cultural activities.
In 2014, the ‘showcase’ was held on April 8, 2014, in the Suzanne Dellal
Center. The event was attended by 350 cultural coordinators from various
local authorities. The event cost a total of NIS 48,000.
The Office of the Comptroller examined the Company’s budget and
expenditure for the event. Propriety was found.
In 2015, the ‘showcase’ event took place on May 5, 2015, under a similar
format and budget as the previous year’s event.
Personnel
The Company has 14 employees, as follows:
- CEO
- 3 accounting personnel
- 4 department directors
- 5 town coordinators (including a coordinator for Arab
townships)
- secretary
11 of these employees hold full-time positions, while 3 hold part-time
positions.
The Company also receives accounting and pricing consultancy services.
The Office of the Comptroller examined the employment contracts for all
employees. All agreements were duly signed prior to employees starting
work, and are effective for an indefinite period of time. The Office of the
55
Comptroller notes that the Company does not have employees sign any
changes in their employment terms.
The Office of the Comptroller recommends that employees sign on
changes in the terms of their employment.
The Company stated in response that it adopts the Office of
the Comptroller’s recommendation.
The Company also has a WZO-appointed accountant, who provides the
Company with services but is not a Company employee. In other words, the
accountant reports to WZO. The agreement with the accountant is based on
his agreement with WZO, signed April 25, 2010.
The Office of the Comptroller notes that there is no written documentation
of the agreement’s extension.
The Office of the Comptroller recommends extending the accountant's
agreement, with the parties affirming its extension in writing.
Under the agreement, the accountant submits an invoice to WZO every
month for services rendered to the Company. WZO pays the cost stated on
the invoice, and is reimbursed by the Company.
The employment agreements with all the employees were drafted by the
Jewish Agency’s Legal Department, using a uniform format.
As aforesaid, the Company’s internal auditor prepared a report on salaries in
2014. The Company’s management is working to rectify the flaws identified
in the report.
55
Budget and Finances (Company)
The following table presents financial data, in NIS, concerning the
Company’s operations as presented in its audited financial statements for
2012 and 2013. Data for 2014 and 2015 are based on the Company’s
ledgers, as audited financial statements were not yet available at the time of
the audit, in June 2015.
2102* 2102* 2102** 1-5/2015**
Revenues:
From Ministry of
Culture
005,225222
0052,25222
005,,55222
0250005222
From local authorities
,550,55,52
6556605050
0550025222
0255005222
Total Revenues ,18,,58,01 9,82098252 0980,08111 2180258111
Expenses:
Activities and
programs
Administrative and
general
505,055000
056665020
00550655,,
05,,05506
5050555222
05,025222
0255055222
5205222
Total Expenses ,081228225 9,822989,0 0285508111 208,908111
Surplus operating
expenses (income)
05,5005
(0,55000)
(056025222)
5005222
Finance expenses
(income)
(,05250) (05,65) 0,5222 (,5222)
Surplus expenses
(income) for the year
0228520
(0908221)
(0825,8111)
0058111
* From audited financial statements.
** From Company accounting ledgers, as of May 2015.
*** Ministry of Culture income transferred through WZO.
The above financial data indicate that the Ministry’s share in funding the
Company’s overall expenses totaled 29% in 2012, 27.6% in 2013, and 28%
in 2014. Remaining expenses were funded by the local authorities.
55
The data also indicate that general and administrative expenses totaled 3%
of the Company’s overall expenses.
Income from Ministry of Culture
As aforesaid, income from the Ministry of Culture and Sport is based on
WZO’s agreement with the Ministry. According to this agreement, every
three months the Company’s accountant (appointed by WZO) provides the
Ministry expenditure reports detailing the Company’s expenses, show costs,
funding received, and the amount that the Ministry needs to transfer WZO
according to the agreement.
The Ministry examines and approves these reports, and transfers the agreed
subsidy to WZO. WZO records the amounts received from the Ministry (in
a credit-debit account), and after offsetting WZO-paid operating expenses,
transfers the corresponding amounts to the Company’s bank account.
The Office of the Comptroller examined reporting and fund transfer
activities. Propriety was found.
The Office of the Comptroller notes that Ministry subsidies for shows are
transferred to the Company after the shows take place and payments are
made. Payments are received from the local authorities before the shows
take place. This payment format avoids possible liquidity and financing
problems.
Activity and Program Expenses
Activity and program expenses include operating costs for the various
shows and events.
55
The following table breaks down costs by department (in NIS):
2102 2102 2102 210,
Salaries and ancillary
costs
05,505650 05,0050,6 050005222 0,05222
Theater 605000550, 05560650,5 ,250225222 055,055222
Music 0550065005 0652005000 0250025222 556065222
Dance 656025502 650005052 05,005222 050065222
Misc. programs 0052005026 050005000 0050055222 5265222
Total 5,8,,08229 9285,28,2, 0280008111 2180958111
Salaries and ancillary costs refer to Company coordinators. Other expenses
presented in the table represent Company payments to third-party service
providers for shows and events, according to the respective artistic
discipline.
All service providers are approved by either the Ministry or the Repertoire
Committee as detailed above.
As aforesaid, the list of service providers, including show and event prices,
appears on the Company’s website, which the townships use to place their
orders. All show or event orders have to pass eight steps prior to
performance:
(1) The local authorities, together with the Company’s coordinators,
build an annual event program prior to the start of the school year.
(2) For each show or event, the local authorities send the Company an
order form, which is entered in the Company’s IT systems.
(3) The Company checks for the relevant Ministry or Repertoire
Committee approval.
(4) The performers provide the Company a price quote including all
expenses.
(5) The Company checks the price and decides on the approved price. If
the price exceeds the subsidy, the townships cover the difference.
56
(6) The Company sends the relevant local authority a payment request,
detailing the amount payable after subsidies according to each
town’s profile. The payment request is signed by both the
accountant, the department director, and the CEO.
(7) The Company receives payment from the townships by check for
each show/event separately, according to the payment request. The
check is made out NET 30.
(8) The Company confirms the show/event.
At the end of this process, and after the show or event takes place, the
Company sends the service provider full payment for their service,
comprised of the subsidy plus the amount paid by the local authority.
The Office of the Comptroller examined a sample of the process from start
to final payment to service providers, to a total amount of NIS 400,000 in
four different townships. Propriety was found.
General and Administrative Expenses
The following table breaks down general and administrative expenses (in
NIS):
2102 2102 2102 210,
Salaries and ancillary
costs
0065500 00056,0 050005222 0605222
Professional services 52,5200 5005006 ,,55222 06,5222
Rent and maintenance 0025025 060500, 0005222 00,5222
Communications 0005550 0205000 0205222 525222
Vehicles 0665602 00,5206 0005222 ,,5222
Depreciation 05650,0 0505252 0,05222 5,5222
Office-related and
miscellaneous
0,05,00 0,0506, 0,5222 025222
Total 282228010 28,,08522 28,,18111 0128111
56
Salary and ancillary costs refer to management, accounting and the
Company secretary.
Professional service expenses refer to accounting, internal auditing and legal
counsel services.
Rent and maintenance expenses refer to office rental costs, cleaning, and
water and electricity utilities.
August 2015
56
Keren Kayemeth LeIsrael – JNF
Budget Preparation
47
47
Keren Kayemeth LeIsrael – JNF
Budget Preparation
1. Introduction
1.1 According to the Office of the Comptroller’s work plan, we
have examined the annual budget preparation process in KKL-
JNF (“KKL-JNF”).
1.2 The audit included examination of workflows in the following
areas:
- Deciding the budgetary framework for 2014.
- The budget approval process.
- Unit-level budget preparation, including additional
budgeting.
- Separating the investment (capital expenditure=capex)
budget from operating activities budget.
1.3 The audit was conducted in KKL-JNF’s headquarters in
Jerusalem, in August-September of 2014.
The audit included meetings with the Director of Finance and
Economics, the Budgets Division Director, personnel in the
Budgets Division, and additional employees, as necessary.
The audit focused on the 2014 fiscal year.
47
1.4 Objectives:
A. To examine the framework budget approval process,
including underlying assumptions used in decision-
making and the approval process.
B. To examine the budget preparation process for KKL-
JNF’s various units, including assumptions underlying
such budgeting – from the framework budget, requests for
additional budget, and approval of the final budget.
C. Documentation of various discussions and decision-
making processes.
D. To examine whether adequate internal controls are
applied, and the efficacy of existing procedures and
workflows.
E. To identify weaknesses in existing workflows and
controls, and to recommend improvements.
1.5 Key documents used in the audit:
Approved budget book for 2014-2015.
KKL-JNF’s detailed budget for 2013.
Budget vs. performance report for 2013.
Investments (capex) budget for 2014.
Capex budget vs. performance report for Q1/2014.
2014 budget preparation schedule.
Minutes from Hanhala Metzumtzemet meetings in 2013.
Minutes from Board meetings in 2013-2014.
Minutes from Finance Committee meetings in 2013-2014.
44
Minutes from Land Development Administration (“LDA”)
board meetings.
LDA’s 2014 work plan.
Requests for additional budget submitted by the various
units/divisions.
Draft budgets prepared in the various stages of the budget
approval process.
Draft documents used in budgeting salary, car and
administrative expenses in the various units.
Land purchase documents – Himnuta.
Specific documents presented upon request.
1.6. Methods:
Review of existing procedures (as applicable to the audit) and
internal guidelines, and comparison with actual workflows.
Analysis of KKL-JNF’s budget for 2014-2015.
Analysis of the investments (capex) budget for 2014, and
examining the item mix in this budget.
Reading minutes from Hanhala Metzumtzemet meetings.
Review of internal discussions including the questions raised
in such discussions.
Examining the circumstances which led to separating the
capex budget from the operating activities budget.
Meeting with relevant persons supervising audited activities,
and additional employees as deemed necessary.
47
Review of internal interactions in KKL-JNF between persons
involved in budget preparation and relevant persons in the
organizational units.
Examining assumptions underlying the budget preparation
process.
Examining the application process for budget additions, and
comparing to prior-year performance, including explanations.
Review of process-supporting IT systems, reports and data
from the budgeting system, and analysis thereof.
Consolidating findings.
Preparing the audit report, including drawing
recommendations.
2. Background
A. Introduction:
KKL-JNF was founded in 1901, following a resolution passed in
the fifth Zionist Congress in Basel. Since then, KKL-JNF has
been acting to fulfill its original objectives, namely: to purchase
lands in Israel, to prepare such lands for settlement, and to settle
them. KKL-JNF also develops water resources, conducts
agricultural research and development, conducts reforestation
projects, invests in settlements and outlying areas, and promotes
eco-tourism, community relations and environmental awareness.
47
B. Finance and Economics Division – Budgets and Control
Division:
Finance and Economics Division
The Finance and Economics Division’s responsibilities include
managing the budgets of KKL-JNF’s various organizational
units. The Division’s diverse core activities include: budget
planning, budget supervision and control, accounting and cash
flow management, payment management, management and
registration of funds and endowments.
The Finance and Economics Division is headed by the division
director. Organizationally, the Division is split into two sections:
the Budgets and Controls Division, and the Finance and
Accounting Division. The Division has also recently been made
responsible for the Salary Department.
Budgets and Controls Division (“Budgets Division”)
The Budgets Division supports and conducts KKL-JNF’s budget
preparation activities from start to finish. The Budgets Division is
also charged with implementing budgetary controls throughout
the fiscal year. The Budgets Division has recently established a
Payments and Budgeting Department.
The Budgets Division is staffed as follows:
Budgets Division director.
Five employees as detailed below.
An economist working in the Payments and Budgeting
Department.
Budgets Division secretary.
78
Annual budget preparation for KKL-JNF’s organizational units is
carried out by the Budgets Division’s five employees, who
maintain continuous contact with the units, both when preparing
the budget and throughout the year.
Breakdown of responsibilities:
Employee A: Land Development Administration supervisor,
also supervises the Payments and Budgeting
Department.
Employee B: In charge of human resources, Finance Division,
financial liabilities, Committee for Sustainable
Development, Board of Directors secretariat,
also serves as budget coordinator in the
Division.
Employee C: Education Division, institutes.
Employee D: land-related units, resources, spokesperson’s
office.
Employee E: economic development units, legal department.
C. Budget preparation:
The first step in preparing the budget is to decide on the
framework budget. This decision is made by the Hanhala
Metzumtzemet (comprising: the two chairmen, the two deputy
chairmen, and the director general), based on projected income
and needs. This framework is then approved by the Finance
Committee and the Board of Directors. The bi-annual budget
framework for 2014-2015was determined by the Hanhala
Metzumtzemet in September 2013, and the budget was approved
by the Board of Directors on December 31, 2013.
78
The general schedule for budget preparation and approval is as follows.
ACTION DATE OWNER
Hanhala Metzumtzemet meeting
determining the budget framework
61.2.9.61 Chairman +
co-chairman
Framework budget approved by
Finance Committee
61.66.9.61 Finance
Committee
chairman
Director General, Finance Division
and divisional directors
96.66.9.61 Director
General
Final review by Finance Committee 91.69.9.61 Chairman +
co-chairman
Board review and approval of budget 16.69.9.61 Chairman +
co-chairman
78
D. 2014-2015 budget:
Operating activities budget – Income
The following are Data on sources of income in 2012-2015 (NIS
millions), as compared to previous years:
INCOME ITEM 2102 2102 2102-2102
Land 0.. 199 219
Resources and other (*) 21 6.1 616
Sub-total 592 525 982
Others (**) 601 626 4
Budget total 951 908 985
Funding partners 2. 2. 2.
Incoming donations (***) 6.1 6.1 6.1
TOTAL, GROSS 060,2 06002 06082
(*) Includes: wood production revenues and income from securities
portfolio.
(**) Includes: transfers from surplus revenues.
(***) Includes: traditional donations, designated donations.
The table indicates a 37% increase in projected income from the
Israel Lands Authority (“ILA”) in 2014, as compared to 2013
(based on Ministry of Finance budgeting), and a 6% increase in
the gross budget, as compared to 2013.
78
Operating activities budget – Expenses
Expenditure budget data for 2013-2015 (NIS millions):
EXPENSE ITEM 2102 2102-02 %
CHANGE
Fixed (salaries, car and
administration)
912 1.. 66.1%
Activities 101 12. 4.1%
Financial liabilities 911 900 2.9%
Sub-total 898 9,5 5.5%
Matching (for project-specific
donations from abroad) 9. 9. -
Total 908 985 5.2%
Breakdown of expenses in 2014:
קבועות30%
פעולות40%
התחייבויות כספיות28%
Financial
liabilities Fixed
Activities
Matching for
overseas donations
77
Investments (capex) budget
This year, a capex budget was approved for the first time. Budget
items, by unit:
UNIT NIS
THOUSANDS
Education and Youth Division 1.164.
Himnuta 9114..
Maintenance and Logistics Division 6111..
LDA 011..
Media and Public Relations Committee 111..
Public Relations 61...
Sustainable Development Committee 1..
Total 826221
Financial liabilities
The financial liabilities item includes KKL-JNF’s financial
liabilities which are not attributable to any specific division or
unit. The item includes liabilities towards pension payments,
contractual obligations including those arising from agreements
signed by KKL-JNF’s management as part of KKL-JNF’s
collaboration with other organizations.
According to the above table, this item accounts for a significant
portion (28%) of the total budget.
77
Key items comprising financial liabilities:
ITEM 2013 BUDGET
(NIS THOUSANDS)
2014 BUDGET
(NIS THOUSANDS)
KKL-JNF employee
pensions 6..11.. 6..11..
WZO 1111.. 1111..
Joint projects with third
parties 11161. 1.121.
Funds and Endowments
Department 99161. 99161.
Collaboration with
Nefesh B’Nefesh 6019.. 6019..
OR Movement 11... 11...
Promoting projects for
donations 11... 11...
Others 62110. 96120.
Total 2226551 2556251
The data indicate that the total financial liabilities budget grew by
NIS 21.6 million, or 8.5%, in 2014 as compared to the previous
year. This growth is mainly attributable to the ‘Joint projects with
third parties’ item, which grew by NIS 17.8 million, or 54%.
E. IT systems:
ERP system – A cross-organizational system from ONE Ltd.,
which includes a logistics module and a finance module. The
system is overseen by KKL-JNF’s Finance Division. Ongoing
budgetary control and management are carried out using the
system’s budget module.
77
Excel spreadsheets – The Budgets Division uses spreadsheets
when preparing the budget for the various organizational units,
until the final budget is approved. Once the budget is approved,
the final approved data from the Excel spreadsheets are entered in
the ERP system for tracking actual performance and for use by
the various units.
The Office of the Comptroller examined the efficacy of the tools
available to the Budgets Division in preparing the budget.
Findings –
Budgets Division personnel do not use the ERP system when
preparing the budget, and maintain several drafts of the Excel
spreadsheets for each of the units (with ten units in all, there
are thus dozens of draft spreadsheets). These spreadsheets are
used in the months leading up to the budget’s approval. This
practice is implemented even though the ERP system includes
a budgeting module. No attempts have been made to use the
module when preparing the budget, which would seem the
obvious course of action under current circumstances and in
light of KKL-JNF’s size and the complexity of its budget
preparation process.
Recommendation –
The Office of the Comptroller recommends that the
ERP system’s budgeting module be utilized to the
fullest extent, and be used throughout the budget
preparation process. Each version and the reasons
behind any version-to-version changes should be
documented separately.
74
KKL-JNF’s Response:
After checking with the Budgets Division director, it seems
that KKL-JNF’s finance system includes a partial budgeting
module. For the past year, KKL-JNF has been preparing to
upgrade its IT systems, including the ERP system. As such,
the Director General has been chairing regular oversight
committees comprising IT personnel and third-party
consultants. The Director General has instructed that the IT
needs of the Finance Division and the Tenders and Contracts
Division’s be given top priority. Furthermore, in the
meantime, the Budgets Division director and the IT Division
director have been instructed to make full use of the potential
offered by existing systems to support the Division’s
operations. As budget preparations for 2015 are drawing near,
the Director General and the director of the Finance Division
conducted meetings with all KKL-JNF units to review work
plans for 2015, actual vs. planned budget performance in
2014, the reasons for any under- or over-performance, to draw
conclusions and implement changes in the budget structure.
Moreover, each unit submitted its own budget proposal for
review by its Board committee. Updated budget proposals
will then be submitted for review by the Finance Committee,
and then to the Board for final approval.
3. Budget Preparation
The preliminary budget framework is initially approved by the
Hanhala Metzumtzemet.
Once the budget framework is approved, the Finance Division confers
with the Budgets Division while the various divisions submit their
work plans for the coming year along with the corresponding budget
requirements. Summaries of these meetings and the draft budgets are
submitted to management for review.
77
Once management approves the unit budgets, the Board Committees
of each division/unit convene to discuss requests for additional budget
and for changes in the unit’s framework budget.
Following these discussions, the resulting documents are submitted
for discussion by the
Board Finance Committee, which hears the units’ needs and requests
for additional budget, and decides whether to grant or deny such
requests. Once the Finance Committee has completed these hearings
and given final approval for the unit budgets, KKL-JNF’s draft final
budget is submitted to the Board for approval.
The Office of the Comptroller met with four of the Budgets
Division’s employees, and inquired as to how they prepare the
budget for their respective organizational units, including reasons
for requesting additions, reviewing relevant discussions by
management and Board Committees, their decisions, and process
documentation.
Findings:
A. Flaws in the budget preparation process
Our examination found that the budget preparation process is
properly documented only for some units (Resources and Public
Relations Division, Land Units, LDA). This documentation
includes filing of work plans, correspondence and explanations
for budget addition requests. In contrast, for some units (e.g. –
the Spokesperson’s Unit) such documentation is either
completely or partially lacking, comprising Excel spreadsheets
and the amounts requested as budget additions. Thus, current
practice does not document the considerations and reasons
behind any budget additions, whether the budget should indeed
have been increased, etc. Furthermore, this information is not
77
available for use during the year or in preparing the subsequent
year’s budget.
B. There is no budget preparation procedure
KKL-JNF does not have a budget preparation procedure as
common in other organizations of similar or smaller size. The
process adheres to a pre-determined schedule, but there are no
procedures establishing guidelines as to the considerations which
should be applied, the manner in which budget items should be
established and divided, and what materials the various units
need to present to the Budgets Division when discussing their
budget, such as:
Presenting detailed work plans for 2014.
Formulating position papers for unforeseen/
extraordinary expenses.
Procurement requirements, including for fixed property.
Discussion of the planned vs. actual budget
performance report for the previous year.
Explanations for over- or under-utilization of budget.
C. Failure to update budget items
The Office of the Comptroller’s examination found that budget
items are not updated in the ERP system according to changes
made during the year, for example after additional budgets are
approved. For example: the salary expense budget is not updated
at least once a year following recruitment or termination of
employees. It is noted that, currently, personnel changes are
tracked on a quarterly basis, but changes are not entered in the
operating activities budget system.
78
Recommendations –
1. Documentation
The Office of the Comptroller recommends that the budget
preparation process include documentation of changes made
between draft budget versions, and that this be done using the
ERP system’s budgeting module. Documentation should
include the units’ work plans used in the discussions,
explanations for additional budget requests (particularly in
under-utilized budget items or items which were not active in
the previous year). Documentation should further include
meeting summaries, decisions, including decisions by the
various units’ board committees. The Office of the
Comptroller recommends that these documents be kept both in
the units themselves and in the Budgets Division, at least until
next year’s budget has been finalized.
KKL-JNF’s Response:
In light of the Office of the Comptroller’s recommendation,
the Finance and Economics Division director has instructed the
Budgets Division director to examine whether ongoing updates
can be made in the current system, to account for budget
changes and the reasons behind them. Characterization of the
ERP system will enable changes, reasons and circumstances to
be documented in real time.
2. Budget preparation procedure
The Office of the Comptroller recommends that procedures be
established which will include guidelines for budget
preparation. In addition to the process schedule, these
procedures will dictate what materials the units need to present
to the Budgets Division and management, which guidelines
should be taken into consideration when preparing the budget,
78
assumptions which should be used, decision-making powers,
and proper process documentation.
KKL-JNF’s Response:
The Office of the Comptroller’s recommendation is accepted.
The Budgets Division has been instructed to formulate a
comprehensive procedure for the budget preparation process.
At the same time, the Director General has instructed that
material changes be considered in the core budget structure
and regulations, so as to improve budgetary supervision,
control and management in each of KKL-JNF’s units.
Recommendations are planned to be submitted in 2015 for
approval by the competent organs, for implementation in the
2016 budget.
3. Budget updates
The Office of the Comptroller recommends updating the ERP
system at least once a year with significant changes to budget
items. Furthermore, when preparing a new budget,
consideration should be given to items which changed
materially in the previous fiscal year, while examining the
circumstances that lead to such budget updates and any
implications they may have in preparing the new budget.
78
4. Assumptions in Preparing the Operating Activities Budget
The operating budget for 2014 grew following an increase in projected
income. The sources of income were as follows (in NIS thousands):
SOURCE 2102-2102
Income from land 219
Resource raising and other 616
Sub-total 982
Others 4
Budget total 985
Income projections are based on several sources, the most significant
of which (as shown in the table) is ‘Income from land’. This item is
mostly based on expected inflows from the Israel Lands Authority,
with a negligible addition from income from Himnuta assets. In the
2014 budget, the ‘Income from land’ item amounted to NIS 852
million, of which NIS 830 million (97%) were from the Israel Lands
Authority and NIS 22 million (3%) from Himnuta assets. The
‘Resource raising’ item is mostly comprised of donations, from Israel
and abroad, overseen by the Resources Division.
Changes from 2013 (in NIS thousands):
BUDGET
COMPONENT
2102 2102 % CHANGE
Fixed costs 912 1.. 66.1%
Operating costs 101 12. 4.1%
Financial liabilities 911 900 2.9%
Matching of overseas
donations
9. 9. -
Total 908 985 5.2%
Funding partners 2. 2. -
Donations 6.1 6.1 -
78
\The data indicate that the greatest increase in the operating budget
was in fixed costs. Furthermore, the increase in the financial
liabilities item includes increases in items concerning collaboration
with third parties. The lowest change was seen in operating costs.
Income items based on expected donations and funding partners
remained unchanged and together amount to NIS 195 million, similar
to the figures in 2012-2013.
The Office of the Comptroller examined the assumptions
underlying the operating budget for 2014.
Findings –
2014 budget based on 2013 budget and not actual performance
The 2014 budget was prepared based on the budget for 2013,
mutatis mutandis, and not on actual performance in 2013. This,
despite the fact that the budget book for 2014-2015 includes data
on actual performance in January-September 2013. The Office of
the Comptroller was given a budget performance report for all of
2013, and the data indicate that, in some items, under-
performance was already evident when the 2014 budget was
being prepared. Even so, these items received the same budget
in 2014 as they did in 2013.
Furthermore, in some cases, several units went over-budget in
various items in 2013. It is unclear whether action was taken to
transfer amounts between items in the new budget, so as to avoid
any budget additions during the year.
KKL-JNF’s Response:
These are projects which were approved by the competent organs,
some of which were known to span several years, with detailed
milestones. Thus, the budget might indicate under-performance
from a cash flow perspective, while unutilized amounts are
actually carried forward to next year. Only upon the project’s
completion, is it possible to assess any differences between the
77
project’s planned and actual budget. Under these circumstances,
so long as the project schedule is maintained, budgets will be
fully utilized even if the project seems to be under-performing in
the years leading up to completion.
Office of the Comptroller’s Comment:
Budgets for long-term projects (spanning several years) should be
presented as long-term items, including expected expenditure in
each project year. This was not the case in the budget book for
2014-2015.
Recommendation –
Performance-based budget preparation
The Office of the Comptroller recommends that the budget be
built after examining budget performance data from the various
units, including end-of-year forecasts, and not based on the
previous year’s budget as is currently the case.
KKL-JNF’s Response:
In characterizing the new and upgraded ERP system, project
budgeting will be presented proportionately based on planned
milestones and schedules. After inquiring with the director of the
Budgets Division as to the possibility of using year-to-date
performance data and end-of-year forecasts, it seems that this is
not possible. This is due, among other things, to the fact that
budget preparation usually begins in August. Thus, it is not
possible to use end-of-year performance data or forecasts, as
budget utilization is not linear and it is not possible to predict
future project performance. However, for the other budget
components, the Budgets Division director was instructed to
adopt the Office of the Comptroller’s recommendations and make
use of actual and forecasted performance data when preparing the
budget.
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5. Budget Re-allocation
During the fiscal year, 25% of the total budget is “released” each
quarter to support operations. Occasionally, circumstances can arise
where certain budget items are carrying a surplus, while other budget
items are carrying a deficit. When a budget item is carrying a deficit,
the ERP system automatically prevents any further activities under
this budget item and blocks any purchase orders from being issued.
It is noted, that deviations from fixed-cost items are not blocked by
the system, nor are funds diverted from operational budget items
carrying a surplus, to cover over-spending in fixed-cost items.
