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					The Treatment of Waste from

Hazardous Substances

Ministry of the Environment, Annual Report 46

Large quantities of hazardous substances are used as raw materials in many industrial factories, in agriculture,
research laboratories, hospitals, and other places. Each year, use of these substances, primarily in industrial
production processes, creates tens of thousands of tons of waste containing hazardous substances. Most of this waste
is discharged in liquid form, which is treated at special facilities within the factories, by a process that creates a
sludge of hazardous substances. This sludge is to be transferred to the Ramat Hovev site, while the liquid waste is
directed into the municipal sewage system after it has been checked and meets the appropriate standards.
In order to lower costs, factories seek ways to prevent the production of hazardous waste, whose disposal is
expensive. However, increased technology leads also to the expanded industrial use of hazardous substances, and
industrial plants produce large quantities of hazardous waste. Failure to remove the waste, or non-professional and
uncontrolled disposal, is liable to cause serious envi- ronmental damage, such as pollution of underground water and
water reservoirs, land and air pollution, and to endanger public health.
Certain types of hazardous waste are particularly toxic and can cause detonations when they come into contact with
other chemicals. Hazardous substances, even in small quantities, can create large-scale damage and nuisance. For
example, one kilogram of cadmium reaching underground water can pollute 200,000 cubic meters of potential
drinking water. A factory that produces waste containing cadmium and employs some ten employees can pollute the
drinking water of an entire city. To prevent harm to the public and to the environment, hazardous waste must be
properly handled where it is collected, during its trans- port, and at the location to which it is removed.
At the end of 1988, the Ministry of the Environment (hereafter - the Ministry) was established, and in accordance
with government decisions, executive powers of other government ministries in the area of hazardous substances
were transferred to the Ministry, including the handling of hazardous waste. The Business Licensing (Removal of
Waste of Hazardous Substances) Regulations, 5751-1990 (hereafter Business Licensing Regulations), require every
producer of hazardous

waste to remove it to the national site at Ramat Hovev. The plant located at the site handles waste of hazardous
substances that are not radioactive or explosive. Removal of the waste in another manner, such as recycling or dis-
charge into the sea, requires the special approval of the director general of the Ministry.
The national site for handling hazardous waste is located within the jurisdic- tion of the Ramat Hovev Local-
Industrial Council. The site opened in 1981 as a private enterprise. In 1982 the authorities issued an order for its
closure, and at the end of the year, Industrial Buildings Ltd., a government corporation, took over management. In
1990, shortly after the Ministry was established, a gov- ernment corporation, The Environmental Protection Services
Company (Ramat Hovev) Ltd. (hereafter the Company), was established, and it was given the task of managing and
operating the site. (As regards the Company's activities in removing hazardous waste, see below.)
Pursuant to the definition set forth in the Hazardous Substances Law, 5753- 1993 (hereafter Hazardous Substances
Law), a "hazardous substance" is a poison or a harmful chemical, whether in its simple form or mixed or
compounded with other substances. The list of hazardous substances are listed in the first and second annexes to the
law. The Business Licensing Regulations place on the business proprietor the duty of removing, to the Ramat Hovev
site, all hazardous waste originating or located in his plant, as soon as possible and no later than six months from
when it was produced. The Minister of the Environment is granted supervisory powers over the handling of
hazardous substances in all sectors of the economy, including enforcement of their removal to the appropriate site.
The Ministry's six districts have professional coordinators whose duty includes supervision of the removal,
collection, storage, and conveyance of hazardous waste produced in the plants located in the Ministry's districts to
which they are assigned. The Hazardous Substances Division, located in the Ministry's head office, serves as the
professional headquarters that directs the coordinators. The Division also operates a Hazardous Substances
Information Center, whose tasks include computerization of data on the distribution of hazardous substances in the
country and monitoring their removal.
The district hazardous substances coordinators are in contact with the environmental protection units operating in
the local authorities. These units assist the Ministry in supervision, control and monitoring, providing it with their
findings. They serve as a link, in essence, between the Ministry's activities and implementation of its environmental
affairs policy which includes the removal of hazardous waste at the national level and at the local level.
During the period of April to August of 1995, the State Comptroller's Office audited the handling of the disposal of
hazardous waste. The audit focused primarily on the Ministry's preparedness to handle the hazardous waste
produced in Israel and to enforce the law concerning its disposal. The State Comptroller's Office also examined the
activities of the company that manages the central waste site at Ramat Hovev in disposing hazardous waste.

The State Comptroller's Office conducted the audit at the Hazardous Substances Division, at the Ministry's head
office, and at three of the Ministry's districts - Central, Haifa, and South in whose jurisdiction are found many
plants that use hazardous substances. The audit also examined the head office of the Company at its location in the
Ramat Hovev Local-Industrial Council, and at the Govern- ment Companies Authority in the Finance Ministry.
A previous audit on the supervision of hazardous substances was conducted in 1994, and its findings were published
in Annual Report 45.

1. As mentioned previously, the processing and production of materials and products in large industrial plants and
many hundreds of small and medium-sized factories, in research laboratories, and in medical institutions produce
thou- sands of tons of hazardous waste each year.
When the Ministry was founded, its management decided that the handling of hazardous waste would be given high
priority. The Ministry's policy, similar to that of other countries, is to direct and encourage the factories to reduce, to
the degree possible, the quantity of waste produced during production, as well as its volume and weight.
To ensure proper supervision of handling the various types of hazardous waste, the Ministry requires a data bank
containing information on the bodies using hazardous substances; the types of hazardous substances; the amount of
hazard- ous waste produced at each plant during production, the way it is accumulated and its initial treatment; the
quantity of waste removed from the factory, the manner of conveyance
and packaging, and the location to which it was removed. Also, it is important for the Company to provide data on
the quantities and types of hazardous waste transferred to it from any other body using hazardous substances.
In 1992, after the Company was established, the Ministry and the Company conducted several surveys to estimate
the quantity of hazardous waste created in Israel. The surveys were intended to help set policy for handling this
waste, the preparation needed by the Company to handle waste, and the scope of its activities.
The Company ordered the first survey, in 1990, from a European company and Ben-Gurion University in
Beersheva. The survey located 1,270 plants that used hazardous substances, and examined the types of these
substances, and the quantities of waste they were likely to produce. According to the findings of the survey,
industrial plants in Israel produce between 80,000 to 100,000 tons of hazardous waste every year. The Ministry did
not agree with the survey's findings because it did not agree with the survey method used.
That same year, the Company and the Ministry commissioned a supplementary survey, intended to verify the
findings of the previous survey concerning the quantity of organic waste. The survey examined a 140 factories in

representing fifteen sectors, that produce hazardous organic waste. According to the survey's findings, the annual
quantity of hazardous organic waste created throughout the country is some 25,700 tons. The survey also indicated
that over the years, an additional amount of some 87,000 tons of untreated hazardous or- ganic waste had
accumulated, of which some 25,000 tons were at the Ramat Hovev site, and some 62,000 were located at various
factories throughout the country. The Ministry also did not accept the findings of this survey.
In July 1993, an engineering consulting firm conducted a survey, at the request of the cement plants, to examine the
possibility of burning hazardous organic waste in the furnaces of the cement manufacturer, Nesher Ltd. This survey,
whose data were based on plant reports, estimated the amount of hazardous organic waste produced in Israel to be
some 65,000 tons a year.
The surveys differed as to the amount of hazardous organic waste produced in Israel. The Ministry's current
information on the amount of hazardous waste produced in Israel and the manner of handling it is incomplete. The
Ministry did not fully utilize its sources of information on the production of hazardous waste, and did not complete
the collection of information so that it could ensure the proper removal of the waste from all the sites where waste is
The Ministry has the files of more than 1,300 plants that applied to the Min- istry for a toxic substances permit
under the Hazardous Substances Law. Most of these factories produce annual quantities of hazardous waste that
range from several kilograms to thousands of tons. As of the date of the completion of the audit, the Ministry had
not received all the data on the hazardous waste produced by bodies holding toxic substances permits.
In its response of November 1995 to the State Comptroller's Office, the Ministry indicated that it had appointed, in
the second half of 1994, a Ministry employee to coordinate matters concerning hazardous waste, and that at the
same time, the Hazardous Substances Division had started to compile a computerized data bank to deal with all the
plants and other bodies that produce hazardous waste. The data includes the site of the plant and the amount of
hazardous waste it produces. According to the Ministry, the information it possesses is updated regularly on the
basis of plant reports, and that it currently has information on 710 such bodies throughout the country. The Ministry
noted that the examination of all the bodies producing hazardous waste has been completed only in the Central
District. In the other districts, the Ministry has not completed the examination of those bodies listed in the data bank
nor of those that are not yet included within the data bank.
The State Comptroller's Office is of the opinion that the Ministry should com- plete its compilation so that the data
bank includes all the bodies that produce hazardous waste.
2. In addition to the plants that produce large quantities of hazardous waste, there are hundreds of factories and
other bodies that produce relatively small quantities of hazardous waste, all of whom together produce thousands of
tons of waste. The Ministry does not know if they remove their hazardous waste to Ramat Hovev.

These bodies are spread throughout the country. Many are located within population centers, and the waste located
on their premises is liable to cause immediate harm to the nearby residents, and to the drinking water and sewage
systems in surrounding areas.
In order to expand the data bank on these factories and bodies, primarily in order to ensure the proper removal of the
hazardous waste, the Ministry conducts special operations to locate them and determine the amount of dangerous
waste on their premises. These operations have not, however, encompassed all the relevant sectors of the economy.
In January and February of 1995 the Central District contacted 115 plants that, according to a Company report to the
Ministry, had sharply increased or decreased the quantity of waste they had removed to Ramat Hovev between 1992
and 1993. The examination indicated that about one-half of the plants included in the Company's reports informed
the Central District that change in the process of production or one-time cleaning of the facilities had caused a
temporary increase in the quantity of hazardous wastes it had removed in a particular year, and in the following
year, the quantity of waste returned to normal. The coordinator of hazardous substances required the other plants to
remove their hazardous waste to Ramat Hovev. According to reports in the possession of the Ministry, they had
indeed removed dozens of tons of hazardous substances to Ramat Hovev.
In the Southern District, some fifty plants producing large quantities of haz- ardous substances were found, but the
authorities were not supervising removal of the hazardous waste from all of them. In the Haifa District, the
authorities had not determined which plants would be handled at high priority. The Ministry also did not undertake
special action to locate hazardous waste, even though such ef- forts can yield valuable information on the quantity
and location of such waste.
In the second half of 1995, following the special campaign to locate hazardous substances in hospitals, health fund
clinics, and research institutions, there was an increase of some 20%, in comparison to the previous year, of the
quantity of hazardous waste removed from such bodies to Ramat Hovev. In this sector too, however, the campaign
did not encompass all the bodies and types of waste they produced (see below(.
3. Hazardous waste is likely to accumulate also in sewage facilities of the local authorities: when industrial sewage
containing hazardous waste is not properly treated and flows into the municipal sewage system, it may create
dangerous and toxic sludge. In the Central District alone, such sludge was found at some 10,000 locations, and only
some of it was removed to Ramat Hovev. For example, alongside the sewage facility of the Lod Municipality and
adjacent to neighborhoods containing hundreds of apartments, polluted sludge containing high concentrations of
heavy metals was found. The Ministry demanded that the municipality remove the sludge to Ramat Hovev, and
estimated that the cost of removal, without loading and transport, would reach some NIS 11 million.
In the opinion of the State Comptroller's Office, the sludge must be located and removed. But removal is not
enough; after removal, the Ministry must examine the damage it caused to the land and the underground water in
that and adjoining

areas, and treat these problems. The Ministry informed the State Comptroller's Office that it was unable to finance
removal of the sludge created a long time ago, and that it was impossible to locate those who created the sludge
found in local authorities, or to charge these authorities, which lack budget resources, for the cost of removal.
The Ministry further informed the State Comptroller's Office that at the end of 1995 it had begun a nationwide
campaign to locate and collect small quantities of pest-control substances and hazardous waste from school
4. To control all the quantities of hazardous waste produced in Israel and the manner in which it is removed, it is
necessary that the Ministry's divisions dealing with this subject coordinate their efforts. The audit showed that no
coordination exists between the various divisions of the Ministry that deal with the bodies producing hazardous
waste. In the files of the plants that were exam- ined, for example, no references were found indicating that the
Water Quality Division provided them with guidelines on how to handle the sewage they create. Such guidelines
could serve as a basis for supervision and inspection by the Hazardous Substances Division.
In its response to the State Comptroller's Office, the Ministry stated that on November 20, 1995 procedures had
been proposed for determining areas of responsibility in order to ensure coordination between the various divisions
dealing with the same bodies.

There are large factories that use hazardous substances during production processes and produce large quantities of
hazardous waste, but it is impossible to enforce the laws and regulations concerning the handling and removal of
this waste. This is due to the legal difficulties in applying the provisions of the Business Licensing Law, 5728-1968,
which allows for the imposition of conditions in their business licenses regarding their manner of operation.
In accordance with the Ministry's stipulations, a survey was done of the dangers in such factories. In the framework
of the survey, the quantity of hazardous waste produced by them was reported; each year they remove thousands of
tons of such waste to the site at Ramat Hovev. However, these activities are only conducted by complying factories,
and are incomplete. In the meantime, thousands of tons of hazardous waste accumulate at the sites of these factories,
and the Ministry has not yet completed preparation of comprehensive guidelines on the optimal ways to handle this

The toxic waste site at Ramat Hovev serves as the central site for hazardous waste disposal in Israel.

Operations began at the site under the management of a private company already in 1981, and in the course of time
was managed by two other bodies: between 1983 and 1990 it was managed by Industrial Buildings Ltd., a
government corporation; and since January 1990 it has been managed by the Environmental Protection Services
(Ramat Hovev) Ltd., to which the government transferred management. The Company is a governmental
corporation, and its purpose is to handle all types of hazardous waste except for radioactive waste, explosive
substances, and con- taminated medical waste.
The Company's documents show that from the time the toxic waste site at Ramat Hovev commenced operations in
the early 1980s, until 1995, at least some 63,000 tons of hazardous organic waste had been collected and remained
untreated, at least some 10,000 tons of which had been collected prior to formation of the Company in 1990.
Lacking an appropriate incinerator, the waste is stored without any supervisory control, and apparently in a manner
that does not meet profes- sional standards.
The immediate removal of hazardous organic waste by burning it in an inciner- ator designed for that purpose was
previously recognized by all the experts as the desirable solution for this problem. The State Comptroller also
warned about the need to act forthwith to construct an incinerator to handle organic waste that had accumulated at
the site over the years, or to find another, appropriate solution to the problem of accumulated organic waste (see
Annual Reports 39 and 42).
From the end of 1990 to 1993, work relationships between the Ministry and the Company were poor, and they did
not cooperate fully. This lack of cooperation and attempts to privatize the Company, which began in the beginning
of 1992 and continued for two years, delayed the construction of the incinerator intended to handle the dangerous
organic waste that had accumulated at the site. Only in October 1994 did the Company sign a contract to build the
incinerator, and it is scheduled to begin operations in August 1996.
According to the Company's preliminary estimates, the cost of handling damage that resulted, or is liable to result,
from pollution of land and groundwater due to large quantities of untreated organic and inorganic waste that had
accumulated at the site prior to formation of the Company, may reach scores and even hundreds of millions of
dollars. The state must, therefore, find a way to finance the actions necessary to remedy the aforementioned damage.

1. Contaminated medical waste is waste contaminated by bacteria and viruses likely to infect humans and pollute
the environment. This waste is one of the types of waste produced in medical institutions, and includes waste
produced in operating, delivery and dialysis wards, and from disposable laboratory instru- ments, disposable and
sharp medical items, dressing materials, clothes and equipment that have been in contact with blood, and the like.

Israel has more than 200 hospitals, containing more than 30,000 beds. The total quantity of contaminated medical
waste resulting from these institutions, health fund clinics, medical laboratories, research institutes, and physicians'
private clinics is estimated to be between 5,000 to 6,000 tons per year. Because of the continuing increase in the
number of persons with severe infectious diseases (AIDS, viral hepatitis, tuberculosis, and others), the amount of
contaminated medical waste produced in medical institutions in Israel has increased, and the public is increasingly
exposed to the dangers resulting from this waste.
2. The customary method to remove contaminated medical waste is by collecting it in special containers and
transporting it in a controlled manner to an incin- erator specially designed for that purpose. The ash remaining after
incineration (some 5% of the material that had existed prior to incineration) is removed after special treatment, for
underground burial. Some of the contaminated medi- cal waste may be turned into non-contaminated waste by
sterilization, chemical disinfection, and other means.
3. Contaminated medical waste must not be removed for burial in the manner in which regular solid wastes are
disposed, without first being specially treated. It should not be removed to Ramat Hovev, because the Company's
business license provides that it is not allowed to handle this waste. For this reason, therefore, thousands of tons of
contaminated medical waste are not properly treated and continue to be brought to sites where solid waste is buried.
Comprehensive and precise information on the damage caused by contaminated medical waste in Israel is still
lacking, as is information on the damage liable to result in the future, but it is likely that it has caused, and continues
to cause, environmental harm, and constitutes a danger to health.
4. At the end of 1992, the Ministry's director general and the director gen- eral of the Ministry of Health appointed
a joint panel to prepare a tender for the handling of contaminated medical waste of hospitals and health clinics.
Following discussions, the panel decided to prepare a sample model for examining the proposals for constructing a
system to collect, treat, and remove contaminat- ed medical waste in two areas in Israel.
According to agreement between the two directors general in August 1994, an initial draft of regulations for the
removal of contaminated medical waste produced in the health system was prepared. However, as of the date of the
conclusion of the audit, no progress had been made in this matter.
In July 1995, the deputy director general of the Ministry warned that, because of the delay in enacting the
regulations, contaminated medical waste was likely to cause severe health and environmental harm; and the
Ministry would not allow the waste burial sites to accept solid waste if the waste has not been treated prior to
As of the end of 1995, no regulations for the removal of contaminated medical waste had been published, and
appropriate sums of money had not been budgeted to handle this serious problem. The joint panel mentioned above
estimated that an- nual funding of some NIS 20 million was required. In the meantime, contaminated

medical waste continues to be removed to the sites, some unregulated, and is not handled according to professional
criteria, as required.
5. As mentioned previously, since 1990 the year the Company was formed and up until the date of completion of
the audit, the Company had received from medical institutions more than 3,000 tons of waste that contained only
non- biological toxic substances. Disposal of this waste is supposed to be done by means of an incinerator especially
designed for that purpose. Lacking such an incinerator, this waste is accumulating at the site in controlled storage,
but without any treatment.

1. For several decades, until the establishment of the Ministry of the Environ- ment, a large number of agencies
were charged with the handling of hazardous waste. They were insufficiently prepared to enforce the laws and
regulations on the treatment and disposal of the waste or to issue professional guidelines.
The Ministry, established in 1988, began preparations to coordinate the handling of hazardous substances. These
preparations included enactment of the Business Licensing (Removal of Hazardous Substances Waste) Regulations,
5751- 1990, and enactment of the Hazardous Substances Law, 5753-1993. The Ministry prepared for the
comprehensive handling of this matter, and even decided to grant it high priority.
2. In order to operate in an optimal manner, the Ministry requires a data bank on all the quantities of hazardous
waste produced by factories and other bodies, and on the way in which it is disposed of. The Ministry began to
locate and centralize information on all the factories that produce hazardous waste in the course of their production
processes; however, it did not complete the informa- tion system in all the Ministry's districts, and its data bank is
insufficiently complete to ensure systematic monitoring and supervision, or to comprehensively enforce the laws
and regulations. In addition, the Ministry has not examined hundreds of small and medium-sized bodies in order to
provide an estimate of the quantity of hazardous waste they produce.
3. As regards hazardous waste produced in large factories, the audit revealed that the Ministry has yet to complete
regulation of the treatment of the thou- sands of tons of hazardous waste collected over the years at the sites of these
plants, and not all of the waste is treated and removed in accordance with the Ministry's professional guidelines, as
required by law.
4. Medical institutions and research institutes throughout Israel produce thousands of tons of contaminated medical
waste each year. This waste constitutes a potential environmental danger and is liable to cause immediate harm to
public health. The ways to collect this waste in order to treat and dispose of it have

not yet been regulated by law, and in practice, it is not handled as required. Some of the waste finds its way to solid
waste burial sites without proper treatment, and some to unregulated sites.
Unsupervised and unprofessional disposal of hazardous waste is liable to cause environmental damage and endanger
public health. For this reason immediate measures must be taken to prevent the continued accumulation of untreated
hazardous waste.

The Management of Agricultural


Ministry of Agriculture, Annual Report 45

The Ministry of Agriculture has two main units dealing with agricultural research: the Chief Scientist's
Unit, which is primarily involved in managing a fund from which monies are allocated to various bodies
to conduct research; and the Agricultural Research Administration (hereafter the ARA), a body that
promotes, manages, and conducts research. Some 65% of agricultural research in Israel is conducted
through the ARA, some 25% at the Faculty of Agriculture at the Hebrew University, Rehovot, and the
remainder at Israel's other universities.
During the period April-September 1994, the State Comptroller's Office audited the management of the
ARA. Several subjects were examined, including its legal status, organizational structure and
management methods; its connections with a private company; its management of finances and accounts;
and the activities of the Chief Scientist. Regarding a prior audit of the ARA, see Annual Report 35.

The ARA began as an experimental station in 1921. It currently operates seven research institutes 1 a
department for flowers and ornamental plants, seven agricultural farms, and administrative units. Basic
and applied research are conducted at the ARA. In 1993, its total expenditures were some NIS 131
million, NIS 80 million of which were state-funded. External bodies (councils for production and
marketing of agricultural products, international foundations, and private bodies commissioning research)
provide the remainder of the budget. The ARA's budget for 1994 was set at NIS 155 million. Its
maximum work complement that year was set at 773 positions. The ARA also employs some 350
temporary employees. Its budget for 1995 was NIS 177 million.

1          Field and garden crops, orchards, animals, soil and water, plant protection, technology and storage, and agricultural

Legal Status, Structure, and Management Methods
The ARA is an autonomous unit of the Ministry of Agriculture. An autonomous unit is granted some of
the Ministry's administrative powers, in accordance with the rules of the civil service; and its budget is
included as part of the Ministry's budget. As a body holding this status, the ARA must act according to
the finance and economy regulations issued by the Finance Ministry; its employees are state employees,
and the Civil Service Regulations apply to them.
1. Despite the significant and wide scale changes that Israeli agriculture has undergone both in the
various branches of agriculture and in technology particularly since the early 1980s, the organizational
structure and functioning of the ARA has changed only slightly, and its current objectives and goals are
unclear. Over the years the needs of the consumers of agricultural research may have changed and there
was a need to redefine its goals, but this was not done. A clear definition of the goals and objectives is
important, among other things, in order to set criteria according to which the most appropriate of the
various research proposals received can be chosen.
2. Funding from the state budget provides approximately the amount needed to cover wages, overtime,
per diem, and car allowances of its employees. This budget is not derived from the number, scope or
subjects of research projects, but rather is the consequence of its employees being state employees whose
wages must be paid by the ARA.
The ARA explained to the State Comptroller's Office that there is hidden unemployment of researchers
and other employees, the cost of which is loaded onto the general expenditures of the ARA. The State
Comptroller's Office also found that researchers were sometimes retained even when it was clear from
the beginning that their research would be fruitless.
3. The ARA is both financially and administratively a relatively large or- ganization. For this reason it
should have an integrated accounting system budgetary and quasi-business that expresses financial flow
on an accrual basis, and enables development of mechanisms for cost-accounting, budgetary and
financial follow-up and reporting. Such a system does not exist. The financial activity of the ARA is
recorded on a "cash basis," as the finance and economy regulations of the Finance Ministry require.
According to this method, liabil- ities that have not yet been paid are not recorded; therefore, the financial
reports based on such recording do not accurately reflect the financial and economic condition of the
The ARA does not have the management tools to measure output and costs, and it does not prepare
reports that reflect its activities and expenses, both as regards achieving research objectives and as
regards financial aspects of the research. Without such administrative and reporting mechanisms, it is
impossible to conduct proper and efficient management and control.
4. The initiative to conduct most of the research comes from the ARA's researchers, who attempt to
locate external sources willing to finance the research. The process of approving a project is based on a
research plan and

on cost calculations prepared by the researcher. The calculations include direct costs and overhead. The
audit found that no instructions and rules had been set to calculate the overhead charges for each research
project; the overhead charges varied in the cost calculations of the research projects.
The calculations do not include charges for depreciation on equipment and infrastructure, or for social
benefits for ARA employees, which the state will have to bear in the future. Charging full social-benefit
costs would amount to a substantial sum; not taking them into account distorts the cost calculation. The
ARA should establish rules that require the inclusion of these components in the calculation.
In contracting with the external bodies that commission research, the ARA customarily signs a separate
contract for each research project. The cost calculation prepared by the researcher proposing the project
serves as a basis for negotiations with the external body. But it was found that the agreement signed is
usually for a smaller sum than the estimated costs of the research; sometimes this sum is significantly
lower. Thus, in these cases, the state sub- sidizes the research, at times very substantially. The audit
found that the ARA had not set criteria and procedures to determine the state's share in financing the
5. Some 80% of the research conducted at the ARA was reviewed from a scientific-professional
perspective by in-house judging committees, and were ap- proved for execution. The remaining 20%
commissioned by a private company connected to the ARA (see below) did not undergo the
aforementioned review. The ARA does not customarily examine the potential economic contribution of
the research to agriculture. Suspicion exists that, since the researchers are a fixed and veteran group, the
judging committee decides to carry out the research projects based on the researchers' qualifications, and
not necessarily on whether the research is worthwhile as regards the agricultural economy.
6. The ARA does not systematically examine the scientific nature, methodology, results and quality of
the research. It also does not systematically monitor application of the research results. In most instances,
the ARA maintains no accounting record of the revenues and expenditures entailed in each research
project, nor a system for checking these matters. Consequently, the ARA has no information on the
benefit derived from the resources invested in the research. This information is necessary in decision-
making as regards the need for con- ducting additional research on the same subjects.
7. In 1993 the ARA received royalties of some NIS 1.3 million for use of its innovations. This is a
relatively small amount after decades of research, raising the question whether the ARA succeeded in
protecting the state's rights and receiving remuneration for the use of innovations developed by its
8. An examination of the ARA's financial arrangements and the manner in which it purchases goods and
manages inventory indicated defects. The major defects revealed are: (a) Delay in paying suppliers,
resulting in interest charges. These late payments are liable to result in payments for activity within a
specific budget year being made the following year. For example, the ARA paid suppliers

NIS 4.7 million in 1994 for activity performed in 1993. According to the principles of accounting
employed by the ARA, such debts were not expressed in its end-of-year financial statements. (b) The
failure of its accounting system to record post-dated checks. (c) Execution of bank adjustments, arranging
invoices for those who commission research, the preparation of receipts and their recording by a single
employee a concentration of responsibility that is incompatible with proper internal control. (d)
Although the bookkeeping department maintains separate records for each of the ARA's institutes, it does
not maintain separate records for the revenues and expenditures of each research project, but rather for
the overall revenues and expenditures of the research conducted at the ARA. As of December 31, 1993
the institutes' deficit amounted to NIS 2.2 million. Due to the lack of separate recording of revenues and
expenditures for each research project, the deficits of certain projects are liable to be set off by the profits
realized from other projects. (e) An inventory count of materials and scientific equipment used in the
research revealed inconsistencies between the inventory count and the ARA's books. The ARA does not
generally take inventory of furniture and office equipment.
9. An examination carried out in 1992 by the internal audit unit of the Ministry of Agriculture revealed
that thirty employees of the ARA lectured at universities, without the necessary approval. The audit of
the State Comptrol- ler's Office found that there was a total lack of supervision in this matter. No data
were found indicating the identity of the employees who lecture or the number of hours they devoted to
this activity. The Ministry and the ARA should set rules concerning the use by employees in their private
work of information that they accumulated at the ARA.

The above shows that there was no oversight of the activities of the ARA, its work procedures,
achievements and output. No documentation was found to indi- cate that as of 1994 the Ministry of
Agriculture had conducted comprehensive discussions on its long term scientific and professional policy.
Discussions between the State Comptroller's Office and the head of the ARA and other Ministry officials
raised the need for essential change in the legal status and organizational structure of the ARA.
In January 1995, the Minister of Agriculture appointed a committee to examine the ARA. Its tasks were:
to define the role of the ARA in meeting the changing needs of Israeli agriculture; to determine the major
areas of research and development and their order of priority, and to propose an organizational structure
that would integrate both basic and applied research; to recommend ways to finance the ARA, and the
extent of government responsibility for its budgeting; to determine the procedures for appointments,
advancement, and termination of service of employees at the various levels.

Contracting with a Company
1. In the framework of the audit on the current operational aspects of the ARA, the State Comptroller's
also examined the contractual relations with a private company of limited liability. The company was
established in 1985 with the encouragement of the Ministry of Agriculture's management and the ARA.
Its goals are, among other things, to develop ideas, know-how, and the application of research results.
The company contracts with commissioners of research and forwards the projects to research institutions
for implementation. Since its establishment it has forwarded most of the research projects to the ARA.
The company was established by a non-profit association. The association's primary aims are to
encourage, advance and develop the ARA and its branches. About a third of its management are
employees of the ARA. Except for one share, the association holds all the stock in the company.
Section 43.02 of the Civil Service Regulations states that a [state] employee shall not be a member of a
corporation's management if there is a conflict of interest with his position or with his work in the civil
service. It further states, that a state employee shall not be a member of the board of a non-profit
association in which the government does not have a controlling interest. However, if the special
committee of the ministry believes that its employee should be a member of the board of the association,
it shall request the approval of the Civil Service Commission. Employees of the ARA who are active in
the non-profit association are liable to be in a conflict of interest between their function in the ARA and
the activities with respect to which the association decides, including those related to the activities of the
company (on this issue, see Annual Report 44).
2. The Attorney General's guidelines issued in 1994 provide that transfer of governmental functions to
independent legal entities is an exceptional action, which requires the deliberation and special approval of
the relevant Minister, the Civil Service Commissioner, and the Budget Director of the Finance Ministry.
No documents were found at the ARA or the Ministry of Agriculture that indicate that such deliberations
were held or that decisions were made to transfer some of the functions of the ARA to a private
3. Due to the limitations placed on it as an autonomous government unit, the ARA, from the start, has
used the company as a way to be more flexible in its management powers.
The office of the legal adviser of the Finance Ministry opposed the contractual relationship and the way
in which activities were conducted between the ARA and the company. In September 1985, the senior
deputy to the legal adviser wrote to the Accountant General and the Civil Service Commissioner that the
company was appointed by the ARA to be the link between it and the external bodies that commission
research projects. These bodies transfer the entire remuneration for the research to the ARA, while the
company only forwards part of the payment to the ARA. The company uses the balance to pay its
employees and purchase goods, which are made available for the research projects. The company also

the value of the monies earmarked for research by depositing them in the bank rather than transferring
them directly to the state. The letter also mentioned that the framework for this activity serves ostensibly
as a means to broaden the activity of governmental research institutions beyond what the budget law and
the Civil Service Regulations allow, and such a framework was not approved by any officials of the Civil
Service Commission, the Accountant General's Office, or the Budget Department of the Finance
Ministry, even though it circumvents the law and procedures under which government bodies operate.
4. The ARA does not request periodic reports from the company in cases where bodies commissioning
the research delay payments. Consequently, the ARA does not receive information that is likely to help it
to adapt its scope of activity to payments received from these external bodies.
5. As mentioned above, some of the income for research remains with the com- pany. According to
company data, the overhead suplus credited to the ARA as of June 30, 1994 totalled some NIS 1.1
million. The bookkeeping department of the ARA has no record of this sum.
6. According to company records, part of the overhead monies is intended for the use of several ARA
employees. In 1993 the sum totalled NIS 720,00. It was found that there was not sufficient supervision by
the ARA over the use of these monies.
7. The State Comptroller's Office found additional shortcomings resulting from the ARA's relationship
with the company: (a) no copies were found at the ARA of agreements signed by it and the company for
the implementation of each and every research project, as is required by its procedures; (b) there were
instances where the rights to ownership of the fruits of research, funded by the state, were registered in
the name of the company; (c) the ARA conducted non- agricultural research that was partially funded by
the state.

According to his job description, the Ministry of Agriculture's Chief Scientist serves as the coordinator of
the High Committee on Research and Development, which is headed by the Minister; recommends to the
Minister, in coordination with the head of the ARA and the Ministry's management, short-, mid-, and
long-term research policy; prepares, in coordination with the head of the ARA, the research work plan in
accordance with approved policy, and distributes the financial resources determined by the Research and
Development Committee; monitors the advances in agricultural research in Israel through the planning
unit of the ARA. The Chief Scientist approves implementation of the Ministry's budget for research, as
set by the High Committee on Research and Development. According to the explanatory notes to the
Ministry's budget for 1994 and 1995, the Chief Scientist views agricultural research and development
needs from an overall perspective, with the goal of developing innovative approaches to matters
important to agriculture.

1. The main function of the Chief Scientist is to manage a fund that is financed by the state budget. In
practice, the Chief Scientist does not fulfill all the functions included within his job description. He is not
involved in determining priorities in research areas according to which most of the research at the ARA is
conducted. He also is not involved in determining most of the research projects at the ARA, which are
financed - in whole or in part - by the state. In the present situation, if he were requested to participate in
decision-making as to research that will be conducted or in monitoring its progress, it is doubtful if he
could comply, since his available manpower - four employees - does not enable involvement in and
supervision of some 2,000 research projects a year that are conducted at the ARA.
2. The Chief Scientist's Fund is intended to finance applied research, designed to contend with the crisis
in agriculture, such as research that is involved in introducing innovations in potential-growth sectors,
and in sectors of national importance that are in distress. In 1993 the Fund provided NIS 15.9 million for
research; its budget for 1994 and 1995 was NIS 27.6 million and NIS 18.7 million, respectively. Some
60% of the Fund's monies are allocated annually to the ARA.
The Ministry of Agriculture should take a position on the possibility that all state budgets for agricultural
research basic and applied be allocated to the ARA and other bodies by means of a professional
committee assisted by the Ministry's Chief Scientist's unit, similar to the manner in which financial
resources to finance industrial research is allocated 2 This, because the Chief Scientist should provide the
overall perspective on all research needs. The allocation of these resources should be based both on
scientific and economic criteria.
3. When the Chief Scientist allocated Fund monies to the ARA, he did not always request and receive
relevant reports on the research results, and there- fore does not have information on the benefits derived
from the research.
In the Chief Scientist's opinion, the generation of products and technologies through research and
development sometimes requires work in several areas. The Chief Scientist's unit does not currently have
personnel to coordinate the subject. Such coordination should include involvement in the planning of
projects, examination of market feasibility, and ongoing monitoring of implementation.

The shortcomings revealed by the State Comptroller's Office raise misgivings that the financial
resources invested in research have not led to maximum benefit.

2        On this matter, see the Law to Promote Research and Development in Industry, 5734- 1984.

The major shortcomings were: the lack of managerial flexibility in the ARA due to its being an
autonomous government body; the lack of sufficient managerial tools in the hands of its administration;
the suspicion that research is being conducted contrary to the order of priorities of the agricultural sector
of the economy; the lack of scientific and economic oversight on the results and applications of the
research; and administrative and financial defects. In the State Comptroller's opinion, the entire subject of
the management of agricultural research must be examined in depth. The Ministry of Agriculture must
immediately determine the goals of the ARA. The ARA must also determine criteria according to which
research projects are to be selected in terms of their scientific and economic feasibility and their
contribution to the agricultural economy. The ARA should develop tools to enable it to monitor the
progress of research and its results.
In January 1995, the Minister of Agriculture informed the State Comptroller that he had appointed a
committee to examine the structure of the ARA, and the manner in which it is organized and managed.

Use of Agricultural Land for
Commercial Purposes

Ministry of Agriculture, Annual Report 45

Rapid urbanization, primarily in central Israel where the value of agricul- tural land used for non-
agricultural purposes has increased and attempts by farmers to find alternative income sources due to the
ongoing crisis in agriculture, were among the causes that led to the establishment of thousands of
commercial and industrial businesses on agricultural land that had been made available to farmers by the
Israel Lands Administration. The expanding phe- nomenon of business activity on agricultural lands
created, without planning or proper supervision by the government and municipal authorities, a new
reality in the rural sector. Many participating farmers achieved the economic goal that precipitated this
phenomenon; however, it harmed the way of life of their neighbors and other farmers, who wanted to
maintain a agricultural lifestyle in their communities.
During February-July 1994, the State Comptroller's Office audited the activ- ities of the relevant
government and municipal bodies, both as regards the enforcement of the law (and contracts with the
Israel Lands Administration) and finding solutions that would lead to to the creation of a framework for
planning, supervision, and control of the growing new reality.
The State Comptroller's Office conducted the audit in the Hof HaSharon Region- al Council, the Mateh
Yehuda Regional Council, the Israel Lands Administration, the Ministry of the Interior, the Ministry of
Agriculture, and the Ministry of the Environment.

1. Since the founding of Israel, hundreds of agricultural settlements were established throughout the
country on land under the ownership of the state, the Jewish National Fund and the Development
Authority, that is managed by the Israel Lands Administration (hereafter ILA). These settlements were
organized according to unique frameworks developed in the country in the early part of the

20th century: the kibbutz, a self-contained social and economic unit in which decisions are taken by the
general assembly of its members, and property and means of production are communally owned (in the
plural - kibbutzim); and the moshav, a form of cooperative settlement where each family maintains it
own household and farms its own land, but major economic and social services are provided
cooperatively (in the plural - moshavim). Farmers in these settlements organized as cooperative societies,
and several of these settlements joined together to form the municipal framework of a regional council.
Pursuant to the Israel Lands Administration Law, 5720-1960, the Israel Lands Council is the body that
sets ILA policy, supervises its activities, and approves its budget, which is set by law. In May 1965, the
Council adopted the government's decision of the same year concerning Israel's land policy. The Council
decided that agricultural land would be transferred only by lease, for the production of agricultural
products, the construction of buildings and facilities for the domicile and other needs of those living in
the agricultural settlements, and for the needs agricultural production. Most of the leases of agricultural
land stipulated that in the event of a change in the designated use of the land or where the land is not used
for its designated purpose, the ILA may rescind the lease relating to that portion of the land, and regain
possession of it upon payment of compensation to the lessee.
2. The government's settlement policy in the 1950s had four objectives: the geographical dispersion of
the settlements, particularly in high-priority and border regions; integrating new immigrants in the
settlement frameworks; increas- ing Israel's food production for the rapidly growing population; and
creating sources of employment and income in the settlements.
Over time, however, this conception, which was appropriate in its day, encount- ered difficulties. The
Committee to Develop Programs to Strengthen Family Farms (hereafter Givton Committee, after its
chairman), which the Prime Minister appointed in 1986 and which submitted its findings and conclusions
that same year, noted, inter alia, that family farms had a limited production capability (the average
property was small in size, production and marketing were limited, as was equity). To maintain a rural
population of the size that the settlement agencies (the Ministry of Agriculture, the Settlement
Department of the Jewish Agency, and the settlement movements) had decided on, agricultural
production had to be much greater than that necessary to meet the needs of the Israeli economy. Most
production was, therefore, directed to export. Thus, this sector became largely dependent on fluctuations
in foreign markets. It often happened that, following difficulties in exporting agricultural products and
the directing of surpluses to the saturated local market, farmers' revenues fell. For these and other
reasons, many farmers had difficulty making a living, and fell into debt.
The situation described in the Givton Commission report worsened. The debts incurred by farmers in the
1980s were joined by an organizational crisis, in which cooperative societies of the moshavim, as well as
regional cooperatives (the purchase organizations and regional enterprises handling agricultural produce)

collapsed. The number of persons employed in agriculture in rural areas decreased in the course of the
years, and farmers' income dropped.
3. On the background of the factors described above and other causes prima- rily the effect of
urbanization, particularly in the central part of the country, the increase in value of land that accompanied
it, and the tendency of farmers to make non-agricultural use of their farmland non-agricultural
enterprises rapidly developed in the rural sector, mostly in the moshavim.
The committee to examine construction for non-agricultural purposes on moshavim, which the director
general of the Ministry of Agriculture appointed in November 1993, and which submitted its report in
August 1994 (see below), estimated that at that time, there were more than two thousand non-agricultural
enterprises on cooperative settlements, most of them in central Israel. Most of the enterprises were
established in and near the residential areas of cooperative settlement members; the minority were
established on distant lands designated for cultivation, or in settlement centers. The committee's data was
based on research conducted by the Center for Development Studies, in Rehovot, in 1993. The research
surveyed non-agricultural enterprises on 209 moshavim in the region stretching from Israel's northern
border to the Gaza Strip. In 159 moshavim, 1,082 non-agricultural enterprises had been established in
continuing breach of the leases with the ILA. The vast majority of the enterprises constitute what is
termed "non-conforming use" within its meaning in the Planning and Building Law, 5725-1965, and
were established without business licenses as required by the Licensing of Businesses Law, 5728-1968,
and the Licensing of Businesses Order (Businesses Requiring Licenses), 5733-1973.
Data compiled by the State Comptroller's Office indicate that business use is extremely varied:
workshops, industry, food establishments, retail shops, warehouses, production services (offices of the
free professions) and personal services (infant care, cosmetics, events centers, and the like). According to
the aforementioned research report, some 20% of the enterprises surveyed were warehouses that farm
owners on the moshavim rented for commercial business purposes. Some of the income of landholders
who posses rented warehouses came from the rent of land and not from work in agriculture.
Such changes also took place in the kibbutzim: residential structures, swimming pools, and public
buildings, which had been approved as areas for public institu- tions, became recreational and vacation
commercial businesses, and banquet halls for parties and celebrations; infant care sites and kindergartens
for kibbutz children turned into day-care centers for children from outside the kibbutz, for payment;
abandoned buildings were rented for business use, and residential dwellings were rented to outsiders.
4. Non-agricultural use of agricultural land has detrimental ecological and social effects on the rural
areas. According to studies conducted by the ILA and the Ministry of the Interior in 1993, in each of the
moshavim Mishmar HaShivah and Neve Yamin there were at the time some fifty warehouses being
used for business purposes, on a total area of some 20,000 square meters. Hundreds of vehicles, among
them trucks, moved daily on roads not intended to bear such

traffic. The noise, filth, dust and air pollution caused by their business use harm the quality of life of
these moshavim.
The factories also constitute a danger to the moshavim: documentation at the Ministry of the
Environment indicates that in 1993, Moshav Mishmar HaShivah had three factories containing hazardous
materials. These factories operated without building permits, without business licenses, and without the
legally required permits for holding or dealing in some of the materials.
The damage caused by these business activities to the quality of life of law-abiding rural residents is
aggravated by economic harm. The proximity of nuisance-generating enterprises and factories to
residential areas causes the residential properties to lose their value. At the same time, the property value
of those residents who violate the law by making business use of them increases.
Data received from government ministries and complaints submitted to the Ombudsman about the
nuisances resulting from the illegal use of agricultural land show that the phenomenon causes social
polarization on certain moshavim; a group of landholders were willing to violate the law and breach their
contracts with the ILA by building illegally and establishing businesses without a license, showing no
consideration for their neighbors' quality of life. In certain cases, the disputes led to violence.

