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 [email protected]

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 2

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 12 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.

13 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.

14 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

51 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

51 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

51

51

Jewish Agency and Zionist Federation Activities in South Africa

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

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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

00 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.

02 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.

02 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 060666 190995 100666 100666 Organization Budget B Transfer to the 500666 500666 050666 060,02 Israel Center Zorim Tzionut 523,49 773075 50,3559 5003527 (operating expenses and shlichim salaries) Ben-Ami (Zorim 23409 53554 2 2 Tzionut) Zionist Calendar 053224 5,3224 43497 43275 (Zorim Tzionut) C Total for Zorim 500001, 900001 5200,10 52501,0 Tzionut 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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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 – 2395,3222 237203490 IUA 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 – 2573222 Ha’atzmaut Revenues from local activities ,223,54 ,293922 Total 10950099, 00006029, )$0900550( )$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.

02 ,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

22

World Zionist Organization Office in France

13 13 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

11 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.)

13 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 000666 490693 580666 480843 Aliyah )166%( )85%( )166%( )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 3350196 3890896 1000691 )166%( )94%( )166%( )03%( 1+ Total – WZO Office and 4140448 3000353 4330896 3610034 3 Promoting Aliyah )166%( )58%( )166%( )85%( 4 Section 701 – Jewish Federation Current budget 190111 190111 300911 0800,7 Activities – – 390111 10003 4 Total – Section 701 080666 080666 000866 330436 )166%( )166%( )166%( )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- 100911 0,0,11 – – Semitism 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 1060366 1040383 1800066 050416 Projects 1-0 Total budget 3040848 3460840 8610396 3090944 )166%( )91%( )166%( )83%(

13 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

13  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.

34  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.

33 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.

31 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.

33 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)

34 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

33

T.L. Culture for Israel Ltd.

45 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.

44 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.

45 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’

56 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.

55 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

54 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 005,225222 0052,25222 005,,55222 0250005222 Culture

From local authorities ,550,55,52 6556605050 0550025222 0255005222 Total Revenues ,18,,58,01 9,82098252 0980,08111 2180258111 Expenses: Activities and 505,055000 00550655,, 5050555222 0255055222 programs

Administrative and 056665020 05,,05506 05,025222 5205222 general

Total Expenses ,081228225 9,822989,0 0285508111 208,908111 Surplus operating expenses (income) 05,5005 )0,55000( )056025222( 5005222 Finance expenses ),05250( )05,65( 0,5222 ),5222( (income) 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 05,505650 05,0050,6 050005222 0,05222 costs 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.

55 (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 0065500 00056,0 050005222 0605222 costs 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 0,05,00 0,0506, 0,5222 025222 miscellaneous 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

56

Keren Kayemeth LeIsrael – JNF

Budget Preparation

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.

47  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.

44  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.

47 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 61.2.9.61 Chairman + determining the budget framework co-chairman 61.66.9.61 Finance Framework budget approved by Committee Finance Committee chairman Director General, Finance Division 96.66.9.61 Director and divisional directors General 91.69.9.61 Chairman + Final review by Finance Committee co-chairman 16.69.9.61 Chairman + Board review and approval of budget 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 912 1.. 66.1% administration) Activities 101 12. 4.1% Financial liabilities 911 900 2.9% Sub-total 898 9,5 5.5% Matching (for project-specific 9. 9. - donations from abroad) Total 908 985 5.2%

Breakdown of expenses in 2014:

Matching for overseas donations התחייבויותFinancial כספיות liabilities Fixed קבועות 28% 30%

פעולותActivities 40%

78 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 2014 BUDGET (NIS THOUSANDS) (NIS THOUSANDS)

KKL-JNF employee 6..11.. 6..11.. pensions WZO 1111.. 1111.. Joint projects with third 11161. 1.121. parties Funds and Endowments 99161. 99161. Department Collaboration with 6019.. 6019.. Nefesh B’Nefesh OR Movement 11... 11... Promoting projects for 11... 11... donations 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.

77 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.

74 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.

77 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 2102 2102 % CHANGE COMPONENT Fixed costs 912 1.. 66.1% Operating costs 101 12. 4.1% Financial liabilities 911 900 2.9% Matching of overseas 9. 9. - donations 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

78 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.

77 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.

77 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 UPDATED DIFFERENCE % (NIS (NIS (NIS CHANGE THOUSANDS) THOUSANDS) THOUSANDS) Projects with 61192. 411191 1.1941 622% municipal authorities Forestry 4.1... 14122. 64122. 10% Agricultural 691... 961242 21242 29% training

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.

77 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.

74 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.

77 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:

77 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

888 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.