Organizational units wishing to re-allocate funds from one budget
item to another, contact the Budgets Division so that the latter may
approve such re-allocation.
The Budgets Division follows the Budget Changes Procedure, which
specifies the authorization hierarchy required to approve budget re-
allocations during the year.
It is noted that in cases where a need arises to initiate new activities
which were not initially budgeted, the abovementioned procedure is
applied. In 2013, there were two such cases in the Public Relations
Unit, with a total value of NIS 2.5 million.
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The following are examples for updates made to the 2013 budget. The
most significant of these updates concern LDA’s operations, as
follows:
ITEM APPROVED
(NIS
THOUSANDS)
UPDATED
(NIS
THOUSANDS)
DIFFERENCE
(NIS
THOUSANDS)
%
CHANGE
Projects with
municipal
authorities
61192. 411191 1.1941 622%
Forestry 4.1... 14122. 64122. 10%
Agricultural
training
691... 961242 21242 29%
The Office of the Comptroller examined current practice and
compared it to the procedure, including any need to update the
procedure.
A sample examination was made of approvals given in 15 budget
items.
Findings –
A. Stricter practice than prescribed by the procedure
Our inquiries found that, currently, even budget re-allocations of
less than NIS 0.5 million are submitted to the Finance Division
director for approval, even though the procedure states that
approval will be given by the Budgets Division, which will also
notify the Director General.
The Office of the Comptroller believes that submitting all
requests for budget changes, even in small amounts, to the
Finance Division director for approval causes unnecessary work
load and may cause bureaucratic delays undermining the units’
ongoing operations.
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B. The procedure is not up to date and is unclear
The current procedure is dated January 2008. The Office of the
Comptroller believes it is not phrased clearly and should be
updated.
For example: the procedure states that approval for changes
within a division’s budget of up to NIS 0.5 million may be
authorized by the Budgets Division, which will notify the
Director General.
The procedure does not state who constitutes the Budgets
Division – do the employees have the necessary authorization, or
is the Division director’s approval required.
It is also unclear what is referred to by ‘notifying the Director
General’. If the change is reported retrospectively without the
Director General having any input in the matter, then the practice
can be considered redundant.
Recommendations –
Updating the procedure
The Office of the Comptroller believes the procedure should be
updated as follows:
A. To consider delegating authority to approve budget re-
allocations based on a value hierarchy, for example:
Up to NIS 200,000 – by the employees.
Up to NIS 500,000 – by the Budgets Division director.
Above NIS 500,000 – Finance Division director.
Etc.
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B. To clarify who can approve re-allocations, and clarify that
notifying the superior is not a pre-requisite for approval.
C. In lieu of notifying the Director General and management,
the Office of the Comptroller recommends that
management be updated of changes on a quarterly basis,
so that it can make operationally-relevant decisions during
the year.
KKL-JNF’s Response:
KKL-JNF’s plans to adopt the Office of the Comptroller’s
recommendation and revise the Budget Re-Allocations Procedure
to increase clarity and flexibility in its application, to avoid
obstacles to the organization’s ongoing operations.
6. Operating and Capital Expenditures Budget Approval
Process
According to the minutes from the Hanhala Metzumtzemet meetings
of August 29, 2013, and September 11, 2013, it was decided that:
A. The budget framework for 2014 would be NIS 980 million
(the framework was subsequently changed to NIS 987
million).
B. A bi-annual budget would be prepared for 2014-2015 (similar
to the 2012-2013 budget).
In its meeting of November 13, 2013, the Finance Committee
approved the budget framework. It was decided that the 2014 budget
would be based on the 2013 budget, plus ‘wage growth’ and existing
obligations (statutory or contractual). All factors would rely, as
aforesaid, on estimates concerning expected income in 2014.
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The Finance Committee also approved a bi-annual budget for 2014-
2015, of NIS 987 million each year, and decided that towards 2015
the Finance Division would make the necessary adjustments and
update the Finance Committee accordingly.
The framework for the bi-annual budget was approved unanimously
by the Board of Directors in its meeting of November 20, 2013.
Investments (capex) budget
In addition to the operating budget of NIS 987 million, and for the
first time ever, 2014 included a capex budget of NIS 85 million.
Approval of the capex budget
On December 25, 2013, the Finance Committee unanimously decided
to adopt the Committee chair’s proposal to accept all additional
budget requests submitted by KKL-JNF’s various units, and to
approve a capex budget of NIS 81.5 million. The Committee
chairperson stated that the proposal offers two advantages: one,
investing funds in initiatives that will generate additional sources of
income for KKL-JNF; and two, this would help resolve the budget
shortages caused by the board committees’ requests. As aforesaid, the
Committee approved an exceptional capex budget until clear criteria
are established for this budget.
The Office of the Comptroller examined the approval process for
KKL-JNF’s 2014 budget.
Findings –
The Office of the Comptroller believes a review of management
meeting minutes indicates several flaws in the capex budget approval
process, as follows:
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A. Failure to consider alternatives to the capex budget
As aforesaid, the Hanhala Metzumtzemet meeting which
convened in August decided to approve a budget framework of
NIS 980 million. The minutes indicate that the idea for the capex
budget was first offered in the Finance Committee’s meeting of
December 25, 2013. In this meeting, the Committee chairperson
notes that there is another alternative, where KKL-JNF’s units
would have to adjust their operations to the initial budget
framework. However, the Committee chairperson recommends
approving the capex budget of NIS 85 million. The Office of the
Comptroller could not find indications for a detailed discussion
of the aforesaid alternative of cutting the unit budgets and forcing
units to adjust operations to fit the initial budget framework. This
is of particular note considering that previous years’ budgets also
included capex activities.
The Office of the Comptroller notes that the capex budget’s
approval results in a cumulative increase of NIS 154 million in
KKL-JNF’s annual budget: NIS 85 million through capex, and
NIS 69 million in the operating budget. This was not presented in
any of the minutes we reviewed.
The capex budget of NIS 85 million was also approved by the
Finance Committee following the Committee chairperson’s
recommendation to accept all budget addition requests. In other
words, the capex budget was not set based on investment and
development needs, but rather was derived from requests for
additional operating budgets.
KKL-JNF’s Response:
1. The plan to approve a capex budget in 2014-2015 was
discussed by the Hanhala Metzumtzemet. In its review of this
matter, weight was given to operational needs and to the
potential offered by improving land assets and managing
income-generating assets. The well-known and long-standing
alternative was to apply to the Finance Committee
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periodically for approval of additional budgets from the
organization’s ‘reserves’. The Hanhala Metzumtzemet sought
to formally address the matter, so as to provide, ahead of
time, the necessary budget for building the field centers in
Shuni and Nes Harim, a building in Eshtaol, Expo 2015, a
centralized IT system, etc. With this goal in mind, it was
decided to transfer all of Himnuta’s budget to the capex
budget, in light of the fact that the bulk of its activities are
designed to generate capital gains and improve its land assets.
2. The alternative presented by the chairperson of the Finance
Committee was not chosen because KKL-JNF’s units and
their supervisory board committees approved the budget
framework based on work plans reflecting their objective
operations. Had their budgets been cut to meet ‘capex’ needs,
operations would have been materially undermined – an
unacceptable outcome.
3. It is emphasized that in 2014-2015, KKL-JNF’s management
made a strategic decision to restructure operational regions;
open field centers which had been closed for many years;
organize a special conference with unique, international
impact; improve land assets; etc. Except for the last item,
these are all one-time expenses with far-reaching impacts on
KKL-JNF’s operations.
4. The capex budget has nothing to do with the year-on-year
increase made in the operating budget in 2014. The expenses
budget was prepared based on projected income.
B. Approving the new capex budget near the operating budget
Approving the NIS 85 million capex budget signaled a material
change of the initial budget framework decision. The Office of
the Comptroller believes that a budget of this size should not be
discussed by the Finance Committee and approved only six days
prior to its final approval by the Board of Directors, on December
31, 2013.
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C. Building the capex budget without clear criteria
Due to the short timeframe allotted for approving then 2014
capex budget, no consensual criteria were formulated to dictate
which activities may be defined as capital investments, nor had
such criteria been established as of August 2014 (minutes from
the Hanhala Metzumtzemet meeting indicate that the Finance and
Economics Division director was only instructed on December
23, 2013 to check with the organization’s auditors to assure
compliance with Israeli GAAP). Below are several examples of
material year-on-year budget differences (NIS thousands):
UNIT ITEM OPERATING
BUDGET 2013
CAPEX
BUDGET
2014
DIFFERENCE
(*)
Forest and Field
Centers Dept.
New
construction
plans for youth
camps
– 91164. 91164.
Maintenance
and Logistics
Division.
Construction
and renovation
11911 6111.. 21.40
Forest and Field
Centers Dept.
Planning,
strategic plan,
and renovations
619.. 11... 112..
LDA Eshtaol + Ahula
visitor centers
– 911.. 911..
Public Relations Planning for
Neot Kdumim
visitor center
– 61... 61...
Total year-on-year addition 216285
(*) See data in Chapter 7 concerning under-utilization of the capex budget.
The Office of the Comptroller was told that the criteria were
approved in the last Finance Committee meeting in August 2014.
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D. Original designation of external budgets
Minutes from Finance Committee and Hanhala Metzumtzemet
meetings indicate that preliminary discussions were held to
approve budgets outside the operating budget (‘reserves’).
However, these were only mentioned in connection with land
purchases. For example: in its meeting of August 29, 2013, the
Finance Committee discussed adding a sum of NIS 25 million
from KKL-JNF’s reserve funds to buy land assets and prepare
them for development. The Hanhala Metzumtzemet meeting of
December 23, 2013 also instructed the director of Finance and
Economics to check with KKL-JNF’s auditors whether
Himnuta’s budget can be separated from KKL-JNF’s budget. The
grounds for this request cited Himnuta’s operating budgets,
which were expected to be quite large in the coming years, and
which are not related to KKL-JNF’s ongoing activities and may
cause an unintended breach of the budget.
In that meeting, it was also decided that an examination would be
conducted with all of KKL-JNF’s units concerning extraordinary
budgetary needs expected in the coming years. It is not clear
whether this was actually done in light of the ultimate approval of
the capex budget.
Recommendation –
Allowing reasonable time for decision-making
The Office of the Comptroller recommends that material
decisions such as those made this past year, with significant
changes to the organization’s budget, be made a reasonable time
in advance, so as to allow in-depth discussion concerning such
changes, while providing reasons and explanations, and all – a
reasonable time prior to final approval by the Board of Directors.
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7. Capital Expenditures Budget – Actual Performance
As aforesaid, a capex budget of NIS 85 million was approved for
2014. Below is a breakdown of the capex budget by unit:
In light of the new circumstances created this year, through
establishment of a capex budget, the Office of the Comptroller
examined actual performance under this budget.
Findings –
Under-utilization of the capex budget at the start of 2014
Following the capex budget’s approval, the various
organizational units must utilize their respective budgets (this
statement was also made in the Board of Directors’ meeting on
December 31, 2013, in which the budget was approved).
Committee for Sustainable
Development
Himnuta
Public Relations
Education and Youth
LDA
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The Office of the Comptroller received capex budget
utilization data for January-August, 2014.
The report shows under-utilization of the capex budget, as
follows:
A. Overall under-utilization of the capex budget
According to the report, overall utilization amounted to 59%
of the budget total. A review of the data indicates that the
bulk of this utilization (NIS 41,505,385) was attributable to
Himnuta, which utilized 163% of its budget (set at NIS
25,400,000). Adjusting for Himnuta’s operations, which are
not KKL-JNF’s core operations, overall budget utilization
was only 13.6% in the period, as follows:
CAPEX
BUDGET
TOTAL
BUDGET
PERFORMANCE
(NIS)
PERFORMANCE
(%)
Including
Himnuta
2410611... 4211211220 12.1%
Excluding
Himnuta
1211611... 21.021169 61.1%
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B. Under-utilization at the unit level
In some units, utilization rates were particularly low, as
follows:
UNIT BUDGET
(NIS
THOUSANDS)
UTILIZATION
(NIS
THOUSANDS)
UTILIZATION
(%)
Committee for
Sustainable Development
1.. . .%
Education and Youth 1.164. 120 9%
Maintenance and
Logistics
6111.. 61949 2%
LDA 011.. 61610 61%
Committee for Public
Relations
01201 11.26 11% *
* Budget utilization is mostly attributable to the Expo conference in
Milan, Italy. The Expo was budgeted at NIS 6.5 million, of which NIS
5 million have already been utilized. This amount was transferred to
the Ministry of Foreign Affairs in one lump sum, pursuant to the
agreement between the parties.
The Office of the Comptroller believes it is unreasonable
that the capex budget, which was meant to reflect KKL-
JNF’s long-term investments, not be used to achieve that
goal.
KKL-JNF’s Response:
On December 31, 2013, the capex budget for 2014 was approved.
The bulk of this budget was designated for construction and
development of activity locations. As of the start of 2015, the
Tenders Committee approved the issue of construction tenders
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which account for a significant part of these budgets. KKL-JNF’s
management plans to expedite the formalization of regulatory
processes so as to realize the majority of plans during the year.
As concerns the Board committee, a tender has recently been
closed for installing PV receptors on some of KKL-JNF’s
buildings and NIS 500,000 were charged from the committee’s
budget. The funds earmarked for the Expo event included internal
expenses related to KKL-JNF’s preparations and are utilized
according to actual project progress, until the start of the
exhibition and until its closing.
Recommendations –
Tracking capex budget utilization
The Office of the Comptroller believes a mechanism should be
established to supervise and control the utilization of the capex
budget. Project implementation rates should be monitored
periodically, timely explanations received for non-utilization of
investment budgets, and solutions should be found for barriers to
carrying out planned activities. The Office of the Comptroller
recommends that data be periodically reported to management,
which will then review such data together with the relevant unit
directors.
Furthermore, funds should not be re-allocated from the capex
budget to the operating budget.
8. Fixed Costs Budget
This budget includes operating activity expenses and fixed costs such
as: salaries, company car, and administrative costs.
In 2014, the fixed costs budget totaled NIS 300.5 million, up 13%
from NIS 266.7 million in 2013. It is noted that fixed costs ‘naturally’
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grow year-on-year, mainly due to increased salary costs due to
increased employee seniority, position ranks, etc.
The following table presents those units which saw significant year-
on-year growth in fixed costs from 2013 (NIS millions). The Budgets
Division informed the Office of the Comptroller that this increase was
attributable to planned employee recruitment in 2014:
UNIT APPROVED
2013
APPROVED
2014
%
CHANGE
Public Relations 60.9 66.1 14%
Education and Youth 69.9 61.2 1.%
Spokesperson 66.1 66.1 91%
Research institutes and
Board secretariat
66.6 66.1 62%
Salary increases
As of the budget preparation date, KKL-JNF employed 950 people. Of
these, 95% drew monthly salaries, and the rest were paid hourly
wages.
Budgeting is based on projected salary costs, based in turn on the
average employee salary. Calculations are carried out by a team of 3
employees from the Budgets and Human Resources divisions, as
follows:
A. Calculation of monthly salaries – This calculation accounts for
the cost of actual base salary payments from the six months
preceding the fiscal year, including projected salary additions
such as: overtime, ranking, clothing, bonuses, incentives, etc.
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B. Calculation of hourly wages – Includes all payments actually
made in the preceding six months, times two, plus contractual
additions.
C. The total salary cost (monthly + hourly) is divided by the
number of employees, yielding the average projected salary
cost per employee.
D. A Budgets Division employee receives the data along with the
current employee roster for each division from Human
Resources. Additional data is provided for recruitment tenders
planned for the next fiscal year. The expected salary cost for
each division is calculated by multiplying the average
employee salary by the employee roster (current + projected).
Company car
The Logistics Division calculates the average cost for each vehicle
class (commercial, private, firefighting, etc., 13 vehicle classes in all).
The relevant employee multiplies the average cost per vehicle class by
the number of vehicles in each unit.
Administrative costs
Administrative costs were budgeted at NIS 16.58 million in 2014. The
three main components of these costs are municipal taxes, rental fees,
and electricity (NIS 6 million, NIS 2.4 million, and NIS 2.3 million,
respectively). Expense items also include office supplies, telephone
costs, etc.
The Maintenance Division (Control Department) calculates the total
cost expected for each item, and divides it by unit based on the
personnel roster.
The Office of the Comptroller examined the fixed cost budgeting
process, and the Budgets Division’s involvement in this process.
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Findings –
A. Average-based salary budgeting is inaccurate
Salary costs are budgeted based on an average cost per employee,
times the number of employees in the various units. This practice
does not account for parameters affecting salary costs such as
employee seniority and rank. The Office of the Comptroller
believes that failure to formulate a specific budget, after mapping
personnel in the various units by seniority, rank, and other salary-
affecting parameters, will lead to erroneous budgeting of salary
costs and inevitably lead to deviations from the set budget, as was
actually the case.
KKL-JNF’s Response:
KKL-JNF’s management accepts the Office of the Comptroller’s
recommendation and intends to examine options for building the
fixed cost budget based on specific calculations.
B. Calculating the average salary
Calculating the average cost together with hourly wages exposes
the calculations to changes in the mix of hourly and regular
workers. Thus, for example, if the proportion of hourly workers is
lower than in the previous year, the budget will be skewed
downwards, as the previous year’s data is used in preparing the
budget.
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C. Deviations in salary costs in 2013
Following on the previous two findings, the Office of the
Comptroller examined whether there were any deviations from the
salary budget in 2013. The data indicate that numerous units did,
in fact, deviate from their salary budget, as follows:
UNIT 2013 BUDGET
(NIS
THOUSANDS)
2013 ACTUAL
(NIS
THOUSANDS)
%
DEVIATION
Resources Division – division
management
041 6162. 1.%
Finance and Economics
Division – division
management
61621 91624 21%
Public Relations 211.9 691442 1.%
Education and Youth Division 6.1111 641011 49%
HR and Administration
Division – HR
11226 41214 99%
It is noted that these deviations were funded through the
operating budget, which was under-utilized.
The Office of the Comptroller believes that deviation from salary
budgets in 2012 and 2013 mandate re-examination of the
budgeting method.
D. Failure to implement controls by the Budgets Division over
calculations made outside the Finance Division
Expense data presented to the Budgets Division supervisors are
only provided for control by comparison to previous years’
performance. Other than this comparison, the Budgets Division
does not implement additional controls to verify the underlying
data for the various expense items, or the accuracy of the
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calculations. It is noted that calculations include numerous
parameters such as VAT costs, CPI (Consumer Price Indexchanges
and general price increases.
It is the Office of the Comptroller’s understanding that no other
person in the Budgets Division implements similar controls.
KKL-JNF’s Response:
1. The Budgets Division is notified of the underlying assumptions
and calculation methods used to derive the units’ fixed
expenses. Furthermore, as concerns salary costs, the Budgets
Division takes part in carrying out the calculations.
2. The Finance and Economics Division director has instructed
the Budgets Division director to adopt the Office of the
Comptroller’s recommendation and increase control over
calculations made outside the Budgets Division.
E. Budgeting administrative costs
As aforesaid, expenses are spread across all divisions using a
predetermined formula. Upon the Office of the Comptroller’s
inquiry, it was clarified that this is legacy practice in the
organization. The Office of the Comptroller believes this system to
be a bit distorting, as rental expenses, for example, will also be
allocated to units operating from offices where no rental fees are
paid, and municipal taxes in Jerusalem and Eshtaol, for example,
are budgeted equally, based on the personnel roster, without
accounting for office space and geographic location as would be
necessary.
Another problem is the manner in which budget utilization rates
are measured – if a given unit is not subject to rental fees, or has
below-budget municipal tax fees, then that unit’s budget utilization
will ultimately be lower, which does not reflect real-world
conditions.
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Upon inquiry, the Office of the Comptroller was told that this issue
has not been reviewed in KKL-JNF for years.
However, it is noted that the Office of the Comptroller’s
examination found that no deviations were recorded from the
administrative costs budget in 2013.
Recommendations –
1. Budgeting salary costs
The Office of the Comptroller believes that KKL-JNF’s
workforce should be mapped, in all units, while accounting for
key parameters directly affecting employee salaries such as
seniority and rank. Only then should the organization build each
unit’s salary budget. This method is common in many
organizations in Israel, and certainly in those with a large
workforce, such as KKL-JNF.
The Office of the Comptroller recommends examining the
reasons behind the deviations from the salary budget in 2013, and
checking whether these were due to incorrect budgeting or
objective circumstances such as employee recruitment.
2. Calculating average employee salaries
The Office of the Comptroller recommends calculating average
employee salaries separately for hourly workers, and dividing
these costs across units according to their specific personnel
profile.
3. Control over external calculations used in preparing unit budgets
The Office of the Comptroller recommends that the Budgets
Division inquire as to the assumptions and calculations
underlying the fixed cost figures submitted by the various units,
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and examine their current methodology. Such controls would
cross-check the calculations made outside the Budgets Division.
4. Considering migration to more specific budgeting
The Office of the Comptroller recommends that KKL-JNF
consider switching to more specific budgeting for each
organization unit/division independently. This would provide a
more accurate and current picture of each unit’s operations, and
enable better control of over-spending (e.g. – units with higher
salary/municipal tax costs), or under-utilization of administrative
cost budgets (e.g. – units with lower municipal tax costs or
without rental fee costs).
KKL-JNF’s Response:
KKL-JNF’s management adopts the Office of the Comptroller’s
recommendation and plans to consider the possibility of preparing the
fixed cost budget on a more specific basis.
January 2015
KKeerreenn KKaayyeemmeetthh LLeeIIssrraaeell
Spokesperson’s Unit
111
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KKeerreenn KKaayyeemmeetthh LLeeIIssrraaeell
Spokesperson’s Unit
1. Introduction
1.1 In accordance with the World Zionist Organization’s Office of the
Comptroller work plan, we examined the activities of the
Spokesperson’s Unit (“the Spokesperson’s Unit” or “the Unit”)
in KKL-JNF (“KKL”). The Unit takes part in planning KKL’s
media policies and is responsible for their subsequent
implementation.
The audit examined the following workflows:
- The Unit’s work plans and operations.
- Budget building.
- Contracting third party service providers.
1.2 The audit was conducted in the Unit’s offices in July-September
2014. The audit included meetings with: KKL’s Spokesperson’s
Unit, director of the Resources Division, the Spokesperson’s
assistants, the Unit’s budget supervisor, content manager, and
additional employees as was necessary.
1.3 Objectives:
A. To review the Unit’s work plan, its part in the budget
preparation process, and its approval by the relevant persons.
B. To examine budget preparation and implementation in the
Spokesperson’s Unit.
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C. To examine the adequacy of internal control procedures and
the efficacy of existing procedures and workflows.
D. To identify weaknesses in current workflows and controls,
and recommend improvements.
1.4 Key documents used in the audit:
KKL’s budget book for 2012-2015.
Budget performance report for fiscal 2013 and for 1-9/2014.
Work plans for 2013-2014.
Spokesperson’s Unit’s training and procedures file.
KKL’s contracting statute (2012).
Minutes from Finance Committee meetings.
Minutes from Media and Public Relations Committee meetings
in 2013-2014.
Resolutions from Tender Committee meetings.
Tendering status report for 2014.
Contracts and supporting documents for service provider
contracts.
Meeting summaries, emails, and additional materials relevant
to contracts signed with the Jewish TV channel, and with the
lobbying firm.
Specific documents submitted upon requests.
1.5 Methods:
Reading existing procedures (as relevant to the audit).
Reading internal guidelines and comparing with actual work
flows.
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Meeting with audit-relevant supervisors and additional
employees as necessary.
Reviewing the 2014 work plan.
Examining budget items for fiscal 2014.
Reading minutes from Board of Directors, Finance Committee,
and Media and Public Relations Committee meetings, and
examining actual implementation of resolutions.
Resolutions passed in Tender Committee meetings.
Reading KKL’s contracting statute from 2012, and examining
its implementation by the Spokesperson’s Unit, including
through Tenders Committee resolutions.
Reading relevant internal communications.
Reviewing service provider contracts and tendering processes.
Reviewing the contracting process with the Jewish TV channel
and the lobbying firm.
Reviewing materials pertaining to KKL’s management of the
crisis concerning the TV channel’s operations.
Consolidating findings.
Preparing the audit report, including conclusions and
recommendations.
2. Background
KKL was established in 1901, by resolution of the Fifth Zionist
Congress in Basel. In its first decade, KKL cemented its position as an
organization for acquiring lands in Israel, on behalf and for the benefit
of the Jewish People.
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On November 23, 1953, the Knesset enacted the Keren Kayemeth
LeIsrael Law, 1953. Among other things, the law formalized KKL’s
transformation from a foreign entity to a local company registered in
Israel.
In 1961, the State of Israel and KKL signed a treaty which stated,
among other things, that “KKL will continue operating as an institution
of the World Zionist Organization among the Jewish people in Israel
and abroad, collecting money for resettling lands, and communicating
Israeli-Zionist affairs and promoting Israeli-Zionist education.”
Spokesperson’s Unit:
The Spokesperson’s Unit advertises KKL’s diverse activities to the
general public, and works to promote KKL’s values in Israel and
abroad. To this end, the Unit uses a broad range of means, including:
written, electronic and digital media.
In recent years, the Unit has brought to public attention news of
hundreds of nature-related events, advertised through the various media
channels. These news items build KKL’s brand as a Zionist, eco-
friendly and value-driven organization, and connect the public with
these values.
In addition to its regular press releases, the Unit pro-actively establishes
and produces regular eco-focused guest spots on TV shows, as well as a
regular spot offering hiking and field trip tips.
KKL and the Media:
In recent years, KKL’s activities have come under media attach around
the world. Some of these publications were promoted by various
overseas organizations seeking to undermine KKL’s fund-raising
activities and revoke KKL’s current tax benefits. Other publications
were made by the various media channels in Israel. KKL notes that,
with time, publications and actions against KKL have increased, and
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have even included appeals to the heads of those states where KKL
operates, requesting that its status be revoked. These efforts also sought
to prevent any cooperation with KKL, and included rallies,
demonstrations, and numerous appeals to politicians (some quite
senior) – all to undermine KKL’s activities. As part of its mitigation of
these challenges, at the start of 2013 KKL signed an agreement with a
Jewish TV channel, to improve its public image, mainly in Europe (See
below, in Chapter 6 to this report).
Responsibilities:
The Unit’s key activities are as follows:
Advertising and marketing – Pro-active advertising through various
media channels to publicize KKL’s diverse activities, such as: new
forestation and parks projects, construction of water reservoirs, new
parking lots and bike trails, and providing information on seasonal
activities such as tree planting drives in Tu Bishvat, Independence
Day activities, etc.
KKL has recently started using digital and new-media marketing
channels to publicly promote its activities.
Public relations – KKL’s Spokesperson’s Unit manages the
organization’s public relations efforts, emphasizing the positive
aspects of KKL’s activities.