The illegal transfer of land leased for agricultural purposes for non-agricultural use, without permission
of the owner (the State, through the ILA) and without paying proper compensation for the use, has
various economic consequences relating to: the land's value, investment in infrastructure, collection (or
non-collection) of the appropriate leasehold fees, municipal taxation, and water use (amounts and tariffs).
Increase in the land's value:- Making commercial use of land that had been leased for agricultural
purposes, as described above, raises its value, the in- crease depending on the location of the land
(proximity to urban and commercial centers) and the type of use (industry, trade, business, or recreational
services). Calculations of the State Comptroller's Office, based on various sources and estimates, show
(these figures should be used as approximations) that agricultural land in the rural sector on which there
was illegal commercial use totalled in May 1994 at least 5,250 dunams, the value of their commercial use
at the time totalling some $473 million; the leasing fees that the ILA should have collected for those
agricultural lands based on their actual use amounted to some NIS 72 million per year, at May 1994
prices. This non-collected sum is three times as large as the ILA's 1994 budget item for rental fees from
all the agricultural land it administers, which totalled some NIS 26 million. (Land leasing fees collected
by the ILA for agricultural use are significantly lower than the land leasing fees for other uses.) Since the
land leasing fees were not

collected over many years, the loss of revenue from this source totals several hundreds of millions of
Investment in infrastructure: Establishment of illegal commercial structures on agricultural land
increases the use and deterioration of infrastructures. It also spares the farmers from investing in
developing the appropriate infrastruc- tures required for the proper establishment of industrial areas.
Municipal taxation: A comparison of annual property tax rates imposed on businesses in two cities in the
central area of the country and those imposed on businesses in two adjacent regional councils of the rural
sector show that the rates paid in the rural sector is between one-fourth and one-half of the rates paid in
the cities. This gap creates an economic incentive to move businesses from cities in the central part of the
country to nearby agricultural settlements.
Water use: Water for agriculture is sold to farmers at a lower, subsidized price. Non-agricultural use of
water intended for agriculture violates the Water Law, 5719-1959, and provides an economic advantage
to those who use the water for business purposes. Various surveys of the ILA and several government
ministries, and documentation presented to the State Comptroller's Office, show that factories and
businesses using large quantities of water were established on agricultural lands in moshavim. These
enterprises included chicken abattoirs, a juice-concentrate factory, and food processing and chemical
In the opinion of the State Comptroller's Office, as long as the policy of charging a reduced rate for water
for agriculture continues, the Water Commission must ensure that water intended for agriculture is indeed
used for that purpose.


The above clearly shows that the failure of the competent authorities to enforce the law and the lease
agreements with the ILA enabled many farmers to enjoy substantial financial benefits, and created an
incentive to expand illegal com- mercial use of agricultural land. The farmers who establish and operate
these businesses also enjoy an unfair advantage over similar factories and businesses that do not operate
on agricultural land.

The responsibility for handling violations relating to the illegal use of agricultural land lies with the
relevant governmental and municipal agencies, pursuant to the powers granted them by law. The State
Comptroller's Office audited the manner these agencies handled the illegal use of agricultural land. Its
findings are as follows:

Actions Taken by the Local Authorities
1. The main body intended to handle illegal use of land in the rural sector is the local authority within
whose jurisdiction the illegal use occurs, i.e., the local councils, primarily the regional councils within the
meaning of the Local Councils Order (Regional Councils), 5718-1958.
(a) Under the Planning and Building Law, each local planning area as defined by the
law shall have a Local Planning and Building Committee (hereafter local committee). In a local planning
area that comprises only one local authority, the local authority council serves as the local committee.
The chairperson of the local committee (or the chairperson of its subcommittee) and the engineer of the
local committee are considered as the local licensing authority as regards the granting of permits under
the Planning and Building Law. The local committee's duty is to ensure compliance with the Planning
and Build- ing Law and its regulations. The committee is authorized to grant permits for building and
other types of work requiring permits (hereafter building permits), and to allow for "non-conforming
use" of the land or building, within its meaning in the Planning and Building Law. A permit that allows
for "non- conforming use" for a purpose not permitted according to any plan or regulation, requires
approval of the regional planning and building committee; as regards agricultural land used for a non-
agricultural purposes, permission of the Com- mittee to Preserve Agricultural Land, established by the
same law, is required. Among the functions of the local committee is supervision of construction and
land use, to ensure that they comply with the plan applying to the land and the building permit or the
"non-conforming use" permit that had been granted. Where necessary, and if the circumstances and
conditions meet the provisions mentioned in the Planning and Building Law, the chairperson of the local
committee is empowered to issue an administrative cessation order, which orders cessation of
construction being performed without permit or in non-compliance with the permit or plan, and may even
issue an administrative demolition order. These powers are supplementary to those of the local committee
to take legal measures against those who violate the law and the regulations enacted pursuant thereto.
(b) The local authorities are empowered to issue licenses to businesses in their jurisdictions and to
enforce the Licensing of Businesses Law. The Licensing of Businesses Order, issued by the Minister of
the Interior pursuant to the Licensing of Businesses Law, details and classifies numerous businesses that
require licenses from the licensing authorities as a condition to beginning operations. The businesses
mentioned in the Order require in accordance with their classification in the Order the approval of the
person appointed by one of the following ministers: the Minister of the Environment, the Minister of
Health, the Minister of Police, the Minister of Labor and Social Welfare, the Minister of Agriculture.
According to the aforementioned law, the person empower- ed to license a business requiring a license
within the jurisdictional borders of the local authority is the head of the local authority, and outside the
local authority, the person appointed for this purpose by the Minister of the Interior.

2. According to the documentation and information obtained by the State Comp- troller's Office, the
businesses established on agricultural land, as described above, require licenses under the Licensing of
Businesses Order. The business licensing authorities customarily do not issue business licenses to
businesses situated in structures built without building permits, or whose use is a "non- conforming use"
for which no permit has been granted; in refusing to issue licenses under these conditions, the licensing
authorities rely in part on Supreme Court rulings, according to which the licensing authority, in making
its determination, must weigh planning and building considerations. Operating a business without the
required license violates the Licensing of Businesses Law, and the licensing authority has the duty to take
the measures provided for by the law to stop the business from operating, or to ensure its lawful operation
according to the conditions of the license to be issued. The Interior Ministry's district supervisor, the head
of environmental affairs at the Ministry of the Environment, the district medical officer of the Ministry of
Health, and the head of the local authority are empowered by the Licensing of Businesses Law to order,
in writing, the temporary cessation of business operations where they are conducted without a license or
in non-compliance with its conditions, and may issue an Order to Close the Business Site (hereafter
administrative cessation order). The order may be issued for thirty days and may be extended for an
additional period of thirty days if, in the meantime, an indictment is filed for the violation that served as
the grounds for the issuance of the order. Following filing of the indictment by the representative of the
Attorney General upon the initiative of one of the aforementioned persons, the court is empowered to
issue orders to cease the business's operations and to close the business site entire- ly, or for a specific
period of time.
3. The State Comptroller's Office gathered data on the activities of several local authorities in the center
of the country concerning construction and illegal business use of agricultural land within their
jurisdiction. These data include the following:
(a) Information from the offices of the Hof HaSharon Regional Council and the Hof HaSharon local
committee shows that in May 1994 they knew of 338 busi- nesses operating in settlements of the
aforementioned regional council. 244 of them (72%) were being operated illegally - without building
permits or by the non-conforming use of existing buildings, and without business licenses.
Among the settlements of the Hof HaSharon Regional Council that stand out in this regard is Moshav
Rashpon, which had 144 illegal businesses. Surveys conduct- ed by the Ministry of the Environment and
the ILA during 1992-1993 show that there were and apparently still are workshops, stores, warehouses,
food establishments, and other businesses. Most of them had been established on land that had been
leased to persons from outside the moshav. According to documentation, the Hof HaSharon Regional
Council had filed over the five years preceding May 1994, only fifty-three indictments against those who
had violated the law.
(b) The phenomenon of businesses operating without licenses is not unique to the Hof HaSharon
Regional Council. The 1992 annual report of the Ministry of the

Environment noted that, according to a survey it had conducted at the time, only a few of the existing
businesses in two local councils and one regional council in the Jerusalem region had been granted
business licenses pursuant to the law.
(c) Discussions with several regional council heads in central Israel left the impression that since the
regional councils are composed of representatives of the residents, and the heads are personally elected
by all persons with voting rights, they feel restrained from taking legal measures against residents who
violate the Planning and Building Law and the Licensing of Businesses Law. For example, for a long
time, the local committee in the "Lodim" local planning region did not file indictments for non-
conforming use of land in Moshav Mishmar HaShivah. Action was taken only in 1994, following
complaints to the Ombudsman that had been submitted by several members of the moshav against other
moshav members for creating a nuisance resulting from the illegal use, and against the local authorities'
failure to enforce the law and the lease agreements with the ILA; and only after the Office of the
Ombudsman had contacted these authorities (after having received unacceptable responses); and only
following the State Comptroller's Office examination of the matter. It was all these actions that led the
Interior Ministry's Central District Commissioner to file legal claims, which the relevant local committee
had refrained from doing.
(d) According to the Local Councils Ordinance, local councils (including regional councils) are
authorized to levy, with the approval of the district commissioner, a business property tax on all the
businesses within their juris- diction, including even those businesses operating without a business
license or permit pursuant to the Planning and Building Law. The Ordinance also empowers the councils
to take various measures to collect the rates. The 1993 research report, mentioned previously, indicates
that 68% of businesses on agricultural land who were included in the survey (from among the 1,082
businesses) were not required to pay business property taxes to the relevant local authorities, whether
because the authorities did not know about their existence or because the businesses evaded paying the
tax. Since most of these businesses operated without a business license, the relevant local authorities
were unable to collect the license fee pursuant to the Licensing of Businesses Law.
4. According to the audit, as of the end of July 1994, the local authorities did little to reduce "non-
conforming use" and illegal construction. The Mateh Yehuda Regional Council acted to alter detailed
planning schemes of moshavim within its jurisdiction in order to approve building of business premises,
provided they did not constitute a nuisance. Most of the proposals to alter the planning schemes have not
yet been approved by the District Planning and Building Committee in Jerusalem. The Emek Hefer
Regional Council, the Hof HaSharon Regional Council, the Brenner Regional Council, and the Lev
HaSharon Regional Council began to develop industrial areas to which existing businesses in the
cooperative settlements could be moved, but these activities have not yet been completed.
Planning and development of separate industrial areas in the rural sector take much time to implement
and require coordination between various bodies, among

them the regional council, the Ministry of the Interior, the Ministry of Trade and Industry, the ILA, and
private entrepreneurs. The planning and development also require substantial investment in infrastructure
and construction. Even after completion of the planning stages, substantial time is needed to move the
businesses to their designated locations within and outside the cooperative settlements. When considering
these realities, the State Comptroller's Office believes that the process of eliminating the illegal use of
agricultural land is likely to last, at the current rate of progress, for many years.

Actions Taken by the ILA
1. Already in July 1980, the Israel Lands Council (hereafter the Council) decided on measures that the
ILA should take against lessees and possessors of agricultural land who make use of the land contrary to
Council policy. The decision defined the use of agricultural land that contravened Council policy, and
included all use that breaches the conditions of the lease agreement with the ILA; and it also set forth the
measures the ILA should take against lessees and landholders of agricultural land who commit such
As mentioned previously, using agricultural land that is administered by the ILA for non-agricultural
purposes breaches the lease agreement with the ILA, and, consequently, Council policy set in the
aforementioned decision. Moreover, the lessee pays the ILA a special land leasing fee for agricultural use
(lower than the realistic fee, which would be determined according to the appraisal of the Government
Valuation Officer). Between the aforementioned Council decision and July 1994, the ILA did not
implement the measures made available to it under the Council decision. These measures included
rescinding the leasehold and disposses- sion proceedings against the lessee; or collecting the appropriate
leasing fee to which it was entitled for the use being made of the land whether by arrange- ment with the
lessee, whereby the ILA would consent to the lessees's application for "non-conforming use," which the
lessee would submit to the competent authorities; or by charging the appropriate fees for use until the
lessee is evicted from the land. As regards the Council, it did not supervise implementa- tion of the policy
it established in the aforementioned decision.
2. The proliferation of non-agricultural use, and the pressure of moshavim members to allow such use on
their land, led the Council to establish, in August 1989, the conditions under which the ILA would allow
non-agricultural use of those lands.
Under this decision, the ILA is authorized to agree to such use (by separate agreement with the lessee), if
it is permitted under the approved detailed planning scheme, or where an existing farm structure had
received a permit for "non-conforming use," within its meaning in the Planning and Building Law. The
holder of rights to the land would pay annual land leasing fees to the ILA for the business use, at the rate
of 5% of the entire land's added value, on that portion used for the business, the appraisal being made by
the Government Valuation Officer.

The head of the agriculture division of the ILA noted in a letter of July 1993 to the State Comptroller's
Office that despite the Council's August 1989 decision, a minimal number of holders of land rights
requested ILA agreement to establish businesses on their land, or its agreement (as the one representing
the land owners) to grant permits for "non-conforming use" of existing farm structures by the relevant
local committees - including the arrangement of payment of the appropriate land leasing fees.
3. With the large increase in complaints about business use damaging the quality of life on the
moshavim, the Office of the Ombudsman asked the ILA, in 1993, what it was doing about the matter. In
response, the head of the ILA's agriculture division stated in a conversation with a staff member of the
Office of the Ombudsman, that the farmers' lobby had requested that legal measures not be taken, due to
the crisis in agriculture and the large number of farmers who were abandoning agriculture. A letter from
a Member of Knesset to the Minister of Construction and Housing to whom the head of the ILA is
subordinate pursuant to law supports those comments. The Knesset Member's letter, of February 1994,
referring to the "activities of moshavim members in trade and industry," noted the economic distress of
moshav members and the need to find an appropriate solution that includes supervision of the non-
agricultural use of lands they hold. In the concluding portion of his letter, the Knesset Member requested
the Minister of Construction and Housing "to cease filing complaints against moshav members" until a
comprehensive and suitable solution to their problem is found.
4. The ILA management raised the issue of breach of agreements with the ILA several times in May and
June of 1992 and in January and March of 1993. Following these discussions, the ILA management
directed, in 1993, the Central District of the ILA to conduct a survey on the matter. In May 1993, the
Central District ILA submitted a report of its findings to the ILA management, which stated that,
according to its estimate, agricultural settlements in the central district had, at the time, more than one
thousand structures being used for business purposes.
The ILA management discussed the report's findings and decided that the ILA should file legal claims
against those who breach their agreements with the ILA, with action to be taken only after the ILA
Director so notified the Council. Following receipt of the Director's notice, in early October 1993, the
Council met that same month and decided to authorize the ILA "to initiate legal proceed- ings against
farmers using their leaseholds for non-agricultural purposes."
In June 1994, following complaints submitted to the Office of the Ombudsman by moshav members and
following the Office's recommendation that the matter be thoroughly examined, the State Comptroller's
Office audited the actions taken by the ILA against lessees and holders of agricultural land it administers,
who breach agreements with the ILA by using the land for business purposes. Until that time, in three
districts where the phenomenon is widespread Jerusalem, South, and North - nothing had been done. As
regards the Tel Aviv District, no data were found, and in the other two districts - Haifa and Central – only

preliminary action had been taken, which included sending warning letters to several farmers, and no
legal proceedings had yet been initiated.
In response to the audit's findings, the Director of the ILA informed the State Comptroller's Office, in a
letter of November 1994, that the ILA management had discussed the matter that month and made the
following decisions: the ILA's legal adviser would prepare detailed guidelines on how to claim full and
realistic pay- ment for construction and "non-conforming use" of land in moshavim, without it being
interpreted as consent to such use; collection of fees would be implemented through private attorneys; the
matter would be handled in a centralized manner on a regional basis, and not through the district offices;
the head of the Agricul- ture Division, the head of the Districts Division, and the ILA accountant, in
coordination with the ILA's legal adviser, would submit to the ILA management a detailed proposal on
the nature of the collection and its implementation. The ILA did not provide a response to the
phenomenon of kibbutzim making commer- cial use of agricultural land without permit.
The State Comptroller's Office is of the opinion that the ILA should make strenuous efforts to collect
retroactively the proper fees from those who breached their agreements in the past, special attention
being given to those who made use of land that was not theirs, and that the collection be made prior to the
debts becoming obsolescent, which amount, as previously mentioned, to hundreds of millions of shekels.
The collection would be implemented without recognizing their right to continue to use the land in
breach of agreements with the ILA, nor in derogation of the ILA's right to initiate proceedings to evict
them if they do not cease to breach the agreements.

Actions of the Interior Ministry
1. From the end of 1989, the Interior Ministry management accumulated docu- mented information
concerning thousands of cases of illegal construction and "non-conforming use" of agricultural land. In
January 1990, the director general of the Interior Ministry wrote to the ministry's legal adviser, the head
of the planning administration, and the head of the ministry's construction inspection unit. In his letter,
the director general stated the policy and operational guidelines of the Interior Ministry. The main points
of these guidelines are:
(a) The Interior Ministry is inclined to enable moshavim and kibbutzim to undergo professional-business
change, and in that context, to enable construction of commercial projects on agricultural land. This
intention should not be understood to mean that a person may act as he sees fit, but rather to encourage
analysis and planning in order to present possibilities for moshavim and kibbutzim to reorient their
economic base.
(b) To attain the aforementioned goal, the director general requests that action be taken in the following
areas: advancing the analysis and planning process, and where necessary, promoting new legislation;
establishing a committee which would present a picture of the existing situation and recommend the
granting of temporary approvals and permits for the "non-conforming use" of

existing structures; setting a time schedule for granting permanent approval, or demolition, or cessation
of use, according to the arrangement that would be decided upon; preventing new construction without
permits; finding an immediate arrangement for temporary use until a total solution is attained; ceasing
legal proceedings that are inconsistent with the aforementioned general approach, which reflects the
Ministry's policy.
2. In May 1990, the director general of the Interior Ministry appointed a com- mittee to develop
principles and criteria for the preparation of detailed plans to expand the moshavim. The Central District
Commissioner headed the commit- tee, and its members included representatives from the Ministry of
Agriculture, Interior Ministry, Ministry of the Environment, Ministry of Construction and Housing, ILA,
Settlement Department of the Jewish Agency, the moshav movement, heads of the Regional Councils,
and representatives of the public (hereafter Shayish Committee, named after its chairperson).
The Shayish Committee submitted its report to the director general of the Interior Ministry in July 1991.
Its principle recommendations were to establish small workshop areas in the moshavim; to establish,
within the regional councils framework, an economic company or joint venture of moshav institutions
and the regional councils, which would assist in establishing and strengthening industrial and workshop
areas on moshavim. The Committee also proposed environmental criteria for approving establishment of
enterprises and ways to increase efficiency in the process of approving plans for the expansion of
moshavim. As of the end of January 1995, the recommendations of the Shayish Committee had not been
implemented by the government ministries and public bodies whose representatives had been members of
the Committee and had partici- pated in drawing up those recommendations.
As regards the aforementioned 1990 guidelines of the director general of the Interior Ministry to come up
with an immediate arrangement to allow for tempo- rary use until an overall arrangement was found, the
Interior Ministry did not instruct the district committees and the local committees on how to deal with
existing and future "non-conforming use" of agricultural land. The practical result was that as of the end
of 1993, the Interior Ministry had not initiated legal proceedings against those who had built illegally, or
had made "non-con- forming use" of agricultural land without a lawful permit.
3. The Planning and Building Law empowers the District Planning and Building Committee to instruct
the local committee in writing to do everything necessary to perform the tasks imposed on the local
committee by that law, both in general and in a particular location. The law also stipulates that if the local
committee does not fulfill a provision or demand of the district committee, the district committee may,
with the approval of the Interior Minister, do whatever is necessary to implement the provision or
demand in place of the local committee and at the local committee's expense.
In 1993, following the proliferation of complaints, the head of the Central District of the Interior Ministry
conducted a survey of illegal construction and "non-conforming uses" of agricultural land without permit
on 91 different properties

in the district's moshavim. Based on its findings, the Central District began to prepare claims. In January
to May of 1994, upon the initiative of the Central District, twenty-six claims were filed for "non-
conforming use" of land and building without a permit in the moshavim of Mishmar HaShivah, Rashpon,
and three others.
4. According to the head of Central District, primary responsibility for the existence and growing extent
of the problem described above lies with the Min- istry of Agriculture, which allows farmers to build
large structures for "non- conforming use" on their agricultural land (see below). In addition, he believes
that supervision is essentially the responsibility of the regional councils, which should use their
inspectors for that purpose but fail to do so.
Without meaningful supervision by the regional councils in the Central District, the job of supervision
falls on the district supervision unit of the Interior Ministry, which has only four inspectors. These
persons are charged with overall supervision in a district containing 1.1 million residents. During the
audit, the head of the unit informed the State Comptroller's Office that preparing a single file to initiate
legal proceedings, including giving testimony at the court hearing, takes more than three days. He added
that, with the current personnel complement in the unit, preparing claims to cover the approximately
1,000 illegal structures that existed in the district at the time was a task that the unit could not perform
properly within a reasonable time.
5. During the course of the State Comptroller's Office's audit, the head of the Interior Ministry's National
Unit for Construction Inspection presented the Interior Ministry's priorities in handling violations of the
Planning and Building Law. Handling of illegal construction and non-conforming use of land in the rural
sector received the lowest priority. The head of the unit indicated that the necessary staff work
concerning inspection of construction was not being performed by the various government ministries.
Therefore, he contended, handling of the issue is deficient and the present framework is unable to curb
violations of the Planning and Building Law.
The national unit head also noted that, in his opinion, the proliferation of violations of the Planning and
Building Law in the rural sector results from the helplessness of the heads of the regional councils, who
generally are also chairpersons of the local committees for planning and building, and also results from
the ILA's lack of handling of breaches of the leasehold agreements. He believes that it is inappropriate for
the chairpersons of the local committees, who are elected by the voters in the local authorities, to be
given the task of enforcing the Planning and Building Law. Furthermore, the unit head is of the opinion
that the small number of legal proceedings initiated for illegal building and non-conforming use of land
in the rural sector results from the legal advisers of the local committees being administratively
subordinate to the heads of the local authorities, who determine their terms of employment (even though
they are professionally subordinate to the Attorney General).

The above shows that the Interior Ministry did not properly act to fulfill its obligations to ensure
compliance with the Planning and Building Law, and did not initiate an appropriate number of legal
proceedings against farmers who erected commercial buildings without permit on agricultural land, or
against those who made "non-conforming use" of existing structures without permit. These failings
occurred while the heads of local authorities, in their capacity as heads of the local planning and building
committees, did not properly exercise their powers to enforce the law against such enterprises. Although
the Interior Ministry brought about the filing, in 1994, of criminal indictments for illegal building and
"non-conforming use" of agricultural land, this action was limited. Enforcement of the law in the rural
sector continues to receive the lowest priority of the Ministry's supervision and enforcement unit.

Actions of the Ministry of the Environment
According to the Licensing of Businesses Law, issuance of a business license by the licensing authorities
(see above), as regards a significant number of business requiring licenses as set forth in the Licensing of
Businesses Order, requires the prior approval of the person so empowered by the Minister of the
Environment. This requirement is intended to ensure proper protection of the environment and to prevent
environmental harm or nuisances.
The Ministry of the Environment conditions granting of its approval for a busi- ness license on the
applicant's annexing to its application the approval of the engineer of the local authority (or of the person
holding a similar capacity in the local committee) in the locality in which the business is to be
established, that the subject of the application complies with the Planning and Building Law.
The State Comptroller's Office's audit found that the Ministry of the Environ- ment received numerous
complaints from farmers on environmental nuisances created by non-licensed businesses operating in
structures that had been built without permits on cooperative settlements. The Ministry handled many of
these complaints. For example, it handled complaints dealing with noise and dust from a factory making
lighting fixtures at Moshav Magshimim. It also dealt with com- plaints concerning factories containing
toxic materials on Moshav Mishmar Ha- Shivah. In both of these cases, at the request of the Ministry, the
Drom HaSharon and Emek Lod regional councils issued administrative cessation orders and initiated
legal proceedings. In another instance, the Ministry of the Environment initiated suit against the owners
of a cleaning products factory at Moshav Gan HaDarom, which had been erected without a building
permit and operated without a business license. Refuse from the factory which also used dangerous
materials flowed into cesspits and neighboring yards, causing various environmental damage. The
Ministry of the Environment acted only after it had sent several written requests to the head of the
Gederot Regional Council to exercise his

authority to eliminate the nuisance, and the council head had settled for sending only a warning letter to
the factory's owners.
It should be pointed out that in 1992 the Ministry of the Environment was the first government ministry
to conduct a survey of illegal use of agricultural land in moshavim. On the basis of the findings, in
August 1993 the Minister of the Environment requested the Minister of Construction and Housing, to
whom the head of the ILA is subordinate pursuant to law, to have the ILA act to eliminate the illegal use
of agricultural land, which was causing severe environmental harm and nuisance, such as water and land
pollution, noise, air pollution, and dangers from the use of hazardous materials.

Actions of the Ministry of Agriculture
1. The Ministry of Agriculture makes recommendations to the ILA on the transfer of agricultural land
for settlement, and through its representatives on the Committee to Preserve Agricultural Land and the
district planning and building committees, participates in decision-making on changing the designated
use of agricultural land. The local licensing authorities in the rural sector or the local committees,
depending on the subject generally require those submitting requests for a permit to establish structures
on agricultural land administered by the ILA, to provide the written approval of the regional office of the
Ministry of Agriculture for the granting of the building permit, in addition to having the ILA
representative sign the request (as representative of the land- owner). In this manner, the Ministry of
Agriculture, which assists farmers in diverse ways (among them, providing grants and loans, and erecting
structures to meet agricultural needs), can verify that the structure being erected is indeed intended for
agricultural use (unless it is a proper request for "non-conforming use") and that the construction is
justified. It was found that large structures whose purpose was different from that approved in the
building permits had been built on moshavim.
In January 1994, following complaints from the Interior Ministry, the Ministry of the Environment, and
from many farmers, the director general of the Ministry of Agriculture issued a temporary order
concerning approvals for building agricultural structures on cooperative settlements. The order included
various restrictions on granting the approvals until a committee appointed to investigate the matter had
submitted its findings.
2. Following complaints from residents of Moshav Mishmar HaShivah on illegal businesses being
operated on agricultural land in the moshav, which had been sent to the Minister of Justice in June 1993,
the Attorney General requested in letters to the Ministry of Agriculture, the Ministry of the Interior, and
the ILA to respond to the issue of "lack of enforcement of the law on Moshav Mishmar HaShivah." The
Attorney General appended to his letter the residents' complaints and data on nineteen businesses making
"non-conforming use" of agricultural land. Fourteen of these businesses were operated by tenants who
did not live on Mishmar HaShivah.

The director general of the Ministry of Interior and the head of the ILA an- swered, in general terms, that
they were preparing to initiate legal proceedings against violators of the law (and of the leases with the
ILA). However, the director general of the Ministry of Agriculture, in his response of November 1993 to
the Attorney General, indicated that the Ministry of Agriculture is only indirectly connected to the matter,
and that it is not empowered to enforce the law concerning the prohibition against the use of agricultural
structures for other purposes, or the prohibition on the establishment of new businesses for non-
agricultural purposes. However, the director general noted that he had established a committee to find a
solution to the problems at Mishmar HaShivah and other moshavim.
The State Comptroller's Office is of the opinion, that the above approach of the Ministry of Agriculture
did not contribute to solving the problem of non- enforcement of the law in those matters that relate to the
activities and powers of the Ministry. The Ministry of Agriculture did not conduct proper supervision
(through its district offices) when granting its approvals for the establishment of agricultural structures,
that were in fact used for non-agricultural business purposes.

1. In the Plan for the Development of Agriculture and Rural Settlement for 1987- 1991, prepared by the
Joint Agricultural Planning and Development Authority, published in 1987, no mention was made of the
possibility of enabling landholders on moshavim who had been unable to make a living from farming to
find alternative employment in their moshavim. Such a possibility was first mentioned in 1990 in a
document prepared by the Joint Authority called "The Green Book Agriculture Rehabilitation and
Development Policy during Crisis and Mass Immigration, 1990-1995." At the end of that year, the
Minister of Agriculture adopted the policy set forth in the Green Book and stated, in writing, that the
document's contents would be part of the "Ministry's policy for the coming years." The Green Book notes
that "non-agricultural, industrial, and other activity will be allowed on moshavim in order to assist in
developing manufacturing initiatives and increasing employment."
2. In November 1993, the director general of the Ministry of Agriculture ap- pointed a commission
headed by the head of the Joint Authority and composed of representatives of the Ministry of Interior,
Ministry of the Environment, the Jewish Agency, regional councils, and various farmers (hereafter
Kadmon Com- mission, after its chairperson). The Commission was requested to examine the issue of
construction for non-agricultural purposes on moshavim, and to propose suggestions to regulate the
matter. In August 1994, the Commission submitted its report to the director general and to the Minister of
Agriculture. The report

contained recommendations on "additional manufacturing activities on family farms    physical
geographical and organizational aspects." The Minister of Agriculture adopted the Commission's
recommendations that same month.
The main recommendations of the Kadmon Commission are to establish on each moshav a central
workshop area of some fifty dunams, in which the non-agricul- tural economic activities would be
concentrated; to establish in each regional council area (or of a few adjoining regional councils) a
regional industrial park on an area of 200-400 dunams; to enable establishment and operation of various
structures and businesses (as detailed in the report together with the restric- tions mentioned there) on
land near the residences of the moshav members, provided that only the landholder would establish and
operate them. As regards illegal structures and existing businesses, the Commission distinguished
between two types: (a) businesses that do not meet the legislative criteria for environ- mental protection,
public health and safety (including standards set by the Commission), and which are operated in
structures whose construction or use does not meet the criteria of the Planning and Building Law and the
relevant rules set by the Commission these would be closed immediately; (b) businesses in structures
that do not meet the criteria of the Planning and Building Law and the relevant rules set by the
Commission, but meet the other criteria mentioned above these would be granted permits, at the request
of the business operators, for "non-conforming uses" for three years, a period that would enable them to
move their businesses to the central workshop area or to close them down.
The Kadmon Commission report indicated that the leasing fees for land used for commercial purposes
would be determined by the ILA, as is customary in each region. However, to encourage transfer of
businesses from land near the members' residences to the central workshop area, the Commission
recommended that for businesses that will not be able to continue to operate on that land (according to
the Commission's rules) and which would be transferred to the central workshop area, and for new
businesses that would be set-up in the central workshop area in each instance for a period of the first
three years after establishment of the workshop area they will pay discounted land leasing fees of 25% of
the fee imposed on land used for commercial purposes that is in proximity to members' residences. The
ILA representative on the Commission objected to reducing the fees, and recommended that the business-
owners be given the opportunity to spread payment of the fees over a period of up to ten years.
The Kadmon Commission also recommended establishment of a special admin- istration composed of the
relevant public bodies: ILA, Ministry of Interior, Ministry of Agriculture, Ministry of Industry and Trade,
Ministry of Construction and Housing, Ministry of the Environment, regional councils, and the inter-
moshav committee. The administration would coordinate and organize the activity necessary to organize
the transfer of businesses, and the planning and establish- ment of the central workshop areas.
The Kadmon Commission was of the opinion that government budgets would be necessary in order to
establish the workshop areas in most of the moshavim; it

suggested, therefore, that a joint budget provided by the relevant ministries be considered.
3. In September 1994, the Ministry of Agriculture took steps to establish an interministerial steering
committee headed by the director of the ILA, and to establish an administration that would operate within
the Ministry of Agriculture and subordinate to the steering committee. At the end of November 1994, the
steering committee set the 1995 budget for the administration, and forwarded the Kadmon Commission
report and its recommendations for review and approval of the Israel Lands Council, the National
Planning and Construction Board, and the regional councils.
In January 1995, the Minister of Agriculture proposed to the government that it adopt the Kadmon
Commission's recommendations, enable establishment of the interministerial administration
recommended by the Commission, and direct the relevant government ministries to implement the
Commission's recommendations.
In a letter of February 1995 to the State Comptroller's Office, which was received after the audit had been
completed, the deputy director of the Budget Department of the Finance Ministry responded to the
findings of the audit. He opposed a few of the Kadmon Commission's recommendations, among them the
recommendation to establish central workshop areas on moshavim and a regional industrial park in the
planning region of each regional council. The Budget Department believed that separate workshop areas
in the rural sector (within and outside moshavim) is contrary to the logic inherent in the provisions of the
national outline plan for building, development, and immigrant absorption (no. 31). These provisions
provide for the establishment of large industrial areas (not necessarily for the rural area), in which the
infrastructure would be con- centrated, the environmental nuisances would be handled, and advantage
would be taken of joint management of large sites.
The deputy director also expressed the Budget Department's opposition to the Kadmon Commission's
recommendation to reduce, for a limited period, the land leasing fees collected from farmers for industrial
and workshop areas allocated to them in the central workshop areas. Towards the end of his letter the
deputy director indicated that, subject to the aforementioned positions of the depart- ment, he does not
oppose the Commission's recommendation to establish a special administration to coordinate the
necessary activities to regulate non-agricultur- al uses in rural settlements, provided that it be
accomplished within the budget of the Ministry of Agriculture.
The State Comptroller's Office is of the opinion that whether the government ultimately approves the
recommendations of the Kadmon Commission, or whether it adopts them in part or rejects them, as long
as the legal situation remains the same, and the provisions of the leasehold agreements for allocation of
land for agricultural use are not changed, the competent authorities (the ILA and the local authorities)
must exercise, without delay, the means available to them by law, to collect the proper municipal taxes
and fees to which they are entitled from the farmers who generate substantial profits and economic
benefit from commercial use of land not belonging to them, and to which they are not entitled.

However, as regards past and continuing violations, any action taken should not recognize their right to
illegally use these lands that had been leased to them. Collection of the appropriate consideration by the
landowner (the state, through the ILA) is likely to increase the rent the moshav landholders will demand
from those who rent business premises on the land they hold; in any case, there would be a lesser
tendency of residents of cities near moshavim to rent agricultural land and structures for commercial use
and thereby take advantage of the difference in cost of operating comparable businesses in town and the
cost in the rural areas.


The increasing extent of the illegal use of agricultural land for commercial business purposes results, first
and foremost, from the increase in the value of land, primarily in central Israel, and from the attempts of
farmers to find alternative sources of income during the extended crisis in agricultural.
The institutional attempt to solve the economic, organizational, and social problems in the rural sector
succeeded only slightly. Establishment of businesses without the requisite planning and other permits,
and without proper supervision of the business activity by the competent authorities on land leased by the
ILA for agricultural use, only harms the social fabric and quality of life in the rural sector, and
contradicts the rule of law. Agriculture is not only an economic sector. It is a way of life involving
preservation of the landscape and nature that many rural residents have chosen. These settlers selected
locations intended for agriculture and they continue to work in agriculture. In addition to other
considerations, the voice of these people and their interests should be considered.
The setting of policy, decision-making and lawful implementation by the com- petent authorities should
have been done initially and not retroactively. One offence leads to another: the failure of the relevant
authorities over a long period of time to enforce the law enabled and enables the aforementioned busi-
nesses to operate, and prevents the Finance Ministry and the local authorities from receiving the proper
consideration for the actual use made of the land. This results in "uninhibited growth," offenders are
rewarded, and those who obey the law (including businesses that comply with the law) suffer. The
competent authorities must, therefore, act in the short- and long-run to enforce the law and find
appropriate solutions to meet the problems in accordance with proper social, planning, and economic

Veterinary Services

Ministry of Agriculture and Rural Development,
Annual Report 46

1. The Veterinary Services operate in the following main areas: safeguarding the health of animals on
and off the farm, supervision of production and marketing of animal products intended for export, and
prevention of human morbidity from diseases originating in animals. Veterinary Services develops
techniques to diagnose, prevent, and eradicate diseases, supervises the import and export of animals and
animal products; tests and licenses medications and vaccines, and licenses veterinarians; supervises
veterinary-related activities of the local authorities, including supervision of slaughterhouses and
factories for processing meat and other food products from animals; inspects hazardous chemical and
biological residues in foodstuffs from animals, and is responsible for the prevention of harm to animals.
The areas of responsibility and powers of the Veterinary Services in these fields are set forth in five
principal laws: The Animal Diseases Ordinance [New Version], 5745-1985; the Rabies Ordinance, 1934;
the Supervision of Export of Animals and Animal Products Law, 5717-1957; the Veterinarian Law,
5751-1991; and the Cruelty to Animals (Protection of Animals) Law, 5754-1994. Regulations were
enacted pursuant to these laws.
The Veterinary Services is an autonomous unit of the Ministry of Agriculture and Rural Development.
The unit's maximum employee complement for 1994 was 200 positions, and its expenditures for that year
totalled some NIS 37.8 million, some NIS 20.2 million (approximately 53%) of which were financed by
the collection of service and other fees.
2. During March-July 1995, the State Comptroller's Office examined the activities of the Veterinary
Services and the Ministry of Agriculture's accountancy department as regards the supervision of raising
and slaughtering animals, eradication of diseases, dispensing and use of chemical preparations and drugs,
preparations in regard to the establishment of Palestinian autonomy, handling of monies and accounts,
and establishment of standards for veterinarians in the local authorities. Further clarifications were
conducted at the Egg and Poultry Board and at the unit charged with supervising movement of animals
and animal products from the areas of Palestinian autonomy into Israel.