888 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 CAPEX DIFFERENCE BUDGET 2013 BUDGET (*) 2014 Forest and Field New – 91164. 91164. Centers Dept. construction plans for youth camps Maintenance Construction 11911 6111.. 21.40 and Logistics and renovation Division. Forest and Field Planning, 619.. 11... 112.. Centers Dept. strategic plan, and renovations LDA Eshtaol + Ahula – 911.. 911.. visitor centers Public Relations Planning for – 61... 61... Neot Kdumim visitor center 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.

888 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.

888 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:

Committee for Sustainable Development LDA

Himnuta Education and Youth

Public Relations

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).

887 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 TOTAL PERFORMANCE PERFORMANCE BUDGET BUDGET (NIS) (%) Including 2410611... 4211211220 12.1% Himnuta Excluding 1211611... 21.021169 61.1% Himnuta

887 B. Under-utilization at the unit level

In some units, utilization rates were particularly low, as follows:

UNIT BUDGET UTILIZATION UTILIZATION (NIS (NIS (%) THOUSANDS) THOUSANDS) Committee for 1.. . .% Sustainable Development Education and Youth 1.164. 120 9% Maintenance and 6111.. 61949 2% Logistics LDA 011.. 61610 61% Committee for Public 01201 11.26 * 11% Relations

* 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

887 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’

884 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 APPROVED % 2013 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 66.6 66.1 62% Board secretariat

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.

887 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.

887 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.

888 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 2013 ACTUAL % (NIS (NIS DEVIATION THOUSANDS) THOUSANDS) Resources Division – division 041 6162. 1.% management Finance and Economics 61621 91624 21% Division – division management Public Relations 211.9 691442 1.% Education and Youth Division 6.1111 641011 49% HR and Administration 11226 41214 99% Division – HR

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

888 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.

888 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,

888 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

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Keren Kayemeth LeIsrael Spokesperson’s Unit

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Keren Kayemeth LeIsrael 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.

111 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.

111 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).

121 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 Growth budget (NIS) (%) 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.

121 Planned vs. actual expenditure in 2013-2014, for key items in the Spokesperson’s Unit’s budget (NIS):

Updated Actual Actual 2014 Item budget 2013 expenditure expenditure budget 1-1202/11 2014 Marketing content (morning shows, eco-news, TV 205520111 200270271 ,0,110111 404220152 sponsorships, etc.) Advertising – press, radio, 002500111 0021101,, 707110111 200120124 and television Overseas communications 207110111 204050701 101110111 1 activities Media-covered conferences 2074,0111 2072104,2 201110111 5210104 Digital marketing and 0110111 72,02,0 201110111 110554 advertising Other 401170111 20,720241 402220111 201120,22 Total 104,//4/// 114,,44211 224,114/// 1/4/24411,

Budget breakdown (budget data):

Embedded marketing

Other Advertising – press, radio and television

Overseas comm. activities

Digital marketing and advertising 5% Media-covered conferences 5%

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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 2014 Additional Growth budget budget budget (%) Marketing contents 70111 ,0,11 207,1 02 Digital marketing and 711 20211 011 211 advertising Reporter tours 211 011 211 211 Crisis management 21 211 121 122 Advertising – press, 70211 70711 111 4 radio and television

121 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 Expenditure Expenditure 2014 Addition budget 1-,02/11 rate (%) budget (%) Reporter tours 1110111 2007,5 2, 0110111 111 Digital marketing and 0110111 4240157 02 202110111 ,2 advertising 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.

121 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 Pro-actively publicizing positive initiatives; targeted, awareness of KKL audience-specific exposure; overseas media activities 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- ‘Appearing on TV’ media workshops; developing a topics for the year 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:

121 Zero-utilization items (NIS thousands):

Item 2013 2014 Budget Amount budget budget for the utilized period 1-9 2014 Overseas 20711 10111 20711 1 communications activities Studies and 111 171 2,587 * 1 surveys

* 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 2014 Budget Amount Utilization (NIS budget (1-9/2014) Utilized Rate thousands) (NIS (NIS (%) thousands) thousands Digital marketing and 711 20211 ,17 12 2 advertising Reporter tours 211 011 471 75 22 Stills photography 411 471 22587 44 22 Content development, 711 411 211 ,2 15 editing and translation

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.

111 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 101110111 channel) 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

111 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

111 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.

111 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

111 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.

111 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.

111  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

111 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.

111 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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112

Keren Kayemeth LeIsrael – JNF Joint Programs with Organizations

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451 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- Budget Expend- Budget Expend- iture iture iture WZO 516,556555 5165,56,35 516,556555 5765,36585 516,556555 5365516515 Unions, 136,576555 1,681,6557 )3(1168,86555 1,68516158 556,556555 1368,56181 organizations, youth movements, local authorities, etc. 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

455 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 1168,86555 1,68516158 556,556555 1368,56185 movements, local authorities, etc.) 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 365556555 365,7651, 165556555 5,56517 awareness of KKL activities 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 5556555 1156,,5 363556555 5,,6,58 Living 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 )2(1051,25,2, 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

451 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.