Crisis management – Recently, KKL has been facing negative
publications in the Israeli press. Following Management’s
instructions, it was decided to respond to these publications, under
the ‘Crisis management’ budget item (which appeared in the Unit’s
budget as early as 2012). These activities mainly seek to formulate
KKL’s branding strategy and respond to inquiries from media
channels concerning negative publications about KKL’s operations.
It is noted that in all three of its above responsibilities, the Unit enlists
the aid of sub-contractors comprising advertising and public relations
agencies, who provide services in these fields (see Chapter 5 below).
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Organizational structure and personnel:
Until 2009, KKL had a Media and Public Relations Division. In 2008,
the Office of the Comptroller audited this Division. In 2009, upon the
Division director’s retirement, the organization was restructured,
dissolving the Media and Public Relations Division, and establishing
the Spokesperson’s Unit as an independent organizational unit. The
Unit also assumed several of the former Division’s responsibilities. The
bulk of the Division’s employees were reassigned to the Resources
Division (except a few employees who were placed in other KKL
units), and operate as a unit with the Resources Division. It is noted
that, as of the audit date, the Public Relations Unit had not been
appointed a director, and it is supervised by the Resources Division
director.
According to KKL’s organizational structure at the audit date, the
Spokesperson’s Unit is directly subordinate to the Chairman of the
Board.
The Unit’s personnel, as of the audit date, comprised the following:
1. Spokesperson.
2. Secretary (outsourced).
3. Two deputies/assistants.
4. Media content manager.
5. Additional employee, who will serve as the budget and projects
supervisor. Currently employed under a Finance Division position
but is administratively subordinate to the Spokesperson.
Response of KKL’s Management:
Under the voluntary retirement agreements of 2009, the Spokesperson’s
Unit was established as an independent unit supervised by the
Chairman of the Board, while the Public Relations Unit was
temporarily placed under the Resources Division.
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1. KKL’s internal auditor recommended that all employees carrying
out media, communications and public relations activities be placed
under one organizational unit, with a single professional supervisor.
2. Preparatory work was carried out to establish a single unit which
will coordinate all media and communications activities. This plan
was approved by the Media and Public Relations Committee, and
by the Administration and HR Committee, and is currently pending
final approval.
3. On September 7, 2014, the Administration and HR Committee,
after consulting with the Director General, decided that the Internal
Auditor, the Legal Department, and the Spokesperson’s Unit would
be subordinated to the Director General. These units will continue
providing services to the Chairman of the Board of Directors and to
Management.
3. Budget Performance in 2014
A review of the budget books for 2012-2015 indicated that the
Spokesperson’s Unit’s annual budget grew significantly in these years,
with a cumulative increase of 240% as compared to 2011.
Data are as follows:
Fiscal year Operating
budget (NIS)
Growth
(%)
1122 000140111 –
1121 2100750,11 21
1122 2,04110111 47
1124-1127 1100220111 ** 12
* Operations only. Excludes fixed expenses for salaries, car and administration.
** Per annum.
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Planned vs. actual expenditure in 2013-2014, for key items in the
Spokesperson’s Unit’s budget (NIS):
Item
Updated
budget 2013
Actual
expenditure
1-1202/11
2014
budget
Actual
expenditure
2014
Marketing content (morning
shows, eco-news, TV
sponsorships, etc.)
205520111 200270271 ,0,110111 404220152
Advertising – press, radio,
and television 002500111 0021101,, 707110111 200120124
Overseas communications
activities
207110111 204050701 101110111 1
Media-covered conferences 2074,0111 2072104,2 201110111 5210104
Digital marketing and
advertising
0110111 72,02,0 201110111 110554
Other 401170111 20,720241 402220111 201120,22
Total 104,//4/// 114,,44211 224,114/// 1/4/24411,
Budget breakdown (budget data):
Embedded marketing
Advertising – press,
radio and television
Overseas comm.
activities
Media-covered
conferences
5%
Digital marketing and
advertising
5%
Other
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Budget Preparation
KKL’s general framework budget is set by the Hanhala Metzumtzemet
(Chairman and Co-chairman of the Board, two Deputy Chairmen and
Director General) and approved by the Finance Committee. After
establishing the framework budget, the unit directors meet with Budgets
Division personnel to discuss their respective budgets. Requests for
additional budget are reviewed by each unit’s respective board
committee. The board committee for the Spokesperson’s Unit is the
Media and Public Relations Committee.
The Finance Committee approves/denies additional budget requests, and
sets the final budget for each unit. KKL’s final budget is brought before
the Finance Committee for approval, and then submitted to the Board
for final approval.
It is noted that, as in 2012-2013, KKL approved a bi-annual budget for
2014-2015.
Budget Growth
The Spokesperson’s Unit’s operating budget in 2013 and 2014 totaled
NIS 18,400,000, and NIS 22,613,000, respectively – an increase of NIS
4,213,000.
Examples of items with year-on-year growth in the 2014 budget (NIS
thousands):
Budget item 2013
budget
2014
budget
Additional
budget
Growth
(%)
Marketing contents 70111 ,0,11 207,1 02
Digital marketing and
advertising
711 20211 011 211
Reporter tours 211 011 211 211
Crisis management 21 211 121 122
Advertising – press,
radio and television
70211 70711 111 4
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The Office of the Comptroller examined the Spokesperson’s Unit’s
budget performance, including:
Initial framework budget and comparison with the Unit’s
work plan.
Additional budget requests in general, and in light of prior
year performance in particular.
Examining the Media and Public Relations Committee’s
review process.
Findings:
1. 2014 Activities Budget in light of 2013 Performance
The Office of the Comptroller found several items which received
additional budget in 2014, as compared to 2013, despite significant
under-performance (expenditure data for 1-9/2013 were available when
preparing the budget) – in NIS:
Item 2013
budget
Expenditure
1-,02/11
Expenditure
rate (%)
2014
budget
Addition
(%)
Reporter tours 1110111 2007,5 2, 0110111 111
Digital marketing and
advertising
0110111 4240157 02 202110111 ,2
Crisis management 1410111 2150217 47 2110111 17
Surveys and studies 1110111 1 1 1710111 17
Other than minutes of discussions in the Board Committees,
documentation of the budget formulating process was not found in the
Spokesperson's Unit. Thus, it is not possible to review the considerations
that went into approving the 2014 budget, despite under-performance in
2013 which would seem to contradict any budget increase.
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2. Discussions in the Media & Public Relations and in the Finance
Committees of the Board of Directors
The Office of the Comptroller was provided two minutes documenting
the Committee’s meetings, dated May 20, 2013 and October 2, 2013. In
these meetings, the Committee discussed KKL’s management of
negative media coverage, reviewed goals and targets for 2014, and
discussed various data and trends.
Upon inquiry, the Office of the Comptroller was told that the Media and
Public Relations Committee did not have any additional meetings, other
than the above two meetings, in 2013.
Minutes from the Finance Committee’s meeting of December 23, 2013
also note that the Spokesperson presented her requests for the coming
fiscal year.
Recommendations:
The Office of the Comptroller recommends that prior year
budget performance be taken into account when preparing
next year’s budget. Furthermore, explanations should be
provided for any under-performance, and budgeting should
be adjusted accordingly.
Response of KKL’s Management:
Due to numerous media attacks and the acute increase in KKL's
activities alongside the multiplicity of media spheres, a significant
growth was required in the Media and Spokesmanship budget.
Starting 2014, KKL is working to adapt the Company’s procedures to
current conditions, including the Budget Preparation Procedure.
Furthermore, starting February 2014, the Spokesperson’s Unit has been
assigned a budget supervisor, which will provide a solution for the
recommendations made in this report.
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4. 2014 Work Plan
Based on materials found in the Spokesperson’s Unit, work plans for
2014 included the following goals:
Goals Action items
Increasing public
awareness of KKL
activities
Pro-actively publicizing positive initiatives; targeted,
audience-specific exposure; overseas media
activities; increasing presence in regional press;
targeted activities for journalists, editors and media
personnel; periodic studies and surveys.
Crisis management Building a strategic media plan; conducting tours in
the Negev for foreign press; promoting and
disseminating positive content online, in both
English and Hebrew; establishing a blogging group
to generate positive content; monitoring online
discussions and posts concerning KKL.
Choosing focus-
topics for the year
‘Appearing on TV’ media workshops; developing a
pool of KKL field personnel to serve as the
organization’s spokespersons.
The Office of the Comptroller examined the implementation of the
Unit’s work plan for 2014, including:
The 2014 work plan’s approval by the relevant persons.
Work plan adjustments following the goals discussed by
the Media and Public Relations Committee – propriety
was found.
Actual work plan performance.
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Findings:
A. Lack of an approved, detailed annual work plan
Goals and work plans were discussed and reviewed by the Media
Committee. However, no final annual work plan was established or
formally approved by any forum. Upon inquiry, the Office of the
Comptroller was told that the only relevant document is the 2014
annual work plan. This document was presented to the Office of the
Comptroller, and is entitled General Guidelines for Establishing the
Work Plan for 2014. However, no final, approved work plan could be
found. The Office of the Comptroller was further informed that plans
were formulated according to general goals discussed by the Media
Committee and based on the challenges facing KKL, which are
commonly known.
B. Non-performance – extremely low budget utilization in 1-9/2014
The Office of the Comptroller was given a performance report for the
Spokesperson’s Unit, for the period January-September, 2014. The
Budgets Division has a policy of “releasing” one quarter of the
operating budget every fiscal quarter, so that a total of three quarters of
the annual budget had been “released” for the above period. The report
indicates an overall utilization of only 57% of the nine-month budget.
Moreover, numerous budget items had not seen any of the planned
activity. This includes items which received year-on-year budget
increases. Findings were as follows:
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Zero-utilization items (NIS thousands):
Item 2013
budget
2014
budget
Budget
for the
period
1-9 2014
Amount
utilized
Overseas
communications
activities
20711 10111 20711 1
Studies and
surveys 111 171 2,587 1 *
* The Office of the Comptroller was told that a “KKL Vision” survey had been
planned to examine public opinion prior to establishing an organizational
vision statement. The survey was postponed at the request of the strategic
advisors, who plan to include it in the general strategy-building process.
Response of KKL’s Spokesperson:
Spokesmanship is a dynamic field. There are daily developments in
the media field that are difficult to impossible to predict – definitely a
year ahead. Therefore, communications and spokesmanship activities
cannot depend on approved budgets and need to respond to immediate
needs that develop in the course of the year. The spokesperson unit
does its best to foresee the organization's needs for the coming year
(note that a bi-annual budget was approved for 2014-2015) but as
opposed to other units, it cannot guarantee their persistence
throughout the year. This does not only apply to managing crisis, but
also to changes in the work plans due to various media developments.
Overseas communications activities – The budget was not utilized as
it was earmarked for the Jewish TV channel's operations, but no
payment was made this year. Studies and surveys – The budget of NIS
250,000 accounts for 1.1% of the budget. Non-performance was due
to strategic decisions following the media crises experienced this year.
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It should be noted that budget utilization as of December 18, 2014, was
62%, and utilization would have been higher had it not been for the said
media crises.
Low-utilization items
Item 2013 budget
(NIS
thousands)
2014
budget
Budget
(1-9/2014)
(NIS
thousands)
Amount
Utilized
(NIS
thousands
Utilization
Rate
(%)
Digital marketing and
advertising
711 20211 ,17 12 2
Reporter tours 211 011 471 75 22
Stills photography 411 471 22587 44 22
Content development,
editing and translation
711 411 211 ,2 15
Recommendations:
A. Formulating and approving a detailed work plan
The Office of the Comptroller recommends that, each year,
the Spokesperson’s Unit prepare as detailed a work plan as
possible. Plans should include goals and targets, for both
ongoing activities and new challenges facing KKL. Work
plans should detail the means and tools which the Unit will
use during the year to meet ongoing needs and new
challenges, and should refer to budgetary aspects and external
consultants.
B. Work plans should be specifically reviewed by the Media and
Public Relations Committee, as part of work for preparing the
annual budget. Plans are to be approved by the Committee.
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C. Performance-tracking
The Office of the Comptroller recommends that the
Spokesperson’s Unit provide the Media and Public Relations
Committee with quarterly updates on budget item
performance, and provide explanations for under-
performance. These reports should include a review of
planned vs. actual activities, detailing which activities were
carried out in full, in part, or not at all, and detail causes for
under-performance. The report should also detail activities
for which additional budget was received and/or used.
The Committee will guide the Spokesperson’s Unit and
support it in resolving challenges and overcoming obstacles.
Response of KKL’s Management:
The recommendations are accepted and some have already been
implemented for 2015.
5. Service Provider Contracts
In its day-to-day activities, the Spokesperson’s Unit engages various
service providers, including advertising and public relations agencies.
These activities are organized under budget items, as follows:
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Budget item Budget
(NIS)
Press, radio and TV advertising 707110111
Overseas communications activities (Jewish TV
channel)
101110111
Targeted PR (Russian/religious audiences) 7110111
Stills photography 4710111
PR 2010111
Foreign language media activities 2010111
Videography and event coverage 2710111
Crisis management 2110111
Government relations (parliamentary lobbying) 1120111
It is noted that the contract period with some of these agencies has
ended, and new tenders are currently being prepared.
The Office of the Comptroller examined the Spokesperson’s Unit’s
contracting activities – as concerns both existing and new contracts.
Findings:
A. New contracts
The Office of the Comptroller requested a list of the Spokesperson’s
Unit’s current tenders. The data indicate that there are currently nine
ongoing tenders, in various stages.
Key findings:
Activities under the digital marketing and advertising item, which
was granted an additional budget of NIS 500,000 this year, have
effectively been suspended. Most contracts terminated at the end of
2013, and new tenders were only issued in August 2014. It can be
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reasonably assumed that most planned activities will not be carried
out this year.
Government relations (lobbying) – No service providers have been
contracted since mid-2014. As of the audit date, no date had been
set for a new tender.
In some contracts, the Tenders Committee approved that service
providers be retained through the end of 2014. However, as of the
audit date, new tenders had yet to be issued, and so it can
reasonably be assumed that new contracts will not be signed in time.
Government Relations – parliamentary lobbying Consultants
The contract concerns parliamentary lobbying services in the Knesset,
to promote KKL’s goals. This consulting firm was first contracted in
2004, for a monthly fee of USD 4,000, plus VAT. The contract period
was set for one year, and it was further specified that only KKL may
extend the agreement period.
Documents presented to the Office of the Comptroller indicate that:
Since 2004, the contract has been extended (by the
Tenders/Exemptions Committee) through the beginning of May
2014, at which time the firm was notified of the contract’s
termination. In other words, the contract was extended for 10.5
years, without any new tender.
Only recently, following the Spokesperson’s inquiry, the Tenders
Committee decided on May 7, 2014 to discontinue the contract and
to issue a new public tender.
No references could be found documenting the contract’s extension
from 2009 to present, except for minutes from the Exemptions
Committee’s meeting of November 25, 2012, which approved the
contract’s extension for 2013-2014. Reasons were as follows:
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continuity; successful collaboration; and future needs. The Office of
the Comptroller believes these reasons to be insufficient.
Examination of the contract’s extensions over the years indicates that
the contract was repeatedly extended using the original contract
terms. No negotiations were made with the firm to compare the
contractual terms with actual performance.
Response of KKL’s Spokesperson:
Payments to the consulting firm were only made from the
Spokesperson’s Unit’s budget starting 2013. Until that time, the firm
was engaged through other units. In April 2014, the Spokesperson’s
Unit approached the Tenders Committee on this matter. As a result, in
its meeting of May 7, 2014, the Committee decided to terminate the
contract.
Response of KKL’s Management:
In light of discussions concerning the Budget Law and the Economic
Arrangements Law for 2015, which specifically referred to KKL’s
future, the Tenders Committee decided to approve the contract with
the consulting firm for three months, until the end of 2014. At the
same time, the Spokesperson’s Unit began preparing a new public
tender.
B. ‘Crisis management’ item
In 2013, KKL (through its Director General) contracted a media
consultant. His services necessitated from the negative publications
made in the press, which KKL sought to manage. The employment
period was set at one year (June 1, 2013 – June 1, 2014), with a
monthly fee of NIS 25,000, including VAT. The contract was signed by
KKL’s management, and not by the Spokesperson.
For various reasons, the services of the media consultant ("former
consultant") were terminated, and today these services are provided by
(“the current consultant”). The contract was signed for a period of six
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months (Starting January 22, 2014), with a monthly fee of NIS 33,000,
including VAT. Contractual responsibilities were as follows:
- Developing and implementing a strategic work plan.
- Close support and consultancy for managing critical events in the
future.
- Supporting the Spokesperson’s Unit and communications teams.
On June 18, 2014, the Spokesperson contacted the Tenders Committee
and requested that the contract be extended for an additional six
months. The request was approved.
The Office of the Comptroller examined the need for this appointment,
and the manner in which the current consultant was actually appointed.
To this end, the Office of the Comptroller requested all relevant
materials concerning the current consultant’s employment, including
minutes from the Strategy Forum’s meeting. This new forum is chaired
by the current consultant, and was established to formulate KKL’s
media strategy. Findings were as follows:
The current consultant is a strategist charged with policy-setting,
while the Spokesperson’s Unit implements those policies.
To the best of the Office of the Comptroller’s understanding, to date,
no media strategy has been developed for KKL, nor has the
interaction between the current consultant and the Unit been
formalized. This, despite the fact that the documents submitted to the
Tenders Committee for approving the contract specify that the
current consultant will develop the organization’s strategy quickly.
The current consultant was employed by the Tenders Committee,
independently of the Spokesperson’s Unit. The Spokesperson was
not involved in selecting the current consultant (not even as a passive
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observer). The Unit was notified of the current consultant’s selection
in retrospect, verbally, and not through a formal process.
The current consultant's employment was approved by the Tenders
Committee while the former consultant's contract was still in effect.
No details were given concerning the termination of the current
consultant's employment, nor were any adequate reasons presented
for increasing the cost of the contract from NIS 25,000 a month, to
NIS 33,000 a month.
The minutes from the Committee’s meeting amount to a single line
in an Excel file, specifying that “Contracting with the current
consultant is approved for a six-month period, with a total monthly
retainer of NIS 33,000 including VAT”.
As aforesaid, it is not possible to assess the need for the position; it is
unclear whether other service providers were contacted; and no
explanations were given for preferring the current consultant, whose
fees are significantly higher than those of his predecessor, or if any
other candidates were considered.
Recommendations:
A. Improving the contracting process
Contracts should be managed in a timely manner, i.e. –
within a reasonable timeframe so that new contracts may be
signed near the end of the present contract period. To this
end, possible improvements should be considered in the
Unit’s activities in this area. Furthermore, such matters
should be examined during the annual budget and work-plan
preparation stages. The Office of the Comptroller
recommends streamlining the interaction with other KKL
stakeholders involved in the tendering process, including the
legal department, the Tenders Committee, and other
organizational units.
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B. Spokesperson’s Unit’s involvement in Unit-relevant budget
items
The Spokesperson’s Unit should be involved and consulted in
all contracting initiatives affecting its operations and funded
through its budget.
C. Updating the Contracting Statute
The Office of the Comptroller recommends that the following
sections be updated in the Contracting Statute:
Limiting the period in which service providers can be
retained, including those who are exempt from tenders
under the Statute. This will prevent extended contracting
of a single supplier for an indeterminate number of years
without any tendering process.
Requiring that negotiations be held to reduce costs prior
to extending a contract.
Requiring that minutes of Committee decisions be more
detailed.
Response of KKL's Management:
A comparison between the work load required from both consultants
shows that the requirements from the current consultant are significantly
wider than those defined in his predecessor's contract.
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6. Overseas Communications Activities
Background
In recent years, KKL has been under attack by foreign entities trying to
undermine its operations. In 2012, KKL decided to adopt a new
strategy, by establishing an international media presence to influence
public opinion, mainly in Europe. To this end, KKL contracted a British
based lobbying firm ("lobbying firm"), and Brussels-based Jewish
television channel (“the Channel”).
The Office of the Comptroller was presented a document from the TV
channel dated November 9, 2012, concerning potential collaboration
between KKL and the Channel. The document reviews the Channel’s
history and its operational profile, including:
Broadcasting in six languages (English, French, Spanish,
Russian, Ukrainian, and Italian).
Broadcasting to 56 million households in Europe, North
America and the Middle East.
Live internet broadcasts reaching millions of viewers.
A YouTube channel with 3 million views in 2012.
The document offers a framework arrangement for collaboration:
1. Coverage and media exposure for KKL’s events and activities in
Israel and abroad, reaching Jewish communities, youths, and non-
Jews.
2. In-depth profiles of KKL’s leadership in Israel and abroad.
3. Multi-lingual broadcasts (including by using materials to be
provided by KKL).
4. Live broadcast of KKL’s key activities by the Channel reporters.
On December 16, 2012, a meeting entitled “Meeting on KKL’s
Communications Activities Abroad” took place. The meeting was
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attended by KKL’s two chairmen and their advisors, the director of
the Resources Division, KKL’s spokesperson, KKL’s media
consultant, and the POC for the Channel and the lobbying firm.
The meeting discussed the global wave of criticism against KKL, the
challenges faced by KKL’s representatives abroad, and the urgent need
to find a solution to these conditions. A summary of a report presented
to KKL by a media specialist on "JNF-KKL Strategy Attack", was
distributed in the course of the meeting. At the end of the meeting, the
POC for the Channel and the lobbying firm presented possible courses
of actions, stating that KKL should focus on Brussels, EU’s capital, in
two ways:
1. International media presence, through the Channel.
2. Establishing a Friends of KKL organization inside the European
Parliament – Establishing an active lobby with members of
parliament, including pro-actively creating partnerships between
KKL and the European Union, tours and delegations, eco-focused
projects, communications activities, tours of Israel, etc.
The closing decision from this meeting notes that the plan is approved
for implementation, with a budget of NIS 16 million over the coming
years (NIS 4 million annually – NIS 2 million for building media
presence, and NIS 2 million for establishing Friends of KKL in the EU
Parliament). The budget will be shared in equal parts, with the
Resources Division and the Spokesperson’s Unit each providing NIS 2
million.
The first collaborative agreement with the Channel was signed
December 30, 2012. The agreement is effective November 1, 2012
through December 2013, and may be extended. Section 2(f) to the
agreement states that the Channel will air weekly items on KKL,
running at least 10 minutes each, for 52 weeks in the year.
In 2014, KKL extended the contracts through 2015 (with the lobbying
firm – on March 18; and with the Channel – on April 1).
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2014
In April 2014, KKL found out that the Channel is experiencing
financial difficulties, and its broadcast profile had changed:
In May, the Channel only aired in the Ukraine. The Channel claims
that these difficulties were due to geo-political conditions in the
Ukraine at the time.
The Channel’s teams did not cover, as required by the agreement,
KKL’s conference in Mexico, or its general meeting in Canada in
that same year.
In June, the Channel shut down its cable broadcasts. To date, the
Channel has aired 49 news items on KKL’s operations.
In July 2014, a representative from the Resources Division was
dispatched to Belgium, to clarify issues concerning the lobbying firm's
prospective study of the Bedouin population, and to clarify additional
issues. During his visit, the representative also discovered the
following:
The Channel had 3 registered offices: in Israel, in Belgium, and in
the Ukraine. None of these addresses were active.
The Channel’s team in Israel was dissolved.
KKL found out that the POC for the Channel and the lobbying firm,
is employed by a third party which is partly owned by the Channel’s
owners. The POC had never disclosed this fact to KKL.
The Channel’s chief editor (who signed the agreement on the
Channel’s behalf) claims that the Channel terminated his
employment in April, and that he is unable to assist KKL.
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The Office of the Comptroller was given materials pertaining to
KKL’s overseas communications contracts, and examined their
approval by KKL, the terms of the agreement with the Channel, the
manner in which the contract was managed, and KKL’s actions
upon discovering that the Channel was not meeting the terms of the
agreement.
Findings:
A. Unreasonable payment terms to the Channel leading to NIS 4 million in
doubtful debts
Under Section 5 to the (original) agreement, payment will amount to
NIS 4 million, as follows: NIS 2 million to be paid upon signing the
agreement (paid on January 8, 2013), and NIS 2 million to be paid on
February 1, 2013 (paid on February 13, 2013). Later, an additional NIS
1.9 million was paid in December 2013, comprising a 5% discount
following negotiations on extending the contract, held at the request of
the KKL tenders committee. These were held after KKL had received
performance reports and examined additional alternatives prior to
extending the contract.
The agreement is valued at NIS 2 million per annum, with 52 news
items. In practice, KKL paid for two years of service within a few
months of signing the contract. A year later, KKL paid an additional
NIS 1.9 million. It was only in April 2014, that KKL found out that out
of the 156 new items for which it had paid only 49 had been aired.
Following cessation of the Channel’s broadcasts, the Channel
currently owes KKL NIS 4 million.
The Office of the Comptroller does not understand why KKL paid
such substantial amounts (equivalent to two years’ worth of
services and more) in advance, without checking in any way that
the services had been rendered and without obtaining collateral or
guarantees for the amounts paid and anchor them in a signed
contract.
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Response of KKL's Management:
Until the Channel stopped broadcasting, 49 items on KKL's activities
had been aired in over 3,770 re-runs.
Following the cessation of the Channel's broadcasting, KKL has been
exerting efforts in order to collect the debt of NIS 4 million.
Response of the Resources Division:
KKL has contacted a law firm in the Ukraine. The law firm offered
KKL a principal proposal – alternative broadcasts in lieu of those that
were not aired. However, KKL decided to demand return of its
payments.
B. Contract approval dated December 16, 2012
The Office of the Comptroller believes that, since the decision concerns
a new strategic initiative involving significant financial resources of
NIS 16 million for the next 4 years, the professional staff should have
held a comprehensive preliminary discussion on additional options for
coping with KKL’s public relations challenges abroad. Furthermore,
additional suppliers should have been considered. In practice, the
discussion focused only on the proposed solution that was approved at
the end of the meeting.
It is also noted that the forum which approved the contract did not
include a representative from the Finance and Economics Division,
experienced in assessing contracts of this scope. Nor did the forum
include a representative from the Legal Department.
The participants in the discussion did not ask basic questions such as:
Prior verification of the Channel’s professional reputation
(viewership ratings, household reach), its professional ability to
render the services in the long term, or its financial position.
Who negotiated the agreement and payment terms with the Channel.
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The payments requested by the Channel, their terms, guarantees,
and compensation in case of non-performance.
The Channel’s interaction with KKL’s personnel and its shlichim
overseas.
Ongoing supervision of the Channel’s activities, and monthly
reports (at least).
Obtaining a formal work plan detailing the collaboration with the
Channel and timeframes for performance.
Response of KKL’s Management:
KKL contacted a renowned international branding expert, and asked his
opinion on how to manage the global media attack on KKL. The
specialist states in his report that he considered a number of options.