Supervision of the Slaughtering of Cattle, Sheep and Pigs
Public health requires that cattle, sheep, and pigs be slaughtered under proper sanitary conditions, and
that the meat of disease-infected animals is not marketted. Activities of slaughterhouses in Israel are
regulated by the Animal Diseases (Slaughter of Cattle) Regulations, 5724-1964. In 1994, fifteen
slaughterhouses for cattle, three for sheep, and three for pigs were being operated in Israel; 49,682 cattle,
55,405 sheep, and 96,565 pigs were slaughtered. Most of the slaughterhouses are operated by the local
authorities, under veterinarian supervision. The appointment of the veterinarian requires the approval of
the Director of Veterinary Services. In addition, the Veterinary Services super- vises the professional
veterinary aspects of slaughterhouse activity. The Min- istry of the Environment and the local authorities
are responsible for ensuring that the slaughterhouses remain free of sanitary and other nuisances.
1. In 1985 the Director of Veterinary Services appointed a committee to examine Israeli slaughterhouses
and propose ways to improve their level of sanitation. The committee submitted its recommendations in
October 1986. The committee found that the level of sanitation in most slaughterhouses was
unsatisfactory, and necessitated the allocation of funds for immediate improvement. The committee
recommended finding ways in which to increase involvement of the Ministry of Agriculture in
immediately improving the sanitary conditions of these slaughterhouses by allocating funds directly
towards their maintenance, and by closer and more effective cooperation with the Ministry of the Interior,
which is responsible for funding the local authorities. The recommendations had not been implemented
as of completion of the audit by the State Comptroller's Office. The 1994 annual report of the Veterinary
Services indicates that most of the slaughtehouses continue to operate under extremely poor sanitation
and maintenance conditions. In many instances the Veterinary Services's requests to local authorities to
act immediately to improve the situation have gone unanswered. In light of the serious and long-term
defects in the operation of the slaughterhouses, the Ministry of Agriculture, the Ministry of the
Environment, and the Ministry of the Interior should act immediately to remedy the situation in order to
safeguard public health.
2. The Animal Diseases (Slaughtering of Cattle) Regulations, 5724-1964, stipulate that a person shall not
slaughter cattle other than in a slaughterhouse, except as specifically provided by law. Some of the meat
consumed by Israeli residents is slaughtered illegally at non-authorized slaughterhouses (hereafter - black
market slaughtering). There is no veterinary supervision of the quality of this meat, which might cause
those who eat it to become ill. Black market slaughtering also leads to transmission of disease among
animals. According to data of the Veterinary Services, black market slaughtering is especially wide-
spread in towns where Israel's minority populations reside. The chief veterinarian for slaughterhouses
estimates, in data provided to the State Comptroller's

Office, that the number of sheep slaughtered in the black market is equivalent to, and possibly exceeds,
the number slaughtered in authorized slaughterhouses. Veterinary Services's data indicate that black
market slaughtering also exists in the Jewish sector, mainly in the towns of the Upper Galilee and in
southern Israel.
According to data of the Veterinary Services, black market slaughtering, particularly among the
minorities, is made possible, in part, by several factors: violence of those involved in this activity against
veterinary inspectors; lack of police assistance; and absence of meaningful activity of the local authorities
to prevent the phenomenon. In many instances, the Veterinary Services requested the local authorities to
prevent black market slaughtering within their juris- diction, but the local authorities did nothing.
3. "Emergency slaughtering" is unplanned slaughtering of diseased or maimed animals that must be done
quickly to prevent spreading of disease and to prevent unnecessary suffering of the animals. Emergency
slaughtering is permitted only at three slaughterhouses, and is done pursuant to the approval of a
veterinarian, as required by the Animal Diseases (Slaughter of Cattle) Regulations, 5724-1964. During
1992-1994, 3,424 cattle were slaughtered in this way. On the average, twenty-three cattle are slaughtered
by emergency slaughter for every one thousand cattle conventionally slaughtered, a relatively high
number of emergency- slaughtered cattle by international standards.
4. Slaughterhouses are required to report to the Veterinary Services on the number of animals
slaughtered, including diseased animals, and the findings of veterinary examinations conducted after
slaughter. Many sheep slaughterhouses do not report the findings, as required, and pig slaughterhouses
only provide partial reports. There was no indication that the Veterinary Services took measures against
those slaughterhouses that did not submit reports, or submitted only partial reports.
The Veterinary Services's data, therefore, do not accurately reflect the inci- dence of disease, and it is
likely higher than that indicated by the data.

Supervision of Local Authority Veterinarians
The local authority veterinarian is administratively responsible to the head of the local authority, and he
is professionally responsible to the Veterinary Serv- ices. At times, however, the professional
requirements of the Veterinary Services conflict with local authority policy. An example of this conflict
In 1983 a recommended standard was set for the number of veterinarian positions in local authorities.
This standard was based on the size of the population, the number of slaughterhouses, refrigeration
plants, food-production plants, and nationwide refrigeration plants. There are many instances, however,
in which the local authorities' heads are interested in hiring a veterinarian at less than the number of hours
required by the recommended standard.
The State Comptroller's Office is of the opinion that the Veterinary Services, together with the Ministry
of the Interior, should find a way to incorporate

the standard in binding regulations. The standard should relate not only to veteri- narians, but also to the
number of inspectors each local authority must employ. Moreover, the standard should be based on the
current situation, taking into con- sideration demographic changes and new legislation, in order to ensure
proper and efficient supervision in all the local authorities. Such supervision is crucial in that it directly
affects public health.

Conflict of Interest in Providing Services to the Poultry Sector
The branch involved in raising chickens for eggs, meat-products and breeding includes some 9,000
poultry-raisers, twenty-six industrial slaughterhouses for fresh and frozen chicken, and seventeen
industrial plants for producing chicken products. Veterinary supervision in this sector (excluding
municipal slaughter- houses) is conducted within the framework of the supervision unit of the Egg and
Poultry Board. The unit employs ninety-eight veterinarians and inspectors. The Veterinary Services
determines their number, and also issues directives to the unit. Most of the employees are employed by
the Egg and Poultry Board.
1. The head of the government supervision unit at the Veterinary Services is the chief veterinarian for
poultry diseases. He supervises eight regional labora- tories. The veterinarians working in the laboratories
diagnose diseases that strike poultry, treat the diseased poultry, and, where necessary, serve as inspectors,
having the authority to quarantine coops or direct that poultry be slaughtered, and at times, prohibit their
meat from being marketed. Consequently, their activity as inspectors to protect public health and the
poultry sector overlaps their clinical work on poultry. This lack of separation contradicts principles of
proper administration.
It is the opinion of the State Comptroller's Office that the Veterinary Serv- ices must consider prohibiting
veterinarians, who serve as inspectors and issue governmental directives in the framework of their
responsibility of enforcing the Animal Diseases Ordinance and its regulations, from dealing in the
clinical treatment of poultry. Veterinarians of the Veterinary Services who operate in both these areas
make it difficult for private veterinarians to find employment in clinical treatment in this sector.
In its response of October 1995, the Ministry of Agriculture informed the State Comptroller's Office that
the Veterinary Services and the Egg and Poultry Board were already cooperating to complete the
recommended separation of activity.
2. The supervision unit has the problem of multiple subordination: the chief veterinarian, four district
laboratory heads, and the head of the Department for Inspection of Animal Products are employed part-
time as state employees and part-time as employees of the Egg and Poultry Board. The other employees
of the supervision unit are Board employees. Employees working in veterinary supervision for the Board
may find themselves in a conflict-of-interests situation: as inspectors, they are supposed to take measures,
under the appropriate circumstances, like quarantining poultry coops and preventing the marketing of
poultry and their meat. These measures are not compatible with the interests of

poultry-raisers, who are widely represented on the Board, to which the unit is subordinate.
The State Comptroller's Office is of the opinion that to prevent this conflict- of-interests situation, it is
necessary to reconsider the possibility of giving sole responsibility of supervision and inspection to the
Veterinary Services, without the involvement of the Egg and Poultry Board in these activities.
The Ministry of Agriculture informed the State Comptroller's Office that the recommendation to charge
the Veterinary Services with the sole responsibility for supervision and inspection of the slaughtering of
poultry and meat-processing is consistent with the September 1995 recommendations of the committee,
appointed by the director general of the Ministry of Agriculture, to improve the efficiency of veterinary
services in poultry-slaughtering, and that he had appointed a staff to implement these recommendations.

Chemical and Biological Residues Found in Animal Products
The Veterinary Services supervises all stages of production of animal products leading up to their
marketing upon leaving the slaughterhouses or slaughtering facilities. They are also responsible for
veterinary supervision of meat process- ing in factories with permits to export their products, as required
by the Animal Diseases (Import and Export of Animals) Regulations, 5748-1988. The Ministry of Health
is responsible for supervision of the marketing of animal products locally and of meat processing in
factories that do not hold the said export permits.
1. (a) In January 1994, the Minister of Agriculture enacted the Animal Dis- eases (Testing for Biological
Residues) Regulations, 5754-1994. These regulations empower the head of the Veterinary Services, or
the person authorized by him, to examine one or more animals in order to locate biological residues.
In complying with Israeli law and the requirements of countries for which these exports are intended
(United States, countries of the European Union, Austria, Switzerland, South Africa, and others), the
Veterinary Services conducted, in 1994, a survey to examine the prevalence of chemical and biological
residues. For budgetary reasons, the survey only covered poultry. The findings indicated the presence of
severe contamination beyond the permitted amounts of a generic antibiotic and sulfonamides in the
metastasis of turkeys. The presence of these drugs results from the uncontrolled use by farmers of
veterinary drugs and preparations, primarily in the metastasis of turkeys, and are liable to endanger public
health. These findings emphasize the importance of increasing supervision of the dispensing and use of
veterinary drugs and preparations.
It is particularly significant that the Veterinary Services documents indicate that the veterinary
supervision authorities abroad found turkey products from Israel that were contaminated with drug
residues in amounts that endanger public health according to the international standards. This
contamination made them unsuitable for human consumption, and the products were destroyed. The
exporter suffered heavy financial loss. Generally, turkey meat containing residues of

antibiotics is not declared unfit for use in the local market, an omission that is liable to harm public
(b) Testing for residues of veterinary drugs and preparations is carried out at the slaughterhouses, but the
meat is immediately marketed in the local and export markets, without waiting for the test results. If
excessive residues are found, the Veterinary Services informs the manufacturer and slaughterhouse of the
fact, and directs them to hold in refrigeration at the slaughterhouse the meat produced for the next five
shipments from that source; the meat is to remain there until receipt of the test results. If all of the five
shipments have no questionable residues the farmer marketing the meat returns to the previous
examination procedure. If one of the shipments has positive test results the entire ship- ment is to be
discarded, and the following five shipments are to be tested for residues of veterinary drugs and
To prevent the local and foreign marketing of meat tainted with residues of veterinary drugs and
preparations, the detection tests must be conducted prior to slaughter. The Egg and Poultry Board
informed the Veterinary Services in 1994 that it was willing to consider sharing the financing of tests to
detect antibi- otics and sulfa drugs, but no further action has been taken on this matter. The State
Comptroller's Office is of the opinion that the Veterinary Services must also strengthen the information
campaign concerning the use of chemical drugs and preparations.
(c) The testing of residues of veterinary drugs and preparations on a nation- wide basis is conducted at
slaughterhouses only on poultry meat. Tests for such residues in cattle and sheep was conducted only on
meat intended for export and emergency slaughter. To ensure that all marketed meat is untainted with
veterinary drugs and preparations, a nationwide survey should also be made of cattle and sheep. In
October 1994, the Director of Veterinary Services proposed a limited, random survey of biological and
chemical residues in beef in two slaughterhouses. He estimated the cost of the study to be some NIS
80,000. As of the conclusion of the audit, in July 1995, the survey had not been conducted.
2. In 1994, the export of poultry and poultry products totalled $53 million. The Veterinary Services has,
since 1992, inspected poultry meat and poultry products for the presence of biological and chemical
residues. To prevent creation of such residues, there must be compliance with the provisions dealing with
the necessary waiting-period between completion of use of a chemical drug or preparation and the time
when the animal is slaughtered. Specific waiting- periods are set for each drug and preparation.
In 1992 a laboratory was set up to examine chemical and biological residues in poultry and poultry
products intended for export. The Egg and Poultry Board and the Dairy Board financed establishment of
the laboratory at a cost of some NIS 5 million. They also covered the operating costs of the laboratory for
1992 and 1993, and part of the costs for 1994. When they set up the laboratory, the joint founders
emphasized that after a two-year running-in period, the laboratory would be financially independent,
meeting its expenditures by charging for its services. As of 1995 laboratory revenues still did not finance
its operations.

In the opinion of the State Comptroller's Office, the Ministry of Agriculture and the Finance Ministry
must examine the costs, output, and the appropriate fees to be charged, and determine who shall finance
the laboratory's activities, so that its activities, which contribute to agricultural exports, might continue

Dispensing and Use of Veterinary Drugs and Preparations
1. Pursuant to the Pharmacists (Medical Preparations) Regulations, 5746-1986, drugs for animals may be
dispensed after being registered in a ledger maintained by the Ministry of Health. The preparations are
registered after an inter- ministerial committee of the Ministry of Health and Ministry of Agriculture
approves their use. The Director of Veterinary Services approves pest-control and disinfection
preparations after they are examined by an advisory committee for registration of preparations.
The Pharmacists (Dispensing of Veterinary Preparations) Regulations, 5759- 1988 (hereafter
Pharmacists Regulations), stipulates the conditions for the dispensing of veterinary preparations (drugs)
for animals. The purpose of the regulations is to regulate the sale of these preparations for veterinary use.
Uncontrolled sale and use of veterinary preparations are liable to harm those persons who consume meat
and meat products.
The director of the veterinary office in Hadera is responsible nationwide for the dispensing and use of
veterinary drugs and preparations. Pursuant to the Pharmacists Regulations the said director may allow a
person who is not an authorized pharmacist to dispense special veterinary drugs from a place which is not
a pharmacy. The records of the director indicate that there are nine feed mills (which mix different types
of fodder and other substances, such as drugs, into a mixture which serves as feed for animals) with
warehouses for dispensing veterinary drugs, and an additional twenty-six warehouses for dispensing
drugs. Two feed mills and six warehouses have not yet received the requisite license.
Current data of the Plant Protection and Control Department of the Ministry of Agriculture indicate that
in June 1995, Israel had forty-two feed mills. Veteri- nary Services documents and a review conducted by
the State Comptroller's Office at the Veterinary Services raise the suspicion that some of these mills use
drugs and preparations without having the relevant permit. Veterinary Services documents show that
there are more than twenty-six warehouses that dispense drugs. Consequently, the Veterinary Services'
inspection of dispensing and use of veterinary drugs and preparations is incomplete.
The State Comptroller's Office is of the opinion that to ensure public health, the Veterinary Services
should conduct from time to time nationwide efforts to locate enterprises that sell veterinary drugs and
preparations without the requisite permits.
2. From Veterinary Services documents and from checks conducted by the State Comptroller's Office at
the Veterinary Services it was found that in those sites where there is no inspection of the sale of
veterinary drugs and preparations,

entrepreneurs also sell drugs and preparations to purchasers without a prescrip- tion, or dispense them for
use for which the drug is not indicated. Another problem is the production of veterinary drugs in Judea
and Samaria, and their distribution, primarily among Israel's minorities. As a result, toxic drugs whose
use is prohibited in Israel, like chloramphenicol, enter Israel. The problem worsens, as the documents
show, due to the sale of drugs without permit by agents who conduct their business from farm to farm.
The origin of the veterinary drugs and preparations are often unknown. Similarly, their contents and the
period of time before slaughter in which they may be given to the animals are not always known.
Without supervision and inspection, farmers are liable to use, as they see fit, veterinary preparations sold
without a prescription. On this point, the head of the laboratory for checking chemical and biological
residues noted, in September 1994, that the situation regarding the use of antibiotics is in "total disorder"
and is liable to endanger public health. Veterinary Services documents indicate that the drugs are
accessible and unrestricted as to quantity, type, and period of use.
3. The Animal Diseases (Chemical Prescriptions) Regulations, 5742-1982, were intended to prevent the
sale of preparations that did not have a registration certificate signed by the Director of Veterinary
Services. The certificate is valid for three years after issuance. It is possible to renew the registration by
applying to the Director no later than three days prior to expiration of the certificate.
In June 1995, some 230 chemical preparations for veterinary use were registered at the Veterinary
Services. The examinations showed that many companies that market preparations do not renew the
registration certificates, and that in the past year, this phenomenon has become more common. In 1994
the use of forty- nine preparations expired; in only nineteen instances were applications submitted to
renew the certificate. The Veterinary Services does not have information concerning continued sales of
preparations for which the registration certificate has expired. Furthermore, review of the annual reports
of thirteen local authority veterinarians (among them, reports from large cities like Tel Aviv, Petach
Tikva, and Holon) submitted to the Veterinary Services indicated that in no instance had they conducted
inspection visits at enterprises that manufacture and market drugs for animals. The suspicion arises,
therefore, that many drugs are being sold by companies that are neither licensed nor inspected.
Veterinary Services documents indicate that the use of unregistered chemical preparations is widespread
in various branches of agriculture, in violation of the Animal Diseases (Chemical Preparations)
Regulations mentioned above. For example, as regards the apiary branch, substances like amitrez,
epistan, and ditoaxin are used, and in the fish industry anti-pest preparations are used.
In the poultry branch, formaldehyde-based preparations are used to vaporize the coops and incubators.
The Director of Veterinary Services does not register these preparations, because formaldehyde is
believed to be carcinogenic. Two Commodities and Services Inspection Orders, issued in 1967 and 1981,

provide that formaldehyde must be used. A labor inspector from the Labor Inspection Division of the
Ministry of Labor and Social Welfare informed the legal adviser of the Ministry of Agriculture, in
January 1995, that since the substance endangers health, the provisions in the Orders requiring the use of
formaldehyde should be amended as soon as possible. He emphasized that its mandatory use would likely
lead to claims for damages against the state. The response of the Ministry of Agriculture to the State
Comptroller's Office noted that no effective alternative for formaldehyde to vaporize the coops has been

Preparations for Implementing the Autonomy Agreements
1. In July 1994 the autonomy agreement on the Gaza Strip and Jericho Area took effect. Pursuant to the
economic agreement between Israel and the Palestinians, all imports of animals and animal products from
the autonomous areas into Israel must meet international standards. Because the crossing points between
Israel and the autonomous areas remain open, veterinary inspection at the borders of these areas is
especially important. The autonomy agreement exposes Israeli livestock to dangers from livestock that is
not controlled by the Veterinary Services, the danger resulting from the difficulty in prohibiting diseased
animals from entering Israel. These diseased animals pose a danger to the health of Israeli consumers and
to the health of Israel's livestock population.
The Implementation of the Agreement concerning the Gaza Strip and Jericho Area (Economic
Arrangements and other Provisions) (Amended Legislation) Law, 5755-1994 (hereafter Autonomy
Implementation Law) was published in December 1994. Section 45 of the Law stipulates that the entry of
animals, animal products, and all goods whose import is regulated under the Animal Diseases Ordinance
into Israel from the areas of Gaza and Jericho shall be allowed only for those holding a written permit
from the Director of Veterinary Services.
The Law empowers the Minister of Agriculture to appoint employees in his Ministry to serve as
inspectors. The Minister directed that the appointed inspectors shall act pursuant to the instructions of the
head of the unit in charge of the supervision of movement of animal and plant products, and shall
implement the agricultural agreements between Israel and the autonomous areas (hereafter - the SOMAP
Unit), and pursuant to the instructions of the Director of Veterinary Services or the person empowered by
him, in writing, to act on his behalf in this matter. The inspectors' appointments are valid until December
3, 1995. The Director of Veterinary Services authorized the director of the veterinary bureau in
Beersheva to give instructions to the inspectors in performing their tasks. His authorization is valid until
the end of 1995.
2. In the beginning of 1994 the Veterinary Services prepared detailed plans for activity under the
conditions that would be created by the existence of the autonomous areas. In February 1994 the
Veterinary Services forwarded the plans to the Finance Ministry's Budget Department. However, as of
the conclusion of the State Comptroller's Office's audit, in July 1995, these plans had not been

implemented. Among the subjects that the Veterinary Services considers important, and which have not
yet been arranged, are establishing a quarantine station for animals that managed to enter or had been
smuggled into Israel; adapting the diagnostic and research infrastructure at the Veterinary Institute and
Field Services for eradicating the anticipated spread of animal diseases; making arrangements at the
Veterinary Institute to produce emergency vaccines against new epidemics; providing state veterinary
services in Israeli settlements in Judea and Samaria; arranging the necessary budget and personnel to
operate Veterinary Services under these new conditions.
3. The SOMAP Unit began to operate in early 1995; it had an employee comple- ment of some one
hundred persons and twenty-nine motor vehicles. It supervises agricultural production from the
autonomous areas marketed in Israel, and enforces the laws dealing with veterinary inspection, protection
of flora, and the Autonomy Implementation Law. The Unit's tasks are to inspect, along the Israel-
autonomous areas border, the entry of agricultural products. The Unit does not have authority to conduct
inspections within Israel. It patrols the border and checks goods at the border crossings. Its inspectors are
fully deployed along the entire border with the Gaza Strip, but their deployment is only partial as regards
Judea and Samaria. Explanations given to the State Comptroller's Office indicate that the Unit's
employees are unable to cover the entire borderline, and consequently, it is currently impossible to
prevent smuggling of agricultural products, including animals, from Judea and Samaria into Israel. The
Unit currently operates one patrol vehicle in the Jerusalem area. The Unit's plans indicate a need for at
least three patrol vehicles to prevent movement of agricultural products from Judea and Samaria into
Israel via Jerusalem. With only one patrol vehicle covering the Jerusalem area, the amount of smuggling
is large.
Documents of the Veterinary Services and the SOMAP Unit indicate differences between them as
regards the desired professional subordination of Unit employees in veterinary matters. The Veterinary
Services maintains that the Unit's veterinarian must be appointed by the Director of Veterinary Services
and answer to him. According to this conception, the SOMAP Unit is the "long arm" of the Veterinary
Services, as is customary in the United States and Europe. According to the director of the Unit, the
veterinarian must be subordinate to him, and must provide the ongoing and immediate supervision of
imports of animals and animal products; in the director's opinion, the structure of the Veterinary Serv-
ices does not enable it to operate at irregular hours.
The State Comptroller's Office is of the opinion that the the Ministry of Agriculture's management must
discuss this dispute, define the authority and professional and organizational subordination of the
veterinarian, and determine who shall be responsible for issuing professional directives to SOMAP Unit
inspectors who do not have veterinary training.

1. Israel lies at the juncture of Africa, Asia, and Europe. Because of the geographic proximity, diseases
common to those continents at times filter into Israel. In addition, herds and flocks of Israeli animals
come into contact with those being raised in Judea and Samaria; separation is impossible, and diseases
are transmitted. Veterinary care and supervision in Arab countries is less advanced than in Israel; indeed,
there is little information and control over what occurs in Arab countries. The possibility exists that
diseases will enter into Israel, a possibility that has been realized in the past.
The Animal Diseases Regulations define "disease" as one of the diseases listed in the Second Appendix
to the Ordinance, and any communicable or genetic disease that is liable to harm animals in Israel. The
Ordinance's Second Appendix lists sixty diseases (as of November 1994). The Animal Diseases
(Immunization against Various Diseases) Regulations, 5719-1959, determine the powers of a government
veterinarian to decide how and when animals will be immunized against the diseases mentioned in the
Pursuant to section 4 of the Animal Diseases Ordinance, a person must inform the appropriate official
enumerated in that section of any animal infected, or suspected of being infected, with a disease. Every
person mentioned in section 4, and every veterinarian informed of such disease shall inform the nearby
government veterinarian. Sixteen of the diseases listed in the appendix are communicable to humans, and
those diseases must also be reported to the government physician.
2. The Veterinary Institute conducted, in 1993, more than 500,000 tests to diagnose diseases. The
Veterinary Services has no information on the cost of these diagnostic tests, and collects no fees from
farmers for this service. Over the years, the heads of the Veterinary Services continually opposed
charging farmers for these tests, arguing that imposing a charge would cause the farmers not to have their
animals tested, and, as a result, the Veterinary Services would not obtain information.
Total subsidization of diagnostic testing is liable to overly burden the Veterinary Services' budget. The
State Comptroller's Office observed that the Veterinary Services should consider imposing a fee that will
either partially or totally cover the cost of the testing. Whatever the decision, the Veterinary Services
must have information concerning the costs involved in each test.
3. In recent years, diseases that had been eradicated in the past have re- appeared, and some new diseases
have reached Israel for the first time. Below is a review of three diseases brucellosis, rabies, and hoof-
and-mouth disease that broke out in Israel in recent years. There are also five diseases that, in recent
years, broke out in Israel for the first time among cattle, sheep, tur- keys, horses and sheep.
(a) Brucellosis attacks both sheep and humans, and at times, other animals as well, like cattle. Since
1985, it has spread increasingly through Israel and Judea and Samaria. From 1985-1992, more than 2,000
cases of the disease striking

humans were reported. In addition, the disease spread from sheep to milk cows, and hundreds of heads of
cattle had to be slaughtered and compensation paid, as provided by the Animal Diseases Ordinance.
Already in 1987 the Veterinary Services had submitted to three ministries (Agriculture, Health, and
Finance) a comprehensive program to eradicate the disease. The program was based on massive blood
testing of sheep, and the slaughter of infected sheep. The Finance Ministry did not approve the budgeting
of the entire program.
In December 1992 - more than five years after submission of the program and repeated requests by the
Veterinary Services to implement it the Finance Min- ister's Bureau discussed the matter together with
representatives of the Ministry of Agriculture. The participants agreed to adopt and fund the program. For
1993, the Finance Ministry budgeted the sum of NIS 2.5 million to implement a limited, interim program
to wipe out the disease. The plan was limited to four areas where the disease was particularly prevalent:
Beersheva, Hadera and the Triangle, Nazareth, and Acre. It covered some 15% of the flocks owned by
Israel's minorities, and approval was granted to operate the program for one year.
The program was operated from July 1993 to December 1994. Towards the end of the limited operation,
due to the heavy damage, the management of the Ministry of Agriculture and the Budget Department of
the Finance Ministry agreed to expand the program, and to eradicate brucellosis in the manner proposed
by the original 1987 plan of the Veterinary Services. The nationwide operation, approved for three years,
began in April 1995. Its estimated cost was some NIS 24 million, of which some NIS 14 million were to
be expended the first year. The Director of Veterinary Services believes that the program to eradicate the
disease will last for at least ten years, provided that the program is properly funded throughout that
period. He believes that the problem of sheep being smuggled from Judea and Samaria and the
autonomous areas, where a similar program cannot be implemen- ted, will remain.
Veterinary Services documents indicate that the great delay in implementing the program to eradicate
brucellosis contributed to its spreading throughout Israel. The number of infected sheep increased and
caused enormous economic loss. The cost to the Israeli economy would have been less had measures
been taken at the time of the outbreak of the disease.
During the limited operation against the disease in 1994, brucellosis appeared among employees at a
factory containing a slaughterhouse, to which cattle infec- ted with the disease had been brought. Some
of the employees had been infected because they did not work in conditions suitable for slaughtering
cattle infected with the disease (for example, they did not use protective gear like face-masks or other
protective clothing). The State Comptroller's Office is of the opinion that the Ministry of Health and the
Ministry of Agriculture must consider the possibility that flocks of sheep with a high incidence of the
disease should be destroyed and their meat discarded. Such action would eliminate the danger to the
slaughterhouse employees. In the Western world the meat of cattle infected with the disease is not

(b) Rabies is found throughout Israel, but it is more common in areas bordering Judea and Samaria.
According to Veterinary Services data, the incidence of rabies increased in Israel in 1993-1994 primarily
as a result of the failure to deal properly with refuse dumps, and the significant reduction in activity to
reduce the number of wild and stray animals. In Judea and Samaria too, no action is being taken to
destroy stray dogs or to thin-out the wild animal population.
(c) Hoof-and-mouth disease is viral. It causes large-scale damage to Israel's cattle and sheep raisers.
According to Veterinary Services data, the average damage per head of cattle in an infected herd is $300-
$400. The indirect damage is even greater; some countries prohibit imports of agricultural products from
countries where the disease is widespread.
Israel is located in an area infected with hoof-and-mouth disease. The likeli- hood of an outbreak of the
disease in Israel is great in spite of the preventive measures taken. The situation in bordering areas and
the lack of sufficient action taken by neighboring countries result in yearly outbreaks of the disease.
Vaccination and the preventive measures taken are incapable of preventing the occurrence of the disease,
though they reduce the damage it causes.
In 1992 the Veterinary Services requested the Finance Ministry to allocate funds to establish a laboratory
to diagnose this and several other diseases, and to develop emergency vaccines. The establishment of the
autonomous areas and the fear that veterinary treatment there would be insufficient, makes the project
extremely important. In November 1995 the Ministry of Agriculture informed the State Comptroller's
Office that the Ministry of Agriculture and the Dairy Board had that same month signed an agreement
according to which the cost of establish- ing and operating the laboratory would be equally shared by
4. When an outbreak of disease occurs, it is desirable that actions to eradicate it be taken as soon as
possible. Rapid action is necessary to prevent its spreading and to reduce the resulting health and
economic harm. These immediate actions require appropriate budgetary allotments. The Veterinary
Services does not have budgetary reserves to perform these tasks, which by their nature cannot be
planned in advance. The Ministry of Agriculture and the Finance Ministry should consider establishing a
budgetary reserve for the Veterinary Services for emergency needs, the size of this reserve being
determined by past experience.

The financial reports of the Veterinary Services are based on the financial activity being recorded on a
cash basis, as required by the Principles of the Budget Law, 5745-1985, and the finance and economy
regulations. These reports do not fully reflect the financial situation of the Veterinary Services.
Consequently, as long as the Veterinary Services remains an autonomous unit of the Ministry of
Agriculture, it should have a business-type accounting system that would express its cash-flows on an
accrual basis, and would enable it to develop

mechanisms for pricing, performance measurement, follow-up, financial and management reporting,
including reporting costs and profit. Such a system can provide the managements of the Veterinary
Services, the Ministry of Agriculture and the Finance Ministry a proper picture of the objectives,
functioning and efficiency of the Veterinary Services.

The general trend of Israel's government is to privatize activity that does not necessarily have to be
performed by civil servants. Consistent with this trend, the Ministerial Committee for Coordination and
Administration decided in March 1992 that, depending on the matter involved, the government would
either transfer services and tasks performed by government ministries to non-governmental bodies, or
eliminate them, the determination of which course to take being made on the basis of ten criteria that
were cited in the decision. The first criteria states that transfer of performance of a service to non-
governmental bodies will not affect the government's powers in setting policy and national priorities,
setting proper administrative regulations, and supervising the provision of services.
In its decisions concerning the 1995 budget, the government directed a joint staff of the Ministry of
Agriculture and the Finance Ministry to propose organi- zational reform of the Veterinary Services, so
that its activity would focus on the supervision of the livestock economy, and it would cease its on-going
activities of providing services to farmers that can be provided by commercial enterprises. The joint staff
was requested to indicate the scope of the cuts in personnel and budget resulting from the reform
program. February 1, 1995 was set as the date by which the staff would submit its recommendations;
however, by the end of 1995, the decision had not yet been implemented.
In the opinion of the State Comptroller's Office, and in light of the afore- mentioned government
decision, a professional staff should be established to determine those activities that the Veterinary
Services should perform. The Veterinary Services should be involved in policy-making, high-level
supervision of animal health and their slaughter, tasks that the government is empowered to perform.
Consideration should be given to the feasibility of transferring to commercial enterprises those activities
that do not relate to danger to public health or to the health of animals, do not affect the environment, and
are not subject to international requirements. On this background, the staff should consider what type of
organizational structure is most appropriate for the Veterinary Services (for example, statutory authority,
autonomous unit, or cor- poration).


The Veterinary Services is an autonomous unit of the Ministry of Agriculture and Rural Development,
subordinate to the Minister of Agriculture and Rural Development. It principal function focuses on
protecting farm and other animals, supervising the slaughter and marketing of animals, and preventing
transmission of diseases from animals to humans.
The State Comptroller's Office found that the Veterinary Services's supervision of animal health,
marketing and use of veterinary drugs and preparations, and the slaughter of animals was incomplete.
Even in instances where the Veterinary Services is informed that its actions are improper, the measures it
takes to remedy the problem are limited, leading to the fear that public health will be affected. The State
Comptroller's Office also noted shortcomings in the manage- ment of finances and accounting at the
Veterinary Services.
The general trend of Israel's government is to privatize activity that does not necessarily have to be
performed by civil servants. Given this trend, examination should be made to determine which activities
should be performed by the Vet- erinary Services and which should be performed by commercial
enterprises. Also, the professional staff should consider what type of organizational structure is most
appropriate for the Veterinary Services (for example, statutory authority, autonomous unit, or
corporation). Since the activities of the Veterinary Services also relate to other government ministries the
Ministry of Health, the Minis- try of the Environment, the Ministry of the Interior, and the Finance
Ministry the aforementioned joint staff should examine the issues from the perspective of these
ministries, and in drawing up its recommendations, relate, where necessary, to the ministry or ministries
to which the Veterinary Services will be subordinate.

Information Security in the Tax System

Ministry of Finance, State Revenue Administration,
Annual Report 45

Security of computerized information, in particular data banks housing large amounts of information, is
extremely important. The objective of the security is to protect the confidentiality and reliability of
information of various degrees of sensitivity from being altered or misused.
Pursuant to the Income Tax Ordinance, data relating to income must remain confidential; other tax laws
the Property Tax and Compensation Fund Law, 5721-1961, the Land Betterment Tax Law, 5723-1963,
and the Value Added Tax Law, 5736-1975 also stipulate the duty of confidentiality and non-disclosure
of information.
Pursuant to the Protection of Privacy Law, 5741-1981, and the Protection of Privacy (Conditions for
Maintaining and Safeguarding Information and the Proce- dures for Transferring Information between
Public Bodies) Regulations, 5746-1986, the authorities are required to establish procedures for managing
data bases, rules for authorizing access to them, as well as controls for detecting damage to the integrity
of the information. Failure to take measures to ensure the security of the stored information is a crime
punishable by imprisonment.
The Accountant General's finance and economy regulations provide for the measures to be taken to
ensure information security, among which are the adapta- tion of computer hardware and software to
meet security needs, control of access, and maintaining a computerized daily systems log for recording
The Data Processing Services of the State Revenue Administration (hereafter DPS) supplies computer
services to the Income Tax and Property Tax Department, and to the Customs and VAT Department, and
manages for them data systems pertaining to tax assessments and collection. One of the systems is a data
bank of confidential intelligence in the Income Tax and Property Tax Departments, which includes
numerous and varied details on taxpayers, including their standard of living. A 1967 amendment to the
tax laws concerning the exchange of informa- tion between tax authorities also allows employees of the
Customs and VAT Depart- ment access to these data.
The computerized system includes some 5,500 terminals: some 3,500 of them are used by the Income
Tax and Property Tax Department, and some 2,000 by the Customs and VAT Department. In 1993, in the
area of income tax alone, there were

some one million queries a day just for information. Based on a report submitted by the deputy director
of the State Revenue Administration to the Income Tax Commissioner in March 1993, the number of
such queries in 1994 will reach some 1.3 million per day.
During December 1993-May 1994, the State Comptroller's Office intermittently examined the subject of
information security in the tax system. The examination was conducted in the Internal Audit Unit of the
Income Tax Commission (hereafter the Commission), in the DPS, and in the security officer's unit of the
Customs and VAT Department.

1. Information security in computerized systems has developed in recent years; work procedures,
methods, and measures intended to cope with potential problems have been instituted.
The State Comptroller's Office's examination found that the tax departments do not have information-
security procedures that comply with the requirements of the Protection of Privacy Law and the
Accountant General's finance and economy regu- lations. In addition, the DPS's information-security
procedures, drafted in 1987, have not been revised, despite the many developments in computer use since
2. During 1991-1993 the Commission and other authorities established four committees of experts,
which submitted recommendations on information security in the tax system. The Commission's external
adviser for information security also submitted a report in July 1994. These experts repeatedly
emphasized the need for a coordinated information security policy, organizationally adapted; definition
of functions and appointment of officials for information security; setting new parameters on access to
information, on a "need to know" basis, by constructing "profiles" of the employees; conducting a review
to determine the system's weak points; protecting the data base by a system especially designed to ensure
in- formation security, to be purchased from an external supplier; and expanding the recording of users
accessing the system.
The recommendations were not discussed in depth, and no meaningful change resulted.
3. The major recommendation of the aforementioned committees was to conduct a survey of risks. The
survey is required by the Accountant General's finance and economy regulations, which stipulate that
"the environment in which the comput- erized information system will be applied must be analyzed by
identifying risks and weak points, and determining the resources that must be protected."
Only the Customs and VAT Department conducted such a survey, and its findings were submitted to the
department's director in December 1993. The survey located numerous weak points and opportunities for
unauthorized access, also with respect to the Income Tax and Property Tax Department and the DPS.
4. A director responsible for information security in the Income Tax and Property Tax Department was
appointed. However, the appointment was made without

his functions and powers being defined. Consequently, the director of information security dealt with
areas of relatively marginal importance.
5. Since information security involves three bodies - the DPS and the two tax departments coordination
between them is crucial. It was found that DPS rarely provides information to the tax departments. Each
of the officials responsible for information security in these bodies deals only with the area under his
purview, and does not systematically receive information on irregular use of computers by employees of
the other bodies, information which is necessary for drawing conclusions and formulating
recommendations concerning information security.
In the opinion of the State Comptroller's Office, considering the large amount of sensitive information
and in light of the great importance of the system's security, the three bodies must act together to adopt an
updated and comprehen- sive policy for information security. This policy must comply with the
provisions of the Protection of Privacy Law and the finance and economy regulations of the Accountant
General, and must take into consideration the recommendations of the relevant committees.


Allocation of Passwords
The two tax departments determine who is allowed access to the information extracted by queries and
commands. There are some 1,400 individual queries, classified into 215 categories. The employee's
access code provides him access to only those categories to which he is authorized access. The tax
departments are supposed to determine these categories in order to restrict access to information so that
each employee only has access to the information he needs for his work. Special attention is to be given
as regards access to commands that enable data entry, and access to the intelligence data base.
It was found that the existing parameters for controlling access are already insufficient. Since the
parameters were initially set, new categories of queries and commands were added without overall
planning, and are so broadly defined that employees have access even though they do not need the
information for their tasks. Furthermore, each tax assessing office and VAT office is given the discre-
tion to provide employees with access to categories of queries, some of which are unrelated to the
employee's tasks. Cases were found where employees moved to other positions and received new access
authorizations, without their previous authorizations, for which they no longer had a need, being
cancelled. Consequent- ly, there are employees who have authorization to access information that they do
not need, including information from the intelligence data bank.
A particularly grave problem is granting an employee, whose tasks require only the receipt of certain
information, authorization which allows him to enter data into the system's files, such as crediting or
debiting accounts. As regards one

area of queries, it was found that relatively junior employees were allowed access to a category of queries
including a command that enables data-entry.
In the opinion of the State Comptroller, an access authorization system based on categories of queries is a
faulty solution that prejudices information security. What is needed is a system that would enable
formulating a table of authorizations which is based on marking all the queries relevant to the user's
profile. In that way it would be possible to add or subtract queries to or from each person's profile
without changing the authorizations granted to each person holding that profile. It is also necessary to
define for each user the population in regard to which he is entitled to operate. In this manner, an
employee would be given access only to those queries and commands necessary for his job and with
respect to the target population which he handles.
The responsible officials should also frequently review the system of access authorization, and sign their
approval. In this way, managers would be able to amend the authorizations on the basis of changes in
employee functions and tasks.

Use of Passwords
To help ensure information security, the DPS operates a system for the assignment and management of
user passwords (see below). It was found that the existing password system contains significant defects in
hardware and software. The sys- tem does not respond properly to unauthorized attempts to gain access,
as the Accountant General's finance and economy regulations require. In this situation, it is possible to
ascertain an employee's password without his awareness, and make use of it. Following a number of
failed attempts in using the password, the security system should frustrate any further access attempts
with the password.
In light of the above, the State Comptroller's Office is of the opinion that action should be taken to
safeguard the password system by means of an external and professional information-security system,
which would remedy the defects. Already in the mid-1980s, the DPS purchased two information-security
software programs, but they were not applied to safeguard the password system (see below).

Monitoring and Control
1. Information security management also requires maintaining an alarm system to warn of irregular
occurrences, based on various characteristics, close to the time they occur. For monitoring and control of
use of the computerized informa- tion, the DPS maintains a daily systems log of activity in which the
details of the users and the use made are recorded.
It was found that it is possible to extract sensitive information without de- tailed recording in the systems
log; without such records, it is impossible to locate the individual who extracted the information.
2. It was noted that the information-security system does not automatically warn about instances that
may indicate misuse. The Income Tax and Property Tax Department conducts limited monitoring of the
computerized activity of its

employees, but only as regards extraction of information from the intelligence data bank.
The Commission employee in charge of supervision of information security, and each of the tax assessors
can extract, at the beginning of each month, from the computerized "log" records, a general statistic on
the times an employee made use of sensitive intelligence queries. It is also possible to receive an
individual report for each employee as regards his activities over a specific period.
The tax assessor's examination of the computerized statistic is particularly important; since they know
their office's employees, they can determine if the employee's use of sensitive intelligence is justified. It
was found that in August 1993, only five of twenty-two tax assessors extracted this statistic; in November
of that year, only four of the tax assessors extracted it. The last time that any tax assessor requested an
individual report to examine unauthorized use by an employee was in August of 1991.
The individual report on the activities of an employee does not classify the types of queries. Because of
the amount of data in the report, immediate conclu- sions cannot be drawn, and much effort must be
expended to isolate and locate the use of sensitive queries. Thus, when an employee of the
Commissioner's Office, whose duties include supervising information security, makes his monthly
checks, he can review the activities of only a handful of the Department's 3,500 em- ployees.
3. The Customs and VAT Department does not use a systems log to inspect computer activity of its
employees. The Department developed a method to obtain data on the daily use of a particular employee
or a particular computer terminal, but the utility of such a method is limited. These checks are, by their
nature, suitable for investigations conducted after information of improper use has been received. That
being the case, the Customs and VAT Department did not system- atically monitor the users, and without
monitoring, deterrence of improper use is non-existent.
4. At the DPS, the Commission, the Customs and VAT directorate, and at some of the regional offices of
the tax departments, personal computers were utilized for use of application software, which enables the
user to define information according to his needs. In order to prevent the use of data base files in pro-
cessing information, which is liable to cause irrevocable damage, the information is processed by using
files that are derived from the data base files. Since even these files contain sensitive information, they
must be protected.
It was found that there are no information-security procedures for personal computers. A feature of these
computers is that it is possible to store and ex- tract information on a magnetic diskette, which increases
the need for protection of the information. Furthermore, as regards use of application generators, there is
no record of the information extracted from their work files.
The State Comptroller's Office is of the opinion that, in the light of the above, and to prevent misuse of
computerized, sensitive information, the two departments should take the actions necessary to ensure that
the system relates to each area of information security and automatically warns of irregular use in

proximity to its occurrence. The State Comptroller's Office suggests that the warning system be expanded
to include other sensitive matters, like extraordi- narily large tax reimbursements, particularly when they
repeatedly relate to the same taxpayer.