411 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.

414 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.

411 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.

411 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

415 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.

411 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.

414 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.

411 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 Adjustment Adjustment Annual (%) to streams to to youth payment organizations movements 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)

411 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.

415 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 As per WZO 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

411 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 Share Annual Trans- Trans- Trans- (KKL (%) KKL fers for fers for fers for figures) budget 2012 (*) 2013 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.

411 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.

414 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.

411 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- Union Adjust- Adjustment Adjustment Annual tation in budget- ment for for for youth payment Congress ing streams organizations move-ments (%) Arzenu 71 3538% Arzenu TELEM (*) Reform Netzer 3,,6585 5,76585 )-5556555( 3156555 Olami 576555 World 57 33% World Masorti Conservative Hazit Hanoar )-376855( MERCAZ MERCAZ Olami 3156555 316555 15,6155 )-5556555(

Mizrachi 7, 3,315% Mizrachi )-5156555( Orthodox Bnei Akiva 11,6,17 5356,17 3156555 31,6555 (*) 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.

411 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).

415 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 Transferred Transferred Transferred from KKL- for 2012 in 2013 in 2014 JNF WIZO 3156555 120,000 split 120,000 split 120,000 split Bnai Brith 3156555 3156555 3156555 3156555 Sephardi 3156555 3156555 3156555 3156555 Federation 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).

411 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.

414 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 Youth Movement Shlichim Shlichim as Movement according to currently KKL-JNF 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- Share Annual Trans- Trans- Trans- ment (%) KKL- ferred ferred ferred in shlichim JNF for 2012 for 2013 2014 budget 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 35 3,331 ,,6555 ,,6555 ,,6555 ,,6555 (Kadimah) 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.

411 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.

415 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

411 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:

111 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).

114 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.

111 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.

111 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.

111 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

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111

Keren Hayesod

Property Management 802

Keren Hayesod

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.

802 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.

811  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 61 667,811 structures 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. –

812 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

812 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 Property Activity Owners branch class Beit Shalom Jerusalem Jerusalem Investment Management Keren Hayesod Amal Eiron Hadera Haifa Investment Management Keren compound 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.

812 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.

881 - 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.

882 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

882 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.

882 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 Rights- Registration lease holder status Jerusalem Storage 17 Shmuel Ownership – Jewish Under Keren space in 17 Hanagid St. Agency Hayesod Shmuel Hanagid St. Jerusalem 4 residential 18 Ein Ownership – Jewish Under Keren apartments Tzurim Agency Hayesod

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6) Additional properties:

City Description Address Right End of Rights- Registration lease holder status Jerusalem Kiryat 1,2 Ha’askan Lease Nov. 23, Keren Easement Moriyah – 2019 Hayesod towards Kiryat Jan. 26, Keren Hatfutzot 2018 Hayesod under a lease agreement Petah Beilinson Jabotinsky Ownership - Keren Under Keren Tikva Medical Hayesod Hayesod Center Rison 5 residential 13 Yudilevitch Ownership Jewish Under Keren Letzion apartments Agency 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

882 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 Kindergarten Ownership Hapalmach Kiryat Biyalik 17 Playground/kindergarten Ownership Ha’atzmaut Kiryat Nahum Lots Ownership

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Superficies (attached structures registered separately from the land):

City Address Description Rights Gan Haim Drom Hasharon Structures Ownership Regional Council Gan Shmuel Hefer Mobile Post Structures Ownership 38810 Hadera 24 She’ar Yashuv Structures Ownership Hadera Nahliel Structures Ownership neighborhood Hadera Nahliel Structures Ownership neighborhood Hadera Nahliel Structures Ownership neighborhood Hadera Nahliel Structures Ownership neighborhood Ein Shemer Menashe mobile Structure, trees Ownership post 37845 Petah Tikva 50 Achad Ha’am Structures Ownership Petah Tikva 24 Mahane Yehuda Structure Ownership Petah Tikva 23 Menahem Structure Ownership Ratzon 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.

821 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

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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:

822 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.

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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.

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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.

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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 87,9,7 council Ramat Ishay 67,595 Kiryat Ata 68,795 Emek Izrael Balfouria 9,666 regional council Izraelim regional council 9,695

822 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.

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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

841 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

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Statutes of the Comptroller and of the Control Office The World Zionist Organization

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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.

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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.

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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

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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

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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;

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(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. Cooperation 15. (a) The controlled body shall be obligated to render on the its full assistance to the Comptroller and to his part of the staff in the performance of their tasks, and to allow Controlled them unlimited access to all books, files, accounts, Body documents, ledgers, card indices, and all other material belonging to the controlled body. The

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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

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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.

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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.

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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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