Reply of the Office of the Comptroller:
1. The engagement of the branding specialist services was only
brought to the Office of the Comptroller’s attention in the KKL
Management’s response to the draft report and was not mentioned at
all during the audit. This includes the Office of the Comptroller’s
meetings with the director of the Resources Division and the
Spokesperson, who participated in the December 16, 2012 meeting
where the decision was made.
2. The branding expert's report, dated December 21, 2012, includes a
recommendation to form a team to lead the communications and
media activities mentioned in the report, and which was to include
the branding expert himself as the strategy and media advisor, the
POC for the Channel and the lobbying firm as coordinator and
consultant, and representatives from lobbying firm, the Channel,
and a branding agency (whose names appear in the
recommendation).
3. The Office of the Comptroller requested to examine the contract
with the branding expert. As of the reporting date, the Office of the
Comptroller has not received an answer to its request to receive
materials on this contract, its approval, the actual agreement, the
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subsequent invoice and what it included. The only information
received was that KKL paid the branding expert a total of USD
25,000 in March 2013.
C. Failure to formulate a detailed plan prior to signing the agreement
To the best of the Office of the Comptroller’s understanding, except for
general guidelines, the professional staff did not formulate a detailed
action plan prior to approving the agreement, which would govern
KKL’s work with the Channel. Such a plan should have included the
following items:
Timeframes for implementation.
A list of actions required of the Channel.
A breakdown of the media mix (cable/online).
A breakdown of news item broadcast languages.
How many re-runs each item would have.
Work flows with the Resources Division and the Spokesperson’s
Unit, including sharing of materials and responsibilities.
Work flows with KKL’s shlichim around the world.
Guarantees or compensations in the event that services are not
rendered.
A review of relevant materials indicates that, towards the end of
February 2013, a seminar was held to review the matter and formulate a
work plan for the Channel and the lobbying firm. It is unclear whether
any such work plan was ever formulated.
Response of KKL’s Management:
KKL accepts the Office of the Comptroller’s comment concerning the
preparation of the agreement. Even though the contract was drafted,
examined, approved and recommended by KKL’s acting legal counsel,
it does not adequately address KKL’s needs and interests. KKL's
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management expects its professional staff to draft agreements (in every
engagement) according to a detailed work plan and to protect KKL's
rights.
D. Splitting the contract between the Spokesperson’s Unit and Public
Relations (Resources Division)
The annual budget item was arbitrarily split in two – NIS 2 million for
each unit, without explaining the reasons why. The Office of the
Comptroller believes this does not constitute proper conduct, as one
contract was split between two KKL units. It is also unreasonable that
the Spokesperson’s Unit is not involved in working with the Channel,
does not supervise its activities, but is still responsible for their funding.
It is noted that KKL did not appoint any person to manage and
supervise the contract, who would confirm that services had been
rendered, and would oversee invoicing and payments.
A review of the Tenders Committee’s meeting of December 22, 2013,
which convened following the Spokesperson’s Unit request to extend
the contract, indicates that the Committee chairperson ordered that
extension of the contract with the Channel be taken off the agenda, on
the grounds that “It is not proper conduct for a contract with one entity
to be split among several units in KKL”. The matter was thus stricken
from the agenda. The Office of the Comptroller could not find later
documentation approving the contract’s extension. It is unclear how the
contract was still approved under the same split format in 2014.
E. Return of KKL’s payments
The Office of the Comptroller examined materials from 2014, including
email correspondence and meeting minutes, which indicate:
Except for email correspondence, the Office of the Comptroller
could not find evidence that, upon realizing that the Channel was
experiencing financial troubles, the relevant forum (including the
legal department) convened to consider possible actions and
responses. The Office of the Comptroller believes that KKL was
slow in responding to this matter.
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A KKL representative was only dispatched to Belgium in July (after
repeated requests to consolidate the materials pertaining to the
Channel). The representative was dispatched for other purposes, and
as part of those other meetings, he investigated the matter of the
Channel. It is noted that, in the meantime, the Channel could have
filed for bankruptcy, smuggle assets, and other creditors could
initiated debt collection proceedings.
Recommendations:
1. The Office of the Comptroller believes the above findings
indicate a need for re-examining procedures governing
contracts with strategic consultants, mainly in matters where
KKL does not have prior experience.
The Office of the Comptroller recommends that a forum be
established to manage these types of contracts, including
monitoring and reporting on the contracting process.
Alternatively, these recommendations can be implemented
through the current Tenders Committee’s procedures, with
updates to KKL’s contracting statute.
Key points for a general framework for overseeing such
contracts. These recommendations may also be applied to
KKL’s other contracts:
Agreement format
KKL should establish a policy whereby KKL will not sign
agreements drafted by the service provider. The agreement
should emphasize the following points:
Timeframes for rendering the services.
Payment schedule over the service period.
Advances, if any, will be minimal.
Guarantees for performance and compensation.
Contract approval by KKL’s legal department.
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A. Drafting a work plan prior to signing the contract
Prior to approving the contract, the forum approving the
contract will receive as detailed a work plan as possible,
concerning KKL’s expected ties with the potential service
provider. Such work plan will refer, among other things, to
the following:
Description of planned activities.
Estimated timeframes for performance
(milestones).
Work flows with relevant KKL personnel.
B. Prior examinations
A KKL representative will examine the potential
supplier’s professional reputation, relevant experience, and
financial position.
C. Contract approval
At the end of the preliminary negotiations, the forum will
convene to review the results of the examinations and the
draft agreement. If the forum believes that the proposed
agreement should be approved, the draft document will be
submitted to the Legal Department for approval, so that
approval may be given in writing.
D. Monitoring and reporting
The headquarters units receiving the services will provide
the forum with quarterly reports on their performance. The
forum will discuss these reports, even prior to deciding
whether or not to approve an extension of the contract
period.
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E. Exercising a contract extension option
Prior to exercising an optional extension of the contract,
the forum will review the contract’s performance in the
prior period. If the forum decides that the supplier’s
services to KKL are satisfactory, negotiations will take
place to reduce costs. The results of these negotiations will
be reported to the forum prior to notifying the supplier of
the contract’s continuation.
Response of KKL's Management:
KKL accepts the Office of the Comptroller's comments. The entire field
of contracts has and is still undergoing changes and substantial
upgrading. These include introducing strict procedures regarding
contractual engagements and release of funds from KKL's accounts as
well as establishing a central division for contractual engagements
headed by an experienced lawyer in the tenders and contractual
engagements area, who advises the various KKL units.
7. Procedures
The Unit is engaged in diverse activities, and regularly interacts with
numerous stakeholders, both inside and outside KKL. To this end, and
in order to train new employees, the Unit has prepared a Procedures
File, which includes practical information on carrying out the Unit’s
various activities.
The Office of the Comptroller examined the Procedures File, and
examined whether it meets the needs of the Unit and its ongoing
activities.
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Findings:
A. Lack of procedures for some topics
There is no formal procedure defining the Unit’s interaction with the
crisis management consultant, including separation of duties between
the various stakeholders. Furthermore, there is no defined checklist in
the event of a crisis. According to the Spokesperson, there is an online
group comprising all crisis-management personnel.
Furthermore, even though there is currently no valid contract with a
parliamentary lobbying firm, procedures have not been put in place
which would allow for work to commence upon selection of such a
firm.
B. The existing Procedures File is not up to date and incomplete
Examination of the Procedures File indicates that, along with clearly
defined matters, for which organized checklists have been prescribed
(press inquiries, fire events, journalist tours), several matters appear
only as headlines in the table of contents, but do not have detailed
procedures. These include: procedures for working with videographers;
procedures for working with KKL’s webmasters; PR meetings; and
project promotion procedure.
Recommendations:
A. Drafting new procedures
The Office of the Comptroller recommends that procedures
be drafted for those topics which are currently lacking
procedures. Special emphasis should be placed on the
division of duties between various organizational units, and
checklists for managing specific events. Procedures should be
formulated as part of forming KKL’s media strategy.
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B. Updating existing procedures
The existing Procedures File should be supplemented, so as to
also include currently absent procedures, as aforesaid.
Response of KKL’s Management:
KKL’s Management and Director General have instructed that all
procedures be re-examined and revised to match internal and external
changes affecting administration, technology, auditing, transparency,
and regulation that have taken place since these procedures were last
updated, including KKL’s registration as a public interest company.
April 2015
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351
Keren Kayemeth LeIsrael – JNF
Joint Programs with Organizations
451
455
Keren Kayemeth LeIsrael – JNF
Joint Programs with Organizations
Introduction
In its “Financial Liabilities” chapter, Keren Kayemeth LeIsrael’s (“KKL-
JNF”) budget includes a “Joint Programs with Organizations” item (“Joint
Programs with Organizations”). About half the budget for this item is
transferred to the World Zionist Organization, and about half is transferred
to other organizations, some of which are not National Institutions.
The following table provides budget and expenditure highlights for 2012,
2013 and 1-11/2014, as presented in the budget book (NIS):
2102 2102 0002101
Budget Expend-
iture
Budget Expend-
iture
Budget Expend-
iture
WZO 516,556555 5165,56,35 516,556555 5765,36585 516,556555 5365516515
Unions,
organizations,
youth
movements,
local
authorities,
etc.
136,576555 1,681,6557 1168,86555(3) 1,68516158 556,556555 1368,56181
Total 4,5,145111 4252215232 4352795111 9154125942 0115,,15111 9252045974
Note: (1) Original budget was NIS 33,150,000.
The Office of the Comptroller sought to examine the decision-making
process behind fund transfers to these organizations; the criteria used to
determine which organizations KKL-JNF will collaborate with; the manner
in which the scope of KKL-JNF’s support for these organizations is
451
determined; and what examinations are made to assess these organization’s
competency and their ability to meet their obligations towards KKL-JNF
pursuant to its financial support.
The Office of the Comptroller further sought to examine the agreements
signed by KKL-JNF and the organizations; the nature of their cooperation;
and whether they were actually implemented, along with the persons
overseeing such implementation.
Finally, the Office of the Comptroller sought to examine the manner in
which funds were transferred to the organizations, and their reporting on
their use of KKL-JNF funds.
It is noted that KKL-JNF provides financial support to additional
organizations, outside the “Joint Programs with Organizations” budget item.
These fund transfers do not fall under the scope of the present report.
The Office of the Comptroller focused on KKL-JNF’s organizational and
fiscal conduct as concerns the Joint Programs with Organizations item in
2013 and up to November 2014.
Budget
The following table presents budget and expenditure data for the Joint
Programs with Organizations item in 2013 and up to November 2014, as
provided by the director of KKL-JNF’s Budgets and Audit Division on
December 31, 2014 (NIS):
451
2102 0002101
Budget Expenditure Budget Expenditure
Joint programs (unions, organizations, youth
movements, local authorities, etc.)
1168,86555 1,68516158 556,556555 1368,56185
Jewish Agency – environmental educational projects 765556555 16,856555 765556555 ,6,8,6555
Jewish Agency – olim-focused activities 765556555 861,,6555 765556555
Educational activities with WZO 565556555 1615,6757 565556555
Zionist Council 565556555 565316135 565556555 ,65576555
Zionist unions 368556555 368556555
Zionist organizations 361156555 365,36355 16,856555 16,136183
Zionist youth movements ,556555 ,556555
Field trips, delegations and leadership for raising
awareness of KKL activities
365556555 365,7651, 165556555 5,56517
Reserve 1,,6555 1,56,,5 361156555 1576,3,
Study project for Russian-speakers 1856555 1576,51 5556555 1156111
MASA and Birthright 5556555 5556555 5556555 5556555
Shoah leTkuma project following the March of the
Living
5556555 1156,,5 363556555 5,,6,58
Religious organizations/streams 365556555 365556555 365556555 361556555
Local authorities 1356555 1356555 1356555 1356555
ECJC (3) 3536555 – – –
Exchange rate adjustments 156555 – 3556555 –
Building collaboration with WZO 565556555 –
Platoon of the Wall Museum 168556555 168556555
Biblical Wine Research 365556555 365556555
Hashomer Hachadash ,556555 ,556555
Ezra (Aliya) 165556555 161556555
Kehilot (Aliyah) 5556555 5736575
The National Collection (Tel Aviv University) 165556555 –
Hachshara in Masada 365556555 365556555
Tractor and Yeshuv Museum 5556555 5556555
WZO ,253115111 145170519, ,253115111 1051,25,2,(2)
Total 4352795111 9154125942 0115,,15111 9252045977
Notes: (1) ECJC is a UK non-profit operating Jewish schools.
(2) The Budgets Division stated that it adjusted the entry so that, out of a total
expenditure of NIS 41,453,525, it will transfer NIS 6,397,650 to other budget items.
451
The above data indicate that, in 2013, several organizations did not receive
their full allotted budget. For example: the Jewish Agency was budgeted at
NIS 8,000,000 for ecological education programs, but was only transferred a
total of NIS 3,975,000.
The Office of the Comptroller further found that certain organizations did
not receive any of their allotted budgets. For example: ECJC in 2013; and
the Tel Aviv University’s National Collection in 2014.
The Office of the Comptroller recommends that the director of the
Finance and Economics Division examine why certain organizations did
not receive their allotted funds from KKL-JNF, or did not receive such
allotted amounts in full.
KKL-JNF stated in response that the Jewish Agency did not
receive the remaining allotted budget as it failed to report on
the completion of the environmental education program. It
stated that in 2013 ECJC was not transferred its allotted
budget as, in that year, the organization was budgeted under
the Joint Projects with Organizations item by mistake.
As concerns the University’s National Collection, KKL-JNF
stated that construction of the university museum was
delayed, and thus none of the allotted budget was transferred
in 2014. According to KKL-JNF, progress was only made
recently, and an agreement is due to be signed with the
university.
Decision-Making Process
Introduction
The Joint Projects with Organizations budget item covers funds allocated to
organizations, which can be sub-divided into two main groups:
451
Group A
a. Monetary support for the World Zionist Organization.
b. Allocations to WZO member organizations (Zionist unions, Zionist
organizations, Hagshamah movements).
c. Allocations to religious streams.
d. Allocations to the Jewish Agency.
Group B
a. Allocation to MASA and Birthright.
b. Allocation to third-party organizations (museums, etc.).
In 2009, KKL-JNF started budgeting the religious streams, following the
Board of Directors’ decision of 2006.
In 2012, these allocations were expanded to include other WZO member
organizations (Zionist unions, Zionist organizations and Hagshama
movements).
The Office of the Comptroller could not find any specific Board of
Directors’ decision (discussion and minutes) for transferring funds
from KKL-JNF to Zionist unions, Zionist organizations and Hagshama
movements.
KKL-JNF stated in response that the relevant budget items
were approved by the Board of Directors, as part of KKL-
JNF’s annual budget approval.
The Office of the Comptroller believes there is a difference between
approving budget items as part of KKL-JNF’s annual budget approval
process, and a specific decision to allocate budgets to particular
organizations, as part of a policy-setting process.
Thus, the Office of the Comptroller believes that the Board of
Directors, as the policy-setting organ and as was the case for allocations
411
to religious streams and WZO, should have held relevant discussions
and adopted a specific resolution to allocate budgets to the Zionist
unions, Zionist organizations, and the Hagshamah movements.
In 2012, KKL-JNF signed an agreement with WZO, which stipulated that
KKL-JNF would transfer funds to WZO. The agreement was approved by
the Board of Directors in July 2012.
In 2013, and particularly in 2014, additional organizations were added to
this budget item, some of which were third-party organizations. For some of
the organizations listed in the table presented above in the budget chapter –
it is unclear who in KKL-JNF approved the transfer of funds to these
organizations: who decided which organizations will make the list; who set
the budgets that will be allocated to them; and who supervised the
utilization of funds provided by KKL-JNF to these organizations, as detailed
below.
A. Applying for KKL-JNF Allocation
As part of the audit, the Office of the Comptroller approached various
persons in KKL-JNF to examine how organizations contacted KKL-JNF.
Findings were as follows:
For Group A organizations, KKL-JNF stated that these organizations were
not required to submit a formal application for fund allocations, as part of
KKL-JNF’s purpose is to support Zionist activities carried out by Zionist
entities and organizations, particularly the National Institutions, which are
aware of the support offered by KKL-JNF.
The Office of the Comptroller did not find any application by the
Federation of Local Authorities for funds transferred by KKL-JNF to
that organization in 2013 and 2014.
Furthermore, KKL-JNF provided the Office of the Comptroller with older
applications, dated 2011, for Hachsharah in Masada and the March of the
Living. These are not relevant for the 2013-2014 budget, which is the focus
of the present audit report.
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B. Preliminary Assessment
The Office of the Comptroller sought to examine whether KKL-JNF
assesses the organizations to which it will transfer funds, prior to deciding
whether to work with them (e.g. – assessing financial stability, legal
standing, etc.).
The Office of the Comptroller could not find that KKL-JNF conducted
all the necessary examinations to assess the ability of supported
organizations to meet their obligations towards KKL-JNF prior to
partnering with them.
The Office of the Comptroller recommends that a procedure be formulated
detailing the actions and examinations required of KKL-JNF prior to
signing collaborative agreements with third parties.
C. Criteria
The Office of the Comptroller sought to examine what criteria the decision-
makers use in determining which organization will receive financial support
under the Joint Programs with Organizations item. Findings were as
follows:
The Office of the Comptroller could not find clearly-defined criteria
(mainly in joint programs with organizations) which aid KKL-JNF’s
decision-makers in deciding which organizations will receive financial
support, the nature of the supported activities, the manner in which the
amount of such support is determined for each organization each year,
or the manner in which the nature of the organization’s collaboration
with KKL-JNF and its actual implementation are assessed.
KKL-JNF stated in response that, following the Office of the
Comptroller’s comment, and as part of KKL-JNF’s adaptations
following its registration as a community interest company,
KKL-JNF will act to establish a mechanism for setting criteria
for its financial support process and these criteria will be
published in the upcoming “Allocations” procedure.
411
D. Decision-Making
The Office of the Comptroller sought to examine the decision-making
process concerning Joint Programs with Organizations, to which KKL-JNF
provides funds each year. Findings were as follows:
The Office of the Comptroller contacted various persons in KKL-JNF to
identify who decided which organizations will receive financial support
from KKL-JNF under this budget item.
The Office of the Comptroller met with the two deputy chairmen, the
chairman of the Board Finance Committee, KKL-JNF’s CEO, and the
director of the Finance and Economics Division.
The Office of the Comptroller found that none of the above persons knew
how organizations were selected to receive funds from KKL-JNF in 2012-
2014 under the Joint Programs with Organizations budget item.
The Office of the Comptroller could not find who in KKL-JNF decided the
monetary amount received by each organization in these years.
The Office of the Comptroller could not find any documentation of a
decision concerning the list detailing the budgeted amounts for the various
organizations. There is no documentation of discussions on this matter by
the Hanhalah Metzumzemet or the Finance Committee. Nor is there
documentation of any inquiries made with relevant personnel in KKL-JNF
to examine the nature of KKL-JNF’s collaboration with these organizations.
KKL-JNF stated in response that three of the programs were
designated “joint ventures”. Thus, the decision concerning these
programs was made by the Tenders Committee, according to the
tender requirement regulations adopted by KKL-JNF, in
addition to its statutory obligation, as follows:
Tractor Museum – NIS 500,000, December 2013. World Ezra Movement – NIS 1,500,000, November 2013. Israel Communities Klitah Association – (unstated amount),
August 2014.
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The Office of the Comptroller found that the Tenders Committee approved
an allocation of NIS 1,500,000 to the Ezra Movement. In practice, however,
KKL-JNF transferred a total of NIS 2,250,000 to Ezra (see above table in
the chapter concerning the budget).
The Office of the Comptroller recommends the director of the Finance
and Economics Division examine why KKL-JNF transferred the Ezra
movement an amount exceeding that approved by the Tenders
Committee, and why the amount of KKL-JNF’s support of the Ezra
Movement, as determined by the Tenders Committee, does not match
the amount allocated to Ezra under the Joint Programs with
Organizations item (See above table in the chapter concerning the
budget).
In conclusion, the Office of the Comptroller recommends that KKL-
JNF establish a formal procedure regulating the entire decision-making
process for joint programs with third-party organizations.
KKL-JNF stated in response that a professional team has
started working to formulate an official, detailed procedure
for granting support and budget allocations. The matter is
included in the 2015 work plan.
KKL-JNF also stated that, since registering as a community
interest company in September 2014, it is subject to strict
rules concerning support and budget allocations.
Budget Approval
The Joint Program with Third-Party Organizations budget item was
approved by KKL-JNF’s Board of Directors as part of KKL-JNF’s annual
budget. The budget totaled NIS 86,000,000 in 2013, and NIS 105,000,000 in
2014.
It is noted that the Board was presented with the total amount designated for
WZO, and the total amount designated to all other organizations.
411
In 2014, after increasing the budget for other (non-WZO) organizations by
NIS 17,800,000 as compared to 2013, the Board asked for additional details.
The director of the Finance and Economics Division presented to the Board
only those organizations which would receive additional budgeting, and the
amount that each organization would receive, as an additional amount, of
the NIS 17,800,000.
The Office of the Comptroller notes that at no point did the Board receive
the full list of all organizations budgeted under the Joint Programs with
Organizations item, or the full amount that each organization would receive
from KKL-JNF in 2013-2014.
KKL-JNF stated in response that the upcoming procedure will
require that all Board members receive the full list of KKL-JNF-
supported organizations, in advance. Such list will include the
relevant amounts and a summary of each organization’s
activities.
The chairman of the Finance Committee informed the Office of the
Comptroller that the full list of all organizations and the amounts that they
are to receive from KKL-JNF was presented to the Finance Committee by
the Hanhalah Metzumtzemet. The Finance Committee approved the list as-
is, without discussion.
However, when the Office of the Comptroller presented to the two deputy
chairmen, who are Hanhalah Metzumtzemet members, the list of
organizations supported by KKL-JNF under the Joint Programs with Third-
Party Organizations item, they told the Office of the Comptroller that they
are not familiar with some of the organizations, or the amounts designated
by KKL-JNF for these organizations, and that they had never participated in
determining the scope of the support for these organizations and in a
decision to provide them with KKL-JNF funds.
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The Office of the Comptroller asked for the Hanhalah Metzumtzemet
minutes to examine whether it discussed the list of supported organizations
and the scope of their support from KKL-JNF.
The secretary of KKL-JNF’s Hanhalah stated in response that the decisions
concerning the Joint Programs with Organizations item were not made by
the Hanhalah Metzumtzemet, and so there are no relevant minutes in the
database of Hanhalah decisions.
Contracts Between KKL-JNF and the Organizations
As part of the audit, the Office of the Comptroller sought to examine KKL-
JNF’s contracts with partner organizations which received KKL-JNF funds
in 2013-2014. Findings were as follows:
The Office of the Comptroller found that KKL-JNF signed only 7
collaboration agreements with organizations receiving funds from KKL-JNF
in 2013 and 2014.
KKL-JNF only signed agreements with the following organizations:
Agreement with WZO for 2012-2015; agreement for 2014 with the Platoons
of the Wall Museum, Hashomer Hachadash, the Israel Communities Klitah
Association, and the Walk of the Living. Furthermore, an agreement was
signed with the Local Authorities Federation for 2014, and an agreement
was signed with Biblical Wine Research for 2014-2015.
KKL-JNF has not signed agreements with the following organizations for
2013-2014: The Jewish Agency (for Aliyah and environmental programs); WZO (for
educational activities and expanding cooperation with WZO); the Zionist
Council; Zionist unions, Zionist organizations; Zionist youth movements;
Limud; MASA and Birthright; religious organizations and streams; transfers
to the Local Authorities Federation in 2013; the Tel Aviv University; and
Hachsharah in Masada. The Office of the Comptroller received unsigned
411
agreements with the Tractor and Yeshuv History Museum and with the Ezra
movement.
The Office of the Comptroller notes that, as no agreements have been signed
between KKL-JNF and these organizations in 2013-2014, the Office of the
Comptroller is unable to examine the contractual terms, including: it is not
possible to examine the nature of KKL-JNF’s collaboration with the
organizations, or the consideration received by KKL-JNF; it is not
possible to examine the purpose of KKL-JNF’s financial support, or the
amount provided by KKL-JNF; it is not possible to examine if the
organizations are required to report on their use of KKL-JNF funds; nor
is it possible to know what the parties agreed upon in the event that one of
the parties failed to meet its obligations.
The Office of the Comptroller recommends that KKL-JNF’s CEO
urgently sign agreements formalizing KKL-JNF’s interaction with all
organizations receiving KKL-JNF funds.
KKL-JNF’s response concerning agreements with third-party organizations
was as follows:
Jewish Agency – KKL-JNF stated in response that, should
this program continue, an agreement will be signed in the
future.
Zionist Council – KKL-JNF stated in response that an
agreement will be signed in the future with Osim Tzionut
Association.
Zionist unions, organizations, and youth movements – KKL-
JNF stated in response that funding is intended to support
ongoing operational needs, without receiving any services or
other consideration from the organizations. Thus, the
relations with these organizations were not formalized
through an agreement.
411
KKL-JNF added that, following the Office of the
Comptroller’s comment, in the future it will consider making
its financial support to unions, organizations and movements
contingent on a signed agreement and regular reporting to
KKL-JNF on the utilization of its funds. KKL-JNF stated that
this matter will be submitted for review by KKL-JNF
External Audit Committee.
Tours, delegations and leadership for raising awareness of
KKL-JNF’s activities – KKL-JNF stated in response that, in
practice, funds were not transferred to third-party
organizations, but used for KKL-JNF’s ongoing operational
needs. Thus, KKL-JNF will consider transferring this item to
another budget, as it does not fall under Joint Programs with
Organizations.
Limud – KKL-JNF stated in response that it will act to draft
an agreement in the future.
MASA and Birthright – KKL-JNF stated in response that it
funds one days’ study, in KKL-JNF facilities, as part of the
itinerary for Jewish youths from the Diaspora visiting Israel
under the MASA and Birthright programs. In the future,
KKL-JNF will act to formalize this engagement through a
written agreement.
Religious streams – KKL-JNF stated in response that it
believes it is not necessary to sign agreements with the
religious streams, as financial support is not provided for any
consideration. KKL-JNF added that, following KKL-JNF’s
registration as a community interest company, it will check
whether it is legally possible to continue funding these
streams. If such support is approved, KKL-JNF will consider
requiring the streams to sign a written agreement. KKL-JNF
added that this matter will be formalized through an
upcoming procedure regulating support for religious
streams.
411
The Office of the Comptroller notes that KKL-JNF’s response that it is not
necessary to sign agreements with religious streams contradicts a decision
made by KKL-JNF’s Committee for Allocations to Religious Streams,
which as early as 2009 determined that “A binding agreement will be signed
with the religious streams, and payment will be made according to
milestones set in the approved plan and based on the agreement signed by
the parties”.