1. The computer system currently in use at the DPS was built in stages. At first, the DPS operated in
only one work environment, and it then began to work simultaneously in another work environment.
Operating in various work environments that are not integrated creates problems of interaction between
the systems, with implications on information security.
2. The two software programs that the DPS purchased to provide information security were designed to
manage the access codes system on a professional level, and to block access by unauthorized persons to
the data base, which contains the information of the two tax departments.
These programs were designed to operate in the work environments of the DPS. It was found that no link
had been built between the data base and these pro- grams, and therefore the software is inapplicable;
thus, the DPS employees have unlimited access to this information, in some cases without leaving traces.
As mentioned above, the DPS did not even arrange an access code system by means of these programs.
3. Contrary to the provisions of the Accountant General's finance and economy regulations, the
passwords file at DPS is not encoded. As a result, the problem of information security as regards the
some two hundred programmers at the DPS is aggravated in that they have a general classification only,
according to departments: income tax, property tax and land betterment tax, customs and VAT. These
employees have very broad access to information. Although their activity is recorded in the systems log,
checks are not made to monitor access to the information.


On December 15, 1994 in response to the State Comptroller's report, the director of DPS provided the
State Comptroller's Office with a list of information- security matters to be dealt with in 1995. A
significant portion of these matters are intended to remedy the defects found by the audit.
The audit's findings indicate that information security of the tax system is in large part defective, and
does not comply with the relevant provisions of the Protection of Privacy Law and the Accountant
General's finance and economy

regulations. Under these circumstances, misuse is possible: the untraceable extracting of confidential
information; infringing upon individual privacy; and altering data, even so far as to falsely credit
accounts. Various committees appointed in recent years have warned about neglecting the area of
information security, but the situation has not been rectified. The authorities must act without delay to
remedy this neglected area.

Input Tax Refunds and Deductions

Ministry of Finance, State Revenue Administration
Annual Report 47

According to the Value Added Tax Law, 5736-1975 (hereafter - the Law), value added tax (VAT) is
assessed upon all business transactions, and on the import of goods at a rate of 17% (as of January 1997).
In 1996 there were approximately 360,000 businessmen 3 registered with the regional offices of the value
added tax authorities. Every businessman is obligated to provide the Customs and VAT Department
(hereafter - the Department) with a periodic report accompanied by payment of the value added tax.
Reports are due monthly; however businesses whose annual sales volume is less than NIS 360,000 may
report every two months.
According to the Law, "Where the input tax [the tax paid on business acquisitions] for the period of a
particular report ... exceeds the value added tax to which the businessman is liable in respect of his
transactions in that period, the excess shall be refunded to him within 30 days after the receipt of the
report." According to the Value Added Tax Regulations, 5736-1976, reports which include a request for
refund of input taxes up to a ceiling that is periodically established (NIS 11,613 in January 1997) should
be submitted by way of the banks; request for payment of a larger sum should be addressed to one of the
17 regional offices of the Value Added Tax authorities, accompanied with a list summarizing most of the
tax invoices.
The Department director is permitted to delay the refund to a businessman, whose invoice records are
being examined, in order to determine if he is entitled to the refund, and also when an investigation is
being conducted to determine if the he violated the Law. The director of the Department is authorized not
to send the refund to a person who does not maintain account books or maintains them in a manner that
substantially differs from the Law's provisions.
According to the Department's records, it receives approximately 2.4 million reports a year from
businesses; the number of reports that include a request for refund of input tax - including those that are
submitted to the regional offices and

3       According to the Law, a "businessman" is a person other than a non-profit organiza- tion or a financial institution who
       sells any property or renders any service in the course of his business or who sells any property or renders any
       service occasion- ally, the sale or service being of a commercial nature.
those that are submitted through the banks is about 360,000 (15% of the total reports sent to the
Department). Following are the Department's data regarding collection and refund of input tax in billions
of shekels for the years 1993- 1995:

                                                                                    Percentage of
                                                               Input tax                total

                Year              Collections                   refunds              collections

                1993                  22.3                        5.1                   23.0%
                1994                  27.1                        6.5                   24.0%
                1995                  32.4                        8.2                   25.3%
                1996                  37.9                        10.0                  26.4%

In 1995 the national revenues from collection of value added tax were roughly 23% of total tax revenues.
This is a tax that falls on the total activity of the national economy, is based on self assessment and
general reporting, and a limited scale supervisory arrangement. Under these circumstances it is possible
to evade taxes because of the difficulties in overseeing a large population of taxpayers. For purposes of
supervision and control, the Department performs intermittent audits of accounts and also utilizes, when
necessary, the Depart- ment's investigative section.
During February-July 1996, The State Comptroller's Office examined the han- dling and oversight
involved with input tax rebates. The audit was performed in the Jerusalem, Rechovot and Ashdod
regional offices of the Customs and VAT Department and also in the Department's head office. In
addition questionnaires were sent to all 17 regional offices. In these questionnaires, office directors were
requested to specify the work procedures and the methods of supervision that were used in their offices as
regards refunding input taxes.

In 1980 the Department established procedures for examining and dealing with requests for input tax
refunds. The procedures were most recently updated in August 1987, and with the exception of
instructions for exporters in April 1990, no additional changes were made.
The procedures do not establish who has the authority in the regional offices to approve refunds based on
the amount of the rebate. It was found that there is a lack of uniformity in this sphere and that each office
establishes for itself the persons authorized to approve refunds in relation to the amount of the claim.
In its October 1996 response, the Department informed the State Comptroller's Office that new
procedures for examining refund requests were being formulated.

According to the Department's procedures, a business that contacts a VAT regional office and requests a
refund of input taxes must produce original invoices relating to 75%-80% of the inputs listed in the
periodic report, and all invoices above 1,500 dollars. Some businesses submit the data from the invoices
on a magnetic medium. According to the operating instructions, Department employees must utilize, for
purposes of examining the refund request, a computerized data- base and extract identifying information
about the business in order to verify that it is a going concern and has submitted the required reports in
the past. The regional offices forward the refund requests and supporting documentation to the "Data
Processing Services" (DPS) which is a unit of the State Revenue Administration. The DPS also receives
reports about these same businesses which requested VAT refunds from the banks.
On the basis of the information which it receives, the DPS issues a semi-monthly report which includes
data on businesses which requested refunds in order that the data may be examined in the regional offices
to determine if: the business that submitted the request has a debt to the VAT authorities; if an
investigation of the business is being conducted; if the business is a non-profit organization or small
business and not eligible for refunds; and if the requests submitted to the banks are above the amount for
which a refund request may be submitted to a bank. Only after receiving authorization from the regional
VAT offices, does the DPS credit the bank accounts of the businesses with the amount of the refund.
The DPS also provides the VAT regional offices with data on the number of "negative points"
accumulated by businesses that had previously requested refunds, and it was evident that they had not
acted in accordance with guidelines or had tried to deceive the VAT authorities. The negative points were
accumulated in accordance with the severity of the irregularity, and the VAT offices were charged with
examining businesses which had accumulated a rating above a pre- determined threshold.
Additional audit procedures are performed with a computerized file known as "the invoice data bank." In
this file, data on invoices that businesses have submitted are centralized especially data on invoices that
businesses attached to their requests for input tax refunds. The file is used to verify the data on the
periodic reports of all businesses sent to the VAT authorities by com- paring them to the invoices
gathered over the years.
The State Comptroller's Office found that the audit checks done in the Depart- ment, as described above,
have little value either at the stage of data-entry on refund requests submitted to the regional offices or
after the results of the audits done by the DPS are sent to the local VAT offices.
1. The Law states that the excess of input taxes collected over value added tax that the business is
required to pay must be refunded within 30 days of the receipt of the periodic report, however the
majority of refunds are actually paid within two weeks: The report and the refund request are submitted
by the 15th of each month, the majority near this date; the DPS's examination is performed on

the 16th-18th of the month; on the 29th and 30th of the month the excess input taxes are refunded to the
business. The implication of this arrangement is that significant work pressures preclude performing a
detailed analysis both at the time of data-entry of the reports by the regional offices, because of the
volume of requests for refunds in a short period of time, and when the regional offices must examine the
DPS's findings in the remaining ten days until the excess input taxes must be returned to the businesses.
2. The routine examinations that the DPS performs, as previously described, and their results which are
forwarded to the regional offices for examination, are not designed to detect fraud; however - in part,
they are designed to indicate which businesses are not entitled to refunds according to the Law and
according to the guidelines of the Department, and primarily to indicate, that given certain businesses'
past record, there is cause to consider and examine the refund requests of these businesses.
It was found that the Department's head office did not provide instructions on how to examine cases
which the DPS brings to the attention of the regional offices nor cases where the business' accumulated
rating exceeds the established threshold. It became apparent that each regional office works according to
its own method.
3. Efficient methods to deal with abuses of the input tax mechanism, as previ- ously mentioned, require
performing a monthly computerized comparison of the data contained in the periodic reports of all
businesses with the data found in the "invoice bank" managed by the DPS. As a result of attributing
invoices to their issuer, the invoice data bank can identify: businesses that the VAT due, according to the
total amount of the invoices issued during the course of their business, exceeds the amount listed on
reports to the VAT authorities, and if so, it is almost certain that the full amount of VAT due was not
transferred, and it is even possible that in such cases refunds of input taxes were requested; invoices that
were issued by non-profit organizations (which are not entitled to issue invoices); inactive businesses;
and also the failure of businesses to submit reports. Through clarifications of these cases in the regional
offices, it is also possible to identify the use of fictitious invoices.
The State Comptroller's Office found that the invoice data bank's effectiveness was limited because it
does not include a representative number of invoices in relation to the total population of businesses. The
only data entered was that which related to invoices for tax purposes submitted by businesses which re-
quested input tax refunds from the VAT offices (75%-80% of all the invoices for which a refund was
requested) and the data about the invoices that was requested from a small number of businesses which
requested refunds through the banks (see further). Nevertheless given these limitations a relatively high
number of the occurrences described above were identified; in 1995, 11,739 cases of this type were
identified; in 5,946 of these cases the amount of VAT reported as collected by the business was lower
than the total of the sums reported on the invoices issued by the business; and in 5,793 cases, the business
should not have issued invoices, or had not submitted monthly reports.

This data indicates that the invoice data bank could prevent tax evasion, if it included a larger percentage
of tax invoices. The data, considering the relatively small quantity of information available for
comparison, is useful in assessing the magnitude of the problem.
The State Comptroller's Office is of the opinion that in order for the invoice data bank to be a more
efficient tool in the campaign against abuses of the VAT system, is is imperative to increase the number
of invoices which must be submitted from sundry sources to the Department and inputted into the data
bank. This recommendation is consistent with the view of the Department director, as expressed in a
January 1996 letter to a Member of the Knesset (Parliament); and is also consistent with the suggestions
of employees who deal with the topic in their responses to the State Comptroller's Office's
questionnaires. This topic was also dealt with by an internal committee in the Department which
examined the subject of refunds (as discussed further on). The committee recommended that the
Department should receive all invoices connected to a refund request, excluding those invoices where the
amount of tax was less than NIS 150. The DPS's comput- erized system can accommodate this volume of
information, when historical data is systematically deleted, (in late 1996 the invoice data bank contained
data on over 1.7 million tax invoices), without the need for any significant amount of additional
resources, in order to increase the number of invoices in the "invoice bank."
4. The invoices, which are appended to the refund claim, are returned to the businesses. Under these
circumstances it must be assured that the invoices will not be subsequently used by the businesses to
request additional refunds. Until mid-1996 this possibility was avoided for invoices above NIS 5,000, as
the VAT offices stamped them before returning them. The practice was then stopped in accordance with
instructions from the Department's heads.
The State Comptroller's Office found that it is possible for a business which receives a refund on account
of a specific invoice to resubmit the invoice and receive an additional refund. In fact it is possible to
submit an invoice in this fashion six times, as the Law permits requests for refunds within six months of
the issue date of invoices. Although data on resubmitted invoices are not entered into the invoice data
bank, as the data is already contained in the system, the DPS is not required to report on these instances
to the Department, and in any case, nothing is done about businesses which submit such invoices. It
became clear that through the invoice data bank, instances in which invoices were submitted multiple
times were frequently identified. For example, during the months of July-September 1996, data on
490,000 invoices were entered into the "invoice bank," and approximately 6,000 invoices were found to
have been submitted more than once. An example, is the case in which an owner of a business with a
large sales volume, submitted, in December 1995, 88 invoices, of which 55 were resubmitted in March
1996 and therefore not entered in the invoice data bank.
In some of the regional offices, because of the fear of abuse of the existing system, invoices above NIS
5,000 are photostated, and the copy remains with the

office. However it is difficult to assume that in this way it would be possible to identify an invoice that
was resubmitted, given the heavy work load, as previ- ously mentioned, and the volume of invoices.
It was found that businesses submitting data about their invoices on magnetic medium were not required
to submit the physical invoice itself.
Sometimes a business will contend that the original invoice is not in their possession as it was lost, or for
some other reason. In this case the VAT author- ities permit the business to present a copy of the invoice.
The business signs a declaration, that it will not present the original invoice in order to receive a refund.
However, since the system does not preclude repeat submission of an invoice, a business could make use
of the original invoice.
In the opinion of the State Comptroller, the aforementioned situation creates an inducement for
businesses to take advantage of this breach of internal control. Therefore it is imperative to change the
way things are; in addition, it is necessary to identify, using available information, those businesses that
requested tax refunds based on resubmitted invoices and to clarify the reasons for this, and to take the
requisite measures as necessary.
5. Most of the refund requests are submitted to banks in 1995, 215,000 60% of all refund requests.
According to the Department's procedures, the employee in each regional office responsible for refunds
must examine monthly at least 30 requests for refunds of input taxes which had been processed by the
Given the limited number of examinations of refund requests submitted to the banks in comparison with
the large number of such requests, and also in light of the geographical dispersion of the regional offices
and the varied population that they are serving, it would be expected that the number of examinations
would be reasonably proportional to the number of refund requests submitted to the banks; and that the
examinations would be performed according to a predetermined plan and that the order of priorities
would relate to the type and number of businesses. It was found that the Department's procedures do not
relate to this matter; and in the three regional offices that were audited, the examinations in this area were
random. From the responses to the questionnaires that the State Comptroller's Office distributed it was
found, that in five offices the number of examinations performed is less than the required 30 per month.
In the opinion of the State Comptroller's Office, it is necessary to increase the number of examinations
and to base them on appropriate standards.


It has already been mentioned that opportunities exist for abusing the system. Experience indicates that it
is necessary to be vigilant in order to prevent, among other things, use of fraudulent documents when
submitting a refund request that relates to certain types of businesses.

1. New ventures: Expenses related to founding a new business are numerous and frequently find
expression in requests for sizeable refunds of input taxes. This situation is prone to abuse and it is
necessary to scrupulously examine refund requests as it is possible, in a given instance, that the enterprise
is ficti- tious, founded for the purpose of receiving input tax refunds on the basis of forged invoices.
Cases could exist where, after receiving an input tax refund, the "businessman" sells the equipment that
had been purchased and liquidates the "business." The owners of the firm that received the refund and
liquidated the business can found a new company and operate under the name of the new firm. Since
these are separate legal entities, the Law requires the VAT authorities to register the business, and not to
tie the new registration with repaying prior debts. It should be noted that in December 1995 there were,
according to the Department's statistics, approximately 40,000 dormant businesses, whose cumula- tive
debt to the VAT authorities was approximately NIS 1.9 billion. The Depart- ment does not possess
centralized data from which a conclusion can be drawn as to the causes of the debts. This large balance
requires appropriate attention and detailed examination. In its response to the State Comptroller's Office,
the Department agreed with the State Comptroller's Office that there is a need to find methods which will
enable supervision and control, and prevent the aforementioned abuses.
2. Buildings: When purchasing existing buildings, or those under construc- tion, within the framework
of the business' commercial operations, it is permit- ted to deduct the input tax. If the business rents the
asset to a third party, and renting assets is not the businessman's occupation, input taxes cannot be offset.
Regarding privately-owned apartments which are used by the business, the Department's operating
procedures state that deduction of input tax is permitted only if the businessman does not live in the
apartment and it is not a case of private property masquerading as connected to the business. It is
necessary to verify that these conditions exist before allowing the deduction of input taxes.
3. Real Estate: In real estate transactions as well, there is an inducement to represent the purchase of
property for private purposes as business related. According to the Department's procedures, the
employees of the regional offices are required to contact the municipal authorities or the Israel Lands
Adminis- tration in order to ascertain whether private use is involved. Sometimes the regional office
employees conduct field visits. In addition they are required to request from the business all tax invoices
for which input tax was deducted.
In the opinion of the State Comptroller's Office, the inspections required by the Department's operating
procedures regarding this matter are insufficient, as the possibility exists that a businessman will use an
asset in a way that does not entitle him to deduct input taxes, only after the Department's inspection.
Indeed during the period that the State Comptroller's Office conducted its audit, two related cases
handled by the regional offices were brought to its attention. In order to eliminate any doubt, it is
necessary to formulate an arrangement wherein the municipal authorities will periodically supply the
VAT authorities with information on assets whose stated usage has been changed and they are now

considered a privately used asset (the municipal authorities have this information, as it is used for
assessing real estate taxes); and in appropriate circum- stances the follow up should include a field visit.
4. Vehicles not registered in the name of the businessman: According to the Law, "A businessman is
permitted to deduct from the VAT tax for which he is liable, the amount of input tax included in the tax
invoices, in import documents filed with the customs authorities, or in any other document bearing the
name of the businessman as owner of the goods." The State Comptroller's Office discovered that the
Department's operating procedures allow deduction of the tax in cases where the businessman requested
to deduct input taxes for a commercial vehicle that he purchased, even though the vehicle registration
was not recorded in the name of the businessman, but rather in the name of another individual. The
businessman is generally not required to prove any connection between himself and the person listed as
the owner on the vehicle registration. According to the Department's operating procedures, the condition
that the Department established for receiving a refund is that the individual who is the owner of the
vehicle listed on the vehicle's registration, submits a signed affidavit in which he gives power of attorney
to the Department to record a lien on the vehicle at the Vehicle Licensing Office in accordance with The
Tax Ordinance (Collection), including an authorization to seize and sell the vehicle to cover the business-
man's liabilities to the Department, if such liabilities should arise.
Under the existing circumstances a business can deduct input taxes even for a commercial vehicle which
was not originally purchased for the business's use if it was placed at the disposal of additional parties. In
these cases the business is permitted to continue deducting input tax for the ongoing use of the vehicle. It
should be noted that popular recreational vehicles such as jeeps and vans are considered as commercial
vehicles. It should also be noted that several regional offices do not follow the operating procedures and
disallow refunds of input taxes when the vehicle registration is not in the name of the businessman.
In the opinion of the State Comptroller's Office, the Department should in- stitute controls to ensure that
there is a business-related link between the business and the owners of the vehicle as registered at the
Vehicle License Bureau. It is suggested that in cases where the owner of a vehicle as listed on the
registration is not the businessman, it should be recorded on the vehicle registration that VAT was not
paid at the time of the purchase, in order to assure payment of the tax when the vehicle is sold.
In its response to the State Comptroller's Office, the Department stated that it is aware of the
phenomenon wherein popular recreational vehicles are defined as "commercial", and as a result of the
audit it will make efforts to amend the legislation concerning this matter, with the aim of limiting the
deduction of input tax for these types of vehicles.
During the latter stage of the audit the Department acted to effect a change wherein jeeps and vans would
be recognized as commercial vehicles only for businesses in specific sectors, where it would be
reasonable to assume that the vehicles are used for business purposes.

The vast majority of businesses do not request refunds of input taxes, but usually deduct, within the
rubric of the report to the VAT authorities, which is a self-assessment, the input taxes paid from the VAT
collected and pay the difference. The only examination done to ensure that the report is correct is
incorporated in the audit on business invoices done by the Department. The extent of these checks is
small throughout 1995 the branch examined invoices of 7,776 businesses, representing approximately
2% of the total population of businesses. The method of auditing invoices is largely based on identifying
exceptions, so that a business which offsets input taxes in modest sums and does not request a refund, can
reasonably expect that it will not be subject to an audit.
In the opinion of State Comptroller's Office, the self-assessment arrangement does not contain adequate
deterrence, and creates a temptation to abuse the system by inflating the amount of input tax. It is
incumbent on the Department to address this situation, and develop appropriate monitoring tools that will
allow it to discern what is occurring in this area.

1. According to the law, the rate of VAT for export transactions is zero. As a result, although the
exporter is not required to pay VAT on export transactions, he is permitted to deduct input taxes that he
paid. According to Department statistics, the total amount of refunds received by exporters in 1995 was
about NIS 3.2 billion. The Department made an administrative arrangement which expedited refunds of
input taxes to exporters within 45 days of submission of the refund request. The exporters are not
required to submit export documents to customs or invoices on account of the purchases, but only lists of
relevant in- formation from the invoices. With this expedited process it is nearly impossible to perform an
examination before authorizing the refund. The State Comptroller's Office discovered that the exporters'
reports and their refund requests are not examined, even ex post facto.
Data from the reports submitted by exporters on VAT transactions at the rate of zero percent and data
from reports to customs by the same exporters should be roughly equivalent. The State Comptroller's
Office compared the two sets of data for the year 1995 to each other. The examination included 600
exporters who did not export expertise or other intangible property, for which export reports are not
required. In regards to 180 exporters the examination revealed that the cumulative sum of transactions
with a zero percent VAT rate was greater than the amounts appearing on the customs reports for the same
period and for some of the firms the difference was hundreds of percent. The Department was not aware
that such large differences existed. The State Comptroller's Office gave this data to the Department for a
detailed examination. As of the conclusion of the state audit the Department had examined 21 of the
cases and did not find any abuses.

In the opinion of the State Comptroller's Office, the Department must act to en- sure that exporters should
be examined on a regular basis like other businesses. Such an examination serves as a useful deterrent
and also is important from the perspective of equal treatment for all.
2. The agricultural sector also enjoys an administrative arrangement which allows expedited refunds and
a reduction in the scope of the examination of VAT reports. In 1995 the agricultural sector received VAT
refunds amounting to approximately NIS 545 million. The majority of the agricultural sector submits
consolidated computerized reports directly to the DPS without submitting invoices in order to facilitate
examination in the regional offices. In this manner the deterrent against abuse of the system is weakened.
3. The Department began a similar arrangement with one of the largest compa- nies in the local economy
and thus enabled the company, through an accelerated process, to receive refunds of excess input taxes
paid, without an inspection of invoices.
The Department indicated in its response to the State Comptroller's Office that it is acting to reform the
prevailing situation.
It is the opinion of the State Comptroller's Office, that in the aforementioned circumstances, just like in
other sectors, the Department must perform a cross- check of invoices upon which the requests for
refunds of input taxes are based, in
order that the principle of equality and the necessity for a deterrent are preserved.

Some businesses had requested tax refunds but did not list the bank account into which the refund should
be directly deposited. In July 1996 there were 4,530 active enterprises that were entitled, in some cases
for years, to refunds total- ling NIS 11 million. There were a significant number of businesses that did not
receive several refunds that amounted to a meaningful sum. In addition to the total mentioned, the
amount due to businesses that ceased operation can be added. The Department has no standard operating
procedures for these cases. The DPS is accustomed to contact the business in writing and to request
details concerning the bank account to which the refund should be sent. Lists of enterprises which did not
respond to the written inquiry are forwarded by the DPS to the VAT regional offices for further handling.
The State Comptroller's Office discovered that in most of the cases in which businesses did not receive
their refunds this was due to faulty listing of their addresses by the DPS. From this it follows that the
DPS's inquiry to clarify the details of the business' bank accounts was meaningless. It was also revealed
that in the offices inspected, no activity was undertaken to identify and locate the address of the
businesses by using the computerized data bases available in the Department.
In the opinion of the State Comptroller's Office, the current arrangement results in harm to businesses
which are legally entitled to refunds but do not

receive them, while the state treasury benefits from income to which it is not entitled. The Department
must do all within its power to locate the businesses entitled to refunds and to process them without

The possibility for abuse in input tax refunds, coupled with the fact that since 1987 the relevant operating
procedures have not been re-examined caused the VAT authorities to analyze the situation through an
internal committee. The committee was formed in December 1993 and its goals were defined as: "To
improve the system for processing and monitoring refunds, while focusing on more thorough handling of
refunds and on the reduction and identification of unjustified refunds. In the minutes of the committee it
is stated that, among other things, past experience in handling refunds teaches that "it is necessary to
devote attention and thought to a more meticulous handling of refunds"; and that the recommendations
that the committee plans to present result from "the increased shrewdness of the taxpayer." The internal
committee presented its recommendations in March 1995 to the Department's Assistant Director for
Collections. In the recommendations it is stated that, among other things, it is necessary to focus on more
intensive handling of refunds while employing more sophisticated computerized techniques in order to
minimize unwarranted re- funds; it was recommended to develop the "profile of a businessman" relating
to prior violations and suspicious data possessed by the Department. It was also recommended to
establish a highly trained unit specializing in preventing ficti- tious refunds.
The committee's recommendations were not discussed by the Department's heads, and in any case were
not implemented by it.


The Customs and VAT Department's responsibilities include collecting VAT, which is an important
source of revenue for the state. As in any tax system, the tax authorities are required to ensure that there
is no tax evasion; however the VAT authorities have a unique problem in that the tax is self-assessed, a
problem which stands out in the area of refunds and offsets of input taxes.
The audit findings indicate that the loopholes in the VAT internal control system are so numerous that
they constitute an inducement for businesses to offset or request tax refunds for amounts larger than those
to which they are entitled, by use of fictitious invoices. Similarly the system permits the receipt of
multiple refunds based on the same invoice. Several business sectors entitled to refunds are not required
to submit the invoices upon which the calculation of

the refund due was based. The heads of the Department did not establish adequate policies to deal with
these circumstances effectively. Given that VAT is an important component of state revenues, it is
reasonable to assume that improving controls will result in a significant increase in state revenues.
It is essential that the Customs and VAT Department adopt innovative controls in order to create an
efficient system of examination and supervision; among other things, it should include an increase in the
number of invoices stored in the computerized data bank and for which a computerized comparison could
made with the data on the monthly reports submitted by all businesses. In response to the questionnaires
that the State Comptroller's Office distributed to the VAT offices, Department employees submitted
various suggestions to improve efficien- cy and to add control measures. These suggestions were brought
to the attention of the Department.
It appears that the VAT, whose basis is in legislation from 1975, has arrived at the point where it is
necessary to consider reorganization in light of the changed realities, at least as regards the provisions
relating to requests for refunds of excess input taxes, in order to minimize tax evasion and to improve
In its response to the State Comptroller's Office, the Customs and VAT Depart- ment stated, that after
analyzing and examining the issues raised by the audit it was decided to improve the system for checking
input tax refund requests, and that it was the Department's intention to consider and implement the State
Comptroller's Office's recommendations.

War Games

Israel Defense Forces, Annual Report 44

"War games" primarily serve commanding officers and their staff in evaluating operational plans and
concepts, and in formulating solutions to problems. The initial use of war games as a methodology and
discipline for instruction began in the 18th century in the courts of the Prussian kings. Subsequently, war
games were developed especially in Germany from the beginning of the 19th century until the Second
Word War. Today war games are widely used as an auxiliary aid in most armies of the world.
A "war game" is defined in the Lexicon of Military Terms, published in 1980 by the Training Department
of the Operations Branch, as follows: "A planning exercise carried out on maps and with the use of
various auxiliary devices, whose purpose is to exercise command headquarters in solving operational
problems. The technique of war games also serves training needs and is also used for the exami- nation of
concrete operational plans."
Intermittently, between July 1992 and July 1993, the State Comptroller conduc- ted an audit on the
subject of war gaming in the Israel Defense Forces (IDF). The issues examined were the definition,
nature and objectives of war games, their assimilation among the senior officer staff, their use, and the
benefits derived from them. The audit was carried out at the Doctrine and Training Division of the
Operations Branch (henceforth the DTD), the Planning Branch, the Air Force Command, the Ground
Forces Command, the Southern, Northern and Home Front Commands. The staff of the State
Comptroller's Office also met with relevant officials outside the IDF, such as at the Center for Military
Research of the Armament Development Authority (RAFAEL).

1. (a) In July 1988 the combat doctrine section of the Training Department prepared a document defining
the nature of war games, their objectives and the principles behind their preparation and management.
The document also enables one to differentiate what is not a war game. The attached letter to the
document stated that different models of war games should be introduced, developed and

gradually assimilated in the IDF. According to the document, the essence of war games is dealing with
problems and solutions in the area of the art of war and combat (and only incidentally, in the technical
areas of command and control, and organization). War gaming has three main and primary objectives,
and each one can be the grounds for conducting the game: analytical - the analysis of concepts and plans;
educational the evaluation of plans for the purpose of guidance or improving operational planning;
methodological the utilization of war games for defined methodological goals. In addition, there are four
permanent objec- tives which are "secondary" or "supplemental": (1) deepening the understanding of
doctrine; (2) deepening the understanding of influencing factors; (3) maintaining the functional level of
commanders and staff officers; (4) testing of commanders and staff officers. According to the document,
war gaming is not an alternative to situation estimates, command headquarters exercises, systems
analysis, nor even the examination of command headquarters organization and staff work. Its function is
only to raise issues. From the documentation at the DTD it was not possible to ascertain to whom the
document was distributed, and what was done to assimilate the knowledge therein.
(b) In February 1990 the Combat Doctrine Department and the Training Depart- ment published the
document "War Games." This document was distributed only for informational purposes. According to
the document: "A war game exercises commanders and staff officers in applying the skills of warfare,
meaning tactics and strategy and not techniques of staff work. War games deal with the intelli- gence of
decisions and combat doctrine."
(c) At the end of 1992, the DTD published the document "Combat Doctrine and Training War Games,"
which is binding on the entire IDF. The document includes the characteristics of war games, their
classification, the participants and the stages of conducting them. A war game was defined as follows: "A
planning exer- cise whose purpose is to exercise a commander's thinking on operational problems
regarding various war configurations. The exercise is conducted on maps and with the use of various
auxiliary aids." The document notes that war games constitute a supplementary aid for exercises and
practical experience.
The audit was not provided with any documents testifying to staff work done prior to the preparation of
the document. The document was not distributed among IDF commanders in an orderly manner. With its
publication, no accompanying additional actions were taken that were to have brought about the
assimilation of its content among the officers of the IDF.
With regard to the above document, the head of the DTD claimed that in his opinion the structure of war
games should be different and adapted to each and every level. For example, war games conducted by the
senior IDF command echelon are not identical to those which should be conducted at the divisional or
brigade levels. According to him, the document is written on the level of principle guidelines, and the
appropriate headquarters (such as the Ground Forces Com- mand or the area commands) should adapt the
contents of the document in a more specific manner for the lower echelons, such as at the divisional or
brigade levels. Such action was not taken.

The ID informed the State Comptroller's Office in October 1993, that the doc- ument's distribution was
being expanded to include officers at additional levels of command.
2. The views of the Chief and Deputy Chief of the General Staff on the nature of war games found
expression in the summations of General Staff exercises. Transcriptions of General Staff and other
exercises indicate that during the exercises ideas are raised and conclusions drawn that, in the opinion of
the Chief of the General Staff, should be examined within the framework of war games. The State
Comptroller's Office pointed to the need for finding a way in which these ideas could indeed be focalized
and discussed, and serve as a basis for conducting war games.
3. Examination of the way in which war games are integrated in IDF staff work found that war games
were not mentioned in the staff work book, which was valid for the years 1966-1992. According to the
staff work book published by the DTD in 1992, one of the recommended stages in standing battle
procedure is conducting war games. Implementing this stage was stated as being recommended and not
obligatory; thus the conduct and scope of war games are given to the discretion of the commanding
officer. The State Comptroller's Office was informed by various commanding officers that war games
were in fact conducted in the framework of standing battle procedure as a preliminary part of military
exercises. The State Comptroller's Office was also informed that these games were not always docu-
mented. In the opinion of the State Comptroller's Office, in view of the proven benefit of war games in
standing battle procedure, it would be appropriate to define the cases in which war games would be
obligatory; and whenever war games are conducted, they should be documented.


Due to the fact that until 1992 the General Staff had no affirmative definition for war games, various
bodies and senior officers held conceptions that differed from those expressed in the DTD document of
1992, which they continued to hold during the period of the audit. The various points of view moved
between the wider conception that every military exercise is in fact war gaming, and narrower
conceptions. Thus, for example, senior officers related to a General Staff exercise as war gaming, even
though the exercise was defined as a review of staff work procedures, and is therefore not war gaming.
According to a narrower conception, every tactical exercise without troops is considered war gaming.
From talks held by representatives of the State Comptroller's Office, it was found that some commanders
use different terms, such as "computerization" and "situation estimate" as alternatives to, or equivalents
of the term "war gaming." Others claimed that war games held by the IDF, except for General Staff war
games, were in fact "contingencies and responses."

From the above it emerges, that even though half a year had passed since the publication of "Combat
Doctrine and Training War Games," at the time of the completion of the audit in July 1993 there were
still views among senior commanders that differed from those that were stated in the document relating
to the nature, definition, objectives and goals of war games. It would be appropriate for action be taken to
assimilate the content of the document among the officers of the IDF. It would also be appropriate that
the definitions be examined in light of the differing views; and if necessary, the document should be
amended accordingly.
The IDF informed the State Comptroller's Office that in mid-December 1993 the DTD held a conference
with the heads of the IDF combat doctrine departments on the subject of war games. At the conclusion of
the discussions, the head of the DTD instructed that the subject be promoted in the IDF and that war
gaming be instituted in the various IDF bodies on the basis of the DTD document. Each body was
requested to adapt its internal work procedures in accordance with the document's principles, and
institutionalize an orderly system for the docu- mentation of war games, the drawing of conclusions and
the monitoring of their implementation.

Following are the methods used in the IDF by land and air forces:

The Methods Used by the Land Forces
A number of methods for conducting war games are used by the IDF, which can be utilized at all levels:
manual, integrated, and computerized war games. Some of them are detailed below:
1. Manual War Games: (a) Method A According to this method, the exercising of command
headquarters is conducted independently, without outside involve- ment. Exercised is the interaction
between the lower ranks, who produce a picture of the situation that is reported to their commanders, and
the decisions of the commanders, which are constructed on the basis of the picture of the situation
delivered to them from the "field." Among the advantages of this method: lengthy preparation is not
necessary, and the game encourages the development of initiative, judgement and the taking of
responsibility by commanding officers (battalion and brigade commanders). This method was employed
in the General Staff exercise held at the end of 1992, parallel to System B (see details below), and at the
Command and Staff College.
(b) System A is a war game for the training of commanders and staff head- quarters, which was
developed during 1987-1988, and which had been in use since 1988 by the Center for Staff Headquarters
Training and the Center for Brigade Training. It also serves as a method of battle procedure in major
exercises held

by the Command and Staff College. The game is based on the simulation of battle- field events and
processes on a table map by means of control staff using various aids. The control staff employ various
rules and measures (not computerized) to evaluate the moves taken by those being exercised.
(c) In Command and General Staff war games, the participants receive a number of scenarios several
days before the game, and they are supposed to make prep- arations and provide solutions. The responses
are supposed to be discussed in a forum headed by the Chief of the Command or by the Chief of the
General Staff (according to the level of the exercise).
2. Advanced War Games: (a) In August 1988 the Deputy Chief of the General Staff endorsed the
operational need for advanced war games System B de- signed for training command headquarters and
based on the manual war game System A. According to the operational specifications put out by the
Center for Systems Analysis (CSA) of the IDF's Planning Branch in March 1990, the game provides a
variety of significant improvements to System A. The system is intended to serve both the CSA and other
research bodies for various purposes in the future.
In the first half of 1992, acceptance tests were completed, which had been requested by the Ground
Forces Command. In June 1992, System B was presented to the Chief of the General Staff, who
determined that it was important for the Planning Branch to continue to give backing to the Ground
Forces Command for System B, so as to assure the holding of the game by the Ground Forces and its
assimilation in training. The multi-year plan "Mirkam 1997" indicated that the Planning Branch must
present the subjects to be developed in the 1993 work year in the framework of the bi-annual budget that
was approved by the Deputy Chief of the General Staff, and that the war games that had been developed
for training and exercises should continue to be assimilated in the Ground Forces Command.
Pursuant to the instructions of the Head of the Planning Branch, a steering committee of General Staff
Headquarters was established in July 1993, chaired by the Head of the DTD, whose function was to
examine the overall needs of the IDF in the area of training relating to System B. The steering committee
was supposed to make recommendations to the Head of the Planning Branch in September 1993
concerning several basic matters, among them: defining the users of the system; the number of
installations to be set up in the IDF; the manner of assimilating the system; and the order of priorities for
development. The IDF informed the State Comptroller's Office that the committee began its work at the
beginning of December 1993.
(b) Battlefield Simulation: In 1992 the need was raised for a computerized system for battlefield
simulation that would provide a better solution for con- ducting exercises at the Command and General
Staff Headquarters levels, taking into consideration the battlefield of the future and the prospective needs
of the IDF. Thus, the development of innovative technological devices was proposed, based on the
simulation of the strategic battlefield and which would be an alternative to existing methods. Following
staff work carried out by the DTD in

August 1992, the head of the DTD decided in March 1993 that the system would be based on System B.
It was also decided that the end of June 1993 would be the target date for defining the characteristics of
the system for approval of the Deputy Chief of the General Staff.
In January 1994, the IDF announced that the definition of the characteristics of the installation for
battlefield simulation had not been completed, which it claimed involved precedental and innovative
preparatory work. The installation for exercising command and control, in whose framework the system
for battlefield simulation would be operated, was in the advanced stages of construction, which was to be
completed in the 1995 work year.
3. The Need for Computerization: War gaming, an ancient game, developed as a mental contest in the
periods when there were no computerized systems. According to the views of a senior researcher at
RAFAEL's Center for Military Research, the head of the History Department, and the head of the war
games section of the DTD, it is the manual game which enables one to perceive and understand the
consider- ations that elicit the responses and the decisions that produce the outcomes. In their opinion, the
systems that are supported by computers are, on the one hand, a new and sophisticated tool that serves
the officer, but on the other hand, they place limitations on his thinking and restricts his imagination.
Alongside the importance of developing computerized systems as an auxiliary aid in conducting war
games, there must be strict compliance in not allowing these systems to harm or replace initiative and the
creative thinking of commanders, which are among the foundation stones of war gaming.

The Methods Used by the Air Force
The Air Force Command Headquarters has a simulation and war games section, headed by a lieutenant
colonel, whose function is dealing with the subject of war games and exercises.
1. The Air Force has no publication that defines war gaming and the stages of implementation. Air Force
officials told the auditors that the document concern- ing war games published by the DTD does not
provide answers to the specific problems of the Air Force. The auditors were also informed that System
B, which had been developed by the Planning Branch for the land forces, is not suitable for the needs of
the Air Force and therefore is not used by them, nor will an appropriate version of it be developed.
2. In July 1992, during a discussion on war games, the Air Force Chief of Staff noted that effective war
games for managers had not been held in the last several years, and the hope was to exercise decision-
makers in dealing with certain situations, namely making a decision and afterwards activating an ana-
lytical model and presenting an updated picture of the situation. From the IDF's response to the State
Comptroller's Office it emerged that the IDF accepted the Office's recommendation that war games could
also be conducted for the senior operational forum of the Air Force before the completion of the
development of a system specifically designed for such, as detailed below.

In the course of the audit it was found that a civilian company that develops various systems for the Air
Force was involved with the development of a war game for the training of the Air Force's operational
forum, and had even submitted a development proposal in August 1992. The war game proposed by the
company is supposed to enable presentation and analysis, with the aid of a computerized system, of the
results arising from the decisions made by the exercised forums. In October 1992 an order was sent out
through the Defense Ministry to the company for the sum of NIS 425,000. The State Comptroller's Office
commented that the order was made with the company on the basis of its being a single supplier, without
other alternatives having been examined. In February 1994 the IDF informed the State Comptroller's
Office, that beginning in 1993 test runs of the new system were begun, and an additional test run was
planned for April 1994, headed by the Commander of the Air Force.


The Procedures for Drawing Conclusions from War Games at
the General Staff and Command Headquarters Level
War games for the General Staff and Command Headquarters were already held in the 1970s and 1980s
(as will be detailed below). Until the beginning of 1992 it was accepted that the drawing of conclusions
from exercises and war games held at the General Staff and Command Headquarters level would be
coordinated by the Training Department and afterwards by the DTD of the Operations Branch. But
neither they nor any other body were made responsible for follow-up. Only during the second half of
1992 did the DTD organize itself for institutionalizing the process of drawing conclusions and
assimilating the lessons learned, through a section set up for that purpose. The section set up in the DTD
deals only with the conclusions that are drawn from exercises and war games held from the beginning of
the 1992 work year.

The Conclusions Drawn from War Games Conducted by
the IDF until 1988
1. In order to examine the impact of war games on changes or amendments in operational plans, in April
1988 the History Department examined two war games that were held before two wars the Yom Kippur
War and the Operation Peace for Galilee. The head of the History Department pointed out, that even
though problems and weak points were uncovered, they did not bring about an improvement in
operational plans, and these same matters arose during the wars themselves. In his words: "Not in the
least because of the conception that existed in the IDF as to the function and nature of war games and the
benefits that could be derived from them. The absence of clear doctrine on this subject was an

and neither the Operations Branch nor any other body saw it as their duty to super- vise the correction of
shortcomings revealed by war games."
The head of the History Department also noted: "The interesting conclusion, in view of the two examples
that were reviewed, is that if these war games foresaw with surprising accuracy what was about to
happen, they were not utilized in the appropriate manner in order to prevent the difficulties which in
actuality arose and find the appropriate solutions."
2. As a positive example, the History Department's document of April 1988 also mentions a war game
held at the headquarters of a division that was in Lebanon in 1984. The holding of the war game was
initiated by the divisional commander, due to a sense of his own and his deputy commander's
dissatisfaction with the division's method of defense, and due to the need, in his opinion, to examine the
adaptation of the division's deployment of routine security measures to also serve as a defense
deployment against a Syrian attack. During the war game, the commanders from divisional headquarters
served in their own roles and in those of the enemy, and the divisional and brigade commanders
themselves judged the enemy's attack moves. The game lasted half a day without any preparation whatso-
ever (except for an hour and a half lecture by the DTD). Following the war game, the head of the area
command instructed that the defensive conception be changed in accordance with the general lines that
were raised in the war game.
According to the History Department document, the war game provided the motivation and the catalyst
for examining the method of defense, uncovering its defects and correcting them. The document also
stated that the war game in its simplest form demonstrated the vital importance of war gaming in
formulating an operational plan and its ability to serve as a routine, simple and effective device for staff
work in the framework of standing battle procedures of command headquarters at all levels. Also, the
simplicity of the tool does not prevent the examination of complex operational concepts, but rather serves
as an aid for such.

War Games in the IDF at the General Staff and
Command Headquarters Levels since 1988
1. Beginning with the 1988 annual work plan, the frequency of conducting war games at the General
Staff and Command Headquarters level was determined. The audit found that it was not always complied
with. It was also found that war games by the area commands are held without the DTD being involved
or having knowledge of their existence. In the opinion of the State Comptroller, these initiatives are
welcome, but nevertheless there is room for the DTD to be updated beforehand on the holding of these
games and, when necessary, even provide pro- fessional aid in preparing and conducting them. Thus, all
the information on war gaming held in the IDF would be concentrated in the DTD. In this way the DTD
could accumulate knowledge and experience, and support the conducting of war games, as well as follow
up on the implementation of lessons learned.
At the end of 1994 the IDF informed the State Comptroller's Office, that the DTD was involved with the
preparation of two war games that had not been included

in the work plan beforehand, and which were held in the Southern Command in September 1993, after
the completion of the audit. The games concerned the new deployment of forces in wake of the signing of
the Declaration of Principles be- tween Israel and the PLO.
2. War games held in the Northern Command were examined. In the document distributed by the DTD
prior to the war games, which were held during the period of the audit, the main conclusions drawn from
the prior war game were specified. The State Comptroller's Office commented, that there was room to
also detail the state of implementation of the lessons drawn from the previous war game, since there is no
value in distributing a list of conclusions drawn without an update on how they were being dealt with
(and this two years after they were drawn up). At the request of the State Comptroller's Office, the
assistant to the chief of staff for operations at the Northern Command prepared an update of the situation
(correct for June 1993) on how the conclusions drawn from the previous war game were dealt with. It
was found that actions were being taken to implement them, and in some cases had even been completed.
It was also found that the previous war game had been planned to include three scenarios on the basis of
situation profiles, and the decisions that would be made by the different sides would be analyzed and
processed by the manager of the war game. It become evident, that due to the shortness of time, the
discussions on the second and third scenarios were combined. The head of the command related to this
matter in his conclusions concerning the war game and stated that "scenarios 2 and 3 were done hastily,"
and because of this there were important issues that were not discussed.

The Principles of War Games
According to the document published by the Training Department in July 1988, in every war game there
must always be two sides, and the game progresses only by decisions made by them. The role of the
judges is to ensure realism and the conducting of the game in accordance with its objectives and goals.
The function of judging can be filled by the game commander or by the two sides themselves. In a war
game that tests a plan, a separate, designated panel of judges is neces- sary. The 1992 document of the
DTD, as well as the History Department and the senior researcher at RAFAEL's Military Research
Center, pointed out the vital importance of the principle of two sides in every war game.
In the opinion of the head of the Center for Systems Analysis, a war game is defined as such only if it
makes use of devices and if rules of the game were set. Therefore, all games that make use of manual or
computerized devices comply with the definition. The April 1978 publication of RAFAEL's Center for
Military Research which surveys war gaming, emphasizes that although there are several forms and
techniques for war games, there are a number of characteristics common to all of them, among them the
rules that define the game and to which the sides are subject to. As mentioned, among its other functions,
the DTD is supposed to study and follow up on developments in the area of war games,

to aid in their assimilation in the IDF, and to participate in drawing up their characteristics.
1. In the war games held at the General Staff and Command Headquarters lev- els during the last five
years, the principle of having two sides in every game was not maintained. The side playing the enemy
was not determined, and the war game administration did not serve as such, but dealt with organizational
aspects alone. The principle of a "designated, expert panel of commanders and profession- al officers" to
review plans was not completely maintained, since the commander of the game himself usually served as
the sole judge. As long as these principles are not maintained, then the war games take on the nature of a
discussion, a situation estimate, or a tactical exercise without troops.
2. The audit found that the head of the area command, who is also its war game commanding officer, is
usually the final arbiter in selecting the game's goals, the issues to be examined, and the various
situations and scenarios. There is the danger of being fixated on a certain conception that which was the
basis for preparing the existing plan.
A senior officer in the operations division pointed out to the auditors that there are three dangers that may
materialize in cases when a war game is conducted without the involvement of an external factor: the
system of judging and monitoring is subjective; apprehension of the participants to express views that are
not acceptable by their commander; and in some cases, the fear of not reaching the appropriate
conclusions. This because, in his words, the course of the war game (from the preparation of the
scenarios to the presentation of the courses of action) is channelled in the direction of "the outcome that
we wanted."
From the documentation provided the State Comptroller's Office concerning war games held in the last
few years, one cannot ascertain the manner in which scenarios were selected, nor the reasons and factors
that influenced the deci- sionmaking process that brought about the selection of a certain scenario.
In its response to the State Comptroller's Office, the IDF pointed out that senior officers participate in the
war games, and the conclusions drawn are for- warded to the Chief and Deputy Chief of the General
Staff, and to the members of the General Staff forum. Therefore, in the IDF's opinion, it is not accurate to
relate to the head of the area command as the final arbiter; especially as the IDF found it proper to
delegate freedom of action to the head of the area command. Also, the determination of the main subject
to be examined in the framework of IDF war games is made in accordance with General Staff guidelines.
The IDF also explained, that the preparation of scenarios is based on the IDF's conception of the
activation of forces; and the main subjects are based on the lessons of the past and on accumulated


From the above it emerges that not all the required principles or rules were maintained or strictly upheld
in the war games conducted by the IDF. Also the

Doctrine and Training Division did not ensure that these principles be main- tained. This was because it
did not always take part in determining the content of the war games and the method of conducting them.

As aforesaid, the definition of a "war game" stresses the issue of exercising the thinking of commanders.
From the conclusions drawn from previous wars and IDF operations, and from talks that the
representatives of the State Comptroller's Office held with the present head of the Training Department,
as well as with a senior researcher from the Research Institute on Strategic Thinking, the command- ing
officer of the "Barak" project at the Command and Staff College, and others, the need for developing the
training of commanders in patterns of thinking was raised. These patterns of thinking are supposed to
move from the lower level - that of the single battle - the tactical level, to the battlefield level - the
operational level, and reach the higher level of war the strategic level, while the level of abstraction and
thinking capabilities correspondingly rise. War gaming is important in developing the required thinking
capabilities at the different levels. Therefore, it must allow for the expression of military think- ing and
decision-making by commanders and staff officers at the operational and strategic levels.
Senior commanders emphasized on various occasions that commanders must be exercised on all levels,
and also with respect to situations in which there is a need to psychologically deal with the fact that in
certain cases they must recog- nize that the existing doctrine is not appropriate and there is a need to
change it; and also how to deal with substantial changes in short time.
1. Regarding war games of mental reasoning, which can and maybe should be conducted at the
Command and General Staff levels, various opinions were presented to the audit, and three possibilities
for constructing scenarios were discerned:

     (a) A scenario for the purpose of locating fault points in an existing plan.
     (b) Testing operational concepts. The scenario is not designed to test an existing plan, but to be the
     basis for constructing a new plan.
     (c) A scenario that is not connected with any IDF operational plan, and whose function is to raise a
     problem in the area of the unknown, in order to sharpen one's thinking.

In actuality, most war games are conducted according to the first possibility, and the minority according
to the second one. No war games are carried out according to the third possibility. In Command and
General Staff war games the "real" contours of a situation are examined. This can lead to a situation in
which those who are being exercised try to defend what exists, and it is

difficult for them to extricate themselves from current plans, to move beyond the familiar, and to be
flexible in their thinking. In view of the contribution to the development of thinking that is embodied in
the war games of the third type, there is room for holding such games too.
The State Comptroller's Office commented that war games should be, among other things, an instrument
through which one could relate to the skills and training of commanders as observed during the game.
The matter is of great importance since the IDF relates to the course of a game more from the aspect of
staff work and troop movements, and not from that of the quality of the commander's decisions.
2. According to the History Department's document of July 1988, the only criteria for the the evaluation
and judging of war games are the principles of war and combat doctrine that are accepted and binding.
Thus their being accessi- ble and understood, and the commitment of all participants to the principles of
the game, is necessary.
(a) One of the conclusions drawn from General Staff exercises was that there was an absence of a
uniform, professional military idiom. This was observed in the various interpretations given to central
concepts regarding the principles of war and combat doctrine. The IDF informed the State Comptroller's
Office in October 1993, that the publication of a new lexicon of military terms would be a significant step
in inculcating a uniform, professional idiom. The preparation of this lexicon is planned to be completed
in 1994. But even after its publication, the problem of assimilating the concepts will not be solved, even
if they are correctly defined. In the opinion of the State Comptroller's Office, this can be achieved only in
the framework of training, advanced studies and other activities in which the officer participates during
the course of his military service.
(b) A senior officer that conducted General Staff exercises and war games noted, that one must begin the
training of an officer with "how to play the game" already at the Officer Training Academy, and
afterwards improve his knowledge through courses and advanced studies. From the examination of the
basic file on officer training courses at the academy, it was found that the subject of war games was not
included in the curriculum.
(c) The Center for Staff Headquarters Training at the Ground Forces Command is assigned, among other
things, to train and exercise divisional commanders and staff officers in standing battle procedure,
operations management and decision-making. The Center's commander claimed that he did not conduct
war games, since the emphasis at the Center is on staff work, which is not included among the objectives
of war games as defined in the DTD document. The Commander of Ground Forces informed the State
Comptroller's Office in June 1993 that, in his opinion, war games are a stage in the process of preparing a
force for implementing a task and, therefore, they are held in the commands that are responsible for
preparing the force for operations. Since the Ground Forces Command deals with building the force, it
does not deal with "war games," even though it has the apparatus for conducting them (Systems A and
B). This apparatus is used in staff headquarters training. In the opinion of the

State Comptroller, the Center should also train officers in war gaming as part of the process of building
the force, and not only as an aid in the training of staff headquarters.


In response to paragraphs (a)-(c) above, the IDF informed the State Comptrol- ler's Office in January
1994 that the assistant head of the Operations Branch directed the Ground Forces Command to define
how to teach the subject of war gaming in the various training frameworks under it responsibility, and to
set up courses and determine their length, principles and methodology.

1. In December 1987 a team for the analysis and conducting of war games was established. The team
was subordinated to the Training Department, but the head of the team was appointed to serve as an
assistant to the Chief of the General Staff on the subject of conclusions drawn from wars and war games.
The team's function was to collect the conclusions, process them and bring them up for discussion in the
appropriate forums in order to receive approval and recommend ways to apply them, to conduct war
games and exercises at the Command and Gen- eral Staff levels, and to accompany the command
headquarters in examining the application of the lessons drawn. On the retirement of the team head from
the IDF in 1991, the function was left without any single, permanent operational frame- work. Some of
the jurisdictions were transferred to the DTD (the conducting of war games), and another part was
transferred to administrations that are set up ad hoc for each exercise separately. These administrations
are set up and budg- eted for a certain exercise, and disbanded at its completion.
According to the DTD document of 1992, a war game administration is an organ- izational body.
Moreover, during the course of a war game, it must also take part in the game itself, according to the type
of game.
In February 1993, the Chief of the General Staff determined that in the fol- lowing months the need for
setting up a permanent nucleus for the exercise administrations would be considered. In May 1993 the
Planning Branch summed up the staff work it had prepared following the directive of the Chief of the
General Staff and presented it to the Deputy Chief of Staff. The document detailed the shortcomings of
the present situation, the inability to achieve professional expertise, the non-accumulation of existing
knowledge, lack of con- tinuity, and the difficulty in developing conceptions and conducting exercises.
The Planning Branch recommended subordinating the permanent nucleus to the commander of the
military colleges, a Major-General, while being professionally linked to the DTD. At the end of May
1993, the Chief of the General Staff approved the Planning Branch's proposal.

2. At the beginning of June 1993, the head of the war games section at the DTD raised the proposal that
an IDF-wide committee be established to examine the existing problems regarding war games and to
formulate proposals for decision. The section head related mainly to the lack of an IDF coordinating team
on war games; and therefore, in his view, there was no exchange of information between the various
bodies regarding development and equipment acquisition, no cross- fertilization of thinking or
inculcation of training methodologies, no joint attempt at drawing lessons, and so forth. Among other
things, he related also to the issue that at the General Staff and Command level it was customary to
conduct war games on the basis of a standard model, even though it was possible to conduct additional
war games according to different models. The IDF informed the audit that such a team was established
and its first meeting was set for the end of January 1994.
3. In 1991 it was decided that the simulation and war games section of the Air Force would also serve as
the permanent administration for exercises held by the Force. The head of the administration participated
in all activities concerning exercises and war games, and serves as the Air Force representative in matters
dealing with the DTD.


War gaming is a unique device for exercising tactical and strategic thinking and for examining
operational concepts at the decision-making level.
From the findings raised concerning the end-product of war gaming, it emerges that its contribution in the
area of operations was not satisfactory. Further- more, the opportunity to exercise commanders in
operational and strategic thinking by means of war games, and to evaluate their skills of "military
command," was not properly exploited. This was caused by the lack of professionalism of those who
were involved in conducting war games, lack of properly defining the objectives of war games, and the
low frequency of conducting the games, which does not allow for the participation of all commanders.
As has been explained in this report, there was no clear cut understanding of the term "war gaming" in
the IDF, nor its nature and objectives. At the present time, when an authoritative definition has been
published, commanding officers in the IDF should, already from the start of their careers and at all levels,
be made aware of this device according to its correct definition, and receive appropriate training for
conducting war games, drawing conclusions from them, and assimilating their use.

The Discharged Soldiers

Absorption Fund

Ministry of Defense, Annual Report 47

The Defense Ministry's Discharged Soldiers Placement and Guidance Unit deals with vocational training,
education, and employment of discharged soldiers by providing consultation, information, and assistance.
Its headquarters are located in Tel Aviv, and there are four district offices Jerusalem, Tel Aviv, Haifa,
and Beersheva. The Unit operates four divisions education, employment, in- formation, and career
military personnel.
In April 1994, the Knesset enacted the Discharged-Soldiers Absorption Law, 5754-1994, which provides
for financial assistance to discharged soldiers. The Defense Minister is responsible for the execution of
the Law, which is im- plemented by the Ministry of Defense. Pursuant to the Law, an organizational
framework was established the Discharged Soldiers Absorption Fund headed by a directorate. The
Ministry of Defense, through the Discharged Soldiers Placement and Guidance Unit, assists the Fund in
carrying out its functions. In July 1994, the Fund's headquarters was established, which began operations
in early 1995.
The Fund's directorate is composed of eleven members appointed by the Defense Minister to serve for
three years: five representatives of the public, and six representatives of various government ministries.
The representative of the Ministry of Defense is the director of the Unit, who also serves as the Fund's
director general and is charged with its day-to-day administration, implementing decisions of the
directorate and coordinating the Fund's staff work. The Fund headquarters staff is comprised of a budget
officer, accountant, computer assistant, legal adviser, and auditor, who are administratively and
profession- ally subordinate to the heads of the relevant departments in the Ministry of Defense, and
operationally to the directorate of the Fund. The Fund employs 16 workers and thirteen women soldiers.
During December 1995-June 1996, the State Comptroller's Office intermittently audited the Fund's
activities and conducted supplementary examinations at the Unit's four district offices and at the Ministry
of Labor and Social Welfare.

Those entitled to assistance pursuant to the law are: discharged soldiers who completed twelve months or
more of regular service, who began their duty in the Israel Defense Forces (IDF) or the Border Police on
January 1, 1994 or thereafter; females who served in National Service for at least twelve months,
commencing on January 1, 1994; soldiers discharged for medical reasons, that began their service on or
after January 1, 1994, even if they did not complete twelve months of service (hereafter discharged
soldiers). The assistance in- cludes three main components, as follows:
Grants upon discharge: Within thirty days of completion of regular service, the Fund pays the
discharged soldier a sum equal to NIS 91.40 (as of June 1996) times the number of months the soldier
served in regular military service, up to a maximum of thirty-two months for a male soldier, and twenty-
one months for a female soldier.
Deposit fund: In addition to the grant upon discharge, the Fund opens a deposit account in the name of
the discharged soldier to the amount of NIS 352.56 (as of June 1996) times the number of months the
soldier served in regular military service. The deposit account will not be credited for more than thirty-
two months of service for a male soldier, and twenty-one months for a female soldier. A discharged
soldier may use the money in the account for the following purposes: studies, including completion of
high-school studies, pre-academic studies, academic studies, and post high-school yeshiva (religious
academy) studies; vocational training at a recognized vocational training institution; purchase of a
residential dwelling or rental of a residential dwelling; estab- lishing a business from which the
discharged soldier intends to make a living, or joining an existing business. The soldier may use the
money deposited for him into this account for one or more of these purposes.
The Additional-Assistance Fund: This fund provides assistance to discharged soldiers, in addition to the
grant and deposit, to finance studies at pre-aca- ademic institutions, to pay living expenses while studying
in these institutions, and to assist the discharged soldiers to study at a vocational training insti- tution.
The additional assistance is provided on the basis of socio-economic criteria approved by the Fund's
directorate, such as the per capita income of the soldier's family, the parents' education, the area in which
the family lives, and the number of children in the family.

1. Budget framework: The Fund's budget is included within the State Budget as a separate item, and is
determined, in part, on estimates as to the expected amount of withdrawals from the deposit account.
The Ministry of Defense administers and implements the Fund's budget. In the

1995 fiscal year, the budget totalled some NIS 318.3 million, and expenditures amounted to some NIS
271 million; in 1996, the budget totalled some NIS 597 million; and in 1997, the projected budget is
some NIS 697 million. The breakdown of the budget for 1996 (in thousands of NIS) is as follows:

                      Grants on discharge                          137,950
                      Deposit fund                                 337,500
                      Additional-assistance fund                    73,660
                      Wages and operations                          6,163
                      Reserve for inflation                         17,882
                      Reserve for transfer payments                 23,728

2. IDF Manpower Branch Data: A central statistic upon which the Fund's budget is based is the number
of soldiers expected to be discharged from the military each year. The Manpower Branch provides this
statistic to the Fund. An exami- nation of the statistics provided in June 1994 (on which the budget for
1995 is based) and final data for 1995 on the number of soldiers who were discharged indicates, that the
forecast provided by the Manpower Branch to the Fund erred by some 12%.
The State Comptroller's Office observed that such a large deviation was un- justified. In August 1996, the
IDF informed the State Comptroller's Office that the deviation had been corrected, and the forecast that
had been submitted for 1996 should be very close to the actual number of discharged soldiers.

The Law stipulates that the directorate shall establish by-laws for the Fund within three months of being
appointed. The by-laws require, inter alia, the approval of the Knesset's Labor and Social Welfare
In January 1995, the by-laws were forwarded to the Labor and Social Welfare Committee of the Knesset
for its approval. The Committee began to deliberate on the by-laws, but had not completed the process
before completion of the audit.

The Law stipulates that the Fund's directorate may appoint committees, composed of its members or of
others, provided that the committee chairperson be a member of the directorate. It may also delegate its
powers to committees. The by-laws stipulate that the directorate shall appoint subcommittees for budget
and financial matters, allocations from the Additional-Assistance Fund, handling of objections by entitled
persons, auditing, information, and any other subject

the chairperson may decide. Every six months, the chairperson of the subcommittee must report on the
subcommittee's activities to the chairperson of the directo- rate. Committee meetings are to be held as
necessary, but at least once every two months. The directorate decided, at its first meeting in November
1994, that subcommittees would convene once a month. The by-laws also provide that the directorate
must state in the appointment document the particular area of activity of each subcommittee, its
responsibilities and powers, as well as its reporting obligations.
The State Comptroller's Office's examination, conducted in January 1996, of the functioning of the
Fund's subcommittees in 1995 showed that they did not meet once a month, as the directorate had
decided. They did not meet even once every two months, as the by-laws require. Except for the Budget
and Finance Commit- tee, which convened three times, the other subcommittees met only once or twice
throughout 1995.
Furthermore, even the limited activity of the committees was not reported on, as required by the by-laws,
except for a report on the first meeting of the Budget and Finance Committee, at which the committee
determined its objectives. The documents also show that, as of the date of the State Comptroller's Office's
audit, the Fund's directorate had not decided on the areas of activity, responsi- bility, and powers of each
of the subcommittees.

The payments made in 1995 from the money held on deposit for the discharged soldiers were as follows:
              Purpose of Payment                          (in thousands of NIS)
              Studies                                            21,796
              Vocational training                                 2,482
              Purchase of apartments                              2,025
              Rental of apartments                               42,374
              Establishment of businesses                         2,200
                                     Total                       70,877

Error in reporting by one of the banks: Data of one of the banks (on involvement of banks in
implementing the law, see below) on the use of deposit money were recorded on the basis of categories
other than those appearing above. Conse- quently, the Fund's summary of year-end data for 1995 did not
provide a reliable picture of the use made of the deposit money.

The documents indicate that the bank reported use of deposit money for apartment rentals as being used
to establish businesses. This errant reporting caused the Fund to use faulty figures throughout 1995, and
resulted in misleading statements as to the distribution of money paid from the deposit accounts, as
shown by the following figures (in parentheses are the actual figures, as presented above):

                     Purpose of Payment                         (in thousands of NIS)
                     Rental of apartments                          16,586 (42,374)
                     Establishment of businesses                   28,504 (2,200)

1. Rental of apartments: The data on actual use of deposit money in 1995 show that payments for
apartment rentals constitute some 60% of payments from the deposit accounts.
On January 7, 1997 the State Economy Arrangements (Legislative Amendments to Achieve 1997 Budget
Objectives) Law, 5757-1996, was enacted. This law re- moved apartment rental payments from the
categories for which payments from deposit accounts are allowed.
The explanatory notes to the proposed bill mentioned that "since the law went into effect, there have been
instances where the suspicion was raised that the personal deposit account was used to pay apartment
rents, payments being based on lease agreements that were believed to be fictitious."
2. Establishment of businesses: The Fund's by-laws detail the documents the discharged soldier must
present to the bank when he submits the request to withdraw money from the deposit account in order to
establish a business: an "authorized business" certificate from the VAT authorities; a business license; a
contract or legal document indicating the discharged soldier is owner or partner in the business, or a
rental lease of a business site, or a contract to operate a business; a detailed list of the direct expenses to
establish a new business for which assistance is requested; and a document supporting the specific
expense that is presented (such as a contract or receipt).
Documents reviewed during the audit show that in several instances, various bank branches requested
instructions from the Fund as regards how to act in cases where the discharged soldiers only present an
"authorized business" certificate from the VAT authorities and a receipt or receipts for the purchase of
equipment (like a mobile telephone). In a legal opinion of the Defense Ministry's legal adviser, dated
May 24, 1995, it was stated, in relating to a particular case, that in the said case an "authorized business"
certificate and a receipt for purchase of equipment are sufficient to verify the expenditures of the soldier,
and that it is not necessary to demand all the documents listed in the agreement between the Ministry of
Defense and the banks. The legal opinion also recommended that the agreement be amended, as regards
the demand for documents relating

to the establishment of a business, to reflect the spirit of the opinion in that particular case.
The State Comptroller's Office is of the opinion that, because the deposit account moneys are public
funds, the Fund must strictly comply with the condi- tions detailed in the by-laws before granting
approval of their use to establish a business.

Pursuant to the Law, the Fund must manage the discharged soldiers' deposit accounts, examine the
requests submitted by them to realize their rights under the Law, decide whether to grant the requests and
finance the entitlements from the deposited money. To perform these tasks, the Ministry of Defense
contracted with nine commercial banks to arrange the relationship between the Fund and the banks
(hereafter the agreement).
Pursuant to the agreement, the banks agreed to examine requests, submitted by duly discharged soldiers,
to withdraw money held in the deposit account, and to treat the request in accordance with the
procedures, guidelines, and operational demands mentioned in the agreement, and "make the payments in
accordance with the request of the discharged soldier and the Ministry's approval of the request." The
banks also undertook to provide services at all their branches in Israel (some 1,000 branches). The above
framework for implementing the law and for making payments to the soldiers from the deposit accounts,
transferred the major components of the Law concerning payment of account moneys to the com- mercial
banks that contracted with the Ministry of Defense. Pursuant to the agreement, the banks must allow the
Fund's auditor to examine bank activities involving the Law and payments from these accounts.
During 1995, the Fund's internal auditor conducted a random survey of twenty branches of the banks.
The examination indicated many defects in bank operations and a failure of the banks to strictly comply
with the provisions of the agree- ment. The major defects are as follows:
1. Payments for studies: Pursuant to the agreement, payments for studies are to be made only after the
discharged soldier making the request provides sup- porting documents, such as confirmation that he had
been accepted as a student by a recognized educational institution, and a payment voucher issued by the
institution. The payment, forwarded directly to the educational institution, is to be made for no more than
one year at a time, and the total amount may not ex- ceed either the amount set forth in the voucher or the
balance in the discharged soldier's account.
The auditor found instances in which the banks paid for studies but had no copies of the payment
vouchers. Also, the bank occasionally paid amounts higher than those stated in the vouchers. Files were
found without certification that the discharged soldier had been accepted, or contained certifications from
institutions that are not recognized for the purposes of the Law.

2. Rental of residential dwellings: The examination by the State Comptroller's Office found rental
agreements on which the stamp tax had not been paid. In some instances, the banks paid more than the
amount stated in the rental agreement. In one instance, payment was made to the discharged soldier and
not to the landlord. In another case, money was paid for rent, although the contract explicitly indi- cated
that the apartment was in the process of being built; in another case, the bank paid money pursuant to a
contract that did not state the period of the rental or the amount of the rent.
3. Purchase of a residential dwelling: Pursuant to the agreement, payment for the purchase of a
residential apartment will be made, inter alia, after the discharged soldier provides an extract, as of the
date of the request, from the lands registration office. The extract must prove that the seller is the owner
of the apartment, or alternatively, the soldier must obtain confirmation of owner- ship (where the
property is built on land owned by the Israel Lands Administra- tion) or confirmation of ownership from
a housing corporation.
Instances were found where the file contained no extract or confirmation of the Israel Lands
Administration showing ownership, although the bank had paid the money in the deposit account. It was
also found that internal bank procedures permitted payment where the date of the extract and the contract
do not precede the soldier's discharge by more than one year. This condition contravenes the agreement,
which stipulates that the extract must be issued the same day that the request is submitted.
4. Request to open an account: The agreement does not condition the provision of services by the banks
on the discharged soldier's opening an account at the bank branch to which he submitted a request. The
documents examined by the State Comptroller's Office indicate that one of the banks set such a
condition. The documents also show that another bank directed branch managers that opening a current
account at the branch was a condition for implementing payments to the the discharged soldiers.


The examination conducted by the Fund's internal auditor found defects in the banks' handling of
payments of Fund money. The State Comptroller's Office is of the opinion that, since the majority of the
activity in implementing the law concerning the discharged soldiers' deposit accounts is conducted
throughout the country, and because of the large number of defects, the Fund should increase the scope
and intensity of its supervision of the banks. In doing this, the Fund should require that the reports of the
banks to the Fund be complete and precise, taking special care to note to whom money was transferred.
The Fund should examine and monitor the banks' internal procedures involving implementation of the
Law, the purpose being to ensure that they comply with the agreement. Also, the Fund should increase
the information provided to bank employees about implementation of the Law. In August 1996, the Fund
informed the State Comptroller's Office that bank representatives rejected the Fund's offer to

provide seminars for bank employees dealing with withdrawals from the deposit accounts. The reason for
the refusal was their high cost and the high turnover of branch employees.

The Law stipulates that a discharged soldier studying at a vocational training institution is entitled to use
funds from the deposit account to pay for tuition. Pursuant to the law, a "vocational training institution" is
a vocational training institution of the Ministry of Labor and Social Welfare and any other vocational
training institution that the Minister of Labor and Social Welfare recognized as such for the purposes of
the Law.
The Minister of Labor and Social Welfare delegated the authority of granting such recognition to the
Director of the Vocational Training and Manpower Devel- opment Department of his Ministry. The
authorization granted by the department director provides recognition of the institution and of the courses
taught at the institution. Consequently, the discharged soldier is required to study at a recognized
vocational training institution and to take a course recognized under the Law.
The State Comptroller's Office examined the list of courses recognized by the Ministry of Labor and
Social Welfare under the Law, and the list of institutions approved to teach various courses. The
examination's findings indicate that the Ministry of Labor and Social Welfare recognized 226 vocational
training institutions, most of which provide training in only a few areas. Among them were 85
institutions that offer training in clerical and secretarial skills, bookkeeping, and child care; 63 that train
their students to be lifeguards at swimming pools; and 35 that provide training in the field of hairdressing
and cosmetics.
Many areas- like human resources management, marketing and sales, adver- tising, graphics,
photography, public relations, and alternative medicine re- ceived no recognition, or recognition was
granted to only a few institutions.
The State Comptroller's Office is of the opinion that the Ministry of Labor and Social Welfare should
adapt the list of recognized courses and increase the scope of the recognized institutions to the variety of
vocational fields that have developed over the years and in which young men and women want to work.
In August 1996, the Ministry of Labor and Social Welfare informed the State Comptroller's Office that in
December 1995, the Ministry established procedures to expand recognition of institutions and the areas
of training covered by the Law, but that the procedures had not been implemented because of the lack of
professional Ministry personnel to examine the institutions submitting requests to be recognized for the
purposes of the Law.

In accordance with the Law, the Fund also enables discharged soldiers to use deposit account money for
study at post-high school yeshivas. Neither the Law nor the Fund's by-laws define post-high school
yeshivas or who is empowered to approve them. The Fund informed the State Comptroller's Office in
August 1996, that in January 1995 it offered the director general of the Ministry for Religious Affairs
assistance in providing guidance in preparing procedures for recognizing post-high school yeshivas for
the purposes of the Law, but that the Ministry for Religious Affairs did not accept the offer.

A Ministry of Defense directive provides that, in tuition payment cases, the bank transfer the money to
the recognized institution, which had received the approval of the Ministry of Education, Culture and
Sport (hereafter the Ministry of Education) or of the Ministry of Labor and Social Welfare. The
institution forwards a copy of the approval to the discharged soldier, and he forwards this copy to the
bank, together with his request that the bank pay the tuition to the institution. The approvals of the
Ministry of Education and the Ministry of Labor and Social Welfare also relate, as previously mentioned,
to the areas of training and the educational tracks approved for the purposes of the Law at the recognized
1. On August 16, 1995 the Minister of Education, Culture, and Sport (hereafter Minister of Education)
signed an agreement arranging the recognition of four schools for the purposes of the Law. Under the
arrangement, the Minister of Education recognizes these schools as pre-academic preparatory schools as
defined by the Law, enabling them to receive payments from deposit account money. The recognition
allows discharged soldiers to use the deposit account money only for courses to complete their high
school education through the matriculation examinations, and not for courses to prepare them for the
psychometric exams, which are also offered in these schools.
The audit examined the information provided to discharged soldiers by three of the four schools
(hereafter School A, School B, and School C). The examination indicated that soldiers interested in
psychometric exam preparatory courses were told they could receive the appropriate approval from the
school, and based on that, utilize deposit account money to pay course tuition. In July 1996, the director
of School A indicated that use of deposit account money for psychometric exam preparatory courses was
made in good faith and without his knowledge; after being so informed, a circular was sent to all the
school's extensions stating that it was forbidden to use deposit account money for the aforementioned
preparatory courses. The director of School B informed the State Comptroller's

Office that, following the State Comptroller's Office's comments, the school had decided to amend its
The State Comptroller's Office noted that granting approvals to students regis- tered for preparatory
courses for the psychometric exams as if they were taking courses preparing them for the matriculation
examinations was in direct violation of the Minister of Education's decision concerning courses for which
deposit account money may be withdrawn.
2. The audit also reviewed the information that the vocational training insti- tutions provided to
discharged soldiers. The review showed that several of these institutions promise to provide approvals to
the discharged soldiers that will enable them to use deposit account money even for courses which the
Ministry of Labor and Social Welfare had not included among those covered by the Law. The institution
does this by providing approvals to the discharged soldiers indicating that they are registered for courses
that had been approved, for the purposes of the Law, by the Ministry of Labor and Social Welfare.
The State Comptroller's Office strongly objects to this practice, which results in the withdrawal of money
from the deposit accounts for reasons other than those allowed by the Ministry of Education and the
Ministry of Labor and Social Welfare. In August 1996, the Fund informed the State Comptroller's Office
that it had contacted the ministries and warned them about this matter.
3. The heads of the guidance offices of the Unit in the Tel Aviv and Jerusalem regions informed the
State Comptroller's Office that discharged soldiers, regis- tered at recognized educational institutions in
their regions, paid the tuition from the deposit accounts by check payable to the institution, and then
cancelled their registration. In such cases, the institution deducted the expenses entailed in the
registration and cancellation of registration, and reimbursed the remaining sum to the soldier rather than
to the bank. The head of the Tel Aviv office also noted that office counsellors were aware of cases where
the soldiers with- drew their deposit account money supposedly for studies or vocational training even
though they were not studying at any institution.
The above situation raises the suspicion that in some cases the educational and vocational training
institutions did not act in good faith, but rather to obtain deposit account moneys. The State Comptroller's
Office is of the opinion that the Fund should regularly monitor the approvals granted by the various
schools, and where the approvals are inconsistent with the recognition granted by the Ministry of
Education or the Ministry of Labor and Social Welfare, the Fund must take action against those
institutions, including, where appropriate, revoking the re- cognition granted them for the purposes of the

Pursuant to the directives of the Ministry of Defense, the Payments Administra- tion provides financial
grants upon discharge to soldiers who served in the IDF, the grant being based on daily reports of the
Personnel Computerization Center

(hereafter - PCC). IDF soldiers serving in the Border Patrol receive the grant from the Israel Police based
on PCC reports; and the Finance Department of the Ministry of Defense, through the Fund's accountant,
provides the grant to young women in National Service, the grant being based on reports of the non-profit
associations in whose frameworks they serve and of the Ministry of Labor and Social Welfare.
The grant upon discharge to IDF soldiers is provided according to the following procedure: PCC
forwards to the EDP Center data on soldiers discharged from the army. The EDP Center calculates the
amount of the grant according to the pro- visions of the Law, and forwards the information to the
"personal records" file of the IDF. The Payments Administration issues monthly an order for payment to
the soldiers.
Handling of discharged soldiers' requests: The Payments Administration re- ceives hundreds of requests
each month for discharge grants. The Payments Administration must deal with the amount of the grant
even though it does not calculate the payment, which is the responsibility, as mentioned previously, of
the EDP Center. Consequently, the Payments Administration must refer the dis- charged soldiers to other
The State Comptroller's Office is of the opinion that the IDF and the Ministry of Defense should arrange
the proper handling of the payment of the grants upon discharge. In November 1995, the director general
of the Defense Ministry recommended that swift action be taken to ensure that a representative of the
Manpower Branch of the IDF be stationed permanently in the Unit. As of September 1996, the IDF and
the Ministry of Defense had not yet resolved the matter.

The Law also provides entitlements to young women serving in National Service. These entitlements are
similar to those provided to soldiers who completed their regular service in the IDF. Some 5,000 women
serve in National Service at six private non-profit associations that have been recognized by the Minister
of Labor and Social Welfare. A Government decision of May 14, 1995 stipulates that the Special
Services Department of the Ministry of Labor and Social Welfare shall centralize the information
concerning those serving in National Service from all the government ministries and public bodies who
operate National Service, as well as the bodies recognized by the Minister of Labor and Social Welfare in
accord- ance with section 5 of the National Insurance Law, and forward it to the Ministry of Defense to
determine entitlement pursuant to the Law."
The Ministry of Labor and Social Welfare established a National Service super- vision and control unit,
which is responsible for compiling information on the young women in National Service and for control
and supervision to verify the information. The unit is also responsible for forwarding the information to
the Ministry of Defense in order to implement the Law.

1. The Fund is obligated to pay the grant upon discharge and credit his deposit account within thirty days
of completion of regular army service, provided that the soldier served at least twelve months or, as
previously mentioned, was dis- charged earlier for health reasons or because of a disability within the
meaning of the Disabled Persons Law. The directives of the Ministry of Defense stipulate that the Fund
will receive from the non-profit associations, through the Ministry of Labor and Social Welfare,
information on the National Service volunteers ninety days prior to the date they are to be discharged.
The year for National Service begins on September 1 and ends the following year on August 31. As of
the date of the completion of the audit, young women who completed their National Service in August
1994 and August 1995 (including those who left in the middle of the year and no later than January 1,
1994, provided that they had served for at least twelve months) were entitled to the deposit account and
grant. Fund documents and the State Comptroller's Office's examination indicate that only at the end of
1995 did the Ministry of Labor and Social Welfare complete forwarding of the reports to the Ministry of
Defense as regards the young women who had completed their service in August 1994, and only in
December 1995 and January 1996 did the Ministry of Defense begin to receive reports on those who had
completed their National Service in August of 1995. At the time of the audit, April 1996, the Ministry of
Labor and Social Welfare had not yet completed reporting on volunteers who had completed their service
in August 1995; the supervision unit continued to receive requests from young women who had
completed their service more than eight months earlier and had not yet received their entitlements under
the Law.
In February 1996, the head of the Special Services Department of the Ministry of Labor and Social
Welfare wrote to the director of the Fund that the failures in forwarding reports is due to the difficulties
of the non-profit associations in transferring data requested by the Ministry of Labor and Social Welfare
(see below).
The State Comptroller's Office observed that the substantial delay of the non- profit associations in
forwarding the reports to the Ministry of Labor and Social Welfare causes the Fund to be extremely late
in meeting the time requirements set for paying the young women in National Service. In addition, the
delay in payment requires the Fund to pay linkage differentials to some 3,500 young women.
2. Control and supervision: The supervision and control unit has procedures concerning the forwarding
of reports from the non-profit associations. The State Comptroller's Office found several problems in
reporting, which affect its abil- ity to perform control and supervision functions.
(a) At the beginning of each year of service, the non-profit associations provide the supervision unit with
a computerized report listing the young women doing National Service at their institutions. In addition,
the non-profit associ- ations are required to report any drop-outs during the year of the National Service
volunteers. At the end of the year, the non-profit associations provide the control and supervision unit a
list of the young women who completed their year's service. It was found that there is a gap of several
hundred between the

number of volunteers reported as beginning the year and those finishing the year, which is not explained
by the number of drop-outs. The supervision unit operates on the assumption that the gap is caused by
failure to include in the reports those young women who continue for a second year, either at the same or
at another non-profit association.
The head of the Special Services Department and the head of the supervision unit informed the State
Comptroller's Office, that when they receive the reports that the non-profit associations had submitted to
the Ministry of Defense, it is impossible to know whether the young women who had completed their
service received their entitlements under the law.
In August 1996, the Ministry of Labor and Social Welfare informed the State Comptroller's Office that in
May 1996 it reached an agreement with the Ministry of Defense that the latter would forward to the
Ministry of Labor and Social Welfare all the reports on payment of grants to the National Service
volunteers. The Ministry of Labor and Social Welfare also indicated that as of August 1996, it had not
received the requested reports.
The State Comptroller's Office is of the opinion that the non-profit associa- tions' partial and late
reporting on the completion of service without intention to return, on ceasing service with the intention of
serving at a later date, on moving to another non-profit association, and on returning to service after a
report had been filed that the volunteer had ceased her service in addition to the existing information
results in the inability to know at any point in time the number of young women serving and where they
are located.
(b) The supervision unit was compelled to handle an extremely large number of reports that the computer
indicated were errant. For example, at a certain non- profit association, 183 young women were doing
National Service. In March 1996, the supervision unit returned to the non-profit association an errant
report dealing with 88 of the women. The errors resulted, in part, from the non-profit association's use of
faulty operation codes, mistaken entries of identity numbers or reporting on acceptance of a volunteer
who was still registered as serving at another non-profit association.
3. Provision of information to National Service volunteers: A Ministry of Defense directive stipulates
that sixty days prior to discharge, the Unit will send each discharged soldier, at his civilian address, an
information brochure that will include details on his entitlements under the Discharged Soldiers Law. The
directive also stipulates that an information brochure for National Service volunteers will be sent to them
via the non-profit associations.
The documents indicate that National Service volunteers receive the information brochure from the non-
profit associations some six months, and sometimes longer, after they complete their service. Discharged
soldiers receive their information brochure before discharge.
In August 1996, the Ministry of Labor and Social Welfare notified the State Comptroller's Office, that as
a result of the audit, agreement had been reached with the Fund that the information brochure would be
distributed to the National Service volunteers at the time of their recruitment in September 1996.