Transfers to the Local Authorities Federation – KKL-JNF
stated in response that these funds are transferred to the
local authorities for Tu Bishvat plantings, courses, field trips,
International Anti-Littering Day, etc. In its response, KKL-
JNF included the agreement for 2014.
The Office of the Comptroller notes that the agreement with the Local
Authorities Federation for 2014 was signed with significant delay, in
October 2014. Furthermore, the Office of the Comptroller did not receive
the agreement for 2013, for which KKL-JNF transferred a total of NIS
210,000 to the Local Authorities Federation.
Biblical Wine Research – KKL-JNF stated in response that
this is a research program focusing on identifying grape
varieties used for wine-making in ancient times in Israel,
which will be presented in the 2015 Expo in Italy. In its
response, KKL-JNF included the agreement for 2014-2015.
The Office of the Comptroller notes that there is no date indicating when the
Biblical Wine Research agreement was signed. Thus, it is not possible to
know when the agreement was actually signed.
Ezra movement – KKL-JNF stated in response that this
program comprises collaboration with the global youth
movement Ezra, for encouraging Jews from former Soviet
countries to make Aliyah and settle in the Negev and the
Galilee. The program was launched in 2013. In its response,
KKL-JNF included the relevant agreement.
411
The Office of the Comptroller notes that the agreement with the Ezra
movement states that it is for a period of 17 months. However, the dates
listed in the agreement are only for an 8-month period, from December 1
through July 31, 2014. Thus, there is a contradiction between the
agreement’s term and the dates listed in the agreement. The Office of the
Comptroller further notes that the agreement was not signed by KKL-JNF.
Communities Organization – In its response, KKL-JNF
provided the agreement signed with the Israel Communities
Klitah Organization for 2014. KKL-JNF stated that the
program seeks to identify and screen families from France
and French-speaking countries with potential to make
Aliyah, provide them with information on Israel, and support
them throughout the Aliyah process and assist them
following their Aliyah.
The Office of the Comptroller found that the agreement with Israel Klitah
Organization for 2014 was signed with delay, on September 10, 2014, and
will expire at the end of 2014.
Appendix A to the agreement with the Israel Communities Klitah
Organization stipulates: “KKL-JNF will share in the program’s costs to a maximum amount of NIS
400,000, provided that this amount will constitute less than 50% of the
program’s overall cost”. It is further stipulated that, in October 2014, KKL-
JNF will only transfer NIS 200,000, with a further NIS 200,000 to be
transferred on December 31, 2014, provided the program’s expenses have
exceeded a total of NIS 800,000.
However, the Office of the Comptroller found that, contrary to the
agreement, KKL-JNF transferred a larger amount than specified to the Israel
Communities Klitah Organization. In 2014, KKL-JNF transferred a total of
NIS 481,580 to the organization (see table above in the ‘Budget’ chapter ).
The Tel Aviv University National Collection – KKL-JNF
stated in response that it budgeted its share in building a
museum in the Tel Aviv University. As no progress was made
411
in the project, KKL-JNF did not transfer the allocated funds.
Only recently was any progress made, and an agreement is
expected to be signed with the University.
The Office of the Comptroller believes that the agreement with the Tel Aviv
University should have been signed prior to budgeting the project.
ECJC – KKL-JNF stated in response that, in 2013, the
organization was erroneously included under the Joint
Programs with Third-Party Organizations budget item. No
funds were transferred to the organization in 2013 and 2014.
Hachsharah in Masada – KKL-JNF included the agreement
for 2015.
Tractor and Yeshuv Museum – KKL-JNF included the
agreement for 2014.
The Office of the Comptroller notes that the agreement with the Tractor and
Yeshuv Museum was not signed by KKL-JNF.
KKL-JNF’s agreement with Hashomer Hachadash for June through
December 2014 includes a commitment by KKL-JNF to provide the
organization with NIS 2,500,000.
The Office of the Comptroller found that the amount specified in the
agreement does not match the amount specified in the budget – only NIS
600,000 (see above table in the ‘Budget’ chapter).
KKL-JNF also provided the Office of the Comptroller with a “call for bids”
published on its website concerning its contract with Hashomer Hachadash,
in which it stated that organizations seeking to conduct similar programs
should contact KKL-JNF by September 1, 2014.
The Office of the Comptroller questions the benefit of allowing other
organizations to apply to KKL-JNF by September 1, 2014, when in
practice KKL-JNF had already signed an agreement with Hashomer
Hachadash three months earlier, in June 2014.
414
Monitoring Compliance with the Organizations’
Commitments Towards KKL-JNF
The Office of the Comptroller sought to examine who in KKL-JNF is
charged with monitoring the organizations’ compliance with their
obligations, after receiving KKL-JNF funds in 2013-2014.
The Office of the Comptroller found that only three of the seven signed
agreements specified the person in KKL-JNF who will oversee the
agreement.
However, in the three agreements which specified a specific point of contact
(Israel Communities Klitah, Local Authorities Federation, and Biblical
Wine Research), the Office of the Comptroller could not establish whether
KKL-JNF actually checked if these organizations complied with their
contractual terms.
The Office of the Comptroller recommends that KKL-JNF appoint a
specific person to serve as point of contact, and who will regularly
monitor compliance with agreements, including compliance with the
organizations’ commitments towards KKL-JNF as part of their
collaboration. Such person will also examine the periodic reports
provided by these organizations, and will approve such reports prior to
KKL-JNF transferring the allotted funds.
KKL-JNF stated in response that in September 2014, it
appointed a full-time employee in the Tenders and Contracts
Division, who will supervise all the above activities from
start to finish. He will be charged with obtaining the required
documents, signing contracts, supervision and compliance,
approving payments as service recipient according to the
contractual schedules, issuing ongoing reports and
summaries.
411
Reporting on the Utilization of KKL-JNF Funds
The Office of the Comptroller sought to examine the organizations’ use of
the funds received from KKL-JNF in 2013-2014.
In four of the seven agreements that were signed, the Office of the
Comptroller found that KKL-JNF required organizations to submit reports.
In some cases, organizations were required to report on their use of funds
provided by KKL-JNF, and in others they were required to report on the
project’s progress.
In response, KKL-JNF provided the 2013 financial statements for
Osim Tzionut. KKL-JNF also included a 2014 trial balance sheet for
Israel Communities Klitah.
KKL-JNF also included verbal reports on the following
organizations’ general activities: Limud program for 2014; Ezra
movement (for the first half of 2014); and Biblical Wine Research
program for 2014.
The Office of the Comptroller emphasizes that annual financial
statements and verbal reports on an organization’s overall activities do
not attest to the manner in which the funds that the organization
received from KKL-JNF were used. The required reporting is on the
utilization of the funds received by the organization from KKL-JNF,
for the joint program, and the organization’s auditor should approve
such report by signing it.
KKL-JNF stated in response that, although the agreement with WZO
does not require any verbal or financial reporting, KKL-JNF
repeatedly requested that WZO report on its use of the funds
provided under the agreement. However, WZO only provided KKL-
JNF with partial reports.
KKL-JNF added that, following its registration as a community
interest company, WZO accepted KKL-JNF’s demands and
undertook to provide detailed reports. KKL-JNF stated that it plans
to make the agreement’s continuation contingent on a written,
unequivocal obligation to report to KKL-JNF.
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The Office of the Comptroller recommends that KKL-JNF formalize
reporting requirements in an official procedure and in the agreements
with the various organizations. Reports should be submitted quarterly,
and should include details on activities and the utilization of funds
received from KKL-JNF.
KKL-JNF added in response that, as of current, management had
instructed that KKL-JNF’s agreements should include reporting
requirements concerning activities and expenditure under the joint
program or pursuant to KKL-JNF’s financial support. A KKL-JNF
employee will be appointed as a point of contact for monitoring and
supervising compliance. Furthermore, in the future, this issue will be
regulated under the Contracts Procedure and the upcoming
Allocations Procedure.
The Office of the Comptroller further recommends that, each quarter,
the chairman of the Finance Committee, together with the director of
the Finance and Economics Division, provide the Board of Directors an
operational report and an expenditure report, detailing the utilization
of funds provided by KKL-JNF to these organizations.
Transferring KKL-JNF Funds to Organizations
Each fiscal quarter, the director of the Finance and Economics Division
transfers to the organizations about one fourth of their allocated amount
under the Joint Programs with Third-Party Organizations budget item.
As aforesaid, transfers are made even though no agreements were signed
with the majority of the organizations, without KKL-JNF monitoring the
organizations’ compliance as far as required activities, and without
receiving reports on the utilization of funds received from KKL-JNF.
The Office of the Comptroller recommends that both formal
procedures and the agreements with the organizations specify that
KKL-JNF’s payments will be made according to progress milestones set
out in the agreement between the parties.
411
In conclusion, in 2013 and 2014, KKL-JNF transferred significant
funds to various organizations, without even a rudimentary decision-
making process, without signing agreements with most organizations,
without applying any control over compliance, and without examining
the organizations’ utilization of funds received from KKL-JNF.
Funding for WZO Organizations
Introduction
In an internal document from 2012, KKL-JNF established its policy
concerning budget allocations to WZO organizations.
KKL-JNF prepared a spreadsheet to aid in calculating these allocations, as
follows (in NIS):
Unions Seats Share
(%)
Budget Adjustment
to streams
Adjustment
to
organizations
Adjustment
to youth
movements
Annual
payment
Kadimah 85 3131 53,6355 ,,6555 5356355
World MERCAZ 57 33 15,6155 5556555 (-) 3156555 316555 376855 (- )
Labor 53 837 1586,55 3,16555 55,6,55
Meretz 1, 535 3856,15 ,,6555 1856,15
Arzenu 71 3538 5,76585 5556555 (-) 3156555 576555 3,,6585
Likud 8, 3535 5586155 136555 5876155
Mizrachi 7, 3,315 5356,17 5156555 (-) 3156555 31,6555 11,6,17
Yisrael Beytenu 11 , 3,56555 3,56555
Herut 5 5385 116731 116731
Confederation 37 135 3586,55 3586,55
Shas 15 137 3156,55 3156,55
Habait Hayehudi 5 53, 176585 176585
Ichud Le’umi 8 331 536185 536185
Total ,27 011 2509,5111 0512,5111(-) 2315111 ,305111 253905111
(*) Note: In 2012, the amount for calculating adjustment for religious streams included NIS
1,425,000 out of NIS 1,500,000, following the transfer of NIS 75,000 that year to the World
Sephardi Federation. Thus, the basis for calculation in 2012 was NIS 3,175,000 instead of
NIS 3,250,000 (NIS 1,750,000 + NIS 1,425,000)
415
At the same time, KKL-JNF’s ERP system lists the WZO organizations and
their respective allocations, as follows (in NIS):
2102 2101
Zionist unions 368556555
Zionist organizations 361156555 16,856555
Zionist youth movements ,556555
Religious streams 365556555 365556555
Total ,50915111 ,50915111
World Zionist Unions
A. Budget allocation across unions
The Office of the Comptroller sought to examine the manner in which
KKL-JNF implements the policy established in its internal document
concerning allocations to Zionist unions. Findings were as follows:
The aforesaid document, drafted in 2012, states that “The organizations
comprising WZO’s World Zionist Union will be budgeted pro rata to these
organizations’ representation in the World Zionist Congress as per the most
recent elections to the World Zionist Congress. This, similar to the manner
in which these organizations are budgeted by WZO.” It was further
determined that “Budgeting for organizations comprising the World Zionist
Unions will take into account the budgets provided to religious
organizations by KKL-JNF’s Allocations to Religious Organizations
Committee.”
Thus, the internal document indicates a budget allocation policy whereby
the amount designated to Zionist unions (totaling NIS 1,750,000) and the
amount designated for religious streams (NIS 1,500,000) are jointly
distributed to unions and streams pro rata to their representation in the
Congress. Thus, the total distributable amount equals NIS 3,250,000 per
annum.
411
However, the budget item in KKL-JNF’s ERP system states that only NIS
1,750,000 will be distributed across all unions.
The result of the differences between these two sources is a significant
monetary gap in the designated budget for each of the Zionist unions.
Furthermore, according to the policy specified in the internal document
regulating the distribution of the allocated budget, NIS 1,500,000 should be
offset from the three religious unions: Mizrachi, World MERCAZ and
Arzenu.
However, this offset is not reflected in the budget items (see table above).
On the contrary: the three unions – Mizrachi, World MERCAZ, and Arzenu
– are to receive their share of the NIS 1,750,000 as Zionist unions and in
addition their associated religious streams (Orthodox Synagogues and
Communities Organization, Masorti Olami, and the Movement for
Progressive Judaism) are to receive their share of the NIS 1,500,000.
Thus, on the one hand KKL-JNF allocated fixed and separate amounts to
unions, organizations, youth movements and religious streams; while on the
other hand, the spreadsheet in KKL-JNF’s internal document combines the
weighed amounts, while offsetting them against each other.
There is thus a contradiction between the fund distribution policy as
indicated by KKL-JNF’s internal document, and the manner in which funds
are allocated to religious organizations and unions as presented in the Joint
Programs with Organizations budget item.
The fact that budget items do not reflect the approved payment policy
renders the budget book ineffective as a tool for budgetary control and
management.
In practice, KKL-JNF’s Budgets Division budgeted the Zionist unions
according to the offsetting policy established in KKL-JNF’s internal
document. Thus, the allocation made to the three union’s religious
organizations was offset from their overall budget.
411
The Office of the Comptroller recommends that the director of the
Finance and Economics Division present, under the budget items, the
allocations to unions, organizations, youth movements and religious
streams in a manner consistent with the budgeting policy as specified in
the internal document (weighting and offsetting).
The Office of the Comptroller notes that the internal document establishing
KKL-JNF’s policy for allocating funds to WZO-member organizations does
not constitute an official KKL-JNF procedure. It does not indicate who
wrote the guidelines, or when they were written. Nor does it indicate who is
responsible for updating the document and when the policy went into effect.
Thus, the Office of the Comptroller recommends that the CEO
formalize the policy for allocating funds to WZO-member
organizations – under an official KKL-JNF procedure.
The Office of the Comptroller further recommends that the policy for
dividing budgets across the WZO-member organizations be phrased
more clearly – under the new procedure.
The Office of the Comptroller found that KKL-JNF’s internal document
regulating budget allocations to WZO-member organizations makes no
mention to the utilization of such budgets. KKL-JNF has not specified what
goals should be supported by the funds provided to these organizations
(unions, organizations, youth movements, and religious streams).
KKL-JNF stated in response that funds provided to the
Zionist organizations support their ongoing operational
needs, and Zionist activities in Israel and in the Zionist
federations around the world.
The Office of the Comptroller notes that KKL-JNF did not require these
organizations to report on their use of its funds.
The Office of the Comptroller believes that it is improper for KKL-JNF
to provide organizations budgets without specifying what goals such
funds should support and without requiring the organizations to report
on their utilization.
411
B. Erroneous Budgeting for the Zionist Unions in 2012-2014
As aforesaid, KKL-JNF’s internal document governing allocations to
unions states that “Organizations comprising WZO’s World Zionist
Unions will be budgeted pro rata to these organizations’ representation
in the World Zionist Congress as per the most recent elections to the
World Zionist Congress. This, similar to the manner in which these
organizations are budgeted by WZO.”
At the closing of the Zionist Congress, WZO announces the number of
seats held by each of the Zionist unions, and this is the binding list.
KKL-JNF’s internal document includes a list of the number of seats held
by each union.
The Office of the Comptroller found that the number of seats listed
in KKL-JNF’s internal document differs from the number of seats
as announced by WZO.
The following table compares the unions’ representation in the 36th
Zionist Congress, as listed in the two sources:
World Zionist Unions As per
WZO
As per
KKL-JNF
World Mizrachi 94 43
Arzenu 94 42
World Likud 93 93
Kadimah World Movement – Hanoar Hatzioni 91 91
World MERCAZ ,4 ,4
World Labor Zionist Movement (World Zionist Union) 13 10
World Union of Meretz 2, 27
Yisrael Beytenu 22 22
Shas 21 21
Confederation 07 04
Ichud Le’umi - 9
World Herut 02 1
Habait Hayehudi - ,
Total ,2, ,27
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The Office of the Comptroller found that, except for four unions, the
number of seats for all other Zionist unions was listed erroneously in
KKL-JNF’s records, and does not match the official number of seats
announced by WZO at the end of the 36th
Zionist Congress.
(1) The number of seats held by each of the Zionist unions
As aforesaid, KKL-JNF calculated its allocations to the Zionist unions using
an erroneous list of seats held by each of the unions.
For example: KKL-JNF calculated its allocation to “World Meretz” based
on 29 seats, instead of 35; allocations to the Labor’s World Zionist Union
was based on calculations using 41 seats instead of 46. The same goes for
additional unions such as: World Mizrachi, Arzenu, Yisrael Beytenu,
Confederation, Ichud Le’umi, World Herut, and Habait Hayehudi.
As KKL-JNF used an erroneous list of the number of seats held by each
of the unions, in 2012-2014 the unions did not receive the right amounts
from KKL-JNF, to which they would have been entitled according to
their respective seats in the Congress.
(2) The overall number of seats of all Zionist unions together
According to the list circulated by WZO to the unions, there are a total of
525 seats. However, according to KKL-JNF’s list, the unions hold a total of
529 seats in the Zionist Congress.
In practice, KKL-JNF calculated its allocations to the unions based on a
total of 529 seats instead of 525. In other words, instead of 100% of the
budget being divided amongst 525 seats, it was divided amongst 529.
As a result, KKL-JNF’s allocations to unions in 2012-2014 was wrong
and does not reflect their respective representation in the 36th
Zionist
Congress.
The Office of the Comptroller recommends that the director of the
Finance and Economics Division obtain from WZO the accurate list of
seats held by each union, and budget the Zionist unions accordingly.
411
KKL-JNF stated in response that, in September 2014, near
KKL-JNF’s registration as a community interest company, it
suspended the transfer of funds to WZO and to National
Institution member organizations, pending a thorough
examination and adequate preparations. This issue is to be
discussed by the External Audit Committee appointed by
KKL-JNF’s general meeting. If approval is given to continue
supporting these organizations, KKL-JNF will consider the
possibility of making offsets and additions to future payments,
to compensate for errors in past support.
C. Amounts Actually Transferred to Unions
The following table details the amounts actually transferred by KKL-JNF to
the Zionist unions (in NIS):
Zionist Union Seats
(KKL
figures)
Share
(%)
Annual
KKL
budget
Trans-
fers for
2012 (*)
Trans-
fers for
2013
Trans-
fers for
2014
Kadima 85 3131 53,6355 53,6355 53,6355 53,6355
World MERCAZ (Conservative) 57 33 15,6155 – – 1556555
Labor World Zionist Union 53 837 1586,55 – 7,6,15 ,556755
Meretz 1, 535 3856,15 – 3856,15 3856,15
Arzenu (Reform) 71 3538 5,76585 – – –
Likud 8, 3535 5856155 5856155 5856155 5856155
Mizrachi (Orthodox) 7, 3,315 5356,17 55,6877 55,6877 1536877
Yisrael Beytenu 11 , 3,56555 3,56555 3,56555 3,56555
Herut 5 5385 116731 116731 116731 116731
Confederation 37 135 3586,55 3586,55 3586,55 3586,55
Shas 15 137 3156,55 3156,55 3156,55 3156,55
Habait Hayehudi 5 53, 176585 – – –
Ichud Le’umi 7 331 536185 – – –
Total ,27 011 250725111 059115111 2511,52,1 253375191
(*) Budgets for 2012 were actually transferred in 2013.
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As aforesaid, KKL-JNF prepared a spreadsheet calculating its budget
allocations to the unions. The overall allocable amount including the NIS
1,750,000 for the unions, as well as the NIS 1,500,000 for religious streams.
A sum of NIS 75,000 – transferred to the World Sephardi Federation in
2012 – was deducted from the overall amount of NIS 3,250,000. Thus, the
total allocable amount was NIS 3,175,000 (see table above).
The budget for 2012 (two-year budget for 2012-2013) was approved by the
Board of Directors with delay, in November 2012. However, it is unclear
why budget transfers to unions for 2012 were made five months after the
budget’s approval, in April-May 2013.
The Office of the Comptroller examined the amounts actually transferred to
the Zionist unions in 2012-2014, which exceed the amount budgeted by
KKL-JNF. Findings were as follows:
Meretz
The table indicate that Meretz’s union did not receive its allotted NIS
174,625 for 2012.
Labor
Following the political split in the Labor party and the formation of
Atzmaut, the Labor Zionist union found itself in a unique position where it
could not obtain a proper conduct certificate. Thus, KKL-JNF could not
transfer the allocated funds to the union.
In 2012, KKL-JNF erroneously transferred NIS 162,000 to the union, and
then demanded the amount be returned. The said amount was returned to
KKL-JNF in August 2014.
In August 2010, a new non-profit was established – The Labor’s World
Zionist Union– Brit Etz, which at the time of the audit did not hold a proper
conduct certificate.
411
Thus, the chairman of the non-profit and the chairman of the political party
requested that KKL-JNF transfer the amount allotted to the union for 2012-
2015 to the Labor’s non-profit – Labor Zionist Alliance in the USA.
In 2013 and 2014, KKL-JNF did, indeed, transfer the full amount allotted
for 2012, 2013 and 2014 to the non-profit’s overseas bank account.
The Office of the Comptroller believes that the allocated budgets should
not have been transferred directly to a third party, even at the request
of the supported organization, as the said third party constitutes a
separate legal entity.
Mizrachi
WZO stated that, according to the results of the 36th
Zionist Congress,
Habait Hayehudi and Ichud Le’umi were counted together with the Mizrachi
union. Thus, the three unions held a total of 78 seats.
However, as the table indicates, KKL-JNF budgeted each of the three
unions separately as follows: Mizrachi 86 seats, Habait Hayehudi 5 seats,
Ichud Le’umi 7 seats. Thus, their cumulative number of seats (a total of 98
seats) was used in KKL-JNF’s budgeting calculations.
This distorted the budget allocations to all Zionist unions in 2012, 2013
and 2014.
This means that budget allocation payments to all unions in 2012-2014
were wrong.
Moreover, emails exchanged between the Budgets Division and World
Mizrachi on August 26 and September 2, 2014, indicate that KKL-JNF’s
allocated budget for Habait Hayehudi (NIS 28,575) and for Ichud Le’umi
(NIS 41,275) were transferred to Mizrachi in 2012-2014 in addition to the
amount allocated to Mizrachi.
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In other words, in these two years, KKL-JNF overpaid Mizrachi by a total
of NIS 209,550.
The Office of the Comptroller recommends that the director of the
Finance and Economics Division examine why the spreadsheet
budgeted the unions (Habait Hayehudi and Ichud Le’umi) separately,
even though they were associated with Mizrachi’s union.
The Office of the Comptroller further recommends that KKL-JNF
consider requiring World Mizrachi to return KKL-JNF’s over-
payment of NIS 209,550 for 2012-2014.
The Office of the Comptroller recommends that the director of the
Finance and Economics Division re-budget the unions based on their
actual number of seats, taking into account Mizrachi, Habait Hayehudi,
and Ichud Le’umi’s consolidation.
Three of the Zionist union are also associated with a religious stream,
organization, Hagshama movement, and a youth movement.
As aforesaid, KKL-JNF’s internal document states: “Budgeting for
organizations comprising the World Zionist Unions will take into account
the budgets provided to religious organizations by KKL-JNF’s Allocations
to Religious Organizations Committee.”
Thus, the Office of the Comptroller examined the budget prepared by KKL-
JNF and the amounts transferred to these three unions in 2012-2014.
411
The following table details the budgets allocated to the three unions, as
presented in the spreadsheet prepared by KKL-JNF in 2012 (in NIS):
Union Seats Represen-
tation in
Congress
(%)
Union
budget-
ing
Adjust-
ment for
streams
Adjustment
for
organizations
Adjustment
for youth
move-ments
Annual
payment
Arzenu 71 3538% Arzenu
5,76585
TELEM (*)
(5556555-)
Reform
3156555
Netzer
Olami
576555
3,,6585
World
MERCAZ
57 33% World
MERCAZ
15,6155
Masorti
Olami
(5556555-)
Conservative
3156555
Hazit Hanoar
316555
(376855-)
Mizrachi 7, 3,315% Mizrachi
5356,17
(5156555-) Orthodox
3156555
Bnei Akiva
31,6555
11,6,17
(*) TELEM – Movement for Progressive Judaism
Arzenu
The Arzenu union is a Reform Judaism organization. The overall (gross)
annual budget prepared by KKL-JNF amounted to NIS 666,475, comprised
of NIS 498,475 for Arzenu + NIS 120,000 for the Reform Judaism
organization + NIS 48,000 for the Netzer Olami youth movement, operating
under the Tamar Hagshama movement.
Of these NIS 666,475, a total of NIS 500,000 are transferred to the religious
organization Movement for Progressive Judaism (“TELEM”), as dictated by
the internal document.
Thus, KKL-JNF’s remaining annual balance totals NIS 166,475 (see table
above).
In practice, of the annual payable amount, KKL-JNF transferred NIS 48,000
to the Netzer Olami youth movement. Thus, the remaining balance is NIS
118,475 each year for the Arzenu union.
415
The Office of the Comptroller found that the annual payable balance of NIS
118,475 was not transferred to the Arzenu union. Instead, it was
transferred to the religious organization Movement for Progressive
Judaism each year (2012, 2013, and 2014).
In other words, contrary to the policy that budgets be provided to the unions,
the Arzenu union did not receive any funds from KKL-JNF. Furthermore,
instead of the religious organization receiving NIS 500,000, it received an
additional NIS 118,475 from KKL-JNF each year. In other words, the
Reform Judaism religious organization received NIS 618,475, instead of
NIS 500,000.
The Office of the Comptroller notes that, in so doing, KKL-JNF breached
its own policies, whereby allocations to religious organizations will be equal
(to the amount of NIS 500,000) while allocations to unions will be based on
the number of seats.
The Office of the Comptroller recommends that the director of the
Finance and Economics Division examine why, in 2012, 2013 and 2014,
the annual payable balance of NIS 118,475 was transferred to the
Movement for Progressive Judaism religious organization, and not to
the Arzenu union.
World MERCAZ
The World MERCAZ union is a Conservative Judaism organization. The
overall (gross) budget totals NIS 481,250, comprising NIS 349,250 for the
World MERCAZ union + NIS 120,000 for the Conservative Judaism
organization + NIS 12,000 for the Hazit Hanoar youth movement, a part of
the Marom Hagshama movement.
Of the NIS 481,250, a sum of NIS 500,000 is transferred to the Masorti-
Olami religious organization, as specified in the internal document.
As a result, the annual amount that KKL-JNF needs to transfer is negative –
NIS (18,750) (see table above).
411
The Office of the Comptroller questions how KKL-JNF budgets its
allocation to the World MERCAZ union as a negative amount.
As KKL-JNF budgeted a negative amount in 2012 and 2013, KKL-JNF did
not actually transfer any funds to the World MERCAZ union, nor to the
Hazit Hanoar youth movement.