4. Minority women and male volunteers in National Service: As mentioned above, the young women
serving in National Service are among those entitled to the benefits of the Law. As regards the definition
of "National Service," the Law refers to the National Insurance Law [Consolidated Version], 5728-1968.
In that law, "National Service" is defined as being solely the service of a woman in one of the National
Service frameworks. Volunteer young women from minority groups and males also serve in National
Service, and the question arose as to whether they were also entitled to benefits under the Law.
In November 1995, the Minister of Labor and Social Welfare's advisory committee on National Service,
appointed by the Minister, recommended that the National Insurance Regulations be amended to include
persons from minority groups, who are exempt from military service, among those allowed to volunteer
for National Service, and also to expand the definition of National Service to include young men who
received exemptions from military service. In August 1996, the Ministry of Labor and Social Welfare
notified the State Comptroller's Office that the Minister did not accept this recommendation, and that it
had not been decided to amend the National Insurance Regulations. The matter now rests before the new
Minister, and no decision has yet been reached.
Towards the end of 1996, two petitions to the High Court of Justice argued that the aforementioned
distinction is unlawfully discriminatory. As of the date of the completion of the audit, the High Court had
not yet ruled on the petitions.

1. Budget of the Additional Assistance Fund: Pursuant to the Law, the State budget appropriates an
annual sum of NIS 60 million (at January 1994 rates) for the Additional Assistance Fund. This amount
includes an annual appropriation of NIS 29 million (at January 1994 rates, which amounted to some NIS
33 million in January 1995) for assistance for pre-academic preparatory studies.
The Additional Assistance Fund's budget for 1995 totalled some NIS 70 million, and the budget surplus
for the year totalled some NIS 29.6 million.
The documents indicate that the financial assistance given through this fund for its various objectives in
1995 amounted to only some NIS 41 million. The assistance was divided as follows: some NIS 16.7
million to pre-academic prepar- atory studies; some NIS 12.8 million for living expenses; and some NIS
11 million for assistance in studies at vocational training institutions.
The existing criteria for granting assistance limits the Fund from utilizing the Additional Assistance Fund
money for their stated purposes. The Fund's directorate acted to solve the problem, but no decision had
been reached prior to completion of the audit. The State Comptroller's Office is of the opinion that the
Fund and the relevant ministries should examine alternatives in order to find an appropriate solution.
2. Fund supervision of the pre-academic preparatory programs: According to the Fund's estimate of
early 1996, the additional financial assistance that the

Fund will forward to the pre-academic preparatory programs from the Additional Assistance Fund's
budget for 1996 totalled some NIS 23 million. An additional NIS 12 million must be added to this
amount for assistance to cover living ex- penses.
In coordination with the officials handling the assistance money, it was decid- ed that the Fund would be
responsible for all financial matters (including the criteria for paying living expenses, reporting,
accounting, dates for payment, and the like); the Association for the Advancement of Education (a non-
profit association that is in charge, among other things, of operating the pre-academic preparatory
institutes on behalf of the Education Ministry) is in charge of the pedagogical aspects (including the
study tracks, level of instruction, curricula, and the like). Prior to the 1995/1996 school year, the Fund
signed a framework agreement with each of the pre-academic preparatory-program institutes recognized
by the Ministry of Education.
The agreement defines the preparatory-program institute, its responsibilities, the obligations of the Fund,
and their joint working procedures. The preparatory- program institute is required, among other things, to
provide detailed reports to the Fund on the study tracks it offers, the students entitled to scholarships, and
student attendance at classes.
The State Comptroller's Office observed that, because of the broad scope of assistance the Fund provides
to the pre-academic preparatory institutes and to discharged soldiers studying there (some NIS 35 million
per year), the Fund should examine the preparatory institutes to verify their reports, which are the basis
for the financial assistance the Fund provides. It should also operate an independent control mechanism,
which must be operational throughout the aca- demic year. In August 1996, the Fund notified the State
Comptroller's Office that the work plan for 1996 of the Fund's auditor also includes auditing of payments
from the Additional Assistance Fund.

The State Comptroller's Office examined the system of guidance provided by the Unit to discharged
soldiers at the Unit's office in Tel Aviv. Until implementa- tion of the Law, the Unit primarily
concentrated on vocational guidance. Since implementation of the Law, the Unit has been mostly
involved in providing practical information to soldiers on the possible use of the financial assistance to
which the soldiers are entitled under the Law. Data regarding requests of discharged soldiers for guidance
in the field of education confirm this change of emphasis: in the first quarter of 1996, the number of
requests dropped by about 45% from the number recorded for the first three months of 1994 which
preceded the date the Law took effect. The State Comptroller's Office observed that the Fund and the
Unit must consider making changes in the Unit's structure to reflect the above described changes in its


The Discharged Soldiers Absorption Law is intended to provide assistance to discharged soldiers upon
their return to civilian life. The legislature intended to equip the discharged soldier with better means to
facilitate his absorption in society and to enable him to maintain himself in a respectable manner. The
increasingly larger budget appropriations for assistance provided under the Law, and the number of
agencies and bodies directly involved in the assistance program, particularly the banks, require the Fund
to strengthen its control and supervision in order to ensure that the assistance is provided in accordance
with the Law's provisions.
The audit's findings concerning the unreliable approvals provided by various institutions, which enable
discharged soldiers to withdraw money from the deposit accounts, indicate that the Fund, the Ministry of
Education, and the Ministry of Labor and Social Welfare must become more involved. Also, steps must
be taken against institutions that violate the Law, and in this context, consideration must be given, where
appropriate, to revoke the recognition given to them for the purposes of the Law.
The Ministry of Labor and Social Welfare should adapt the areas of vocational training and the number
of institutions approved for use of deposit account funds to the variety of vocational areas in which the
discharged soldiers express an interest.
There is a problem of discrepancy between the budget that the law earmarked for the Additional
Assistance Fund and the criteria established for use of the money. The State Comptroller's Office is of the
opinion that the the criteria and the budget allocations should be in conformity to one another.
The State Comptroller's Office considers the Discharged Soldiers Absorption Law an important means to
assist soldiers in their integration into society fol- lowing their service. During the course of the audit,
several proposals to amend the Law were raised. Any change in the Law must meet real needs while
making proper use of the resources to achieve the Law's objectives.


The Use of Local Authority Funds
for Election Propaganda

Report on the Audit of Local Government, March 1995

1. Local authorities bring a great deal of information about their activities to the public's attention
through the media and by distributing written material. This publicity can be classified into two main
(a) Announcements required by law that bring vital information to public attention, such as information
regarding building and zoning laws and legal tenders.
(b) Publicity initiated by local authorities similar to that of other public bodies mainly in the area of
public relations, as well as information on the services and activities of the local authority.
The Elections (Modes of Propaganda) Law, 5719-1959, (hereafter the Election Propaganda Law), states
that, in connection with election propaganda, use may not be made of funds of an audited body, within
the meaning of the State Comptroller Law, 5718-1958 [Consolidated Version], including local authorities
as well; such use may not be made of property or goods held by such a body.
2. In 1984 the State Comptroller's Office examined the manner in which 23 local authorities dealt with
publicity during the period preceding the mayoral and local authority council elections of October and
November 1983. The audit found that 18 local authorities had paid for campaign material that featured
their mayors, or the party or parties running for election in that year, out of public funds. In the State
Comptroller's Annual Report 35, the Comptroller called for this improper practice that had taken root in
the public sector to be up- rooted immediately and that steps be taken to prevent it from occurring before
future elections. The State Comptroller stated that this practice constituted illegal use of public funds and
demanded that those local authorities, that had spent public funds illegally, return the money to the public
treasury, including compensation for inflation.
The State Comptroller also pointed out to the Ministry of the Interior the necessity to take action so that
those local authorities that had spent money on campaign material, return the money to the public coffers.
The Comptroller also demanded that the Ministry, in coordination with the Attorney General, make

certain that the local authorities abstain in the future from financing campaign material.
3. Following the publication of the said Annual Report by the State Comp- troller, the Attorney General
revised his guidelines, in 1985, on the subject of the prohibition to finance election propaganda by the
local authorities. The prohibition that had been in effect until then referred to the financing of pamphlets
or booklets that summarized the activities of the candidate during the period prior and close to the
election date. That prohibition was broadened and now applied to publicity of any type, including
circulars or brochures distrib- uted to residents, paid advertisements in the newspapers, cinema or video
films, etc. In the revised guidelines, the characteristics of campaigning material were defined according
to the contents and the timing of the publication of the material. In a circular put out by the director
general of the Ministry of the Interior in 1988, a broadened version of the Attorney General's guidelines
was published which included details and gave examples of how to apply discretion on the question of
whether a certain publication constitutes election propaganda. In 1993, the Ministry of the Interior
published the Attorney General's revised guidelines (hereafter: the guidelines).
The guidelines established that publications which contain election propaganda are, mainly, publications
which were distributed within the year preceding the date of elections, and which include: a description
of the mayor's personal achievements; a statement attributing past achievements or future plans of the
city or township personally to the mayor; a sketch of the mayor's image or his achievements on the party
level; the mayor's picture distributed during the 30 day period prior to election day; or a description of the
activities of the pres- ent local council which emphasizes its achievements in comparison to those of the
previous council.
4. Elections for local councils and for their mayors took place in November 1993.
In March 1993, after receiving a number of complaints, the State Comptroller's Office requested the
Interior Ministry's director general to consider the early distribution of a circular among the heads of the
local authorities, which would warn them of the prohibition against making use of public assets for
election propaganda purposes.
However, the Interior Ministry's director general sent a circular that con- tained the Attorney General's
guidelines on election propaganda to the heads of the local authorities five months later, on August 25,
1993, which was only two months before election day.
5. The Local Authorities (Election Financing) Law, 5753-1993 (hereafter the Election Financing Law),
states that every political faction or list is entitled to receive financing from the state treasury to cover the
costs of its election expenses (hereafter state financing). The scope of the state financing and the
conditions for receiving it were determined in this law.
6. The State Comptroller's Office examined the publications of 28 local authorities, as well as their
expenditures on publicity and information, and their

service contracts (16 municipalities and 12 local councils) for the year preceding the local elections in
The state financing which the political factions and lists of the 28 local authority heads were entitled to,
whose public relations expenses were audited by the State Comptroller's Office, amounted to about NIS
9.3 million, according to data supplied by the Ministry of the Interior.
The audit findings showed that each of the said local authorities bore expenses of its mayor's campaign
publicity, as well as those of his political faction or list running in the November 1993 elections. In that
way the mayor and his party illegally received substantial sums of election propaganda financing from
the lo- cal authority's treasury, in addition to the regular state financing. The parties that profited from
these additional funds came from the entire political spectrum.

Publications that were found to have characteristics of election propaganda were of different types and
were distributed by the local authorities to their resi- dents by various methods:

Local Newspapers
Twenty-two local authorities financed election propaganda publications in local newspapers that were
distributed to their residents: some of the newspapers were published and distributed by the authorities
themselves. For example:
(a) A few months prior to election day, three municipalities publicized articles and pictures in sections
reserved to each of these cities in a local magazine that is distributed in their areas. The articles reported
on the munici- palities' activities in furthering the development of their cities and on their future
programs, emphasizing the part each mayor played in those activities and in special events in which they
took part. (The municipalities: Petach Tikvah; Kiryat Ono; and Ramat Gan, where the publication was in
the Russian language see below).
(b) The Kfar Yonah local council published five monthly editions of a local newspaper in the half year
preceding the elections, the last of which was published on October 15, 1993. The editions contained
reports on development works in the township, the mayor's contribution to their realization, and future
development plans for the town. Some of those reports appeared in a personal column that the mayor
prepared on a regular basis. In an interview with the mayor in the August edition of the newspaper,
details were reported on projects carried out in the last term and future plans, as well as a description of
the mayor's life and information on his family and his hobbies.
The mayor's picture, as well as the pictures of eight members of the council from various parties, were
printed in two places in this edition of the newspaper.

An account of personal events in the life of each candidate, his hobbies, his political activities, and his
position and activities in the council were printed next to each picture. Three of the candidates even
expressed hope to be reelected.
(c) For the past few years, the Zichron Yaakov local council has been paying for an entire page in one of
the local newspapers belonging to a public relations firm. In six of these pages that the council paid for,
from March 1993 until the elections, there were campaign articles accompanied by pictures, promoting
the mayor and his party. After receiving an admonishing letter from the State Comp- troller's Office, the
mayor declared that the material printed in the purchased page was included without his knowledge, and
that the publishers of the newspaper granted his request and refunded the council's treasury the sum of
NIS 1,362 that had been paid for the pages.

Russian Language Newspapers
Eight local authorities financed campaign publications in Russian language news- papers, distributed
among new immigrants from Russia who lived within their municipal boundaries.
(a) The Kiryat Ata municipality published and distributed a 16 page Russian language newspaper. Three
editions of the newspaper contained publicity of a campaign nature. The February 1993 edition contained
descriptions of the mayor's activities for the development of the city, emphasizing his achievements, his
plans for the future, and his personal profile. In an interview, he declared, "... all voters should take into
account the work that I and my employees accomplished from the day I was elected. Even those who had
complaints should support me, because I did for them all that I was able to do."
(b) The Ramat Gan municipality financed a full page in a Russian language local newspaper, containing
articles and paid advertisements. In the first edition of September 1993 the mayor's picture was printed
above an article entitled: "Zvi Bar presents the election platform of Party X" (the mayor's party). The
article contained data on the mayor's public successes and the activities he performed for the city. Details
were given on twelve municipal projects to which the mayor contributed. In four other editions that were
distributed in October 1993, election propaganda was presented on the financed page. In the last edition,
published about a week before the elections, an advertisement was printed calling the public to read an
article containing a flattering image of the mayor and his contributions to the absorption of Russian
immigrants, that appeared in another Russian language newspaper on October 29, 1993, a short time
before the elections.

Seven local authorities produced video films containing campaign material, which promoted the mayor
and his party, and which were presented to the public via television broadcasts and in public and private

(a) A series of programs called "The Wandering Story" were broadcast on television, and were dedicated
to different communities in Israel; the local authorities in those communities financed part of the cost of
the programs. Most of the programs contained an interview with the mayor of each community. The audit
revealed that two of the mayors used the interview to campaign for their reelection.
(b) In September and October 1993 the municipality of Taibeh broadcast eight campaign films via two
cable television stations. The films contained descrip- tions of the mayor's activities for the development
of the city, scenes of his meetings with public figures and admiring citizens, and slogans and emblems of
the parties that supported his reelection. The mayor's election campaign jingle, containing praise and
admiration for the mayor, was repeatedly sounded. In five of the films, the municipality's emblem was
shown at the opening. From official documents and from the mayor's explanations, it appears that during
the nine months preceding the elections the municipality had employed a photographer at the cost of NIS
36,000, who filmed various municipal projects and events for publicity purposes. That material was then
given to the mayor's party to use in the campaign films that were broadcast on television. At least part of
the cost of producing those films were financed from the city's budget.
It should be noted that in addition to the prohibition in which the munici- pality is forbidden to finance
election propaganda, section 5 of the Election Propaganda Law states that no election propaganda may be
broadcast on television or radio programs for a period of 60 days before the elections.
In addition, the State Comptroller's Office remarked that by rendering finan- cial aid for the production
and broadcast of the television programs on the unlicensed stations, the municipality violated the
provisions of the Bezeq Law, 5742-1982, that forbid assisting an unlicensed broadcasting station.

Other Publications
1. In 1993, five local authorities issued maps of their towns and distributed them among the residents.
On the back of the map they printed a photograph of the mayor and his address to the people, where he
emphasized his contribution to the development of the town.
2. Four local authorities produced a pamphlet that featured a preface or for- ward written by the mayor,
his photograph, and a survey of past developments and future plans, which emphasized his contribution
to the growth of the community. The pamphlets were distributed among the residents several times
during the year that preceded the elections.
3. The municipality of Netanya published a 128 page hard cover book named "Netanya Story of a City."
Approximately 2,000 Hebrew copies of the book were distributed in September 1992 to high school
graduates in the city, and another 1,500 copies of the English translation were distributed in September
1993 to the English speaking residents of the city. The introduction included a photograph of the mayor
and his address to the people. Eight pages of the book were dedicated

to the description of the mayor's life, his personal profile and achievements, his performance in his
political party and his accomplishments as the mayor of the city. These descriptions were accompanied
by nine photographs of the mayor, one of which was a full page portrait. The last pages of the book
discussed future plans for the development of the city. The cost of producing the book was NIS 236,000.
It should be noted that a book issued by the municipality of Netanya in 1985 was included among the
findings of the State Comptroller in Annual Report 35 (1985) concerning election propaganda. The
election propaganda characteristics of that book, concerning the mayor that served at that time, are
similar to those of the book published by the municipality close to the latest elections.
4. Two local authorities issued and distributed letters to their residents and publications that described
the contributions of the mayor to the development of the community.
5. During the months of July and August 1993, the municipality of Ramat Gan printed and distributed
letters signed by the mayor to the residents of different neighborhoods. These letters were directed to
each neighborhood separately; they specified the development activities of the municipality in that
neighborhood and future development plans. In March 1993, a similar letter was delivered to worshippers
in the synagogues of the city, in which the mayor described the "achievements of the municipality of
Ramat Gan in the religious realm which benefit our religious public ... we think that we have something
to be proud of ..."
This letter contained a photograph of the mayor, as well as four other photo- graphs pertaining to the
accomplishments of the municipality.
6. Close to election time, the municipalities of Netanya and Kiryat Ono placed large electioneering
billboards in their cities: In August 1993 only three months prior to the elections the municipality of
Netanya placed 60 billboards in various locations in town. Each billboard specified the work that the
munici- pality was carrying out in that location and read: "This project is another link in the chain of
activities that the municipality of Netanya carries out in order to further education and lay foundations for
the improvement of the city and the quality of living in it Netanya gives you a beautiful city."
The billboards were placed alongside other signs of the kind that are usually placed at building sites by
contractors and that contain details about the project and the contractor that is building it. It should be
noted that work on twelve of the locations that had signs posted near them had begun long before the
signs were posted; ten other projects that were mentioned on the billboards were in the planning stage,
and work on them had not begun.

As mentioned above, section 2A of the Election Propaganda Law states that "in connection with election
propaganda, use may not be made of the funds of an

audited body ..." Section 8 of the law states that election propaganda may not be connected with the
giving of gifts.
A short time before elections, the mayors of ten local authorities presented gifts, such as purses, radios
and food parcels to groups of local residents. The gifts were signed by the mayors, and from the phrasing
of some of the notes accompanying the gifts, it could seem as though the gifts were a personal present
from the mayor. The local council of Rosh HaAyin promised to give financial aid to its residents and to
raffle off a car (see below).
It should be noted that similar gifts were also distributed in previous non-election years as well, but
nevertheless, the State Comptroller disapproves of bestowing such gifts with the mayor's name cited on
them, so close to elections.
(a) In July 1993 the Kiryat Ono municipality acquired 500 cameras at the cost of NIS 8,775. Each camera
had the name of the mayor engraved in bold letters next to the city emblem, as well as his title and a
blessing for success. In the same month the municipality sent letters to high school graduates in the city's
juris- diction. The letters read, "Dear army recruit! At this great moment when you are about to become a
soldier, the mayor of Kiryat Ono, Mr. Doron Karp, is happy to present you with a gift. The gift will be
handed to you at the bank ... Please come in person with your identity card." Before the elections took
place, 218 citizens showed up at the bank and received cameras.
(b) From April 1993 and until the day of the elections, the municipality of Kiryat Ata issued four elegant
reprints on the subject of the Sabbath and the Jewish holidays and distributed them to the people praying
in the synagogues in town. All the printed material had a dedication signed by the mayor. One of the
reprints was accompanied by a greeting card and was signed by the mayor. The letter read: "Dear
Sir/Madam, with the approaching of Passover, the holiday of freedom, I send you and the worshipers in
the synagogue my modest gift ..." The cost of producing these objects amounted to NIS 13,330.
(c) In June 1993 the local council of Rosh HaAyin announced a campaign for the improvement of the
environment. As part of the campaign, the local council promised that any resident that would build or
remodel the fence around his home would receive monetary assistance of NIS 500, or a refund of half of
the cost of remodelling, whichever was lower. Furthermore, the council promised that there would be a
lottery for the participants in the campaign, offering a new car as the prize. From a statement that the
mayor made to the chairman of the central elections committee, following a complaint that was brought
before the committee, it appears that the car was supposed to have been donated by a certain non-profit
organization. However, from the records, it seems that this organization was registered in January 1993
for the purpose of building a synagogue and the chairman of this organization was a member of the
mayor's party.
On September 27, 1993 the chairman of the Central Elections Committee issued an order that the local
council of Rosh HaAyin may not give or promise monetary assistance until after the elections, and that
no car could be raffled off. However, in October 1993, the local council again promised to give financial

assistance to residents who built fences around their properties and to raffle a car among the participants.
Presenting gifts with the name of the mayor on them, or publicizing the offer, can be interpreted by the
public as personal gifts from the mayor. In fact, the phrasing in some of the notes accompanying the gifts
gave the distinct impression that the gifts were being offered by the mayor. The giving of gifts or the
promise to hand out gifts shortly before elections and in most cases signed by the mayor is in effect the
granting of gifts for election propaganda purposes, while using the local authority's funds, and is contrary
to the Election Propa- ganda Law.

Ten of the local authorities that were reviewed hired companies and consultants to prepare public
relations programs. Six of them hired a company or a consultant in addition to the existing spokesman
employed by the local authority. In two of the local authorities, the consultants were involved in the
election campaigns:
(a) Since August 1989 the municipality of Netanya has been using the services of a public relations firm
for the fee of $690 per month. The audit revealed that the owner of the same firm was contracted to be a
consultant at the mayor's elec- tion headquarters.
The hiring of the firm by the municipality and the mayor while its owner is em- ployed at the mayor's
election headquarters is contrary to proper administration, and could have caused a conflict of interests
for the mayor between his duties as a mayor and his personal affairs as a candidate in the elections.
It should be noted that in 1993 this firm composed eleven slogans on different subjects for the
municipality for a special fee. The municipality made a great deal of use of two of these slogans,
especially in street signs and public announcements. The first slogan "Netanya Gives You a Beautiful
City" was incorporated in a photograph of the scenery of Netanya and its beach, and the other slogan
"Netanya Gives the Immigrant a Home" was incorporated in a painting of a house and images of people.
In October 1993 the mayor's political faction produced and distributed a cam- paign pamphlet that used
the first slogan and photograph on its cover, and the other picture and slogan on the other pages, as well
as pictures that had been included in the book issued by the municipality (see above).
(b) Since 1990 the municipality of Ramat Gan has employed a marketing con- sultant for
communications via the media for a fee of $2,500 a month. In 1992 the municipality paid the consultant
an additional sum of NIS 136,617 for research on: "The Satisfaction Level and Expectations of the
Residents of Ramat Gan."
In the consultant's work program, in the questionnaire for the research and in a part of the report on the
results of the research that was presented to the municipality in September 1992, a great deal of space
was dedicated to the image of the mayor in the eyes of the residents.

The State Comptroller's Office remarked that part of the work done by the con- sultant was by its nature
intended as election propaganda for the mayor's elec- tioneering needs, and should not have been
financed from the municipality's budget.

Fifteen of the local authorities that were inspected employed a spokesperson that was responsible for
preparing information, distributing it to the public and maintaining contact with the media. Ten of them
had more than one employee working in this area.
From June 1992 the municipality of Lod employed in its public relations depart- ment six employees a
spokesperson and five assistants double the number that had been employed before this time. In 1993
municipality expenditures for salaries for these employees amounted to NIS 330,560. During the period
of audit, one of the employees was assigned to a different job, and the department then had five
employees holding 4.7 positions.
The spokespersons for the local authorities would prepare announcements to the press and publications
on different topics. The announcements and the publi- cations were printed by the local authorities and
distributed to the newspapers and the residents.
The audit found that the spokespersons of five of the local authorities had in- cluded descriptions or
information of a campaign nature for the benefit of the head of the local authority or his party in some of
their publications.
By preparing and distributing, as part of their jobs, the announcements and the other publications for the
local authorities, and using the facilities and property of the local authorities to do so, the spokespersons
violated section 2 of the Election Propaganda Law, which prohibits the use of funds and property that
belong to the local authority for election propaganda purposes.
In performing those jobs, the spokespersons for the local authorities also violated the provisions of
section 75(a) of the Local Authorities (Elections) Law, 5725-1965, which states, that an employee of a
local authority in which elections are being held, who has administrative authority or who has a position
which involves contact with the public, may not participate in electioneering within the jurisdiction of his
local authority.

In October 1993 one of the candidates for the head of the Maalot Tarshicha local council running in the
elections, together with his list, filed two requests with the chairman of the Central Elections Committee,
Judge Theodor Or, to issue a restraining order against the head of the local authority and his party, in
accordance with section 17B of the Election Propaganda Law.

The first request was to prevent the "positioning and/or hanging and/or affixing of notices and signs
contrary to the provisions of the law." In the second re- quest, the judge was asked to prevent the use of
local authority funds, proper- ties and employees for election propaganda purposes.
The audit found that the same law firm that provided legal services for the local council, was used to
defend the mayor and his party in the proceedings concerning the two requests. For this service the local
council paid the law firm NIS 3,510.

Towards the end of the term of office and close to the time of new elections, the local authorities
increased their public relations' expenditures. Most of the money went to advertising initiated by the local
authorities, and only a small sum was spent on informational publications as required by law.
From the data on the local authorities' expenditures on public relations during 1991-1993, it appears that
in 1993 the election year for local authorities most of the local authorities that were reviewed had
drastically increased expenditures on publicity, in comparison with former years. In some of the local
authorities, the expenditures had already increased in 1992, the year that some of the election propaganda
materials were produced. The expenditures on public relations, that were recorded in the accounts of the
local authorities in the first nine months of 1993 that preceded the elections, were considerably higher
than expenditures for the fiscal year of 1991 (which was only nine months long due to the transition from
a fiscal to a calendar year). In three of the local authorities expenditures increased by a rate of 360%. In
eleven other local authorities, the expenses were doubled, while in eight local authorities they grew by
almost 50%. The increased rate of public relations expenditures in the year of elections can also be seen
by comparing expenditures in 1993 to those of 1992 (as mentioned, in 1992, campaign publications were
also produced): Six of the local authorities had doubled their expenditures; in one of the authorities the
increased rate of expenditures reached 217%; in eight other local authorities the expenditures were
increased by 50%.

The Election Propaganda Law states that, "in connection with election propaganda, use may not be made
of funds of an audited body within the meaning of paragraphs (1), (2), (3) and (4) of section 9 of the State
Comptroller Law, 5718-1958 [Con- solidated Version] ..."
The Election Propaganda Law does not prohibit the use of municipal corporation or religious council
funds on electioneering. However they may be made subject to audit according to sections 9(7) and 9(8)
of the State Comptroller Law (see below).

In three local authorities, municipal corporations produced and distributed cam- paign publications for
the benefit of the mayor and his party:
(a) In October 1993, a newspaper, clearly propagandist in nature, was produced and distributed in Beer
Sheva by a municipal corporation the Beer Sheva Economic and Development Company, Ltd. The
corporation is owned by the municipality, all its activities are financed by the municipality, and the
mayor is the chairman of the board of directors.
One of the parties that participated in the elections for the Beer Sheva mu- nicipal council appealed to the
chairman of the Central Elections Committee, requesting him to direct the mayor, the municipality and
the corporation to ab- stain from using corporate or municipal funds for campaign purposes. Following
the appeal, the respondents replied that although the prohibition of section 2A of the Election Propaganda
Law does not apply to the corporation, the mayor's party would finance the publicity.
In his reply to the State Comptroller's Office, the mayor, who is also the chairman of the board of the
corporation, made it clear that his party would finance the publicity.
(b) In 1981, the local council of Zichron Yaakov established a non-profit as- sociation for the
reconstruction and restoration of historical sites in the town. In 1992, the local council delegated the
handling of its cultural activities to this association. Beginning in February 1992, the association has been
issuing a pamphlet called "Local Council Bulletin." Four of the issues, produced in the year prior to
elections, contained many election propaganda articles promoting the mayor of the town.
Following a letter on the matter sent by the State Comptroller's Office to the mayor, his party paid the
association for the relative cost of the election propaganda material included in the publications, as
calculated by the associa- tion.
The State Comptroller's Office notified the Ministry of the Interior of the ne- cessity of amending the
Election Propaganda Law so as to prevent the heads of local authorities from using funds of municipal
corporations, other municipal bodies or religious councils for election propaganda purposes, an activity
which does not comply with the spirit of the law.
In January 1994, a member of the Knesset proposed an amendment to the Elec- tions Propaganda Law,
prohibiting the use of municipal corporations' funds for campaign publicity.


1. The Elections (Modes of Propaganda) Law, 5719-1959, prohibits the use of local authority funds,
property or goods for election propaganda purposes.
In 1983, during his tenure as the chairman of the Central Elections Committee, Justice Meir Shamgar
ruled as follows:

"If a mayor or the head of his political faction participate in local elections, they may and are even
entitled to publicize, whatever they consider to be important and worthy of publicizing in connection
with their past activities. However, they must do so using their party list's budget and not funds from the
public budget. During an election period, publicizing, at the expense of the municipality, a summary of
activities that glorifies a candidate or his party list is prohibited, as is any other type of such activity.
Every action will be examined according to the period and context in which it took place and according
to the overt meaning that it has to the reasonable observer. If the mayor and his party take part in the
elections, they may not publicize a sum- mary of activities that is clearly of the nature of election
propaganda, at the expense of the municipality. If in the past they behaved otherwise, the time has come
to change this distorted behavior and to henceforth act in a different manner."
The Attorney General, in his guidelines, clarified the prohibition to conduct an election campaign at the
expense of the local authority, and specified the characteristics of election propaganda material.
In Annual Report 35 (1985), the State Comptroller stressed the duty of the local authorities to uphold the
provisions of the law, and pointed out to the Ministry of the Interior the necessity to enforce them.
2. The findings of the State Comptroller's Office review of 28 local author- ities' public relations activity
during the period that preceded the elections of November 1993, show that the local authorities continued
to finance the produc- tion and distribution of election propaganda for the benefit of the mayors and their
parties. Five spokespersons of local authorities were involved in producing election propaganda material,
and by doing so also violated the provisions of the Local Authorities (Elections) Law, 5725-1965, which
prohibits a spokesperson employed by a local authority, to take part in election propaganda within the
jurisdiction of his local authority.
Ten mayors presented gifts to groups of residents of the local population and thus violated the Election
Propaganda Law, which prohibits giving gifts in con- nection with election propaganda.
The State Comptroller regards with gravity these electioneering activities of the local authorities, which
were carried out in violation of the law and despite warnings from the Chairman of the Central Elections
Committee, the State Comp- troller and the Attorney General.
3. The State Comptroller demanded that the local authorities act to retrieve the funds that were illegally
spent on financing election propaganda.
By the time of the completion of the audit, six mayors announced their deci- sion to return funds spent on
election propaganda to the treasuries of the local authorities, or to the municipal non-profit association
that financed the publicity. Two other local authorities in which new mayors were elected, sent a request
to the previous mayors to return funds.
4. State financing of political parties and lists participating in local au- thority elections has been in
effect since 1978 by temporary provisions. This has

been anchored in the Local Authorities (Election Financing) Law, 5753-1993 (hereafter the Election
Financing Law).
By financing election propaganda activities from the budgets of the local authorities, contrary to the law,
the mayors increased the public funding given to their parties. In doing so, the principle of equality
among the contestants running in local authority elections was violated.
The State Comptroller's Office notified the Ministry of the Interior of the necessity to warn the heads of
the local authorities, well before the next elections, of the prohibitions applicable to local authorities in
the Election Propaganda Law. Furthermore, the Ministry of the Interior was requested to enforce the law,
to take action to retrieve illegally spent funds, and to amend the law in such a way as to fill in the gaps in
order to prohibit municipal corporations and religious councils from financing election propaganda
activi- ties.
5. The Election Financing Law prohibits a political party faction or list from receiving, directly or
indirectly, any contribution from a corporation. The State Comptroller, in the audit on the financial
accounts of the political parties running in the elections, determined that the above mentioned election
propaganda expenditures by the local authorities constituted a contribution from a corpora- tion to the
mayor's party (the local authority being considered a corporation). Since this determination was only
brought to the attention of the mayors after the elections, the State Comptroller decided not to determine,
on this basis alone, that the report on any of the political party's accounts was not positive. As a result,
these findings were not included in the "State Comptroller's Report on the Results of the Audit of the
Political Parties' Accounts During the Local Authority Elections of November 1993," that was submitted
to the Speaker of the Knesset pursuant to the Election Financing Law.


Setting Up Computer Systems

Postal Authority, Annual Report 47

Since its establishment in 1987 the Postal Authority has been operating computer- ized systems to aid in
carrying out its administrative functions and in providing postal services to the public. In October 1991
the Computerization and Com- munications Department was established (hereafter the C&C
Department), and it was put in charge of the Authority's computer operations, excluding the Postal Bank
system and the management system for the postoffice branches. In 1992, twenty workers were employed
in the C&C Department; in the following years the number of employees increased, and in 1996 there
were 71 workers, of which 24 were involved in systems development.
During May-September 1996, the State Comptroller's Office inspected the activities of the Postal
Authority in developing its central computer system, the purchasing of hardware and software
infrastructures, and contracting with sup- pliers. The audit was conducted mainly in the C&C


The Formation of a Multi-Year Plan of Operation
1. An organization that uses computerized systems should define for itself a multi-year plan of operation,
that will allow it a comprehensive and long-term view of its computerization needs, and from which it
can formulate annual computerization plans.
In the 1990 report of the Authority's internal auditor, shortcomings in the setting up of computerized
systems in the Authority during the the years 1987- 1990 are listed, among them the lack of compatibility
between the systems that were developed. In January 1991 the director general of the Authority
appointed a committee on data processing, and assigned it with the task of preparing a multi-year plan of
2. At a meeting convened by the Authority's director general in April 1992, following the report of the
Authority's auditor on "the development and application of data systems," the necessity in defining
requirements regarding multi-year planning was raised again. It was decided that the data processing

committee would prepare a multi-year plan of action and would submit it for the approval of the director
general within two months. The audit found that such a plan had not been prepared, and as such, was not
submitted for approval by the director general. In April 1993, by the invitation of the C&C Department
manager, a consulting firm prepared a document which stated: "The condition of most of the
computerized systems in the Authority is bad ... The Authority is trying cease- lessly to close gaps, to
patch up holes and to correct deficiencies, all this while it is still paying large amounts for maintenance to
a variety of external suppliers. The Postal Authority has spent large amounts on computerization until
now: almost NIS 100 million at present values. From this amount, about NIS 3 million were spent on
payments to different consultants who aided in bringing the Authority's level of computerization to its
current state. We estimate that from the aspect of the investment in software, most of the existing system
will need to be redeveloped in the coming years."
In the document a number of recommendations were made regarding the com- puterization policy, such
as: freezing all activity connected to new systems development; concentrating all the activity in the data
processing area in one computer unit, "which will be the only unit ... which will be empowered to carry
out all activity in the relevant subjects in all of the Authority's departments;" to choose appropriate
hardware and software infrastructures; to prepare a general specification of all the data processing
systems, including a data dictionary, so that "every future supplier of the Postal Authority would be
required to be in line with the model that would be determined at this stage." The recommendations were
not presented to the director general nor to the Authority's board for dis- cussion. Up until the end of the
audit, a document entitled "A Five Year Plan for 1996-2000," prepared at the beginning of 1996 by the
assistant director general, was also not discussed.
According to the Authority's budgetary figures, a significant portion of the investment budget was
earmarked for computerization. In 1996, the budget for "computerization investment" reached about NIS
50 million (compared to about NIS 40 million in 1995) and constituted 40% of the Authority's total
investment budget for that year. It was also learned from budget figures that in 1996 the investment
budget for "systems and equipment development" increased to about NIS 16 million, as opposed to NIS
6.9 million in 1995.
From these findings it transpires, that since its establishment the Authority has operated without
formulating and designing a multi-year plan of action in the field of computerization, even though it
invested large amounts of money in this field throughout the years.

Control Over the Implementation of Annual Computerization Plans
1. In the annual work plans that the C&C Department prepared for 1993-1996, the assignments and the
schedules for carrying them out were specified. The plans did not include a description of the existing
computerized systems, the systems in stages of development and implementation, and the connections
between them.

The software and hardware infrastructures used in the operation of the systems were not detailed in the
plans. Under these circumstances, those in charge of budgeting and authorization of activities in the field
of computerization were unable to do so intelligently, and they found it difficult to follow up on imple-
It was found that there was a large gap between the annual computerization plans and their actual
implementation for 1995 and 1996 in terms of their finan- cial scope and content. Following are some
(a) In the work plan for 1995, eleven "new systems for operation" were listed. Their development was
supposed to begin in March. The audit found that in that year the Authority had not begun to develop five
of the systems, to which more than NIS 1 million was earmarked for their development (1994 prices):
NIS 150,000 was earmarked for a registered mail control system; NIS 100,000 for a post office box
management system; NIS 300,000 for a transportation system to manage the car fleet; NIS 300,000 for a
mail box control system; and NIS 200,000 for a system to deal with appeals from the public. In its
response to the State Comptroller's Office in December 1996, the Authority explained that the budget
earmarked for the development of the mentioned systems was used to fund "un- budgeted projects."
(b) In the framework of computerization operations planning for 1995, the C&C Department requested
the allocation of NIS 2.4 million for expanding the computer system. In fact, only NIS 900,000 were
approved for this, plus authorization to commit an additional NIS 1 million in 1996. It became apparent
that the Authority spent about NIS 2.1 million for the said purpose, on authorization of the pur- chasing
(c) In the work plan for 1996, the cost for "computerization configuration" hardware and infrastructure
expansion for computers at the head office in Jerusalem, was estimated at NIS 1.8 million. By
September of that year, the Authority's expenditure for hardware expansion reached about NIS 5.2
million: about NIS 4.7 million for the procurement of a new computer in accordance with a decision
made by the purchasing committee in February of that year; and about NIS 467,000 for the establishment
of an infrastructure for the new computer and for existing computers that were relocated in the head
2. One item in the Authority's budget was designated for the establishment of computerized systems
"systems development and equipment." The item was subdivided into topics. During 1992-1996,
transactions that were essentially different from each other were charged to this item: the setting up of
hardware and software infrastructures, payments for consultations and support services, as well as
payments to software houses. However, from the descriptions of the pay- ments recorded in the
computerized accounting system, it was not always possible to know to which topic specified in the
budget the expenditure was debited. Fur- thermore, expenditures amounting to tens of thousands of
shekels were described in a very general way, such as: "development aid," "work hours," "training,"
"programming hours." Proper control and follow-up on the implementation of work plans is hampered by
the way in which payments for computerization are recorded.

A mechanism for follow-up on the execution of annual plans was not set up at the Authority, and
implementation of the budget allocated for each project was not checked. The Authority's auditor
commented about this in a report prepared in 1992. He indicated that the method of specifying the budget
makes follow-up at the project level difficult, and recommended conducting a "functional examination"
of budget implementation, "and not just a fiscal examination."

The Committee on Data Processing
In January 1991, at a meeting of the Authority's board in which the report of the Authority's auditor on
the establishment of computerized systems was discussed, it was stated that the development of
computerized systems was done "without organizational controls." At the meeting it was decided to set
up a central committee on data processing. That same month, the Authority's director general set up the
committee and appointed representatives from the operations, economics, finance and human resources
departments. In the appointment document it was stated that "the committee would assist and advance
computerization and communication in the Postal Authority through interdepartmental cooperation in the
areas of software, hardware and shared knowledge." The committee was assigned to examine the state of
computerization in the Authority and to make recommendations as regards the development budget for
Already in March 1992, the Authority's auditor stated that "from its inception, the data processing
committee has not functioned with regard to setting policy ... it has not discussed the annual work plan on
computerization, and it has not been provided follow-up reports on projects." The State Comptroller's
Office found that by the time of the completion of its audit the committee was not yet functioning.


Enhancing the Computer System
1. At the time of its establishment, when the Authority began setting up its computerized systems, it
issued a tender to purchase a computerized system including hardware and basic software, as well as a
financial system and tools to develop additional management systems, such as a manpower management
system. In November 1988 the Authority signed an agreement with Company A to purchase the system,
which included, among other things, Computer A, for the amount of $126,000. During 1988-1993, the
Authority purchased additional computers from the same computer family (similar characteristics in their
hardware components) as Computer A.
From Authority documents it was found that in September 1993 Company A submitted to the Authority
the results of a survey on the level of utilization of computer resources and expected future growth. The
survey concluded that the

computers had become overloaded, and recommended enhancing the computer system. In the same
month the C&C Department head requested the chairman of the purchasing committee to approve the
purchase of hardware to enhance the Authority's computer system, as recommended by Company A. In
October 1993, the purchasing committee authorized the purchase of the hardware from Company A at a
cost of NIS 2.3 million (adjusted to December 1996 prices), exempt from issuing a tender. The decision
to dispense with a tender was based on the opinion of the representative of the legal adviser on the
committee, who based his decision on the Tender Requirement Law, 5752-1992, and wrote that "after
additional scrutiny of the original purchase agreement and of the attached specifications [from September
1987], it is acceptable to me that the present purchase [from Company A] be considered as within the
bounds of realizing the option to expand the system in accordance with the original agreement, that was
signed before the Tender Requirement Law came into effect."4
Six years passed from the time that the tender was issued until the purchase was approved, during which
far reaching changes took place in the field of computers; there were also significant technological
developments that affected the Authority's systems. In the opinion of the State Comptroller's Office, the
Authority should have examined if it was more advantageous for the Authority to take advantage of the
exemption from a tender and to realize the option, than issuing a new tender. It should have undertaken a
professional and independent review of its computerization problems so as to examine alternative
solutions and to decide upon the most appropriate solution. The Authority did not do so, but rather relied
on the recommendation of Company A, which had a vested interest in continuing its business connection
with the Authority. It should be noted that, on the one hand, the purchasing committee approved an
exemption from issuing a tender, but on the other hand, it recommended contracting on the basis of a
tender, and requested the Department "to prepare a long term investment plan to examine the alternatives
in issuing a tender, instead of continuing the agreement [with Company A]."
2. Computer B (belonging to a new family of computers manufactured by Company A) was included in
the hardware product package that the Authority acquired from Company A on the basis of the
purchasing committee's authorization. It was purchased for about NIS 400,000 (December 1996 prices)
on the grounds that it was needed to enhance the existing computer system. The Authority received the
computer at the beginning of 1994. From an inspection of Authority documents it was found that by
March 1995 the computer had not yet been activated. The audit found that in September 1996 there was
limited utilization of Computer B. In its response, the Authority explained that the computer was
purchased for the purpose of "learning and assessing the future generation" of computers
manufactured by Company A. This rationale did not correspond to the documentation that was

4      According to a transitional provision (section 9) added to the Tender Requirement Law, the Law would not apply to a
       contract as a result of realizing an option in- cluded in an agreement that was concluded before the Law came into

for the purchase, and was not mentioned at the time of authorization in 1993. In the opinion of the State
Comptroller's Office, even if this rationale had been raised at the time, there was no justification for the
Authority to finance an evaluation of a new family of computers.
3. In 1995, with the authorization of the purchasing committee, the Authority purchased more hardware
and software infrastructures from Company A at a cost of about NIS 1.8 million (1995 prices), giving the
reason that there was "an urgent need to approve [the purchase] due to the increasing number of users of
data processing systems." It should be pointed out that the Authority's decision regarding this purchase
was taken despite reservations expressed by the head engineer regarding the value of continuing to invest
in Company A, and his stating that "perhaps it is preferable for the Authority to replace all of the existing
equipment and to purchase new equipment by means of a tender."
According to documents that were submitted to the purchasing committee, about NIS 750,000 of the
purchase price was designated for connecting Computer B to the computer cluster 5 at the head office and
for purchasing software to operate Computer B. The audit found that even though the Authority
purchased hardware for connecting Computer B - according to the recommendation of the company, at a
cost of about NIS 300,000 - the computer was not connected to the cluster.
The audit further found that there was incompatibility between Computer B and the software used by the
family of computers of the Computer A type, which was used for most of the application systems in the
Authority. By the time of the completion of the audit the resulting conversion problems had still not been
resolved. In its response of December 1996, the Authority explained that after purchasing the equipment
and software in March 1995, attempts were made to convert the software that operated on computer
family A to computer family B, but unexpected failures occurred, and as a result it was decided not to
connect Computer B to the computer cluster. In December 1996 as a result of the audit the C&C
assistant director general requested the purchasing department to return to Company A unnecessary
equipment that had been designated for connecting the computer to the computer cluster, and to receive
credit for it. In January 1997, the Authority notified the State Comptroller's Office that it had received
confirmation from Company A of future credit amounting to about $30,000, on condition that it would be
used in purchasing equipment and software produced by Company A for an amount double the value of
the credit.
The Authority explained further, that considering the the problems that arose in the course of converting
the systems to Computer B, it had decided to utilize it "as a computer for development and testing" and
for operating "small applied systems." As stated previously, the audit had found that there was limited
use of Computer B, and in September 1996 the number of users was less than 20. Thus, the operating
system license purchased by the Authority in 1995 for NIS 200,000, that was intended to be used by an
unlimited number of users, was not being fully

5      Computer cluster - individual computers connected together in such a way so that they share all of their resources and
       hence perform as a single computer system.

utilized. Had the Authority purchased an operating system service license according to the actual number
of users, then the expenditure for the license would have been much less than the amount paid, since the
cost of a license of a single user was NIS 1,200. As a result of the audit, the Authority announced in
January 1997 that it was conducting negotiations with Company A in order to receive credit on the
license purchased for an unlimited number of users. It was also revealed that the Authority had not
utilized a license for use of software for applications development intended for 100 users, for which the
Authority paid about NIS 140,000.
The Authority purchased hardware and software products from Company A, costing hundreds of
thousands of shekels, without issuing a tender, the rationale given that there was an urgent need to lessen
the overload on its computers; but from the findings it is evident that they were not being utilized as
planned. Furthermore, according to the same rationale the Authority purchased additional equipment
from Company A at a cost of about NIS 300,000, with the authorization, in May 1995, of the purchasing

The Purchase of Computer C
1. In January 1996, the C&C assistant director general submitted a request to the purchasing committee
to authorize the purchase of another computer (hereafter Computer C) from Company A at a cost of NIS
4 million. In the request it was stated that the level of utilization of the Authority's computers was
expected to grow that year. It was pointed out that "the present configuration is unable to meet the needs
of the Postal Authority and it should be expanded immediately," and that after examining two options
(both manufactured by Company A), one of them was selected Computer C. It was also stated that the
addition of Computer C "is natural and due to the current structure of the Postal Authority," and
Company A should be seen as a "sole supplier." In written clarifications that were attached to the request,
it was stated that the requirement to purchase a computer manufactured by Company A "stems from a
feasibility analysis that we performed during the months of March-September 1995," and that the
decision to issue a tender will be made close to the year 1998, but during the three years until then, the
purchase will provide "industrial quiet." In February 1996, the purchasing committee approved the
purchase of Computer C, and the exemption committee okayed a tender exemption in regard to
contracting with Company A according to section 3(29) of the Tender Requirement Regulations, 5753-
1993. This section states that contracting to implement a transaction involving mov- ables does not
require a tender, if the contract is with someone who is solely capable of implementing the subject of the
contract, providing that the pro- fessional authority in the office on that matter expressed such an opinion
in writing, and that the director general authorized the contracting.
The audit found that the assistant director general based his opinion on a document from September 1995
prepared by Company A, which presented the re- sults of an analysis of the capacity of the Authority's
computer system, and the

technological alternatives intended to provide for the needs of the Authority. In the opinion of the State
Comptroller's Office, exclusive reliance on the re- commendation of a company, which had a vested
interest in selling its products and in increasing its business connections with the Authority, is contrary to
the rules of proper administration.
The audit further revealed that in June 1996 the Authority ordered from Company A the establishment of
an infrastructure for the operation of Computer C and for the deployment of the computers in the head
office, totalling NIS 467,000. The order included infrastructure for communications, communication
switches, electricity boards and installation. The order was made without issuing a tender, in accordance
with the authorization of the purchasing committee from March of that year. The authorization was given
on the grounds that Company A "is a 'sole supplier,'" since the company has overall responsibility for the
infrastructure and communications at the site and for the whole building." In the opinion of the State
Comptroller's Office, there was no justification for the tender exemption: although, according to the
agreement between the Authority and Company A (which the Authority had adopted, with the required
changes, from the standard agreement for services between the State of Israel and Company A), the latter
indeed had overall responsibility for providing services to maintain the communications network,
however the agreement does explicitly provide for the option of purchasing hardware or software from
another supplier, and determines how Company A is to act in the case of a hardware or software failure
in these circumstances. Therefore it was incumbent on the Authority to request several offers, to compare
them, and to select the best offer.
2. In the request for authorizing the purchase of Computer C, the C&C assist- ant director general stated
that it would be fully operational by the end of June 1996, and the first computer system that would be
operated on it would be the "rapid services system." The audit found that operation of the computer was
delayed for six months because of problems in converting the apid services system to this computer. It
should be noted that Computer A and Computer B both belong to the same family of computers that of
Computer B and both of them use the same operating system. As stated before, after the purchase in
March 1995 of the equipment and software for operating Computer B, problems occurred during the
conversion of the application software to this computer, but despite this the Authority still decided to buy
Computer C.
As stated previously, in 1993 the Authority's purchasing committee recommend- ed that the C&C
Department should prepare a long range plan for purchasing equip- ment and software and should check
out different options, including purchasing via a tender. The audit found that the Authority did not
implement this recommendation, and also during the years 1994-1996 the purchasing committee
approved the purchase of products from Company A, and the exemption committee exempted them from
a tender. In this way the Authority refrained from requesting offers from different suppliers, from making
competition possible, and from choosing the best offer. The more the Authority installed additional
computers from Company A, so too did its dependence grow on this company and its products. It should

be noted that the purchase of Computer C was not based on an examination by an independent
professional body, but rather solely on the recommendations of Compa- ny A. It should be stated further
that the Authority did not function as required in order to guard its interests, and did not act in accordance
with the Tender Requirement Law and the rules of proper administration.

During the years since the establishment of the Authority, information systems were developed with
different software infrastructures, and consequently there was no coordination between the systems. This
situation was also described in a document prepared in April 1993 by a consulting firm, as ordered by the
Authori- ty, which recommended selecting a "correct software" infrastructure, homogeneous to all the
computer systems at the Authority.
The work plan of the C&C Department for 1994-1995, states that the objective was "to integrate and
assimilate a development environment, a DBMS (data base management system) environment, and a
work environment for the user" (hereafter software infrastructures). In the plan, a timetable was
proposed for achieving this objective: by July 1994 a tender would be issued and a supplier would be
chosen; by September of that year a database management system and a development environment would
be installed; by March 1995 the first system would be installed in the new environment and acceptance
testing would be performed. It was further mentioned in the work plan that "in the event that the
development environment would not be absorbed according to the above mentioned timetable, the
develop- ment of about 20 planned systems for that year would be delayed."
At the beginning of 1994, the Authority's acting director general appointed a steering committee on the
establishment of software infrastructures. During its first meeting (February 1994) the committee decided
that "the Authority would immediately issue a tender for purchasing the required tools." The tender for
the provision of software infrastructures "Development Environment, Data Manage- ment and a User
Work Environment" was issued in August of that year and offers were submitted; in December 1994 the
tender was cancelled "because the offers had not been submitted as required," and in that same month a
new tender was issued. Seven companies applied for the tender, and four of them reached the final stage
of examination. In November 1995, the Authority chose two companies to provide the software; one of
them Company C was chosen to supply the database management software and the development
1. For the purpose of overseeing the tender process, the Authority employed an external company
(hereafter Company B), and paid it about NIS 150,000 (December 1996 prices). The services were
supposed to include, among other things, the preparation of specifications for testing the proposed
software products and overseeing the testing. Company B did indeed prepare the specification "A
practical trial framework in which the proposed tools for development and data management will be used
... The trial is intended to give the technical examination

team ... the opportunity to be independently impressed by the development tools and the proposed
solutions."6 The specifications were appended to the tender; it included a plan for building application
systems and operating them using the Authority's existing hardware infrastructures. It was stated in the
specifications that the trial was intended to examine the the level of expertise of the companies making
proposals and the level of integration of the proposed software in a variety of existing hardware and
software infrastructures at the Authority; the trial would be conducted at the expense of the companies
making proposals, and for this purpose a week would be set aside for each company. In the tender it was
stated that the Authority would be permitted "to request the bidders to perform a trial" in accordance with
the specifications.
In June 1995, after the submitted offers were examined and after the Author- ity's examiners visited
organizations in the country that used the software products proposed for the tender, three of the
examiners (hereafter the team) convened a meeting in which it was agreed that "since the testing will
take a lot of time, the team recommends that in the first stage there should be a tour abroad" and after that
it would be decided "if the trial run was also necessary and to what extent." The C&C Department
manager requested the Authority's director general to authorize a tour of 10-12 days abroad, on the
grounds that it was necessary to examine the products proposed in the tender that were being operated in
organizations similar to the Authority, both from the aspect of deployment and from the aspect of the
variety of hardware infrastructures, computer configurations and applications. The cost of the tour was
estimated at NIS 35,000. The tour was approved and took place at the end of July until the beginning of
August of that year.
In the framework of the tour the team visited six organizations. From the tour summary it was found that
most of the organizations had hardware infrastructures, computer configurations and a variety of
infrastructures different from those of the Authority. The following are some examples:
      (a) Three organizations did not have computers from the computer families A and B, which were
      stated in the tender as being a central component and of utmost importance in the computer system,
      and in which the software products would be installed;
      (b) In one of those three organizations, no correlated interfaces were
      found for similar applications at the Postal Authority from the standpoint of

6      According to procedures, published by the Accountant General of the Finance Minis- try, on development and
       maintenance of computerized systems for data processing units in government ministries (System Engineering Framework,
       hereafter    SEFER Procedure), an organization intending to purchase a system costing more than $200,000 ("a large
       system") is required to build a prototype of the system. It is stated in the procedures that "a prototype is a technique of
       utmost importance for visualizing the system, for examining the critical subjects ... and for improving the system
       requirement stage."

     the hardware configuration, the nature of the applications, and communications configuration;
     (c) In another organization the database management software had not yet been operated.

As previously stated, the Authority was entitled to request the bidders to perform a trial run of the
products. In the summary of the meeting that took place in the C&C Department after the tour abroad
was approved, it was stated that "it is necessary to conduct a trial run." However, the audit found that a
trial run was not performed. In the opinion of the State Comptroller, selecting the product without
actually testing it is incompatible with accepted procedures (such as the SEFER Procedure).
In its response of December 1996, the Authority explained that the trial run was not conducted due to
"the cost in time, manpower, and hardware that would have had to be devoted for the trial run." It should
be pointed out again that the specifications for the trail run stated that it would be conducted at the
expense of the companies that submitted proposals, and a week would be set aside for each company for
the purpose of conducting the trial run. The tender process lasted about a year, and it does not seem
reasonable to claim that this time period was not long enough to conduct the trial run. It should also be
mentioned that the Authority paid Company B the entire amount for overseeing the tender process,
including the preparation of the trial run specifications and overseeing its execution.
2. In March 1996 the Authority signed a contract with Company C to purchase software products. It was
mentioned in the contract that the Authority would conduct acceptance testing on these software products
according to the specifi- cations that would be attached to it. It was found that the specifications were not
attached to the agreement. By May 1996 the Authority had paid Company C about NIS 1.2 million before
acceptance testing had been done on the products. In December 1996 after the termination of the audit,
the Authority notified the State Comptroller's Office that it had completed the acceptance testing.
3. In a document from April 1995 in which the results of the examination of the submitted proposals
were presented, the examiners suggested selecting the database management software produced by
Company D, which received the highest mark in this area. However, in a meeting that took place in
August that same year in the aftermath of the tour abroad, the team recommended selecting other
software proposed by Company C.
In that same meeting, it was determined that "in order to choose [Company C] as the winner of the
tender," it was necessary to get the recommendation of the consulting firm that was overseeing the tender
(Company B). In September 1995 Company C submitted its recommendation, and in October of that
same year, the C&C assistant director general requested the purchasing committee to approve the
selection of Company C.
One of the important aspects of database management programs is their performance level the number of
transactions they they are able to execute in a

specific time period. Before the issue of the tender, a work paper was prepared at the Authority stating
that the evaluation of the database management software would be made on the basis of comparing their
performance measurement data (benchmarks), combined with the existing operating systems at the
Authority. In a document submitted to the purchasing committee entitled "Technical and Eco- nomic
Considerations in Choosing a Supplier," it was stated that the subject of performance "is critical for
future applications ... that will be based on large numbers of users and transactions, and will require good
response times." Regard- ing the level of performance of the chosen software, it was stated that "the team
was given the impression from conversations with clients in the country and abroad, that the data base of
[Company C] had the best performance amongst the competing products." From documents provided to
the State Comptroller's Office, it was found that a comparison was not made of the performance levels of
the proposed software products.
4. Included in the tender was a significant and detailed requirement that the database management
software be installed on computers from family A and family B that the Authority had spent millions of
shekels upgrading during 1993-1995. Also in May 1995, during the deliberations concerning the tender,
the Authority decided that this software was intended for the computerized environment of those
computers. The audit found that in the documents submitted to the committee to back up the decision to
select the database management software, the advantages of the software in this computer environment
were not given in detail.
In the requirement specifications attached to the tender, the following was stated: "The tools chosen must
continue to be developed and updated by the manufacturers in order to ensure that they are
technologically up-to-date in the long term." The audit found that the database management software
chosen by the Authority did not meet up to these requirements: in documents possessed by the Authority
it was stated that in the software version proposed by Company C there were technical problems in
supporting a large number of users, but they were supposed to be solved in a new version. The audit
found that the new version was not compatible with the Authority's family A computers. Company C
made a commit- ment to the Authority that the new version that would be put on the market in the
beginning of 1996 would be compatible with the operating system of computer family B. By the end of
the audit the new version had still not been released.

Company A supplied the Authority with software support services and general consultation in the
computer field, including conducting surveys on the use of computer resources and their expected future
growth, as stated previously. The State Comptroller's Office examined the manner in which experts from
Company A were employed:
In February 1993 Company A submitted to the Authority a "Proposal for Soft- ware Services." In the
proposal it was mentioned that the service would include

among other things "efficient management of the operating system and other computer resources
(memory, disks, etc.) ... follow-up on performance ... learn- ing and applying new technological solutions
... database management;" "the scope of the services given will be two working days per week." In
exchange for the services the Authority would pay Company A about $4,000 per month plus VAT.
In February that same year the C&C Department manager submitted a request to the manager of the
Finance Department to authorize contracting with Company A for the purpose of purchasing maintenance
services for the computer systems. Among the services listed was software support at a cost of NIS
135,000 per year, plus VAT. That month the purchasing committee approved the requested budget for
software maintenance services (computers in family A and communications infra- structures).
The audit found that even though the purchase of software support services was not approved, in March
of that same year the Authority ordered the services from Company A for the price of about NIS 153,000
per year. It should be noted, that in the file dealing with ordering those services, a copy was found of the
summary from the purchasing committee's meeting in which another transaction with Com- pany A was
approved for providing hardware maintenance services.
During 1994-1996, the Authority paid Company A about NIS 300,000 per year for software support
services, on a scale of 120 work days per year. The audit found that even though the payment for theses
services amounted to about 15% of the scope of the agreement, the C&C Department did not attain
explicit authorization from the purchasing committee for this expenditure.


The audit findings point to shortcomings in the development and purchasing proce- dures of the Postal
Authority with regard to everything connected to the computer systems, as well as deviations from
accepted procedures.
Both the findings of the Authority's auditor and the conclusions of a con- sulting firm, pointed out
shortcomings in the establishment of computer systems at the Authority at the beginning of the nineties.
Nevertheless, the Authority continued to invest millions of shekels each year in the development of
computer systems (about NIS 16 million in 1996). The Authority did not formulate a multi year plan of
operation, nor was there a mechanism for following up on the execution of annual plans in the field of
computerization. Furthermore, the steering committee on computerization, established in 1991, had
ceased functioning already in 1992.
Throughout the years the Authority purchased hardware from a supplier with- out issuing tenders.
Purchasing from one supplier made the Authority dependent on that supplier and its products. The
Authority refrained from requesting offers

from other hardware suppliers, and did not allow competition, examination of alternatives and the
selection of the best offer.
In the opinion of the State Comptroller's Office, it is incumbent on the Postal Authority to activate a
computerization steering committee to formulate arrange- ments for the planning and control of computer
systems development, and to direct the C&C Department in functioning in accordance with the laws,
regulations and procedures that apply in this field.
The Postal Authority's management must improve decision making processes and strengthen the
supervision and control over the large investments in computer- ization in order to derive the maximum
benefit from them.

The Quality of Telephone Services

Report on the Audit of Bezeq – The Israel Telecommunication
Corporation Ltd., 1995

In early 1984 telephone services were transferred from the Ministry of Communi- cations to Bezeq, the
Israel Telecommunication Corp., Ltd. (hereafter Bezeq). Pursuant to the provisions of the Bezeq Law,
5742-1982, Bezeq is required to provide reliable and regular service in accordance with the regulations
and guidelines determined under the Law and within the framework of the general operating license
granted it.7 Among the provisions set by the Minister of Communications and included in the general
operating license are the standards for the quality of service regarding repair of malfunctions, installation
and transfer of telephone and data transmission lines as requested by subscribers, and for the operation of
telephone exchanges. Bezeq set for itself more stringent objectives for quality of service than those
contained in the operating license.
In 1984 there were about 260,000 requests pending for installation of a tele- phone line. Approximately
175,000 of these requests had been pending at least a year. Bezeq's primary goal in its first five years of
operation was to shorten the average waiting time for a new phone. By the end of 1989 the average
waiting time had been reduced from three years to 14 months, and in 1994 the waiting time had been
further reduced to 27 days. The number of telephone subscribers grew from one million in 1984 to 1.5
million at the end of 1989, and to 2.36 million by the end of 1995. The growth in the number of
subscribers during the first five years was not accompanied by a parallel development of infrastructure,
putting additional stress on the telephone network.
Commencing with the 1989 work plan, Bezeq placed emphasis on improving the quality of service to its
customers. Bezeq made major investments in telecom- munication infrastructure, and replaced old
systems with new systems based on advanced technology, such as digital switching and optic cables.
Bezeq evaluates the quality of service given its customers from several per- spectives:                         installing
telephone lines for customers in the shortest time possible;
ease of completing a telephone call and the quality of the audio connection; provision of an acceptable
level of customer service from the various service

7        Bezeq originally received its general operating license in 1984, and in 1994 received a new license.
exchanges (information - 144, repairs - 166, international telecommunications - 188, and the business
office center - 199); a reduction in the number of dis- ruptions to the system and accelerating the pace in
dealing with them.
During 1992-1993 the State Comptroller's Office examined the quality of service Bezeq provided its
customers. The examination was conducted in the Engineering and Planning, Marketing, Organization
and Human Resources Divisions, Bezeq's four district offices and ten customer services units. Many of
the findings were updated in 1995. In 1994 and early 1995 various aspects of preparing telephone bills
were examined. These examinations were conducted in the following depart- ments: systems and
computers, engineering and planning, public complaints, con- sumer complaint appeals commission.
Supplementary examinations were performed at the Communications Ministry.

Bezeq examines the quality of its telephone service by measuring the percentage of attempted calls that
are completed. The reason that a call is not successfully completed derives from factors relating to the
system or the subscriber. The En- gineering and Planning Division and the Marketing Division carry out
inspections on the quality of service.

The Quality of Service Provided by the Telephone Network
Examination of the telephone network's quality of service focuses on inspection of equipment, and is
performed by calling special numbers at telephone exchanges throughout the country.
According to Bezeq's statistics, during the past several years the quality of service has improved. The
improved service resulted from technological changes, including replacing analog exchanges with digital
ones and laying optical cables. Since 1992 Bezeq has achieved, on a national average, the standards that
it es- tablished for itself. The rate of successfully completed calls was 96% in 1992, 98% in 1993 and
99% in 1994 (excluding six antiquated exchanges that did not achieve the standard rate even in 1994).
The audit revealed that the procedures that were established for inspecting the system's quality of the
service did not guarantee that the results of the inspec- tions would accurately reflect the quality of the
service. The reason for this is that the timing of the inspections was prearranged with the manager of the
systems department of the customer services unit and the managers of the telephones exchanges where
the test calls were made. As a result, the managers of the telephone exchanges can prepare for the
inspection by accelerating required maintenance and fixing equipment failures. Although there is nothing
wrong with preparing for an inspection, under these circumstances it is possible that the inspection results
do not reflect the state of the telephone network throughout the year.

In 1993 Bezeq installed approximately 150 computerized testing systems at a cost of about 2 million
dollars, which were designed to automatically dial numbers and report the results of the test to the central
computer. These systems were designed to replace the telephone operators who had previously
performed the tests. At the conclusion of the State Comptroller's examination in August 1995, the
computerized testing systems had not yet been activated. Even though the computer systems were not in
operation, Bezeq had reduced the number of telephone operators. In early 1995 only three of the fifteen
operators who had previously performed these tests remained. As a result, the number of tests performed
was greatly reduced. The computerized testing systems were designed to test regular exchanges, but they
were unable to evaluate the quality of the service of the service exchanges, since they do not discriminate
between the response of an operator who is assisting a customer and a prerecorded message (for example
"all lines are busy").

The Quality of Service to Subscribers
1. The district traffic and operations units test the quality of service provid- ded to subscribers by
examining a sample of all calls in various exchanges, including those where a call was successfully
completed and those where the call was not completed. 8 The examination considers the reason why a call
was not successfully completed including those related to the system and those related to the subscriber
(busy, no answer, dialed the wrong number, or prerecorded messages from Bezeq). The Engineering and
Planning Division processes the data from the sample and produces reports that include the results of the
examination. In addition to the percentage of successful outgoing calls, these reports include data
on certain phenomena, such as futile dialing attempts due to overload of the the lines.
The State Comptroller examined Bezeq's data for the years 1992-1994 on completed calls, categorized by
equipment type. It was found that there is a significant gap between the rate of successfully completed
calls through old analog exchanges and those through digital exchanges: the rate through digital
exchanges was about 58%, and through analog exchanges about 50%.
Bezeq's inspections of the quality of telecommunication services indicated that the telephone network
system performed satisfactorily. In contrast, an examina- tion of the quality of services provided to
subscribers, which included both the quality of system performance and those factors dependent on the
subscriber, pointed to very low rates of completed calls in 1993-1994 (between 51% and 57.5%).
According to Bezeq's explanations, the firm invests in developing new services for subscribers such as
"call waiting," "call forwarding," "central number" and "voice mailbox," which contribute to
improving the level of service to the customer.

8      Since 1993, when the use of the computerized meter for recording message units commenced at analog exchanges, the
       testing is also based on weekly data on the activity of each exchange.

2. "Overloaded numbers" are telephone numbers of subscribers to which repeated
dialing does not result in a connection, generally because the line is busy or the subscriber does not
answer. The repeated dialing results in pointless traffic on the switching and transmission systems, and
causes a reduction in the quality of service to all users of the system. Bezeq defines an "overloaded
number" as one where the number of incoming or attempted calls is at least 1,500 per week and the rate
of successfully completed calls is less than 42%. "Overloaded numbers" generally belong to medium
sized businesses where the number of lines is limited, and large public institutions.
The occurrence of "overloaded numbers" derives from factors dependent on the system, such as faulty
allocation of telephone numbers to a client (see below), failures in Bezeq's switching and transmission
equipment; and factors dependent on the customer, such as: the number of lines for incoming calls is
insufficient for his operational needs, or improper operation of the communication system by the
customer (for example - less than a full complement of workers to answer phones, or the lack of an
answering service).
In mid-1986 the director general of Bezeq appointed a team to deal with the problem of "overloaded
numbers." In March 1987, the team submitted a report that included general guidelines, which it
recommended be translated into standard operating procedures. Up to the date at which the audit was
concluded, August 1995, the procedures had not been prepared.
According to Bezeq's data, the number of customers with "overloaded numbers" in 1992 was 1,164, in
1993 - 1,765, and in 1994 - 1,822. Each year, Bezeq dealt with solutions to the problem for
approximately half of the customers with "over- loaded numbers." According to Bezeq's service quality
objectives, incorporated in the annual work plans, the desired rate should be 75%.
One of the methods to reduce the phenomena of "overloaded numbers" is installing a "central number"
for customers with two or more lines. At all of Bezeq's telephone exchanges, the potential exists to
automatically scan the calls and identify an available line from among a subscriber's phone lines, by
calling the "central number." This arrangement improves utilization of the subscriber's telephone lines.
In January 1990 the director of the traffic and operations department in the Tel Aviv and Sharon district
issued instructions that when a customer requests installation or transfer of a telephone line, the customer
services unit should determine if the customer has additional lines, and if so, should allocate him
telephone numbers which would allow establishing a "central number" and the scanning program.
The audit found that was no effort made to ensure compliance with these in- structions. A review of
Bezeq's documents reveals that employees of the customer services unit sometimes allocated phone
numbers via a computer system in a way that did not allow operation of the scanning program. Instances
were also found where the scanning program was not activated for customers with consecutive telephone

The following are examples, taken from Bezeq's records, of occurrences of "over- loaded numbers"
resulting from causes related to the customer:
(a) Bezeq operates a special network called "the Game Network" (dialing code 055). The network is
intended to prevent overload on telephone exchanges when many subscribers are simultaneously calling
one number. The overload is created primarily when radio or television shows have quizzes or polls,
where the pub- lic is invited to participate via the telephone. The public television and radio stations are
connected to this network, but the army radio station which also invites audience telephone participation
is not.
(b) Health fund clinics have centers for scheduling doctor appointments; since these centers frequently
have an insufficient number of manned lines to handle the calls, lines become overloaded, which results
in a high percentage of "busy" lines.
(c) The Bank of Israel operates an answering service for those wishing infor- mation on the exchange
rate; Bezeq's review indicated that the answering service had an insufficient number of access points and
the number was overloaded.
(d) The Transport Ministry publicizes telephone numbers for receiving infor- mation on matters
regarding vehicle registration via the telephone; due to an inadequate number of manned lines, the phone
lines are overloaded and it is very difficult to receive the service.
In accordance with the Bezeq Regulations (Installation, Operation and Maintenance), 5745-1985, if
Bezeq determined, based on tests that it had performed, that the overload on a subscriber's line requires,
in accordance with the criteria established in the addendum to the regulations, installing an additional line
or equipment, Bezeq is entitled to request in writing from the subscriber the installation of an additional
line or additional equipment. If the subscriber does not comply with the request within thirty days, Bezeq
is allowed to discontinue the service.
A review of Bezeq documents indicates that in 1992 Bezeq contacted 30,000 subscribers who possessed
at least two phone lines with a proposal to operate the automatic scanning program, but only 7,000
responded to the offer. In 1993 the automatic scanning program was operated for 2,800 subscribers, and
in 1994 for 19,000. Bezeq informed the State Comptroller's Office that all the employees in its business
office centers received comprehensive training on the subject. The audit found that Bezeq did not take
vigorous steps to convince subscribers to install equipment that could reduce the occurrence of
"overloaded numbers," and did not even inform them that it had the authority to disconnect this service.
According to calculations which Bezeq performed in 1991, efficient handling of the problem of
"overloaded numbers" is likely to increase the overall rate of completed calls by %, and as a result
contribute not only to improved service but to also increase the number of billable calls by about 37
million message units. Based on Bezeq's May 1995 tariffs, the additional calls would have in- creased the
company's revenues by about NIS 8.3 million.

Bezeq's customer service numbers are information (144), repairs (166), interna- tional
telecommunications (188) and business office services (199). The provi- sions of the general operating
license require that the service exchange respond to at least 80% of all calls (that is, no more than 20% of
the callers will receive a busy signal); the maximum response time to answer a completed call will not be
more than 25 seconds; and the maximum waiting time for service after the call has been answered will
not exceed 50 seconds. Starting in January 1995, the desired response rate will rise to 90%, the waiting
time for a response will decrease to 10 seconds; and the maximum time to receive a reply will not exceed
thirty seconds.
In order to achieve the quality of service objectives, as presented in Bezeq's annual work plans, even
more stringent standards were established: for customer access to the service numbers a less than 5%
busy rate; 90% of the calls will be answered within 10 seconds and 100% of the calls will be answered
within 30 seconds.
A review of Bezeq's statistics indicates that since 1992 Bezeq has met, on a national average, the
standards set in the general operating license only for the percentage of calls answered, but not the
waiting time standards. The State Comptroller's Office examined Bezeq's data on the probability that the
subscriber would reach the customer service exchanges. The following are the results of the examination:
Information (144): Bezeq operates four telephone information centers (Jerusa- lem, Tel Aviv, Beer
Sheva and Haifa) which provide information on subscribers' telephone numbers. In March 1994 there
were 325 answering posts in operation. The results of a analysis of the quality of service for the customer
indicated that the rate of "busy" signals for calls to these exchanges decreased in compar- ison to the
previous year from an average of 16.3% in 1992, to 11.5% in 1993, and to 9.5% in 1994, and according
to an examination of the system's quality of service, the rate declined from 12.4%, to 7.8%, to 6.2%
The district traffic engineering units, which check the quality of customer service at all hours of the day,
found that the "busy" rate at peak hours (between 09:00-12:00 and 16:00-17:00) in 1993 reached 17.5%
on a national average. The greatest demand for information services is on Sundays at peak hours.
According to the marketing division's survey, the the busy rate during peak hours in Tel Aviv reached
66%. According to Bezeq documents, due to a personnel shortage the company did not man all the
available answering posts during peak hours.
Repair Service (166): This service is operated by service exchanges that op- erate at all customer service
units and receive notification about disruptions in phone service. The disruptions are analyzed by a
computerized system.
From Bezeq's data it was learned that since 1992 this service has met the standards established in the
operating license: In 1992 the "busy rate" on average was 13.1% according to an examination of the
quality of service to the

customer, and 5.1% according to the results of an examination of the overall system's quality of service;
in 1993 the rates were 10.5% and 1.6% and in 1994 7.8% and 3.2%, respectively. In an examination that
Bezeq performed in several dialing areas it was found that the "busy" rate for calls to the repair service
(166) was much higher than the aforementioned national average.
The Business Office Center (199): Bezeq operates in all its business office centers a service that enables
customers to receive information and certain serv- ices via the telephone. Bezeq's internal guidelines
provide that at least 95% of calls to the business office center should be answered, however Bezeq's data
indicate that the accessibility rate was low, and in many cases it was almost im- possible to reach the
The State Comptroller's Office commented to Bezeq that reexaminations should be conducted at service
exchanges where there had been a high "busy" rate, and appropriate action should be taken to improve

1. The general operating license directives prescribe the waiting time for re- pair of a malfunction in the
public telecommunication network for end user equipment installed for subscribers and maintained by the
company. 80% of the malfunctions must be corrected not later than one work day after receiving notice
of the malfunction, and the rest not later than four days after receipt of the notification. The director
general of Bezeq or his deputy are authorized, in special circumstances, to extend the period for fixing a
defect, as long as the time period does not exceed 14 days from the date the notice was received. The
general operating license directives also provide, that starting in 1995, 80% of reported malfunctions
must be corrected within one day after receipt of the notification, and the balance within two days after
receipt of the notification.
Bezeq established for itself more stringent time frames for its repair service: For 1993 - repair of 70% of
the malfunctions on the day they were reported, 95% within 24 hours and the remaining 5% within three
days. For that year Bezeq established that the norm for the monthly number of general malfunctions per
1,000 subscribers would not exceed 45 and the rate of repeat complaints 9 would not exceed 8.5% of all
complaints. In 1994 it established for itself a goal of repairing 100% of all malfunctions within 24 hours
and a ceiling of 7% of repeat complaints. From Bezeq's data it can be learned that in the years 1992-1994
most of the business office centers met the standards for repairing malfunctions as established in the
general operating license. In an examination of Bezeq's data, the State Comptroller's Office determined
that the handling of a significant percentage of complaints resulted in no repair or in a temporary repair.

9      Repeat complaints - a complaint from a subscriber to the repair service (166) within thirty days from the time of the
       previous complaint dealing with the same telephone number.

In the reports on the handling of these complaints it was recorded: "the malfunction disappeared,"
"everything in order," "the subscriber's home was closed," "address not located" and "temporary repair."
At the customer service units where a large number of complaints were closed without any action, the
rate of repeat complaints was, as to be expected, es- pecially high. Although these customer service units
succeeded in meeting the standards set in the general operating license, the high level of complaints that
were closed without action and the high level of repeat complaints indicate a trend of meeting the norms
established in the license for speed in handling a complaint, even if it is, at least partially, at the expense
of infringing on the quality of service to the customer.
Until 1992, the service exchanges department in the marketing division began centralizing data on the
percentage of complaints that resulted in temporary or no repair, however they did not continue because
they did not receive responses to findings from the departments in Bezeq that deal with this topic. The
State Comptroller's Office pointed out to Bezeq's management that it should continue gathering the data
and that it should take care to receive the responses and explanations from the district offices and to draw
the requisite conclusions.
2. In the general operating license directives no standard was established for the maximum rate of repeat
complaints, but Bezeq established an internal goal, that in 1992 the rate should not exceed 10%, in 1993
not more than 8.5% and in 1994 not more than 7%. Bezeq's records reveal that the national average of
repeat complaints decreased from 18% in 1992, to 15% in 1993, and to 11.6% in 1994; only a few
customer service units met the standards that had been established and only for a few months each year.
For example, at five customer service units in the northern district, the percentage of repeat complaints in
1994 ranged between 13.5% to 17.9%.
In an examination of the repeat complaint rate at customer service units throughout the year, Bezeq found
that the rate of repeat complaints at several customer service units was much higher than the national
Some of the complaints were repeated because the repairs did not address the source of the malfunction.
The State Comptroller's Office informed Bezeq's management that it should direct the district control
units to conduct a sample audit of the repairs in order to assess their quality, especially regarding re-
peated complaints, in order to draw operational conclusions about the quality of repairs.

1. At the end of 1994 approximately 2 million telephone lines were connected to Bezeq's network. Bezeq
collected for its services about NIS 6 billion. The tele- phones were connected to two types of exchanges:
analog and digital. Following is a table showing the distribution of active telephone lines and the number
of message units recorded, according to the type of exchange (December 1994):

                                                                       Number of
                                          Phone lines                 message units
          Type of exchange                (thousands)                   (millions)
          Analog                              382                          191
          Digital                            1,624                        1,132
                    Total                    2,006                        1,323

At the newer digital exchanges, the computation of message units is computerized. The digital exchanges
allow the provision of various services for subscribers, some of which are free (for example "call
forwarding" and "call waiting"), while other services (such as "conference calling," "speed dialing" and
"instant connection") are charged for.
At the analog exchanges, which are outdated and scheduled to be gradually re- placed, message units for
calls were recorded with the aid of a mechanical meter. Once-a-month meter readings were photostated
and the data were entered into the computer. The previous audit of the State Comptroller's Office for
1986-1987 (see Annual Reports 36 and 37), found shortcomings in the monitoring of the data entry.
According to the company's plans, the process of replacing the analog exchanges with modern digital
ones was planned to be completed by the end of 1996. In order to improve the input and processing of
data at the analog exchanges until their replacement, in 1986 Bezeq purchased hardware and software
(hereafter - computerized message unit system) from a computer manufacturer to record data on calls
placed through the analog exchanges. The computerized message unit system allows the recording of a
subscriber's calls and production of a detailed and very accurate invoice. The system began functioning at
some of the analog exchanges in the second half of 1991, and in 1994 the conversion of all the analog
exchanges was completed. At all of the exchanges that were converted, two microcomputers were
installed which recorded simultaneously the details of the calls that the subscriber made. These
computers were connected to another computer which gathered the data from the various exchanges. This
computer was purchased at a cost $3.3 million, including software and hardware. Until May 1994 details
of the calls and the number of message units were transmitted daily to the computer which gathered the
data. Thereafter the information was transferred directly to Bezeq's central computer. According to the
company's estimation, computer costs were reduced as a result of the transfer of the mes- sage unit
system to the central computer and disconnecting the data collection computers.
Telephone subscribers receive monthly or bi-monthly bills for services provided by Bezeq. The telephone
bills are issued by Bezeq's central computer with the assistance of software developed several years ago.