The Office of the Comptroller recommends that the director of the
Finance and Economics division examine how KKL-JNF budgets its
annual allocation to the World MERCAZ union as a negative amount
of NIS (18,750).
Mizrachi
The Mizrachi union is an Orthodox Judaism organization. The overall
(gross) annual budget allocated by KKL-JNF in 2012 amounted to NIS
761,938, comprising NIS 515,938 for the Mizrachi union + NIS 120,000
for the Orthodox Judaism organization + NIS 126,000 for the Bnei
Akivah youth movement, a part of the Magshimei Torah Ve’avodah
movement.
In 2012, of these NIS 761,938, a total of NIS 500,000 was transferred to
the Orthodox organization as follows:
NIS 230,000 for Torah Me’zion
NIS 195,000 for World Organization of Orthodox Synagogues and
Communities
NIS 75,000 for World Sephardi Federation
Of the NIS 761,938, a total of only NIS 425,000 was offset from the
Mizrachi union, which were transferred to the organizations Torah
Me’zion and World Organization of Synagogues (instead of offsetting
NIS 500,000).
411
According to KKL-JNF’s table, the annual amount that KKL-JNF needs
to transfer is NIS 336,938 (see table above).
As aforesaid, in 2012, the World Sephardi Federation, as an Orthodox
Judaism organization, received NIS 75,000. In other words, KKL-JNF
transferred the full NIS 500,000 to the Orthodox stream.
Thus, the Office of the Comptroller wonders why KKL-JNF offset only
NIS 425,000 from the Mizrachi union in 2012, instead of offsetting NIS
500,000.
This means that, in 2012, the Mizrachi union received NIS 75,000
above its allocated amount.
The Office of the Comptroller found that, of the annual payable amount
of NIS 336,938, in practice a total of NIS 406,788 was transferred to the
Mizrachi union, both in 2012 and in 2013.
The Office of the Comptroller recommends that the director of the
Finance and Economics Division examine why in 2012 and 2013 the
Mizrachi union actually received more than the allocated amount.
In 2014, the Mizrachi union received NIS 301,788 of its annual
allocation of NIS 336,938.
The Office of the Comptroller recommends that the director of the
Finance and Economics Division examine why in 2014 Mizrachi
received only NIS 301,788 of its annual allocated amount.
In 2013, allocations to the Orthodox stream was coordinated for the first
time by one umbrella organization – the Organization of Orthodox
Synagogues and Communities in Israel and the Diaspora.
Furthermore, in 2013, after discussions in KKL-JNF, it was decided that
the World Sephardi Federation is not a religious stream, but rather an
organization.
411
In each of 2013 and 2014, a sum of NIS 500,000 was transferred to the
Organization of Orthodox Synagogues and Communities, as part of
KKL-JNF’s budget allocation to religious streams.
The Office of the Comptroller found that, although NIS 500,000 was
transferred in each of 2013 and 2014 to the Orthodox stream, KKL-JNF
continued offsetting only NIS 425,000 from its allocation to Mizrachi,
instead of offsetting NIS 500,000.
In other words, in 2013 and 2014 the Mizrachi union again received NIS
75,000 more than its allotted amount.
The Office of the Comptroller recommends that the director of the
Finance and Economics Division examine why in 2012, 2013, and
2014, only NIS 425,000 were offset from the allocation to Mizrachi,
despite the Orthodox stream actually receiving NIS 500,000 in each
of those years.
The Office of the Comptroller recommends that the director of the
Finance and Economics Division prepare an amended budget table
with an offset of NIS 500,000, as transferred to the Orthodox
stream.
Zionist Organizations
In KKL-JNF’s document for budgeting WZO-member organizations, KKL-
JNF stated that “Budgeting for WZO-member Zionist organizations will be
identical for each organization. This, due to these organizations’ equal
representation in the World Zionist Congress.”
The Joint Programs with Organizations item provides an annual budget of
NIS 1,320,000 for the various Zionist organizations.
411
Zionist organizations and their respective budgets from KKL-JNF
were as follows (in NIS):
Organization Annual budget
from KKL-
JNF
Transferred
for 2012
Transferred
in 2013
Transferred
in 2014
WIZO 3156555 120,000 split 120,000 split 120,000 split
Bnai Brith 3156555 3156555 3156555 3156555
Sephardi
Federation
3156555 3156555 3156555 3156555
Maccabi 3156555 3156555 3156555 3156555
Students 3156555 3156555 3156555 3156555
Zionist Council 3156555 3156555 3156555 120,000 split
Emunah 3156555 3156555 3156555 3156555
Na’amat 3156555 3156555 3156555 3156555
Reform 3156555 + + +
Conservative 3156555 + + +
Orthodox 3156555 + + +
Total 052215111
Notes: 1. Allocations for 2012 were actually transferred in 2013.
2. Allocations to Reform, Conservative and Orthodox organizations were
included in the overall amount allotted to unions (see ‘calculations table’ in
the chapter concerning budgeting for WZO-member organizations).
WIZO is budgeted at NIS 120,000 a year. The Office of the Comptroller
found that in 2012 through 2014, KKL-JNF transferred NIS 60,000 to
WIZO and the remaining NIS 60,000 were transferred to the Haifa
Academic Center.
The Office of the Comptroller was told that the Haifa Academic Center is
related to WIZO Haifa, and WIZO asked that half its allotted annual budget
be transferred directly to the academic center.
411
The Zionist Council is budgeted at NIS 120,000 a year. The Office of the
Comptroller found that in 2014, KKL-JNF transferred the allotted NIS
120,000 to the Etz – Osim Tzionut NGO, a Zionist Council non-profit.
The Budgets Division stated that this was requested by the Deputy
Chairman of the Zionist Council on August 3, 2014. He asked that KKL-
JNF permanently transfer the allotted NIS 120,000 to the Zionist Council’s
Etz non-profit.
In general, the Office of the Comptroller recommends that the director
of the Finance and Economics Division make sure that only WZO-
member Zionist organizations receive allocated budgets, as undertaken
by KKL-JNF. Budget allocations should not be transferred to ‘satellite
organizations’ or other third parties.
The Office of the Comptroller believes it improper that KKL-JNF
accommodate organizations’ requests to transfer allocated budgets on
their behalf directly to third parties, as these third parties were not
approved by the Board to receive budgets from KKL-JNF and have not
signed agreements with KKL-JNF. Thus, these organizations have no
obligation towards KKL-JNF concerning the utilization of its funds,
nor do they report on such utilization.
The Sephardi Federation received a total of NIS 75,000 from KKL-JNF in
2012, as part of the budget allocation to religious streams (out of the total
NIS 500,000 allocated to the Orthodox stream).
In 2013, the Sephardi Federation was no longer classified as a stream, but as
a WZO-member Zionist organization.
As aforesaid, in 2013, KKL-JNF retroactively transferred its allocated
budgets for 2012 to the unions, organizations and youth movements.
As a result, on December 31, 2012, the Sephardi Federation received NIS
75,000 from KKL-JNF for 2012 (as an Orthodox stream) as well as NIS
120,000 transferred on April 9, 2013 for 2012 (as a Zionist organization).
414
In other words, in 2012, the Sephardic Federation was over-paid a total of
NIS 120,000.
The Office of the Comptroller recommends that the director of the
Finance and Economics Division consider how to work with the
Sephardi Federation to settle the over-payment of NIS 120,000 received
from KKL-JNF in 2012.
In 2012 and 2013, the Sephardi Federation did not have proper conduct
certification from the Ministry of Justice.
Thus, it is unclear why KKL-JNF transferred allocated budgets to the
Sephardi Federation in 2012 and 2013, when the latter did not have proper
conduct certification.
The Office of the Comptroller recommends that the director of the
Finance and Economics Division examine how funds were transferred
to the Sephardi Federation when it did not have proper conduct
certification for 2012 and 2013.
KKL-JNF stated in response that it will examine the Office of
the Comptroller’s comment concerning the Sephardi
Federation. If over-payment was indeed made, KKL-JNF will
consider taking action for returning such funds or to offset
them from future allocations.
In general, the Office of the Comptroller recommends that KKL-JNF
and the WZO-member Zionist organizations specify the intended usage
of KKL-JNF budgets, and that KKL-JNF require these organizations
to report on their utilization of its funds. The Office of the Comptroller
further recommends that KKL-JNF require organizations to present
valid proper conduct certification prior to transferring their allotted
budgets.
411
World Hagshamah Movements
A. Number of Shlichim as Key for Allocation
In KKL-JNF’s internal document for budgeting for WZO-member
organizations, KKL-JNF stated that “Budgeting for world Hagshamah
movements operating under WZO-member organizations will be done
according to the scope of their respective operations around the world, as
indicated by the number of Jewish Agency shlichim they operate outside
Israel, as determined and approved by the Jewish Agency.”
In fact, Jewish Agency shlichim belong to the youth movements and not the
Hagshamah movements.
The following table details the number of Jewish Agency shlichim
representing the Hagshamah movements’ youth movements, as recorded in
KKL-JNF’s document, alongside the corresponding number of shlichim
recorded by the Jewish Agency as of December 2014:
World Hagshamah
Movement
Youth Movement Shlichim
according to
KKL-JNF
Shlichim as
currently
recorded by J.A.
P.Z.C. Hagshamah Habonim Dror 38 38
Magshimei Torah Va’avoda Bnei Akiva 15 31
Mordechai Anielewicz Hashomer Hatza’ir 35 35
Bama Hanoar HaZioni 33 35
Tamar Netzer Olami , 5
Maccabi Maccabi Olami 5 5
Tigar Beitar Olamit 1 1
Marom Hazit Hanoar 3 3
Total 99 32
The Office of the Comptroller notes that the number of shlichim changes
periodically. As a result, the overall number of youth movement shlichim,
as recorded at the end of the 36th
Congress in June 2010, does not match the
subsequent number of shlichim in 2011, 2012, 2013, and 2014.
411
Thus, the Office of the Comptroller recommends that KKL-JNF
contact the Jewish Agency annually for the current number of youth
movement shlichim, and annually update its budgeting according to the
current number of shlichim.
KKL-JNF stated in response that it accepts the Office of the
Comptroller’s recommendation. KKL-JNF added that it will
also consider options for changing the budget allocation
criteria for Hagshamah movements, and this matter will be
brought before KKL-JNF’s External Audit Committee for
approval.
B. Fund Transfers to Youth Movements
As aforesaid, in 2012, 2013, and 2014, KKL-JNF based its budget
allocation to youth movements, to an overall amount of NIS 600,000
annually, on each movement’s respective number of shlichim as of June
2010, at the end of the Congress.
KKL-JNF’s actual budget transfers to the youth movements were as
follows (in NIS):
Youth Movement Move-
ment
shlichim
Share
(%)
Annual
KKL-
JNF
budget
Trans-
ferred
for 2012
Trans-
ferred
for 2013
Trans-
ferred in
2014
Habonim Dror (Labor) 38 18351 3,16555 3,16555 3,16555 3,16555
Bnei Akiva Olami (Mizrachi) 31 153,8 31,6555 - - -
Hashomer Hatza’ir (Meretz) 35 3,331 ,,6555 ,,6555 ,,6555 ,,6555
Kadimah Hanoar Hatzioni
(Kadimah)
35 3,331 ,,6555 ,,6555 ,,6555 ,,6555
Netzer Olami (Reform) 5 735, 576555 576555 576555 576555
Maccabi Olami 5 ,355 1,6555 1,6555 1,6555 1,6555
Beitar Olamit (Likud) 1 1311 136555 136555 136555 136555
Hazit Hanoar (Conservative) 3 33,1 316555 - - -
Total 32 011 3115111 1325111 1325111 1325111
Note: Allocations for 2012 were transferred to the youth movements in 2013.
411
The data indicate that funds allocated to Mizrachi’s Bnei Akiva Olami
youth movement, to the amount of NIS 126,000 annually, and funds
allocated to the Conservative stream’s Hazit Hanoar, to the amount of NIS
12,000 annually, were not actually transferred to these organizations in
2012, 2013, and 2014.
The Office of the Comptroller recommends that the director of the
Finance and Economics Division examine why KKL-JNF did not
transfer the allocated budgets to Bnei Akiva Olami and Hazit Hanoar
in 2012, 2013, and 2014.
C. Youth Movements versus Hagshama Movements
Hagshamah movements are follow-up programs to the youth movements,
for youths aged 18 to 35.
As aforesaid, KKL-JNF’s document states that budgets are to be allocated to
Hagshamah movements, with the criteria being their respective number of
Jewish Agency shlichim.
In fact, Jewish Agency shlichim serve as youth movement shlichim.
The Office of the Comptroller found that, in practice, in 2012 to 2014,
KKL-JNF transferred the allocated budgets to the youth movements instead
of the Hagshamah movements.
The Office of the Comptroller recommends that the director of the
Finance and Economics Division examine why the budget allocated to
the Hagshamah movements, to the amount of NIS 600,000 annually,
was actually transferred to the youth movements in 2012, 2013, and
2014.
The Office of the Comptroller further recommends that KKL-JNF sign
a formal agreement with the Hagshamah movements, specifying the
goals for which its budgets may be utilized, and require the movements
to report on their use of such budgets.
415
Religious Streams
The decision to allocate NIS 1.5 million a year to the three religious streams
was made by the Board’s Finance Committee in December 2006.
To set up this funding, an Allocations to Religious Streams Committee was
established, chaired by the CEO. In 2009, the Committee decided that the
purpose of KKL-JNF’s collaboration with the religious streams is, among
other things, to build a positive attitude towards KKL-JNF in the
communities and synagogues, to participate in their activities, to open
channels of communication and cultivation, and to increase revenues from
donations.
The Committee established the guidelines for allocating budgets to religious
streams: it established minimum requirements, criteria for selecting target
audiences, and each stream was required to present:
1. Work plan
2. Time frames
3. Budget
4. Post-utilization financial statement
5. Information/data base on activity participants to facilitate direct
contact and for coordination with the local office.
Each year, KKL-JNF also requires the streams to present a proper conduct
certificate and a book-keeping certificate.
In November 2009, the Committee decided that a binding agreement would
be signed with the religious streams, and that payment would be made
according to progress milestones established in the approved plan and based
on the parties’ agreement.
The Office of the Comptroller found that no agreements were signed
between KKL-JNF and the three religious streams in 2012-2014.
411
The Office of the Comptroller recommends that the CEO urgently
address the issue of KKL-JNF signing agreements with the three
religious streams.
In discussions with KKL-JNF representatives, the Office of
the Comptroller was told in response that the work plan
approvals and performance reports submitted by the
religious streams to KKL-JNF provide adequate supervision
over the utilization of the budget allocations, and thus no
agreements were signed with the religious streams. KKL-
JNF’s representatives added that, towards the end of 2014,
allocations to the streams were suspended following KKL-
JNF’s registration as a community interest company. If
continued budget allocations are approved, KKL-JNF will
consider signing such agreements.
As aforesaid, the Office of the Comptroller notes that KKL-JNF’s response
that it was unnecessary to sign agreements with the religious streams
contradicts the Committee’s decision of November 2009 to sign binding
agreements with the religious streams. The Office of the Comptroller
reiterates its recommendation that KKL-JNF sign agreements with the
streams and establish specific goals for which such budget allocations may
be utilized.
In 2012, the director of the Resources Division was appointed Committee
chairman. The Committee also comprises the director of the Budgets
Division, the director of the Finance Division, the director of the Project
Signage Division, and the Committee coordinator.
Minutes from the Committee’s meeting of November 29, 2012 state:
“Concerning requests received by KKL-JNF and according to the
Committee’s decisions of November 11, 2012, it was decided: the budget of
NIS 1.5 million will be distributed equally, with the overall budget equally
divided among the three streams.”
The Office of the Comptroller examined the amounts actually transferred by
KKL-JNF to the three streams. Findings were as follows:
411
2012
In 2012, KKL-JNF transferred a total of NIS 500,000 to each of the streams,
as follows:
Reform Judaism – NIS 500,000 to the Movement for Progressive
Judaism (TELEM).
Conservative Judaism – NIS 500,000 to Masorti Olami.
Orthodox Judaism – NIS 500,000 as follows:
1. NIS 230,000 to Torah Metzion
2. NIS 195,000 to World Organization of Orthodox Synagogues
and Communities
3. NIS 75,000 to the World Sepharidi Federation
2013
As aforesaid, in 2013, the annual allocation to the Orthodox stream was
coordinated for the first time under one single organization – the
Organization of Orthodox Synagogues and Communities in Israel and the
Diaspora, following the organization’s announcement of May 22, 2013.
According to the Committee’s decision, NIS 400,000 were transferred to
each stream in October 2013, after KKL-JNF received the 2013 work plan
and the necessary certifications.
The remaining NIS 100,000 was transferred in January 2014, once the
religious streams submitted to KKL-JNF its operating report for that year.
2014
In August 2014, KKL-JNF transferred NIS 500,000 each to the Reform
stream and the Orthodox stream. The Conservative stream was transferred
only 300,000 that same month.
411
The Office of the Comptroller found that on August 14, 2014, the president
of the Masorti Olami Conservative religious stream and the president of the
Merkaz Olami Conservative union sent a joint letter to KKL-JNF. In their
letter, they asked that of the NIS 500,000 allocated to the religious stream,
KKL-JNF transferre NIS 200,000 to the union, and NIS 300,000 to the
religious stream.
As a result, there is a discrepancy between KKL-JNF’s decision on equal
distribution to the religious streams, while defining the identity of the
entitled organization, and determining the amount of support – and KKL-
JNF’s actual performance. In effect, KKL-JNF violated its own policies.
The Office of the Comptroller believes that KKL-JNF should follow its
own policy whereby allocations to religious streams will be equal (to the
amount of NIS 500,000), while allocations to unions will be based on
their respective number of seats.
The Office of the Comptroller also notes that the Masorti Olami stream
and the World MERCAZ union are two separate entities. Thus, the
Office of the Comptroller recommends that KKL-JNF make sure that
funds allocated to the religious stream are transferred only to Masorti
Olami, as undertaken by KKL-JNF.
In addition, the Office of the Comptroller recommends KKL-JNF make
sure to transfer the allocated funds to the religious streams in two
payments, as it did in 2013, and not as one lump sum. KKL-JNF should
adhere to the Committee’s instructions to make the second payment
contingent on receiving the religious stream’s operating report for that
year.
The director of the Finance and Economics Division stated that in August
2014, budget transfers to WZO and WZO-member organizations was
suspended following KKL-JNF’s registration as a community interest
company. Once an inquiry into the legal aspects of such fund transfers is
completed, KKL-JNF will decide how to act.
411
Fiscal Conduct
A. Confirmation of Payment to Organizations
The Office of the Comptroller examined the approval process for outgoing
payments to the organizations, focusing on 2013 and 2014. Findings were as
follows:
The Office of the Comptroller examined a large sample of payment orders
from 2013 and up to July 2014. Payment orders were signed by the director
of the Finance and Economics Division, who approves such payments.
However, no one in KKL-JNF signed that they had received the services for
which payment was being made.
For example:
* A transfer of NIS 1,752,000 to Etz – Osim Tzionut, on January
5, 2014.
* A transfer of NIS 200,000 to the Israeli Opera in Tel Aviv for
“Hachsharah in Masada” in January 2014.
* A transfer of NIS 300,000 to Hashomer Hachadash on March
13, 2014.
* A transfer of NIS 60,000 to WIZO on July 29, 2013.
* A transfer of NIS 120,000 to Na’amat on July 29, 2014.
The director of the Finance and Economics Division stated in response that
he is surprised that the CEO did not sign the payment orders as the “service
recipient”. He claims to have signed as the “paying party”, assuming that the
payment orders would then be forwarded to the CEO for signature.
The Office of the Comptroller found several cases in which the acting CEO
signed as “service recipient”. However, payment was made without the
111
director of the Finance and Economics Division signing off on the payment.
For example: NIS 2 million transferred to Etz – Osim Tzionut on March 7,
2013.
The Office of the Comptroller found various cases in which the payment
order was paid despite lacking the signatures of both the service recipient in
KKL-JNF and the director of the Finance and Economics Division. For
example: a transfer of NIS 500,000 to Birthright on April 7, 2013.
The Office of the Comptroller recommends making sure that the
“service recipient” sign payment orders before these are submitted to
the director of the Finance and Economics Division, in order to approve
payment.
The Director of the Finance and Economics Division stated that KKL-JNF
has recently started making sure that the CEO sign payment orders. He
presented the Office of the Comptroller with several payment orders,
starting October 2014, which were signed by the CEO and the director of
the Finance and Economics Division.
KKL-JNF’s representatives stated in response that, in
September 2014, a full-time employee was appointed under the
Tenders and Contracts Division who, among other things, will
approve payments as the service recipient.
B. Profile of Expenses Recorded in the ERP System under the Joint
Programs with Third-Party Organizations Item
The Office of the Comptroller examined the nature of the expenses charged
to the Joint Programs with Organizations budget item. Findings were as
follows:
The Office of the Comptroller found that numerous expenses were paid
out of the Joint Programs with Organizations budget, which were
completely unrelated to joint programs with third-party organizations.
For example:
114
a. A NIS 40,000 donation from KKL-JNF and the workers’ union
to the Association for Israel’s Soldiers, made on April 4, 2012.
b. Payment of NIS 200,000 to the Hadassah Neurim youth village
on June 5, 2012.
c. Payment of NIS 100,000 to the Olympic Council on June 5,
2012.
d. Payment of NIS 542,250 to the Hebrew University for the
President's Conference on June 13, 2013.
e. Payment of NIS 371,084 to the "Jewish Community" in June
through October 2013, for participation in the Jewish Convention
in Montenegro.
f. Donation of NIS 2,989,998 to the Gesher Theater in February
2014.
g. Payments of NIS 90,433 to Hadaka Ha-90 Ltd. travel agency for
shlichut abroad in 2013-2014.
Furthermore, the Office of the Comptroller found that, in 2012-2014, KKL-
JNF transferred approximately NIS 8,000,000 annually out of its Joint
Programs with Organizations budget to Etz – Osim Tzionut (a Zionist
Council non-profit), even though the Zionist Council and not Osim Tzionut
was the organization specified under this item.
The director of the Budgets Division stated in response that
following the finding in this report, on April 27, 2015, KKL-
JNF’s Board of Directors passed a decision approving that the
original intention for the record in the budget book in the years
2014-2015 was to contract Osim Tzionut, and not the Zionist
Council (slip of the pen).
111
The Joint Programs with Organizations budget includes a ‘Reserves’ line
item, to the amount of NIS 366,000 in 2012, and NIS 1,220,000 in 2013.
The Office of the Comptroller found that, out of this Reserves budget, a part
of the greater Joint Programs with Organizations budget, payments were
also made to other organizations not included in the Board-approved list of
joint programs. For example:
a. Payment of NIS 60,000 to the National Council for Volunteering
in 2012-2013.
b. Payment of NIS 68,000 to Miscal Ltd. for IDF books in May
2013.
c. Payment of NIS 35,940 to the Rashi Foundation for KKL-JNF’s
participation in a seminar, in July 2013.
d. Payment of NIS 225,000 to Majadla Ltd. for strategic
consultancy services in 2012-2014.
e. Payment of NIS 46,020 to Leket Information – Eli Sade for
investigation in September-November 2013.
f. Payment of NIS 18,880 to Alma Theater World for proofreading,
version updates, photocopying and linguistic edition of
Everything Grows from Here in February 2014.
The Office of the Comptroller recommends that the director of the
Finance and Economics Division examine why use was made of Joint
Programs with Organizations budgets for paying organizations not
included in the Board-approved list.
The Office of the Comptroller further recommends that KKL-JNF
establish clear guidelines on the expenses which may be included under
the Reserves item, and significantly reduce the amount budgeted under
this item in the future.
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C. Accounting Activities
The Office of the Comptroller found that the Finance Division’s accounting
activities, such as ‘expense classification’ were recorded under the Joint
Programs with Organizations budget item.
Among other things, entries were for the organization Nefesh B’Nefesh, to
the amount of NIS 16,850,726 in 2012, and NIS 6,000,000 for the Or
movement.
Additional accounting activities such as ‘Provisions – expenses payable’ for
religious streams, for unions and youth movements and for a hospital were
recorded (as a credit amount) under the Joint Programs with Organizations
item.
The Office of the Comptroller notes that, as a result of these entries,
actual expenditure data for the Joint Programs with Organizations item
significantly exceed the amounts actually transferred to the
organizations.
D. ‘Donations’
The Office of the Comptroller found that in 2014 fund transfers to unions,
organizations and youth movements were recorded as ‘donations’ by KKL-
JNF to these organizations.
The Office of the Comptroller recommends that the director of the
Finance and Economics Division examine why in 2014 allocations to
unions, organizations and youth movements were recorded as
‘donations’ by KKL-JNF.
In summary, the Office of the Comptroller notes that recording charges
for various payments to additional organizations, cumulating to
significant amounts, causes the financial data recorded under the Joint
Programs with Third-Party Organizations item not to actually reflect
real-world conditions concerning the utilization of this budget.
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E. Fund Transfers Not Recorded Under the Joint Programs with
Organizations Item
The allocation of NIS 1.5 million a year for the three religious streams is
included under the Joint Programs with Organizations item (see table in the
chapter concerning the budget).
However, the Office of the Comptroller found that in 2012, 2013, and 2014,
fund transfers to the religious streams were not actually recorded under the
Joint Programs with Organizations item, despite being budgeted under this
item.
In 2012, transfers to religious streams, totaling NIS 1.5 million, were
recorded under the Resource Division’s ‘Task expenses’ item, instead of
under the Joint Programs with Organizations item.
In 2013, transfers to religious streams, totaling NIS 1.5 million, were
recorded under the ‘Task expenses’ item as ‘Financial liabilities’, and not
under the Joint Programs with Organizations item.
In 2014, transfers to the religious streams totaling NIS 1.3 million (as
aforesaid, NIS 200,000 of the allotted budget were transferred to the World
MERCAZ union instead of the Conservative stream’s Masorti Olami) were
recorded under the ‘Task expenses’ item as ‘Financial liabilities’ and not
under the Joint Programs with Organizations item.
The Office of the Comptroller notes that, as a result, expenditure data
in the Joint Programs with Organizations budget item for 2012, 2013
and 2014 are incomplete. This is due to the fact that data for this item
do not include transfers to religious streams in 2012-2014.
Following the Office of the Comptroller’s inquiry with the director of the
Budgets Division in this matter, the director corrected the ERP system
entries, in December 2014, transferring the amount of NIS 1.3 million to the
Joint Programs with Organizations item.
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Summary
In this audit report, the Office of the Comptroller examined KKL-JNF’s
organizational and fiscal conduct as concerns the budget item provided for
its joint programs with third-party organizations, in 2013 and up to
November 2014.
The Office of the Comptroller found that, in the examined period, no formal
process was applied for this matter: the person deciding which organizations
will receive funding and the amount of such support; the criteria for
receiving such funds; examining the organizations’ ability to meet their
obligations towards KKL-JNF; formalizing the engagement through a
contract; supervising and monitoring contract compliance; requiring and
examining reports on the organizations’ utilization of KKL-JNF funds; and
confirmation of payments to organizations as dictated by the contract.
The Office of the Comptroller found that the Joint Programs with
Organizations budget was also used to pay other various organizations not
included in the Board of Directors’ list of approved organizations for this
budget.
However, the Office of the Comptroller is of the impression that, already
during the audit process, due to various decisions and following KKL-JNF’s
registration as a community interest company, KKL-JNF began taking
significant action to improve its interaction with supported organizations as
part of its Joint Programs with Organizations budget.
July 2015
111
KKeerreenn HHaayyeessoodd
Property Management
802
802
KKeerreenn HHaayyeessoodd
Property Management
Introduction
1.1 According to the Office of the Comptroller’s work plan, we have
examined property management activities in Keren Hayesod –
United Israel Appeal (“Keren Hayesod”), which are carried out
through Real Estate Participations Ltd. ("REP").
1.2 The audit included examination of work flows in the following
areas:
a. Examining current procedures and guidelines concerning Keren
Hayesod properties.
b. Examining REP's performance in managing Keren Hayesod’s
properties, including improvement, sale, rental, and ongoing
management of properties.
c. Implementation of the parties’ management agreement, and
Keren Hayesod’s supervision of REP.
1.3 The audit was conducted in Keren Hayesod’s offices in Jerusalem,
and in REP's offices, in January – July 2014.
The audit included meetings with Keren Hayesod’s CFO and legal
counsel.
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Additional meetings were held with REP's COO, legal counsel,
revenues manager, Jerusalem branch manager, Haifa branch
manager, property portfolio manager, employees in the Haifa and
Northern Israel branch, and with the supervisor for American
Zionist Commonwealth ("AZC") land assets.
1.4 Goals:
a. To examine information on properties owned by Keren
Hayesod, following the results of REP's property survey, and
the actions taken to identify additional Keren Hayesod-owned
properties.
b. To examine REP's ongoing management of Keren Hayesod’s
properties, including rental, improvements, supervision and
identifying instances of encroachment and management of
non-income-generating properties.
c. To examine property sale activities, including circumstances
and decision-making up to final disposal in accordance with
Keren Hayesod’s instructions.
d. To identify weaknesses in current work flows and controls,
and recommend improvements.
1.5 Key documents used in the audit:
Keren Hayesod’s contracts with REP, including fees paid to the
latter.
Statement of Keren Hayesod properties managed by REP.
Credit and debit reports for 2011-2013.
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Minutes from Keren Hayesod Executive’s meetings.
Minutes from joint Keren Hayesod-REP meetings in July,
November and December 2013.
Keren Hayesod’s agreements with the official receiver
concerning AZC properties.
Quarterly reports on management of AZC lands in 2013.
Work plan for disposing of AZC land assets in 2014, and
applications to the courts.
Accounting statements for Keren Hayesod’s income-generating
properties in 2012-2013.
An endowment deed for Beit Shalom in Ahad Ha’am Street,
Jerusalem.
Reports and analysis of data from the Corel ERP system.
Documents concerning properties which have been sold or
leased.
Specific documents received upon request.
1.6 Methods:
Examining whether policies and procedures have been
formulated and comparing with actual performance.
Meeting with various persons in Keren Hayesod and REP.
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Generating and analyzing reports and data from ERP systems.
Reviewing documents and agreements concerning property
management and sales.
Surveying transactions in managed properties under various
circumstances.
Reviewing Keren Hayesod’s oversight of property management
activities, and ongoing interaction with REP.
Consolidating findings.
Preparing the audit report, including conclusions and
recommendations.
2. Background
A. Keren Hayesod
Keren Hayesod – United Israel Appeal is one of the four national
institutions (World Zionist Organization, Jewish Agency, Keren
Kayemet Leisrael, and Keren Hayesod). It’s offices are located in the
National Institutions Building in Jerusalem.
Keren Hayesod was incorporated in 1920. Its main goal is to promote
the establishment of a Jewish national homeland in Israel, as
specified in the Balfour Declaration. Keren Hayesod seeks to achieve
this goal, among other things, by receiving donations, loans, gifts,
and endowments. These funds are invested in developing Jewish
settlement in Israel.
Keren Hayesod is held in equal parts by the World Zionist
Organization (50%) and the campaigns (50%).
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B. Keren Hayesod Properties
Property portfolio
Keren Hayesod leases or owns various properties throughout Israel.
As indicated in the following table, Keren Hayesod holds only a
small number of properties, among other things due to its ongoing
policy of disposing of its properties.
Property classes:
Property class Total properties/ in group Total area
(m2)
Lands and
structures
61 667,811
Superficies (*) 66 -
Lands 5 groupings around the country 89,,57
AZC lands 9 groupings across the country 859,697
Total 210,895
(*) Properties where ownership applies only to the structures, but not to
the underlying land.
Property management policies
Keren Hayesod’s policy is to dispose of its properties. This decision
was made in previous years for various reasons, such as: the fact that
Keren Hayesod is essentially not a property management company;
some properties do not generate income; the organization’s desire to
avoid ongoing property maintenance costs and management fees; and
a policy of selling properties encumbered by legal problems (e.g. –
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Keren Hayesod-owned superficies and Beit Shalom in Jerusalem –
see below), while maximizing their potential value.
Until about 2012, the organization had a Properties Committee,
comprised of members of Keren Hayesod’s Board of Trustees. This
committee oversaw Keren Hayesod’s property management
activities.
C. Real Estate Participations Ltd.
Real Estate Participations is a Jewish Agency subsidiary dealing with
property management. REP was incorporated in 1968 to meet the
promotional and operational needs of investment properties
purchased by Jewish investors abroad (the participants), who bought
participation notes issued by the Jewish Agency. These notes granted
the participants ownership rights in those investment properties.
In November 1999, an agreement was signed governing REP's
management of Keren Hayesod’s properties. Additional agreements
were occasionally signed, specifying fees and royalties due from
Keren Hayesod to REP for its property management services.
D. IT Systems
Corel (from Malam-Team) – A system used by REP to manage
Keren Hayesod’s properties (this system is used by REP only, and
company clients can be granted permission to view data. Keren
Hayesod has not asked for such permission). The system is designed
for managing real estate properties and integrates management of
land, properties, rental agreements, and finances, and provides end-
to-end support for property-selling activities. The system allows
users to enter specifications, including zoning data, rights in various
properties, applicable fees and taxes, insurance details, and legal
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actions. The system also supports a large number of optional
components, entered using a dynamic table. The system is extremely
flexible in building contracts and managing finances. Revenues and
expenses are recorded based on the underlying transaction dates and
not the actual payment date.
“Mifneh” – REP's accounting system which includes, among other
things, records of property-derived payments and revenues. The
system operates on a cash basis, with transactions only recorded upon
actual payment.
3. Ongoing Property Management
A. Payment transfers from Keren Hayesod to REP
As aforesaid, in 1999, Keren Hayesod signed an agreement with
REP. The agreement specified the services which REP will provide
Keren Hayesod, and the payments due to REP for such services as:
selling, renting and improving properties. The agreement also
established a payment system for expenses incurred by REP in
managing the properties. Over the subsequent years, the agreement
was occasionally amended, as necessary.
The Office of the Comptroller examined Keren Hayesod’s
method of reconciling accounts with REP.
Findings:
The Office of the Comptroller found that, in practice, Keren Hayesod
only reconciles accounts with REP upon a property’s disposal. Until
such disposal, Keren Hayesod and REP maintain a credit/debit
ledger for all income/expenses associated with the property. Debt
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balances are carried forward from one year to the next. As of
December 31, 2013, Keren Hayesod’s debt to REP totaled NIS 1.3
million. It is also noted that REP does not charge Keren Hayesod
interest on this debt balance.
The Office of the Comptroller believes this method of reconciliation
to be flawed. Managing a credit/debit account over years, while
accruing debt, until final disposal of a property does not constitute
proper conduct. It is noted that Section 6 to the original 1999
agreement states that payments will be made to REP on a monthly
basis. Thus, the reason for the present method is unclear. Upon
inquiry, the Office of the Comptroller was told that REP considers
Keren Hayesod a strategic and preferred customer, and so agreed to
this form of reconciliation.
Recommendations:
The Office of the Comptroller recommends Keren Hayesod avoid
accruing a debt balance towards REP. Accounts should be reconciled
and/or payments should be made to REP as part of the ongoing
management of the various properties, and such activities should not
be postponed until a property’s disposal.
Keren Hayesod's response:
Keren Hayesod’s management believes that payment of property
management fees should be made from those properties’ revenues, and
not from donations received from donors who have no ties with the said
properties.
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B. Income-Generating Properties
REP manages a limited number of properties for Keren Hayesod.
Properties under management, according to excerpts from REP’s
Corel system:
Property Address Managing
branch
Property
class
Activity Owners
Beit Shalom Jerusalem Jerusalem Investment Management Keren
Hayesod
Amal Eiron
compound
Hadera Haifa Investment Management Keren
Hayesod
Land Kiryat Ata Haifa Investment Management Keren
Hayesod
Structure Gan Shomron Haifa Investment Management Keren
Hayesod
Apartment Netanya Tel Aviv Investment Management Keren
Hayesod
The Office of the Comptroller examined these properties’
management in recent years.
1) Beit Shalom, Jerusalem
Beit Shalom is a property with 300 m2 of developed area, located in
an upscale neighborhood in Jerusalem, donated to Keren Hayesod by
the late Mr. Shalom Horvitz. The property was donated with the
request that it be used as detailed in the endowment deed – to host
receptions for guests of the Israeli government and the national
institutions, exhibitions, cultural and charitable initiatives, and to
promote culture and music. The endowment deed stated that even
812
after Mr. Horvitz’s passing, the property and objects will retain their
unique atmosphere, according to the aforesaid goals.
Due to legal restrictions arising from the nature of this property, it
cannot be rented out for any purpose whatsoever. Thus, the property
generates fixed costs but no revenues for extended periods of time.
As a result, Keren Hayesod has explored options for selling this
property. It is noted that the property poses additional challenges,
including: necessary zoning changes, and complaints from
neighbors.
Keren Hayesod's response:
Due to the property’s inherent legal restrictions, it cannot be used for
the purposes set forth in the endowment deed. In practice, Keren
Hayesod’s relations with the government have changed, rendering
these purposes redundant.
Findings:
Recognition of bad debt from the property
The Office of the Comptroller’s inquiry found that in 2005-2007
and in 2007-2012, the property was rented out to one, who (as
per the contract) managed a catering company from the property.
The contract was signed by Keren Hayesod, independently of
REP Apparently, the second contract period 2007-2012, signed
in November 2006, was terminated early due to the tenant’s ever-
increasing debt balance. In May 2007, Keren Hayesod asked
REP to collect this debt. According to minutes from the Keren
Hayesod Executive meeting of June 13, 2011, Keren Hayesod
decided to write off USD 120,000 as bad debt. Upon inquiry with
Keren Hayesod’s legal counsel and with REP, the Office of the
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Comptroller found that, to the best of their recollection, no
collateral was requested from the tenant to secure rental
payments. Furthermore, an inquiry into the tenant’s financial
position was only made in retrospect, finding that the tenant did
not have the means to pay his debt. This delay in attending to the
debt, coupled with the fact that the tenant did not provide any
collateral, ultimately led to the debt being written-off.
Keren Hayesod's response:
Keren Hayesod conducted lengthy negotiations with the
tenant, reaching a settlement agreement for repayment of his
debts. However, the tenant did not fulfill the agreement.
Lacking any other option to rent the property, and considering
Keren Hayesod’s unique past relationship with the tenant,
Keren Hayesod continued trying to assist him in keeping the
business afloat, so as to be able to receive current payments
for the debt.
Concerning collateral – upon signing the agreements, the
tenant owned a thriving business and provided a personal
guarantee for his obligations. Keren Hayesod’s management
agreed to accept this guarantee in light of its long-standing
ties with this individual and his business. This decision
proved wrong, in retrospect.
Splitting current expense payments for the property
Upon inquiry with REP's Jerusalem branch, which manages this
property, the Office of the Comptroller found that Keren
Hayesod covers some of the property’s current expenses, such as
municipal taxes, electricity bills, and security alarm services.
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Partnership covers other expenses such as water bills and
gardening.
In 2013, Keren Hayesod recorded NIS 20,000 in expenses for the
property, mainly for a real estate appraisal for the property and
general repairs (NIS 9,440 and NIS 6,700, respectively). REP
recorded NIS 9,660 in expenses for gardening and water utilities.
Thus, overall expenses in 2013 amounted to NIS 30,000.
This practice, among other things, creates a risk for double-
payment of expenses. Upon inquiry as to why REP, as manager
of the property, does not cover all expenses, the Office of the
Comptroller was told that this practice has been used for years.
Recommendations:
The Office of the Comptroller recommends establishing
procedures for property rentals, after drawing conclusions from
this case, including: not relying only on personal guarantees;
collecting debts within a reasonable timeframe; and examining
whether any pending legal actions have been filed against
potential tenants.
The Office of the Comptroller recommends that REP cover all
maintenance expenses for the property, so as to consolidate
management costs and avoid the risk of double payment.
Keren Hayesod’s Response:
- Procedures: Keren Hayesod’s Executive does not see a need
for comprehensive procedures, in light of the organization’s
small properties portfolio, and the differences between each
property. Furthermore, Keren Hayesod no longer accepts
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personal guarantees for rented properties, which in any case
was always a last resort and not regular practice.
- Consolidating payments: There is no risk of double payment
as the parties coordinate payments in advance and bills are
only sent to one organization.
2) Amal Eiron Campus, Hadera
Keren Hayesod owns an area of 3,000 m2 in Hadera, comprising
several structures, some of which are rented out. Minutes from the
Executive’s meeting of January 17, 2012, the Office of the
Comptroller’s inquiries with REP's legal counsel, and Keren
Hayesod’s statement of claim against the municipality, all indicate
the following:
- In 1975, Keren Hayesod signed an agreement with Haboneh
Ltd. (a Naamat subsidiary). This agreement granted Haboneh
leasehold rights to the land until March 31, 1979, to hold,
manage and develop the educational institution known as
Eiron Agricultural High School. Haboneh and Naamat
continued holding the land after the end of the agreement
period.
- At some point in time, which is not precisely known to Keren
Hayesod, Haboneh and Naamat signed a sub-lease with
Amidar Israel National Housing Company Ltd. (“Amidar”),
whereby the land was leased to Amidar (in violation of the
contract and/or the provisions of law).
- In 1991, to the best of Keren Hayesod’s knowledge, Amidar
leased parts of the land to the Hadera municipality, for
operating a school.
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- In about 1998, when Amidar vacated part of the land it was
occupying, and upon discovering that various entities were
using the land without Keren Hayesod’s permission and/or
any contractual and/or other right, Keren Hayesod filed suit
against Naamat and Haboneh to evict them from the land.
This action was submitted for arbitration. On February 1,
2004, the arbitrator handed down his ruling, whereby Naamat
and Haboneh must relinquish possession of the land, and
return it vacant, within two years from the ruling. Formal
possession of the land was returned to Keren Hayesod on
time, but some of the land was still occupied by the Hadera
municipality and the Amal educational network. The Amal
school was finally vacated in August 2011. Since the start of
2012, the property has been leased to another tenant who
operates a school for special-needs children, for NIS 400,000
a year.
- At the same time, the Hadera municipality sued Keren
Hayesod for pavement and road development fees to the
amount of NIS 9 million (including linkage and interest).
Keren Hayesod’s legal counsel estimate the organization’s
risk from this action at NIS 5 million. Keren Hayesod sued
the municipality and Amal for usage fees.
- In September 2013, Keren Hayesod and the Hadera
municipality reached a settlement agreement (subsequently
validated by a court of law), whereby the mutual claims
would be withdrawn. Keren Hayesod will transfer to the
municipality rights to several properties along with payment
of NIS 2.5 million. In return, the municipality committed to
take all actions permitted by law to aid Keren Hayesod in
advancing zoning and planning initiatives.
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Findings:
The accounting file for this property indicates that security costs of
NIS 28,000 were recorded in 2012. It seems that, prior to the new
tenant occupying the property in 2012, someone broke in to the
abandoned buildings and caused NIS 81,700 in damages – mainly
structural damage and theft of metal cables. Following this incident,
a security company was hired and barricades put in place to prevent
access to the buildings.
After the Amal school vacated the property, REP recommended that
Keren Haysod hire 24/7 security services, including patrols of the
property. For economic reasons, Keren Hayesod decided not to hire
24/7 security services, but rather to make do with security patrols
once every two hours (day and night).
It is noted that minutes from Keren Hayesod’s Executive meeting
indicate that the structure was not insured. Furthermore, Section 4.6
to the agreement with REP states that “REP commits to insure all
properties according to written instructions to be given to REP by
Keren Hayesod upon signing this agreement.”
Recommendations:
The Office of the Comptroller recommends that Keren Hayesod
monitor the Hadera municipality’s compliance with the settlement
agreement.
The Office of the Comptroller recommends implementing
procedures/instructions for protecting unoccupied properties,
including insuring such properties, as detailed in the management
agreement.
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Keren Hayesod's response:
a. Keren Hayesod, through REP, monitors the Hadera
municipality’s compliance with the settlement agreement.
b. For economic reasons, it is not worthwhile to hire security for
vacant properties and Keren Hayesod believes that donations
should not be used for hiring on going security services.
Furthermore, specific circumstances are considered on a per-
property basis.. Keren Hayesod contracted a property
management firm which makes recommendations concerning
security, maintenance, etc. Keren Hayesod follows these
recommendations. Keren Hayesod believes the property
portfolio does not justify the formulation of internal
procedures.
c. Keren Hayesod insures its properties independently, except
for Eiron Hadera and one apartment in Netanya, where REP
was requested to obtain insurance upon the lease of these
properties. Currently, REP-managed properties are insured
through REP. Insurance costs are covered by Keren Hayesod
and the tenant if the property is rented out. Third party
insurance (for all Keren Hayesod operations) is provided
through the Jewish Agency.
3) Land in Kiryat Ata
The property is a flat plot of land surrounded by agricultural lots, in a
west-facing location adjacent to Shivat Zion Street. In 2012 and
2013, the property generated revenues of NIS 5,258 and NIS 10,593,
respectively.
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Findings:
Upon inquiry with REP's Haifa branch, the Office of the
Comptroller found that an individual operating a horse farm on an
adjacent lot had encroached on part of the property. This
encroachment was discovered following municipal tax charges
received in 2005. The infringing individual was contacted to
return possession of the land and to collect municipal land
charges and usage fees. Having failed to reach an agreement with
the infringing individual, legal action was taken in April 2007. In
February 2012, a court ruling was received obligating the
individual to a lease contract for the period January 1, 2012
through December 31, 2014, along with payment of usage fees
for the land. The individual did not meet his prior debt payments
or the terms of the contract, and so foreclosure proceedings were
initiated against him and his wife, and they were evicted from the
property.
It seems that there are no clear procedures for conducting regular
visits to vacant properties to prevent encroachment, or upon such
encroachment occurring – to rectify it quickly. Furthermore, the
Office of the Comptroller does not understand why it took two
years to file suit against the encroaching individual. It is noted
that in 2013 alone, legal expenses of NIS 22,000 were incurred
for this property.
Keren Hayesod’s response:
The encroachment was discovered following municipal land
charges received in 2005, which led to an inquiry and a re-
measurement of the property. In addition, Keren Hayesod
conducted negotiations with the encroaching individual to reach
an arrangement for his use of the land and for his debt, and to
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avoid legal action. At the same time, Keren Hayesod contacted
the Kiryat Ata municipality to settle the issue of the municipal
fees.
Recommendations:
The Office of the Comptroller recommends that the contract
between Keren Hayesod and REP (Section 4.7 – Ongoing
Monitoring) be updated to include clear instructions for visiting
vacant properties and taking immediate action against any
encroachment. This will enable immediate eviction, avoiding
unnecessary legal costs and lengthy legal proceedings.
Keren Hayesod’s response:
It is not possible to establish uniform provisions. Each case must
be handled individually, according to the specific property, its
location and circumstances. In addition, REP is trying to secure
tenants for all properties, to prevent any encroachment.
4) Medical Clinic, Gan Shomron
Keren Hayesod owns a lot of 822 m2 in Gan Shomron, with a
developed area of 86 m2. The lot houses an old tower (which served
as a weapons cache) designated for conservation, and a one-story
public structure which served as the medical clinic for the moshav.
The medical clinic building was leased for a period of 10 years, until
February 28, 2013. After this date, Keren Hayesod decided to sell the
property. The sale was postponed after the Menashe Regional
Council failed to vacate the watch tower. The regional council had
held the tower since its establishment. Even though the property
could have been sold in this condition, REP did not want to sell, as
this would have caused a significant reduction in the property’s price.
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As of today, the watch tower has been vacated and the property is
pending sale.
The Office of the Comptroller examined whether attempts were
made to collect payments from the regional council for its use of
the tower; and why, to date, the property has yet to be sold even
though the tower has been vacated.
Findings:
Upon inquiry with REP's Haifa branch, the Office of the
Comptroller found that usage fees could indeed have been
charged for the tower. However, such action was not
economically viable. The tower is of a relatively small area, and it
was not expected to generate significant revenues. On the other
hand, it was more important to have the property vacated as soon
as possible, to initiate its sale.
However, until the property’s sale, it might have been possible to
rent out the clinic. Documents presented to the Office of the
Comptroller did not indicate any discussion of this option.
Keren Hayesod's response:
a. As soon as it was found that the tower was still occupied,
negotiations began to have it vacated.
b. Keren Hayesod made several attempts to rent out the
clinic. However, once the decision to sell the property was
made, these attempts ceased so that the property might be
sold vacant and free of any third party, which would
increase its selling price.
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c. As of the audit completion date, the property has been sold
following a request for proposals. The property was sold
far above its appraised price.
5) Jewish Agency-owned properties
The property portfolio presented to the Office of the Comptroller
includes several properties actually owned by the Jewish Agency.
However, these properties are still registered under Keren Hayesod
ownership due to the Jewish Agency’s failure to register the change
in ownership. Some of these properties were transferred to the Jewish
Agency under a 1987 agreement to include Keren Hayesod’s
employees in the Jewish Agency’s employee pension fund. Others
were also transferred, but not under this agreement.
Properties transferred under the agreement:
City Description Address Right End of
lease
Rights-
holder
Registration
status
Jerusalem Storage
space in 17
Shmuel
Hanagid St.
17 Shmuel
Hanagid St.
Ownership – Jewish
Agency
Under Keren
Hayesod
Jerusalem 4 residential
apartments
18 Ein
Tzurim
Ownership – Jewish
Agency
Under Keren
Hayesod
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6) Additional properties:
City Description Address Right End of
lease
Rights-
holder
Registration
status
Jerusalem Kiryat
Moriyah –
Kiryat
Hatfutzot
1,2 Ha’askan Lease Nov. 23,
2019
Jan. 26,
2018
Keren
Hayesod
Easement
towards
Keren
Hayesod
under a lease
agreement
Petah
Tikva
Beilinson
Medical
Center
Jabotinsky Ownership - Keren
Hayesod
Under Keren
Hayesod
Rison
Letzion
5 residential
apartments
13 Yudilevitch Ownership Jewish
Agency
Under Keren
Hayesod
Concerning the Beilinson Medical Center, revenues are transferred to
the Jewish Agency, which credits Keren Hayesod’s account. The
Office of the Comptroller does not understand the logic behind this
practice and believes the matter should be examined thoroughly,
including who collects payments, how proceeds are distributed, etc.
Keren Hayesod's response:
- Kiryat Moriyah: Keren Hayesod allows the Jewish Agency to
use Kiryat Moriyah for those activities for which it was
originally granted the lease. Keren Hayesod does not receive
any revenues from Kiryat Moriyah.
- Beilinson Medical Center: The practice of splitting revenues
from the Beilinson Medical Center originates from an
820
agreement reached by an interim committee established to
resolve property disputes between the Jewish Agency and
Keren Hayesod. This committee subsequently dispersed.
Keren Hayesod verifies that it is credited for these revenues,
and works with the Jewish Agency to recognize these funds
as part of its obligations towards the Jewish Agency.
C. Non-Income-Generating Properties
Keren Hayesod’s property portfolio includes several non-income-
generating properties, as follows:
City Address Description Rights
Kiryat Biyalik 51
Hapalmach
Kindergarten Ownership
Kiryat Biyalik 17
Ha’atzmaut
Playground/kindergarten Ownership
Kiryat Nahum Lots Ownership
821
Superficies (attached structures registered separately from the land):
City Address Description Rights
Gan Haim Drom Hasharon
Regional Council
Structures Ownership
Gan Shmuel Hefer Mobile Post
38810
Structures Ownership
Hadera 24 She’ar Yashuv Structures Ownership
Hadera Nahliel
neighborhood
Structures Ownership
Hadera Nahliel
neighborhood
Structures Ownership
Hadera Nahliel
neighborhood
Structures Ownership
Hadera Nahliel
neighborhood
Structures Ownership
Ein Shemer Menashe mobile
post 37845
Structure, trees Ownership
Petah Tikva 50 Achad Ha’am Structures Ownership
Petah Tikva 24 Mahane Yehuda Structure Ownership
Petah Tikva 23 Menahem
Ratzon
Structure Ownership
Haifa Old Technion Superficies Ownership
Structures in Kiryat Bialik
Keren Hayesod’s legal counsel informed the Office of the Comptroller
that the kindergartens were built by the Jewish Agency, using Keren
Hayesod donations. Generally, these properties are registered to the
Jewish Agency, and it is unclear why registration was different in this
instance.
828
In any case, the properties are leased to the municipality free of charge
under operating agreements. Keren Hayesod does not charge rent for
public structures built through donations, just as municipal authorities do
not charge leasing fees when allocating land for public structures.
Kiryat Nahum
The property consists of land currently under legal action to revoke the
leaseholds of the registered leaseholders.
Superficies
Keren Hayesod faces legal challenges in exercising its rights in
superficies as independent properties. This is due to the fact that, in
contrast to Turkish law which distinguished between ownership of land
and ownership of the attached structures, Israeli property law annulled
these superficies. Instead of providing for existing rights, Israeli law
revoked the legal status of these properties.
Thus, Keren Hayesod is trying to maximize its rights to those superficies
still registered in its name. It is noted that two superficies in Hadera were
sold in recent years for USD 6,000 each, and Keren Hayesod waived two
superficies under a comprehensive agreement with the Hadera municipal
authority.
Old Technion Campus
Keren Hayesod is currently pursuing legal action for its superficies in the
old Technion campus in Haifa. According to a credit-debit report from
REP, NIS 98,000 in legal costs were incurred in 2011-2013 for this case.
Keren Hayesod's response:
The property is worth many millions of shekels. A claim was filed in
2002 to prove that Keren Hayesod has rights in this property. Legally, this
822
is a complex, precedential case which Keren Hayesod is trying to resolve
to maximize the selling value of these properties, while taking into
account the associated risks and benefits.
4. Disposal of Properties
As aforesaid, Keren Hayesod has made a strategic decision to dispose
of its properties. Proposed property sale decisions are brought before
the Executive/board of directors, depending on the specific property,
its size and legal status.
In the past five years, a limited number of properties have been sold,
as follows:
Residential apartment in Kam Street, Tel Aviv.
Residential apartment in McDonald Street, Netanya (received
as a donation).
Residential apartment in Wolfson Street (Maccabi dorms),
Jerusalem (received as a donation).
The Office of the Comptroller examined the sale of these
properties, whether they were sold at the highest possible value,
and whether an appraisal was made prior to their sale.
Findings:
The Office of the Comptroller asked REP for information on any
appraisals made prior to selling properties. To date, the following
information was received:
824
1. Apartment on Kam Street, Tel Aviv – According to
documents received (sales contract and Executive meeting
minutes dated January 17, 2012), the property was owned by
Keren Hayesod but the tenant claimed protected tenant
status. According to the court’s ruling, it was decided to sell
the property to the tenant.
An appraiser valued the apartment at NIS 650,000. However,
the sale agreement submitted to the Office of the Comptroller
indicates that the property was sold for NIS 380,000.
Keren Hayesod's response:
The apartment was sold through a legal proceeding, with the
court setting the selling price and the distribution of
proceeds.
2. Apartment on Wolfson Street (Maccabi dorms)
The Office of the Comptroller received executive meeting
minutes describing the details of this case and the reason for
the apparently low selling price.
3. Apartment on McDonald Street
The Office of the Comptroller received email correspondence
from REP, in which it reported to Keren Hayesod about the
sale of this apartment for NIS 785,000. A prior appraisal
valued the property at NIS 650,000.
822
5. Procedures
Property management activities are immaterial for Keren Hayesod,
considering the small number of properties, their management by
REP, and the fact that, in any case, any extraordinary expense for
these assets is subject to prior approval.
Keren Hayesod views its contract with REP a procedure, regulating
work flows for these activities.
The Office of the Comptroller examined the agreement and the
relevant work flows.
Findings:
Failure to update the original agreement
The original agreement was signed in 1999, and except for
occasional changes to fees, the agreement as a whole has not been
reviewed. Nor has any examination been conducted as to whether
updates should be made to optimize Keren Hayesod’s interaction
with REP. The Office of the Comptroller reviewed the Keren
Hayesod’s agreement with REP and found that, in some matters
concerning ongoing operations, the agreement is lacking and does
not define what REP needs to do to properly fulfill its duties.
For example: The agreement discusses encroachment on properties
in Section 4.7.2, stating: “REP will keep a watch and prevent
encroachment on properties.” The agreement does not specify what
actions are required of REP, their frequency, etc. To demonstrate
this point, the Jerusalem branch told the Office of the Comptroller
that there is no procedure governing the frequency of visits to
properties, while the Haifa branch stated that there is an internal
822
procedure requiring an actual visit to properties at least once every
fiscal quarter. The manager of the Haifa branch stated that visits are
made once a month and, if there is a problem, properties are visited
with even greater frequency. Thus, even REP does not address this
matter uniformly.
Keren Hayesod's response:
In Haifa and Jerusalem, representatives from either REP or Keren
Hayesod visit properties at least once a month. In addition, cameras
and an alarm system have been installed in Keren Hayesod’s
property in Jerusalem. Other properties managed by the Jerusalem
branch and owned by other parties have been leased to tenants, and
thus the branch manager stated that there is no procedure.
Recommendations:
The Office of the Comptroller recommends examining the
agreement, updating it as necessary and applying uniform and more
detailed instructions for managing the different property types still
owned by Keren Hayesod. Among other things, the frequency of
visiting properties should be specified, based on each property’s risk
profile. This includes specifying the course of action upon
discovering any encroachment on a property, with particular
attention to the provisions of law.
Keren Hayesod believes the current agreement provides for proper
ongoing management of all its properties, but does not object to the
Office of the Comptroller’s recommendation to examine this matter.
822
6. Identifying and Reclaiming Properties
In 1995, REP checked the land registry records to identify additional,
unfamiliar Keren Hayesod properties. The examination found several
properties, such as: the Beilinson Medical Center in Petah Tikva, a
building in Gan Shomron, the Amos quarries in Jerusalem, and several
superficies.
It is noted that Keren Hayesod’s agreement with REP specifically
provides for compensation for locating new properties.
The Office of the Comptroller examined Keren Hayesod and
REP's current activities to identify and reclaim properties.
Findings:
REP stated that, in 1995, a REP employee examined the land
registry records, and no additional examination has been made
since.
Recommendations:
The Office of the Comptroller recommends conducting a current
survey of Keren Hayesod properties.
Keren Hayesod's response:
Keren Hayesod has already issued a request for proposals for conducting
a survey of its properties
822
7. American Zionist Commonwealth Inc. Lands
Background
American Zionist Commonwealth Inc. ("AZC") was incorporated in
the United States in 1914. AZC sought to take part in settling Eretz
Israel by acquiring land for Jewish settlement. AZC was mainly active
in the 1920s. Among other things, AZC purchased the lands on which
the towns of Balfouria, Ramat Ishay, Afula, Kiryat Ata, and Herzliya
were built.
Over the years, AZC’s activities declined, and management of these
lands was handed over to Keren Hayesod. In 1983, a liquidation order
was issued for AZC, and the official receiver was appointed as the
company’s liquidator.
In 1992, after examining the financial and legal ties between AZC and
Keren Hayesod from the 1920s until the liquidation order date, and in
light of Keren Hayesod’s rights to management fees and expenses
from AZC’s various accounts, rights in investments of AZC funds and
in loans extended to AZC and their repayment, the parties reached an
agreement for settling AZC and Keren Hayesod’s mutual debts. The
agreement was as follows:
a. Keren Hayesod will pay AZC a NIS equivalent of USD 2.5
million.
b. AZC will pay Keren Hayesod 20% of the net proceeds (as
defined in the agreement) from the disposal of all AZC’s
assets. Keren Haysod will be granted ‘guaranteed creditor’
status.
822
In 2007, in light of delays by the official receiver acting as AZC’s
liquidator in disposing of AZC’s assets, and following legal action
taken in this regard, the parties signed a supplementary agreement to
the 1992 agreement, whereby:
a. The official receiver will prepare a financial statement, to be
audited by one of the four major accounting firms in Israel for
the entire liquidation period, and shall subsequently prepare
annual statements. Furthermore, the annual statement will
include current details on the settling of accounts between
AZC and Keren Hayesod.
b. The liquidator will contract REP to manage AZC’s properties,
so long as liquidation proceedings continue.
Information on AZC’s land assets:
Location Area (m2)
Haifa 661,868
Afula 6,8,,88
Herzliya 97,,18
Zvulun regional council 91,695
Hof Hasharon regional
council
87,9,7
Ramat Ishay 67,595
Kiryat Ata 68,795
Emek Izrael Balfouria
regional council
9,666
Izraelim regional council 9,695
840
Publication of financial statements
In 2008, an auditor’s statement was published, detailing the settling of
Keren Hayesod’s debt towards AZC, against disposal of AZC’s assets.
The balance of Keren Hayesod’s debt towards AZC as of December
31, 2008 totaled USD 1,160,309 (NIS 4,411,493).
Since then, the official liquidator has not complied with his duties
under the supplementary agreement and has not published annual
statements. It was recently agreed that Kesselman & Kesselman
CPAs, who serve as AZC’s auditors, will conduct the examination.
The financial statements for 2013 are expected to be published in the
near future.
It is noted that, to date, three rounds of disposals have been carried out
with the court’s approval. In these three rounds, a total of 52 lots were
sold.
The Office of the Comptroller examined Keren Hayesod’s conduct
as concerns AZC’s land assets, in light of the agreements signed
with the official receiver and REP.
Findings:
a. Ambiguity concerning debt to AZC
Upon inquiry with Keren Hayesod, the Office of the Comptroller
found that the organization’s debt to AZC has been fully repaid
following the sale of AZC’s properties in recent years. Keren
Hayesod now has a credit balance for funds due to Keren
Hayesod under the agreement.
841
However, upon inquiry with REP, the Office of the Comptroller
found that the status of the debt balance is unknown as the
auditors have not completed their work in this matter.
Keren Hayesod's response:
An estimate was made that the debt is close to being settled
following the sale of the various properties, but financial
statements need to be prepared to determine the exact amount.
We estimate the debt will be fully settled in 2014. The exact
amounts will be clarified after preparing the 2013 financial
statements.
b. Keren Hayesod’s conduct from 2008 to date
The Office of the Comptroller could not find any initiatives taken
by Keren Hayesod (such as contacting the official receiver or the
auditors) to clarify the status of its debt to AZC and to check if
Keren Hayesod can start claiming moneys from property sales.
For example, AZC’s draft auditor’s report for 2012 indicates that,
in 2012 alone, net proceeds from land sales totaled NIS 8.92
million, and Keren Hayesod is allegedly entitled to 20% of this
amount.
c. Lack of Executive discussion
Upon inquiry, the Office of the Comptroller found that, at least in
the past three years, the issue has not been discussed in Executive
meetings. According to Keren Hayesod’s legal counsel, there was
no point discussing the matter, as no actionable decision was
required in this period. The Office of the Comptroller believes
Keren Hayesod should have kept a closer watch on its
outstanding debt, and demand that financial statements be
848
prepared promptly, so as to receive moneys due to Keren
Hayesod from property sales.
d. Lack of ongoing reports from REP
REP does not provide Keren Hayesod regular updates on the sale
of AZC properties. REP submits this information to the official
receiver and Keren Hayesod is supposed to request information
from the latter.
For comparison, the Holocaust Restitution Company of Israel is
also a guaranteed AZC creditor and receives direct, regular
updates from REP. Thus, it is not clear why matters should be
different for Keren Hayesod.
Keren Hayesod's response:
Updates are given in regular meetings.
Recommendations:
Keren Hayesod should demand that financial statements be prepared,
and after receiving these statements Keren Hayesod should act to
collect any moneys due to it.
Keren Hayesod should receive regular updates from REP concerning
the sale of AZC properties, just like any other Keren Hayesod-owned
property.
Keren Hayesod's response:
The recommendations are accepted and have been implemented.
April 2015
Statutes of the Comptroller
and of the Control Office
The World Zionist Organization
244
245
Statutes of the Comptroller
and of the Control Office
The World Zionist Organization Adopted by the Zionist General Council at its Session in March 1963, in accordance
with Resolution 95 passed by the Zionist General Council at its Session in May –
June, 1962, with reference to Section 60, paragraph 8 of the Constitution of the
World Zionist Organization. Including the amendments in accordance with the
Resolution passed by the Zionist General Council at its Sessions in January 1967,
February 21, 1974, July 14, 1976, and June 29, 1986, and further amended as
resolved by the Presidium of the Zionist General Council on June 11, 1991.1
A. Definitions
In these Statutes:
The Constitution: The Constitution of the World Zionist Organization as
adopted by the Zionist General Council at its Session of
December 1959 – January 1960 in accordance with the
decision of the 24th Congress, as amended.
The Congress: The Zionist Congress.
The General Council: The Zionist General Council.
The Presidium: The Presidium of the Zionist General Council.
The Executive: The Executive of the World Zionist Organization.
The National Funds: Keren Hayesod – United Israel Appeal and the Jewish
National Fund.
The Comptroller: The Comptroller of the World Zionist Organization.
1 The Zionist General Council authorized the Presidium, in June 1990, to amend
the Statutes in line with Resolution 37 of ZGC of June 1989, and as may be necessary to clarify the procedures concerning the Comptroller’s reports.
246
The Finance The Standing Budget and Finance Committee elected by the
Committee: Zionist General Council.
The Subcommittee A Subcommittee established by the Finance Committee to
for Control2 discuss and deal with the Comptroller's findings.
Controlled Body: A body within the meaning of Section 10 of these Statutes.
Central Zionist An institution within the meaning of Article 46 of the
Institution: Constitution.
B. Status of the Comptroller and his Deputy
Election of the 1. The Comptroller shall be elected by the Congress for the
Comptroller purpose of conducting the control in the World Zionist
Organization (in accordance with Article 14 (e) of the
Constitution).
Term of Office 2. The term of office of the Comptroller shall be from the
day of his election until the end of the next regular
Congress. Should the office of the Comptroller become
vacant during the period between one Congress and the
next, the General Council shall elect a new Comptroller,
and in the meantime, the Deputy shall fulfill the duties of
the Comptroller. If there is no Deputy Comptroller, the
Presidium shall appoint an Acting Comptroller, but the
Comptroller shall continue to serve until the Acting
Comptroller assumes office.
Deputy Comptroller 3. (a) Should it be decided to establish such a post, the
Deputy comptroller shall be elected by the
Congress or the General Council, after hearing the
opinion of the Comptroller. The Presidium may, in
urgent cases, appoint a Deputy, such election
being subject to the approval of the General
Council at its next session. Details of the Deputy
Comptroller's authority shall be determined by the
2 Amended by the Presidium Resolution of June 11, 1991.
247
body which elects him (in accordance with Article
60, Section 3, of the Constitution).
(b) The tenure of office of the Deputy shall be from
the day of his election until the end of the next
regular Congress, or a shorter term to be decided
upon by the body which elects him.
Vacancy of office 4. (a) The office of the Comptroller and his Deputy shall
become vacant in any of the following
circumstances:
i. upon the expiration of his term of office;
ii. upon his resignation;
iii. upon his dismissal from office by a two-thirds
majority vote of the General Council;
iv. upon his death.
(b) The Comptroller may resign by tendering a letter
of resignation to the Chairman of the General
Council.
Independence of the 5. The Comptroller shall not, in the fulfillment of his
duties,
Comptroller be subservient to any body, and shall be responsible
solely to the Congress and to the General Council (in
accordance with Article 60, Section 6 of the
Constitution).
Special Status 6. The Comptroller shall participate in an advisory capacity
in the Congress, the General Council, and their
committees, including the Finance Committee (in
accordance with Article 32. Section 3 of the
Constitution).
7. The status of the Comptroller shall be equal to that of a
Member of the Executive, and his salary shall be in
accordance with that status, and the status of the Deputy
Comptroller shall be equal to the status of a Deputy
Member of the Executive.
Restrictions 8. (a) Neither the Comptroller nor his Deputy shall serve
248
on the executive of a controlled body; nor shall
they hold any other paid office;
(b) Neither the Comptroller nor his Deputy shall
during their period of office purchase, lease, or
acquire by gift any movable or immovable
property belonging to any controlled body, nor
shall they receive from such bodies any
concessions, grants, or favors, except for land or a
loan for the purpose of settlement or housing.
(c) Neither the Comptroller nor his Deputy shall take
up employment with a controlled body within
three years of leaving office.
Secrecy 9. The Comptroller and his Deputy shall be bound to
observe secrecy of all information, documents, or reports
to which they have access in the course of their work.
C. Scope of Control
Controlled Bodies 10. The following are the bodies subject to control by the
Comptroller:
(a) All departments, enterprises, and institutions of
the World Zionist Organization, both in Israel and
in the Diaspora.
(b) The National Funds and every other fund of the
World Zionist Organization, including their
departments, enterprises, and institutions, both in
Israel and in the Diaspora.
(c) Every company, enterprise, fund or other body in
whose capital or budget the World Zionist
Organization and/or the National Funds, together
or separately, participate to an extent of 50 percent
or more, or in which they have at least 50 percent
of the voting rights.
(d) Every company, enterprise, fund or other body in
whose capital or budget the World Zionist
249
Organization and/or the Funds mentioned in sub-
section (b), together or separately, participate to an
extent of less than 50 percent, provided that the
right of examination was a prior condition agreed
upon with such bodies. The extent of such control
shall be determined by agreement between the
Executive and the Comptroller.
(e) Every body subsidized by the World Zionist
Organization, or other body, the examination of
which is imposed upon the Comptroller by
decision of the Congress, the General Council, the
Finance Committee, or the Executive. The extent
of such control shall be determined by agreement
between the Executive and the Comptroller.
D. Functions of the Control
Details of Control 11. The Comptroller shall examine the administration of the
controlled bodies, the condition and administration of
their finances, their accounts, and their property, with
respect to their legality, order, efficiency, economy, and
integrity, and shall examine:
(a) Whether the controlled body functions in
accordance with the Constitution and the
directions of the Central Zionist Bodies;
(b) Whether the expenditure of the examined bodies
was made within the scope of their budgets, as
approved by the competent institutions, and for the
purposes for which they were intended;
(c) Whether the procedures of the controlled body
regarding receipts and payments is satisfactory;
(d) Whether the methods of safeguarding monies and
property and the state of cash and supplies are
satisfactory, and whether the accounts and balance
sheets are accurate and prepared at the proper
time;
250
(e) Whether the controlled bodies operate
economically and efficiently in all aspects of their
work, while adhering to legal and moral
principles;
(f) Whether the auditing of accounts, if conducted by
an auditor, is done at the proper time, and whether
the controlled body complies with the auditor's
directives.
Investigating 12. The Comptroller shall investigate complaints submitted
Complaints to him by the public against any body or person subject
to his control, as set forth in Section 10 above.
E. Control Procedure
Submission of 13. A controlled body shall be obligated to submit its
Budgets by detailed budget to the Comptroller immediately upon its
Controlled Bodies approval by the competent institutions, to inform the
Comptroller of any changes in the budget, and to submit
to him all documents pertaining to it.
Submission of 14. (a) Every controlled body shall be obligated to submit
Statements and to the Comptroller an interim report on its income
Balances by and expenditures for each fiscal year no later than
Controlled Bodies four months after the end of such year, and six
months after the end of the year, but not later than
nine months, a balance sheet showing assets and
liabilities as at the end of the fiscal year.
(b) Every controlled body shall submit to the
Comptroller a report and opinion presented to it by
an auditor and a copy of its remarks on such report
or opinion.
15. (a) The controlled body shall be obligated to render
its full assistance to the Comptroller and to his
staff in the performance of their tasks, and to allow
them unlimited access to all books, files, accounts,
documents, ledgers, card indices, and all other
material belonging to the controlled body. The
Cooperation
on the
part of the
Controlled
Body
251
controlled body shall similarly be required to
submit all information, documents, explanations,
and other materials required by the Comptroller or
his staff for the purposes of the examination.
(b) Any body or person against whom a complaint is
investigated, as stated in Section 12 above, shall
furnish the Comptroller, at his request, with all the
sources of information noted above within a
reasonable period of time or within a period of
time determined by the Comptroller, according to
the circumstances.
F. Results of the Examination
Submission of 16. (a) Should the examination reveal any shortcomings
Examination in the work or activities of any controlled body,
Findings the Comptroller shall inform the controlled body
thereof in writing and require rectification of such
shortcomings within a reasonable time.
(b) If the matter is intended for inclusion in a Report
under Chapter G, the Comptroller shall present a
summary of the examination to the head of the
controlled body in order to receive explanations
and clarifications regarding the findings of the
examination, and if he should deem it necessary,
he shall submit a copy thereof to the Chairman of
the Executive or to the Treasurer, as appropriate.
The Comptroller may set a final date by which
such explanations and comments are to be given.3
(c) If the examination reveals any deviation from or
disregard of the directions of the competent
institutions of the World Zionist Organization, or a
breach of the law or of integrity on the part of a
controlled body, the Comptroller shall bring his
findings to the notice of the head of such
3 Amended by the Presidium Resolution of June 11, 1991
252
controlled body for appropriate action and shall
notify the Chairman of the Executive and the
Legal Counsel.4
(d) The Comptroller may submit a summary of the
examination to a body controlled in accordance
with Section 10 (e) in order to receive necessary
explanations, with a copy to the body that
requested the examination.
Results of 17. (a) The Comptroller may inform a body or person
Investigation subject to his control of the results of the
of Complaints5 investigation of a complaint which has been
investigated by him, as laid down in Section 12,
above, and he may add his opinion and/or
recommendations regarding the steps which
should, in his view, be taken to resolve the
individual complaint and/or to rectify various
shortcomings revealed in the course of the said
investigation.
(b) The Comptroller may at any time ask the said body
or person to inform him of their position and of the
steps which have been or will be taken in the
matter which was the subject of the complaint. A
controlled body shall answer the Comptroller
within a reasonable period of time or within a
period of time determined by the Comptroller,
according to the circumstances.
(c) At the conclusion and/or during the course of the
investigation, the Comptroller shall furnish the
complainant with a pertinent reply which shall, in
the Comptroller's opinion, be an appropriate and
satisfactory. reply under the circumstances.
4 Amended by the Presidium Resolution of June 11, 1991
5 Amended by a Resolution passed by the Zionist General Council at its Session
on February 21, 1974.
253
G. Reports6
The Separate Reports 18. (a) Upon completion of an examination of a body
subject to his control under section 10, of a
specific subject, the Comptroller may submit a
separate Report on the said body or subject. The
Report shall be submitted to the Chairman of the
Finance Committee, the Chairman of the
Subcommittee for Control, the Chairman of the
Executive, the Treasurer, and the Head of the
Controlled body.
(b) The Chairman of the Executive shall make his
comments on the Report and forward them to the
Chairman of the Finance Committee and of the
Subcommittee not later than two months from the
receipt of the Report (Executive's Response).
(c) The Subcommittee for the Control or the Finance
Committee shall discuss the Report within two
months of the receipt of the Executive's Response.
Should there be no Executive's Response within
the period set in subsection b), the Committee may
discuss the Report without a Response.
Representatives of the Executive, as determined by
the Committee, shall be invited to attend the
Committee's meeting which is to deal with a
Comptroller's Report.
(d) The Separate Reports, or their main points, as the
Comptroller may decide, shall be included in the
Comptroller's subsequent Annual Report to be
prepared and submitted under Section 19.
(e) Upon completion of its discussion of a Separate
Report, the Committee shall draw up its
summaries and conclusions, including its requests
6 This Chapter, which lays down the procedures for the submission, publication
and handling of the Comptroller’s Reports was amended by Resolution of the Zionist General Council on June 29, 1986, and further amended by Resolution of the Presidium of June 11, 1991.
254
for correction of deficiencies, and shall
communicate them to the Chairman of the
Executive, to the Head of the Controlled body and
to the Comptroller.
(f) The Chairman of the Zionist General Council will
receive a copy of each Separate Report, of the
Executive's Response thereto and of the
Committee's Conclusions.
(g) If necessary, the Comptroller may make an interim
report to the Finance Committee.
The Annual Report 19. The Comptroller shall prepare once a year an Annual
Report. The timing of the Report shall be such that it be
submitted to the Chairman of the Zionist General
Council and its members one month before the Council's
regular annual Session.
The Comptroller's Annual Report shall comprise:
(a) A general summary of his activities and the
activities of his Office during the year;
(b) A list of the bodies and their main units controlled
during the period of the report;
(c) A list of the separate Reports submitted by the
Comptroller according to Section 18.;
(d) The separate Reports themselves or their main
points as the Comptroller's may deem appropriate.
If a Separate Report is included in the Annual
Report, the Executive's Response shall also be
appended. If the Separate Report had been
discussed in the Committee, the Committee's
conclusions shall be included in the Comptroller's
Annual Report.
(e) After consultation with the Chairman of the Sub-
Committee or the Committee, the Comptroller may
include in the Annual Report a separate Report not
yet disposed of by the Committee, whereupon:
(1) The Committee's Conclusions, once they are
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determined, shall be distributed to the
members of the Zionist General Council.
(2) In the following Annual Report these
Conclusions shall be presented, along with a
precis of the Report, and, if possible, with a
brief follow up on the relevant points.
(f) Concurrently with the submission of the Annual
Report to members of the Zionist General Council,
the Comptroller may release the Report for
publication.
(g) Should the Comptroller believe, upon consultation
with the Chairman of the Executive and the
Chairman of the Committee, that publication of a
certain subject or of certain details included in the
Report, may be detrimental to the World Zionist
movement, or to its activities in some countries, he
may exclude such a subject or such details from
the published Report. The Chairman of the Zionist
General Council together with the Chairman of the
Committee may decide – on the recommendation
of the Comptroller, of the Executive or at their
own discretion, that certain parts of the
Committee's conclusions should be excluded from
the published Report.
(h) The Comptroller may make public a Separate
Report prior to the time that the next Annual
Report is prepared and published, if he believes it
necessary and after consultation with the
Chairman of the Committee and the Chairman of
the Zionist General Council.
Discussion by 20. The Presidium of the Zionist General Council may
Zionist determine whether and how the Comptroller's Annual
General Council Report shall be discussed by the Council.
In any event, the agenda of the Council shall include an
oral report of the Chairman of the Finance Committee or
of the Sub-committee for Control on control activities,
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and – if necessary – a report of the Chairman of the
Executive on steps taken to rectify deficiencies.
Report to the 21. Close to the convention of the Zionist Congress the
Zionist Congress Comptroller shall prepare a comprehensive report
referring to the period since the previous Congress. The
provision of sections 19-20 above shall apply mutatis
mutandis.
H. The Control Office
22. The Comptroller is the head of the Control Office,
through which he shall carry out his duties under these
Statutes.
23. The rights and duties of the employees of the Jewish
Agency – World Zionist Organization will be applicable
to the Director-General and the staff of the Control
Office. They shall, however, be appointed, employed,
and dismissed by the Comptroller in line with the labor
agreement governing employees of the Jewish Agency –
World Zionist Organization, and shall be subject solely
to the Comptroller or any person designated by him.
24. The restrictions noted in Section 8 above shall apply to
all employees of the Control Office concerned directly
with control. As to the restriction contained in
Section 8 (c), the period of prohibition prescribed in this
section for employees of the Control Office shall be two
years or less, as decided by the Comptroller.
The restrictions set forth in Section 9 shall apply to all
employees of the Control Office.
25. The budget of the Control Office shall be a special
budget determined on the proposal of the Comptroller,
by the institution that approves the budget of the World
Zionist Organization in the current year, without
connection to other expenditure budgets. Such budget
shall be spent in accordance with the Comptroller's
instructions.
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26. The Comptroller shall submit a financial statement at the
end of each year for the approval of the Finance
Committee.
I. Miscellaneous
27. Should the General Council not decide to establish a
Finance Committee, the provisions of these Statutes that
refer to such committee shall apply, mutatis mutandis, to
the General Council itself or to such institution as the
General Council shall charge with the carrying out of its
functions in budgetary and financial matters.
28. Upon the approval of these Statutes, the Statutes of the
Control Office as adopted by the 24th Congress shall
become null and void. Decisions of the Central Zionist
Institutions regarding the Comptroller and the Control
Office, apart from the provisions of the Constitution,
shall likewise become null and void.
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