Documenting the Computer System
1. In 1987, all of Bezeq's computer systems were adapted to the products of Com- pany "A". During the
conversion process, documentation of the various systems was prepared including the system for
preparing telephone bills: flow charts, in- put controls, a description of applications and technical details
of the systems and their various functions, structure of the files, operating instructions for the
systems, and a user's guide.
Despite the many changes in the data entry and data processing procedures used for producing telephone
bills, the Systems and Computer Division was not careful to update computer system documentation.
Bezeq does not have any formal proce- dures for systems development, including defining the necessary
documentation for each stage of development for purposes of maintenance. In the absence of formal
procedures, each systems analyst documents the system he developed according to his perception. In
1993, NIS 750,000 was budgeted for documenting computer- ized systems, however the allocation was
not utilized. In response to the audit findings, Bezeq explained to the State Comptroller's Office, in May
1995, that this resulted from a personnel shortage and the lack of methodology and tools to update the
In early 1995 changes in the organizational structure of Systems and Computer Division were made, and
a new unit was established for dealing with system development methodology and assuring the quality of
software, preparing proce- dures for software development including specification of the required
documen- tation.
2. The tariffs for Bezeq services are set on the basis of the Bezeq Law, 5742-1982, and in accordance
with the regulations enacted under the Law. The Systems and Computer Division issues the telephone
bills according to the data it receives from Bezeq's internal systems. The division's computers manage for
each subscriber a record which includes the information necessary to produce the bills: the name and
address of the subscriber, details of the equipment in the customer's possession, payment arrangements,
an order for automatic deduction from the customer's bank account and similar data.
The main components of the payment, detailed on the bill, are: fixed charge for equipment and services;
charge for telephone calls; charge for special services telegrams, collect calls, and operator assisted calls.
The invoices also in- clude the outstanding balance and credits.

Fixed Charge for Equipment and Service
The fixed charge is calculated on the basis of data that appears in the custom- er's file, and includes
charges for: the telephone line, the telephone that the customer owns, additional equipment installed for
the customer and additional services that the customer continuously receives, for example conference
calling. Starting in July 1994 Bezeq differentiates between the charge for the phone line and for the

Payment for the telephone line: 1. The amount of the fixed charge depends on the type of line (private
or party) and the number of telephone subscribers that the customer can reach for the price of a local call.
If the number of telephone subscribers in the local calling area is more than 100,000, as in the big cities,
the customer is charged a higher rate (level A); a customer who is connected to a small exchange, and
can reach less than 10,000 other subscribers for the price of a local call, is charged a lower rate (level C).
The intermediate level B is ap- plicable to customers who can reach between 10,000 to 100,000 other
subscribers for the price of a local call. The bi-monthly prices for the different subscriber areas are: level
A and level B - $12 and level C - $10.
2. The digital exchanges allow the provision of a wide variety of services, which can be activated only
with a touch tone phone that has pulse dialing. These services include, "call waiting" and the ability to
call the person who last phoned the subscriber. Customers connected to analog exchanges cannot receive
the full array of services that subscribers connected to digital exchanges can (even if their telephones are
of recent design), however they are required to pay the same fixed charge as customers connected to
digital exchanges.
In the past, customers connected to analog exchanges could conduct a local call for an unlimited period
for the price of one message unit. With the advent of the computerized message unit at the 20 analog
exchanges, customers using these ex- changes were charged for each message unit, according to the
length of the local call, and in accordance with time of day and day of the week that the call was placed.
According to Bezeq's data the use of this new pricing system increased the company's revenue from
domestic calls placed through analog exchanges by 25%, and its total revenues from message units by
3. Considering the gap between the level of services that the public is able to receive from the analog
exchanges to that which can be received via the digital exchanges, the State Comptroller's Office pointed
out that the fixed charge should reflect not only the existing difference between the number of
subscribers that a customer can call for the price of a local call, but also the differences between the
services that the subscribers receive from the different types of exchanges that they are connected to.
Charges for Telephone Equipment: 1. In the past, Bezeq provided customers with telephones that
remained its property. According to terms of the new license granted in March 1994, the installation and
transfer of telephone lines was sepa- rated from the sale and maintenance of telephones, and a customer
is permitted to request installation of a telephone line without purchasing a telephone from Bezeq. Since
September 1994 a customer can acquire a telephone from Bezeq or any other supplier that he chooses,
and in any event the phone remains the property of the customer.
The amount of the fixed charge calculated by Bezeq includes the cost of pur- chasing and maintaining
telephones. According to Bezeq's records the expected life of a telephone is between seven to thirteen
years. In January 1994 the cost of a typical touch tone phone was approximately $55, and the
maintenance component for this type of phone in the fixed charge was a about $1 a month

(in September 1994, reduced to about 50 cents a month). In January 1995 the cost of a superior telephone
model was approximately $120 and the associated maintenance cost about $3 a month. The maintenance
component included in the current tariff for fixed charges allows Bezeq to recoup the cost of the
telephone in four years. The State Comptroller's Office indicated to Bezeq that under these circumstances
the maintenance component of the fixed charge was too high.
2. According to the Bezeq (Company Services) Regulations, 5747-1986, a cus- tomer is given the option
to appeal a telephone bill or one of its components within 60 days. Subscribers who complained to Bezeq
that they were charged for additional equipment that had not been installed for them, and their complaint
was deemed correct, were credited from the day they contacted Bezeq, and not for the entire period that
they were assessed the unjustified additional charges.
Only in June 1995 were the equipment and services relating to the fixed charge itemized on the bills sent
to subscribers. Bezeq feared that numerous customers would complain about unnecessary charges, and
consequently instructions were given to the business office centers, that when a decision was made to
accept a customer's complaint about excess charges, they would be required to receive the authorization
of the manager of the business office center or a more senior manager in order to retroactively credit the
customer's account, for a maximum of seven years. According to these instructions, a customer could
receive interest on the amount of the credit, at a rate set by the Accountant General, but without
adjustment for the rate of inflation (roughly 15% a year).

Payment for Calls
1. The basis for calculating the payment for the customer's telephone calls is the number of message
units. The number of message units is determined by the length of the call, scaled by the distance
between the exchange to which the customer is connected, the time of day and the day of the week that
the call is placed. This information is recorded on a magnetic medium. Data from the computerized
message unit system for 85% of the telephone calls is gathered from the exchanges nightly and
transmitted to the central computer. During data collection, the sequence and completeness of the data is
examined. If necessary, the data is supplemented with information contained in a second computer,
which is located in each exchange, and also records the details of the calls. Bezeq's central computer
processes weekly the data for the remaining telephone calls that were placed through digital exchanges,
in order to determine the number of message units for which the customer should be charged for. The
customer is charged only for calls which were deemed to be successfully completed.
During the course of preparing the telephone bills, examinations are also made regarding the sequence
and completeness of the data transmitted from the ex- changes, the computer files and other sources.
Details on every call that the customer placed are stored in a system ("call itemizing"), for purposes of
charg- ing the customer and providing the service of itemizing each call.

2. Abbreviated calls: In certain cases, customers complained that their account was also charged for
message units associated with calls which were ostensibly made but lasted only a few seconds, and the
customer had to redial the desired number. An examination performed by the Engineering and Planning
Division in June 1990, indicated that the failure to complete the conversation resulted some- times from
the call being disconnected, due to a transmission problem between parties to the call, and in other cases
from calls that reached equipment such as facsimile machines, answering machines, computerized
protection systems and recordings.
In January 1991, for the purpose of estimating the scope of the problem, the Systems and Computer
Division examined the distribution of abbreviated calls to identical destinations. The inspection included
calls that were made to the same party, and when the length of time between the two calls was less than
45 sec- onds. The inspection included roughly 54 million calls made in November 1990 from 32 digital
exchanges, and included approximately 35% of all subscribers connected to digital exchanges. The
inspection revealed that the rate of calls whose length was less than 5 seconds, and resulted in the
subscriber having to redial the number, ranged from 0.15% to 0.62% of all calls placed, according to the
type of exchange; the rate of calls that lasted less than 10 seconds ranged from 0.39% to 0.88%.
In a review of customer complaints, the State Comptroller's Office revealed that in 1994 there were a
meaningful number of abbreviated calls that were disconnected within a few seconds and the customer
was charged for them. In February 1991 the assistant director general of Bezeq's Marketing Division had
already raised the suggestion not to charge customers for calls disconnected within five seconds, if a
repeat call to the same number was made within 60 seconds, however Bezeq did not make efforts to
implement this suggestion.
The State Comptroller's Office is of the opinion that the assistant director general's suggestion is
worthwhile implementing, as long as the conversation was disconnected within seconds of its inception
and a repeat call was made a few seconds later.

Errors in Recording
In February 1993 the Marketing Division decided to delay by several months operation of the
computerized message unit system at an exchange in the Tel Aviv district. One of the reasons for this
decision was, that due to the volume of activity at the exchange, the magnetic recording media upon
which the details of the calls were recorded, were being filled every three days. In the event that it would
not be possible to collect the data because of any malfunction, it was possible that calls would not be
reported and as a result the company would suffer damages.
In October 1993, after the computerized message unit had already been installed in that exchange, the
manufacturer of the exchange made changes in equipment and in the coding of information. Similar
changes were made in another Tel Aviv

exchange in December 1993, that was of the same model. In January 1994, four months after the changes
were made in the first exchange, it was discovered that the number of message units recorded in October
and November 1993 at the same exchange were 50% less than the number for the preceding two months.
Bezeq investigated and found that a similar decline in message units was registered at the second
exchange. In accordance with Bezeq's request, the manufacturer conducted an investigation which
indicated that because of the change in coding the information on tape, roughly half the information for
charging customers was not recorded on the magnetic medium. The omission of recording data about
calls was random, and therefore it was impossible to identify which customers had been charged for only
some of their calls. According to the Marketing Division's estimation, the amount of lost income
resulting from the malfunction was about NIS 7 million.
At the international exchanges, details of all calls to foreign destinations are recorded as a basis for
settlement of charges with telephone service provid- ers in those countries. This information, which can
serve as backup for recording the details of all international calls emanating from each exchange, allowed
Bezeq to identify the subscribers from the two exchanges who had called abroad during the two month
period in which the significant decline in the number of calls had been identified. By charging the
customers for those calls not re- corded in the usual manner, the loss was reduced, according to the
estimate of the Systems and Computer Division, to NIS 4 million.
In order to identify malfunctions in recording details of calls, the Systems and Computer Division
recommended adding internal controls on the recording of calls. One of the controls that they suggested
was a daily report of all message units placed through an exchange; when an unusual deviation in the
daily number of message units was detected, the reason for the change would be examined, and it would
be possible to identify malfunctions shortly after they happened. Until December 1995 this control was
not implemented. In January 1996, Bezeq inform- ed the State Comptroller's Office that although the
planned controls were not implemented, the Marketing Division continues to check deviations in the
number of message units in comparison to the preceding period.

Bezeq has a national unit to deal with consumer complaints; and also has depart- ments for consumer
complaints in the district offices and complaint coordinators at every customer service unit. In 1990 an
appeals commission was formed to deal with Bezeq's consumer complaints. Customers were allowed to
appeal before the commission if the results of the handling of the complaint through company channels
were unsatisfactory. The appeals commission is authorized to recommend to Bezeq's management to act
in favor of the appellant.
The division in charge of supervision over Bezeq at the Ministry of Communica- tions handles consumer
complaints that the Ministry receives concerning Bezeq.

In 1992 the division found that 505 complaints were justified, in 1993 - 438, and in 1994 - 687.
Consumer complaints against Bezeq are also referred to the Office of the Om- budsman at the State
Comptroller's Office. The number of complaints against Be- zeq received by the Office of the
Ombudsman decreased from 346 in 1990 to 173 in 1994. The majority of the complaints related to
installation of telephones, repair service and telephone invoices.
1. According to Bezeq's statistics, the total number of complaints that the company received declined
from 35,767 in 1989 to 4,078 in 1994.
Bezeq's procedures for dealing with complaints, which was in effect until November 1991, did not
differentiate between inquiries and complaints. Every employee who dealt with a certain subject decided
by himself if the customer's inquiry was a complaint that should be reported to the national unit. The new
procedures that became effective in November of that year, defined "inquiry" as follows: "the first
contact that the customer made with anyone at Bezeq orally, in writing or by telephone for the purpose
of clarifying matters which Bezeq is responsible for." "Complaint" was defined in the same procedures
as: "A customer's complaint that was transmitted in writing, orally or by tele- phone, after a previous
inquiry to a customer service unit, and there are claims of discrimination, continuing defects in the
quality of service, ... and personal complaints about the company's employees."
According to Bezeq's procedures it is necessary to record and report complaints that are received either
orally or in writing. The customer service units' reports to the national office includes mainly written
complaints that were for- warded to the complaint coordinator. Oral complaints received by the business
office centers of customer service units, or by other units, are generally not recorded and do not receive a
written response.
In an examination that the State Comptroller's Office conducted in late 1991 at the east Tel Aviv
consumer service unit, it was found that even when complaints were received by the complaint
coordinator they were not recorded. During the examination, the coordinator received scores of telephone
and personal inquiries that included complaints. The coordinator dealt with each complaint but did not
maintain any record of them on the form "complaints received," as required by the operating procedures.
Similar findings were noted at other Business Service Centers. Since the report on the number of
complaints was not based on complete information, the data about the total number of complaints was
substantially lower than the actual number of complaints dealt with.
In 1992 Bezeq established the goal of receiving 0.3 complaints a month per 1,000 subscribers, and
reduced the level to 0.2 in 1993, and to 0.15 in 1994. From Bezeq's data it can be concluded that it met
these goals. The State Comptroller's Office pointed out to Bezeq, that deficiencies in the recording of
complaints raised doubts about the accuracy of the data, and that full reporting of all inquiries and
complaints would yield a more reliable picture.
In 1992 Bezeq began the development of a central computerized system for recording and monitoring
public inquiries and complaints which would serve all

the relevant departments in Bezeq. The system began operating only in 1995. According to Bezeq's
records during the first months of the system's operation, it did not meet all the needs of the unit handling
public inquiries. There were difficulties in recording the inquiries, confirming their receipt, initial and
repeat complaints were not combined; there were instances where complaints were resolved, but
remained in the system as pending. Bezeq notified the State Comp- troller's Office in December 1995
that the Systems and Computer Division was acting to correct the deficiencies in the system.
2. The appeals commission received many appeals dealing with customer in- voices, that in the opinion
of the customers were for exaggerated sums. For all of these complaints the initial handling had been
done by Bezeq's public com- plaints unit, which had rejected the complaint on the basis of the contention
that the calls, for which payment was requested, had been placed. In the investigations that the appeals
commission conducted, it heard from Bezeq employees about the possibility that a third party had
connected to the customer's phone line, at the residential distribution box, via a connection through the
exterior walls of the home. From the appeals commission's documents it was learned that Bezeq's
consumer complaints unit had responded to many customers that "the telephone line and equipment
serving it had been inspected and found in order." The examination by the appeals commission revealed
these responses were sometimes given without an inspection of the customer's telephone line and
supporting equipment. The technicians' statements that no evidence of an "external connection" had been
found, were often of no significance, since the type of examination performed was not specified.
From other documents of the appeals commission it can be deduced that many customer complaints were
superficially investigated, and no documentation was found which would support the performance of
examinations which Bezeq relied upon when it informed customers that their complaints were
unjustified. In the absence of documentation, the appeals commission frequently saw the need to accept
the contentions of the complainants, and to recommend out of doubt crediting their accounts.

Within the context of the examination of customer invoice preparation, the audit raised issues connected
to protecting the privacy of the subscribers.
The assistant director general in charge of the Systems and Computer Division notified Bezeq's district
managers in July 1993, that the data stored in the "call detail" system is protected by the Protection of
Privacy Law, 5741-1981, and therefore all operating procedures must be strictly followed and care be
taken to give a detailed listing of calls made only to "legal customers." In an additional directive, that was
forwarded in February 1994 to the district market- ing managers, rules were established for dealing with
requests for providing a detailed itemization of calls received by telephone.

In providing the service of giving a detailed itemization of calls to a customer there arose unique
problems, such as cases in which the customer rents out his apartment, including the telephone, to
someone else. In this case it is apparent- ly forbidden for Bezeq to supply the subscriber with the details
of the calls, as it infringes on the renter's right to privacy, unless the renter agrees.
In the course of clarifying subscriber complaints about the amount of their telephone bills, there were
instances where Bezeq examined the connection be- tween the customer that complained and the
customer who was called. Within the scope of this inquiry representatives of Bezeq sometimes call the
the telephone numbers to which the complainant had called.
The State Comptroller's Office discovered that during the inquiries made by Bezeq, the company also
examined conversations initiated by the parties to whom the complainant had been in contact with. Bezeq
also examined the possible connections between the complainant and other customers and the detail of
the conversations of those customers. Examinations of this sort are, on the face of it, an infringement of
privacy. The State Comptroller's Office indicated to Bezeq, that in its opinion, the infringement of
privacy results from the use of data for a purpose unrelated to the reason for which it had been collected.
In the opinion of the State Comptroller's Office, since the examination of customer complaints about an
exaggerated telephone bill requires inspection of the details of the customer's calls, it would be
appropriate for Bezeq to prepare detailed procedures that will establish, among other things, which
members of the appeals committee can receive details of the calls made in this type of case.
Simultaneously, Bezeq must explain to every customer, that during the course of an investigation into a
complaint, the company sees itself entitled, in accord- ance with its procedures, to examine the details of
calls that were made. There is basis to the opinion that Bezeq should refrain, in the case of investigating a
customer's complaint, from checking the details of calls made by others who did not complain, unless
their permission had been secured.
Bezeq notified the State Comptroller's Office that the recommendation of the State Comptroller was
acceptable, and that in November 1995 the company pre- pared procedures regarding this matter.

Construction of the Rutenberg Power
Station and Initiation of Operations –Planning and Construction

Report on the Audit of the Israel Electric Corporation Ltd., 1995

The Israel Electric Corporation Ltd. (hereafter the Company) deals in the pro- duction of electricity,
supply of electricity to consumers, and establishment of the facilities necessary to perform these
activities. It operates under a fran- chise granted to it in 1926. The electricity is produced mostly by
steam-pro- ducing power units using crude oil or coal; power units using diesel oil are also used to
produce electricity (hereafter gas turbines). In September 1994, the Company was capable of producing
6,115 megawatts, 4,710 megawatts by steam- producing units, at power-station sites along Israel's
coastline. Each of these power stations contained several electricity-production units.
As a result of the continuously increasing demand for electricity in Israel, the Company has throughout
the years of its existence erected power stations. The output of the steam-production units grew gradually
over the years, increasing from scores of megawatts per unit in the 1950s to 550 megawatts per unit at the
beginning of the 1990s. Four units using coal, each of which supply 350 mega- watts, commenced
operations in 1981-1984 at the Ma'or David Power Station, near Hadera, and two units, which supplied
550 megawatts each, started operating in August 1990 and in November 1991 at the Rutenberg Power
Station, south of Ashkelon. Two other production units of the same size are being installed at the Ma'or
David Power Station (hereafter the Ma'or David Power Station Two); the Company forecasts that one of
them will be operational in 1996.
The State Comptroller's Office audited the construction of the two production units at the Rutenberg
Power Station construction and commencement of op- erations, and also the mishaps and defects that
became apparent when operations began.

The Company set, in the middle of 1978, target dates to commence operations at each of four 550-
megawatt production units that would be constructed at a new power station, following the erection of the
Ma'or David Power Station, and which would become operational, one each year, beginning in April
1986. The decision was based on the assumption that locating a site for the station and receiving the
necessary approvals would be completed by the end of the 1970s.
At the end of 1978, while searching for a suitable site to erect the power station, and assuming that
purchase and supply of the equipment for the power station would take several years, the Company
issued tenders for the main equipment the steam boilers and turbo-generators for two production units,
with an option for two additional units. At the end of 1979 and beginning of 1980, the Company
contracted to purchase the aforementioned equipment for two production units at a total base price of
some $100 million. At the time, the planning and building authorities had not yet approved the location
of the station and the number of units that would be installed there. Despite this, the contracts provided
that the option would have to be exercised already by July and December of 1980, and the Company
indeed exercised the option.
In July 1981, the National Planning and Building Council approved the two production units at the
Rutenberg Power Station. Shortly before, the board of directors had postponed opening of the station for
some two years (see below). The Company requested the suppliers of the main equipment to postpone the
date of delivery of the equipment for the first two units, and to cancel or postpone delivery of the
equipment for the other two units. Negotiations ensued and the parties agreed to postpone delivery of
only the equipment for the two additional units. As regards the first two units, which were intended for
the Rutenberg Power Station, the suppliers consented to extend the period of warranty for the boilers
approximately four years and the turbo-generators for some three years. The Company paid some $5
million to the suppliers for the extended period of warranty for the two units.
At a meeting of the board of directors in March of 1981, it was reported that the planning authorities had
not yet approved the station site. At the same meet- ing, the board of directors approved, in principle,
operation of the two power units near Ashkelon, the first in January of 1988, and the second, a year later,
and postponed decision on the date of operation of the two additional units. As mentioned previously, the
planning authorities had approved the two units at the Rutenberg Power Station, south of Ashkelon, in
July 1981.
At the end of 1982, the Minister of Energy and Infrastructure directed the Company to submit for his
prior approval additional supply orders for the power station. In compliance, the Company submitted,
over a period of almost twelve months, requests to the Minister to approve orders prior to their being
issued. The Company informed the State Comptroller's Office that this procedure led to delay in the
planning and implementation.

At the end of 1982 and in early 1983, the board of directors was informed that the Rutenberg Power
Station would not be able to start operations until early 1989. Work on the site began in December of
1983. According to the time-table that the Company set at the end of 1984, the first unit was to become
operational in mid-1989 and the second a year later. Company management reported to the board of
directors from time to time about work on the site, but it first reported the new dates for commencing
operation only in December 1986.
In March of 1987, management reported to the board of directors that the work on the site was moving
along at a reasonable pace and according to the time- table. In October 1988, the chief engineer first
reported a delay in the work, and that the site would be ready for operation only by the end of 1989.
Eighteen months later, at a board of director's meeting in March 1989, after touring the power-station
site, the chairman of the board raised the matter of when the first unit would be ready. The chairman
asked if the Company could commence operation of the unit by the target date - the end of December
1989. The chief engineer and director general indicated that despite the delays in execution of the work,
the Company had not altered the target date for starting operations, in order to pressure those involved to
complete the work on time. The board of directors noted the statement and demanded complete reporting
of any deviation from the time-table. Following that, and for a period of some six months, the board of
directors did not discuss the time-table. At its meeting of September 1989, the chairman of the board,
following a newspaper report that the station would be operational in 1990, again raised the question of
the time- table. The director general responded that the Company is doing everything in its power to
complete the project. Subsequently, reports were submitted to the board of directors from time to time
about the progress of the project.
The first unit became operational in August 1990, and the second at the end of November 1990. The
delay in starting operations resulted in substantial addition- al cost to the Company and to the country's


A table showing the work hours of Company employees in constructing the Ruten- berg Power Station,
as estimated in the 1982 budget, in comparison to the 1992 data (hours invested through the end of 1991,
plus the estimated number of hours to complete the project), is on the following page (in millions of
In comparing the total development budget for 1990, the Company explained that the 1982 estimate was
based only on initial theoretical planning and on engineer- ing data from the Ma'or David Power Station,
which were adapted to reflect the difference in size of the units; however, as work progressed, it became
apparent that the quantitative data for the Rutenberg Power Station relating to most of

                                                1982             1992             Overrun
                   Planning work*                 1.9              3.6            1.7 90%
                   Execution                      5.1              9.4            4.3 84%
                   Total                          7.0             13.0            6.0 86%
              *      Including the hours of external planners: 300,000 according to the 1982 budget, and 455,000 actually

the parameters were higher than those of the Ma'or David Power Station, and much higher when relating
to the difference in size between the units. In making the comparison, the Company noted the factors
causing the increase in hours expended (which were primarily due to the complexity of the equipment,
installation of new technology from various sources, problems in coordination between the Planning
Division, the Execution Division, and the Operations Division) which caused delay and the need to
perform temporary, interim work.
The Company's explanations and the audit's findings indicate that the Company did not properly estimate
the work input necessary to perform the technological tasks it undertook, inputs that were affected by the
Company's difficulties in solving some of the problems faced during the project.

The Rutenberg Power Station was the first time that the Company undertook management planning. In
the past, the Company had hired a foreign company of engineering consultants for managing the planning
of its power stations, that also performed a substantial portion of the planning work. The planning work
performed by the Company gradually increased, and the Company performed most of the planning for
the Rutenberg Power Station, with only a small part being handled by external planners and consultants.
The estimate of 1.9 million planning hours stated in the 1982 budget was made after the Company had
already received approval for the site of the power sta- tion, but before decisions had been made on
several major planning matters.
Each year the Planning Division prepared a revised estimate of the total time necessary for planning.
According to the estimate of February 1985, about one year after the Company began on-site work, and
after the major decisions had already been made and the data were already known, the total time
necessary for planning amounted to some 3 million work hours some 1.1 million hours more than the
number provided for in the 1982 budget. Ultimately, 3.6 million hours were spent on planning, i.e., 1.7
million hours more than the estimated number of hours (0.6 million hours more than the 1985 estimate).

Company documents indicate that delay in decision making on several major mat- ters caused planning to
progress at a slower pace than anticipated, primarily in 1982 and 1983. During those years, the Company
attributed some one-half of the Planning Division staff's work hours to planning the power station. The
documents also show that the workload on the project was not uniform, which led to the failure to utilize
all the work hours credited to the project. The State Comp- troller's Office pointed out to the Company
the need to precisely record the work hours, including the number of hours the staff was not active, for
purposes of auditing and as a basis for budgeting planning hours on future projects.
Recording of work hours in the Planning Division was conducted according to the various departments
(civil engineering, mechanical engineering, electrical engineering, and the like), and not according to the
project's stages and tasks. In complex multi-year projects, like construction of a power station, recording
and reporting in the manner that was done on this project cannot serve as a tool for analyzing factors
leading to deviations from estimates.
In early 1990, on order to explain the reasons for the overruns, the Planning Division divided the
planning work, retroactive to 1982, according to stages and assignments. It divided all the planning work
into thirteen categories - some of them project stages and others assignments, and estimated how many
hours were planned for each item in the 1982 budget and how many hours were actually spent.
Explanations accompanied the deviations. The Company explained the increase in the scope of planning
work using the same arguments that had been considered in the estimate prepared in February 1985. The
Company did not explain the addition- al disparity of 0.6 million work-hours spent on planning.
Following the comments of the State Comptroller's Office's on this issue, the Company indicated, in
March 1993, that the Planning Division had installed a follow-up system that enables recording work
hours by subject, including detailed recording of inactive hours.
A summary of the number of hours allocated in 1982 compared to the number of hours actually invested
in the project, according to the major items, follows:
Pre-project: During this stage the Company examined sites for the project, the principal equipment, the
type of fuel, the cooling method, and the like. The Company explained the large overrun in these
activities, on which the Planning Division spent some 700,000 hours, which was three times more than
the budgeted amount (220,000 hours), was mainly due to inspecting a large number of sites on which to
situate the station, as well as examining alternatives for various systems (for water-cooling, unloading the
coal, and the like).
Planning related to purchase of equipment: At this stage the Company prepares the specifications for the
equipment and a technical comparison of the suppliers' bids. The Company spent some 290,000 hours on
these activities, more than twice as much as the number of hours budgeted (130,000).
In previous power stations constructed by the Company, it usually purchased "equipment packages,"
where each package contained several items of equipment, sometimes from different manufacturers. For
the purchase of equipment for the Rutenberg Power Station, the Company prepared many more

("equipment packages") than it had in the past. On the one hand, this method enabled the Company to
purchase the equipment from their original manufacturers, thereby saving money and increasing the
scope of their purchases from local manufactur- ers, but on the other hand, the Company spent many
hours coordinating between the manufacturers and planning the matching of specifications between the
various items of equipment it had ordered in the past as an inclusive unit. This also led to delay in issuing
the orders and delivery of the equipment, and in completing construction. The Company did not prepare a
comparative analysis of the advan- tages and disadvantages of each of the two aforementioned methods,
neither before or after, to help it in determining how to act in future power-station projects.
At the meeting of the board of directors at the end of 1986, one of the mem- bers asked whether the
Company had considered, in the past, ordering larger "equipment packages" for power stations to be built
after the Rutenberg Power Station, and whether a cost-benefit analysis had been conducted on this
subject. The minutes of the meeting indicate that no answer was provided to this question, and for several
years afterward, the board of directors did not discuss this mat- ter. At the board meeting of February 1,
1990, a member once again raised the question. The chief engineer and the head of the Planning Division
responded that they believed that the Company had excessively split-up purchasing in the Ruten- berg
Power Station project. The director general stated, at the same meeting, that
as regards Ma'or David Power Station Two, it was too late to discuss the matter, but concerning future
projects, the advantages and disadvantages of the method used will have to be discussed. In March of
1993, the Company informed the State Comptroller's Office that in the project to be constructed after
Ma'or David Power Station Two, it would return to larger "equipment packages" purchases.
Detailed planning: In this activity, which is the main stage in planning the power station, the Company
overran the budgeted number of hours by 660,000 83%. In addition to the "equipment packages"
described above, the Company's budget presentation for 1990 included several reasons for the overrun in
planning hours, the major of them being that construction of the Rutenberg Power Station was a more
complex task than the construction of previous stations; the major equipment was based on different
technologies (American versus European), and during construction the difficulty of combining the two
became apparent, leading to additional planning work; the Operations Division and Execution Division
demanded planning changes, and the contractors requested more detailed planning (the Company
estimated that these demands and requests caused an increase of some 200,000 work-hours).
Other activities: These activities include engineering assistance to local suppliers and contractors, tests,
surveys, on-site supervision, engineering as- sistance to teams working at the site, and additional
documentation. In each of these activities, the Company greatly overran its estimates (530,000 actual
work hours as against 300,000 budgeted).
In early 1990, at the concluding stage of construction, senior staff of the operations and planning
divisions determined that the Planning Division had not been sufficiently involved in the matters dealing
with the electrical equipment:

the detailed planning was insufficient; the planning, acquisition, and installation of the infrastructure
systems had not been completed prior to installation of the facilities and the principal equipment, and
planning of the facilities did not take into consideration this infrastructure; the Company was lax in
obtaining from the suppliers all the necessary documents, and did not check whether the suppliers were
capable of providing appropriate technical support.
These conclusions were made only at the end of construction and only dealt with the electrical systems.
The State Comptroller's Office is of the opinion that the Company should have conducted internal
checks, covering all activities during the planning and construction phase.

Effect of Planning Delays on Construction
The Company estimates that at the beginning of the construction work, less than 20% of the planning
work had been completed. According to its documents, this percentage is far less than that needed for
proper and continuous execution of the construction work; the delays in planning and in supply of
equipment impaired the technologically preferable order of construction work, the work dragged on,
extending the time needed for the work, and consequently caused the number of hours spent on
construction to be much greater than planned. Also, the planning changes during the course of
construction caused work stoppages and required work to be redone.
The Company informed the State Comptroller's Office that in western countries it is customary to begin
on-site work when more that half of the planning work has been completed. During discussions of the
Planning and Operations Com- mittee, held in May 1993, the director general announced that for
construction of future power stations, a directive had been issued not to begin on-site work until at least
half of the planning work had been completed.
In the following section on the construction work, the report presents examples of installations and work
whose planning was delayed or was changed during exe- cution: fire-detection and fire-extinguishing
systems, an iron-sulphate injection facility, the upper structure of the station, and laying of cables.


Among the work that, according to the Company's 1990 budget, led to a large overrun in planning hours
are those that are an integral part of the ongoing process of planning, and the Company should have,
therefore, considered them from the start. Examples are the need to test and approve the manufacturers'
sketches; preparation of detailed plans pursuant to contractors' demands; guidance of the Operations
Division staff; collection and coordination of technical documents related to the project. In addition,
when the budget was approved in 1982, the Company knew about the problems inherent in combining
diverse technologies and using innovative equipment. However, the Company's explanations

indicate it did not properly judge their effect on the number of planning hours.
The State Comptroller's Office is of the opinion that a certain overrun of planning hours may be
considered reasonable, particularly when considering that this was the first power station that the
Company had planned on its own. How- ever, the size of the overrun more than 90% higher than the
number of hours budgeted raised questions both as regards the Company's ability to evaluate the scope
of planning work and as regards efficient use of work-hours available to the division.

According to Company data, the cost of construction and installation work reached $380 million, some
one-third of the cost of the station. Almost one-half of this amount some $180 million was paid to the
building and installation contrac- tors, and the remainder for the work performed by Company

Welding Work of the Pipe Systems Connected to the Boilers
These systems must withstand high pressure and heat created during operation of the power-production
units. The professional expertise of the persons doing the welding and installation work, and compliance
with the instructions for executing the work must, therefore, be done with meticulous care. The
Execution Division checks the quality of the welding during and at the conclusion of the work, primarily
using radiographic photography. Defective welding must be repaired or redone. As regards some of the
equipment, the manufacturers demand that when the welding work is completed, checks must be made at
specific locations and include a particular percentage of all the welding. The Company's quality control
unit (one of the units directly subordinate to the chief engineer) also checks the welding during and at the
completion of the work.
Company documents indicate that the quality-control unit found many defective instances of welding.
The unit explained that they resulted mainly from non- compliance with the standards and manufacturer's
instructions, and also because they were done by unqualified welders. The unit's report of February 1990
in- dicates that the defects were widespread, and were found principally where the weldings were not
The Company informed the State Comptroller's Office that it is aware of the relatively high percentage of
defective weldings in piping intended for use under high pressure. The Company explained the defects in
the turnover in welders and their lack of experience, the lack of experts in this field in Israel, and the
failure to meticulously follow the instructions when performing the work, such as heating prior to
welding, safeguarding the welding electrodes and performing the work when the weather is proper.

Welding the boiler's main beams: According to the instructions of the supplier of the boilers and the
Company, the main beams of the boiler must not be welded since welding may damage the beams. In
fact, when assembling the boilers at the Rutenberg Power Station, workers welded brackets and
accessory beams to the main beams in order to provide support when lifting heavy parts of the boiler that
had been assembled previously on the ground.
The Company has been aware for years of the instructions regarding the pro- hibition on welding onto the
main beams. The boiler manufacturer even pasted a written warning on the beams, and the Company
again published the instruction in early 1990. In spite of this, welding onto the beams continued.
Company documents show that in September 1990 new weldings of reinforcement pipes to the beams
had been found.
The Company had difficulty removing the parts that had been welded to the beams. At first, they
removed them with welding tools, but that cracked the beams in the area of the welding and caused other
damage as well. The Company then began to remove the parts by whetting, but this method also damaged
the beams.
At the end of May 1989, the chief engineer appointed a committee to examine the matter. The committee
primarily looked into the factors that led to welding onto the main beams. Its recommendations included
incorporating in the guidelines the work methods and supervision procedures. Although the committee
had also been directed to assess the damage caused by the welding, it made no such assessment.
Repeated checks by the Company in 1992 and 1993 showed that cracks remained in some of the beams.
The head of the Company's materials lab stated, in 1994, that unlimited use could be made of the units at
the power station, but recom- mended that periodic checks of the beams be conducted because of the
sensitivity of the cracks to strenuous effort.

Safeguarding Equipment
Safeguarding equipment from the time it is received until it becomes operational is necessary to protect it
from environmental conditions. The equipment generally arrives at the power station some time prior to
assembly, and the manufacturer provides instructions on how to protect it.
Until 1988, the Company had no written procedures for protecting equipment. Already in 1985,
following problems of protecting equipment that had arisen at the time, the Operations Division indicated
the need for such procedures. In March 1988, the Company approved general procedures for
safeguarding equip- ment; it provided that the chief engineer was responsible for implementing and
revising the procedures, and that each division or district head was to ensure that there are instructions for
protecting the equipment in his possession, and that compliance with the instructions was mandatory. The
quality control unit was given the task of checking whether the units involved are protecting the
equipment, and of reporting its findings to the chief engineer.
The Company did not prepare suitable plans adapted to the special characteris- tics of each type of
equipment, and the procedures do not even require such plans.

During construction of the Rutenberg Power Station, various Company officials warned about defects in
protecting the equipment after its removal from the ware- houses. In early 1986, the chief chemist warned
about the condition of the paint on the gas conveyors, steel beams, and pipes; at the end of 1987, the
Operations Division warned that several types of pumps had not been properly preserved and had become
rusty as a consequence; in July 1988, the Operations Division warned about the poor condition of some
of the equipment lying on the site or assembled at the station, and contended that some of the equipment
had been irreparably damaged. The division also warned that parts of the boilers had gone long periods
without being maintained, even though the supplier had provided the relevant instructions. The
Operations Division made the same complaint a year later, and also complained about the manner in
which the electrical equipment was being protected.
The June 1988 report of the quality control unit to the Company's director gen- eral indicated that after
assembly of certain parts of the boilers, no protective action was taken for long periods of time, in some
instances more than two years. According to the report, within several weeks, the manufacturer's
representatives were to examine the boilers, and take samples of parts to test their condition. This test
was not done in a timely manner, and at the end of the year the division head wrote to the chief engineer
that because the equipment had not been protected for a long time, he no longer wanted the test
conducted because it was doubtful that it could clarify whether the contentions that had been raised were
The Operations Division warned the chief engineer at a meeting held in December 1988, that the
equipment that had been transferred to his responsibility was not in working order because it had not
been properly protected, and demanded that special efforts be made to return it to proper operational
condition. The lack of proper protection of the equipment led to expenses, work delays, and damage to
the equipment. At the end of the meeting, it was determined that the Execution Division, the Operations
Division, and the Quality Control Unit would submit a plan for safeguarding the equipment. No such
plan was submit- ted.
Consequently, numerous parts of equipment were held for years without being properly safeguarded. The
Company did not examine the extent of the damage to the equipment. During part of the period,
beginning in March 1988, the Company had procedures for protecting equipment, but no action was
taken to ensure compliance. The Company informed the State Comptroller's Office in March of 1993
that, as a result of the audit, it was acting to remedy the defects.

Fire-Detection and Fire-Extinguishing Systems
Power stations have automatic systems to detect and extinguish fires, and systems for extinguishing fires
by hand; the Operations Division is in charge of the automatic systems, and the Organization and
Security Division is in charge of the hand-extinguisher systems.

The State Comptroller's Office found that there had been great delay in planning and installing some of
the detection and extinguishing devices at the Rutenberg Power Station. Sometimes temporary solutions
were required, like keeping firemen on duty and increased checks since the automatic detection and
extinguishing devices had not been installed. Also, in starting up the first power unit, there were no
permanent fire-extinguishing devices.
1. In February 1987, the Company ordered, from a local contractor, fire- detection and fire-extinguishing
systems for the station's main buildings. The order provided also for the detailed planning and installation
of the systems. The contractor failed to meet his undertaking to complete the work within ten months.
The installation was only completed at the end of 1989. The Company then discovered that the systems
did not meet its demands; the planning had been faulty, the contractor had assembled and wired only part
of the equipment, and when operated, there were numerous false alarms and operational failures.
Moreover, the contractor did not provide in writing all the information required for providing ongoing
maintenance of the systems.
At the end of 1989, a committee in the Execution Division examined the matter. It submitted its report in
February 1990, and its main findings indicate that the Company's principal planning of the systems prior
to issuing the tender were not sufficiently developed, and that changes were made during the installation;
the Company did not check in advance the detailed planning capability of the contractor; lack of
Company plans and delay in decision making led to additional delays by the contractor. The committee
also noted defects in preparing the time- table for performing the work; the Company did not ensure
meticulous compliance with the terms of the tender; the Execution Division was not the only body
charged with dealing with the contractor, and coordination between divisions was defective.
The two production units commenced operations before properly functioning fire-detection and fire-
extinguishing systems, designed to protect the most im- portant facilities in the station, were in place. The
systems only began to be fully operational during the second half of 1993, and only in the middle of 1994
was their maintenance arranged.
2. Planning Division documents indicate that only in January 1989 did the Company prepare a general
plan for fire-detection and extinguishing systems in the areas where the major electrical devices were
housed. Some of these devices had been connected to electricity before the systems had been ordered.
The Com- pany decided to use roving firemen in these areas to provide ongoing inspection until the
permanent systems became operational.
On October 1, 1989 the command-switch compartment of the turbine system went up in flames as a
result of a short-circuit. Company documents indicate that, at that time, the detectors in the turbine room
and in the electricity compartments were not yet in operation. Shortly before the fire, the roving firemen
had checked the location. Before the fire was detected, much smoke had accumulated in the building, and
it took an hour to locate the fire and begin to extinguish it.

3. In 1986 and 1987, a consultant company from abroad recommended installation of fire detectors in all
the Company's warehouses. Company documents indicate that fire-detection equipment in the warehouse
on the Rutenberg site had been ordered from abroad and had been received in 1988, and that plans for
installing it had been forwarded to the Execution Division in early 1989. In the summer of 1989, the
Execution Division indicated that its employees are not sufficiently expert to install the equipment, and
that the local agent of the manufacturer of the equipment could not help. The Company hired external
experts to do the work. A December 1991 report of the Fire Department for the Ashkelon area indi- cates
that the system had been installed but was not operational. The Company informed the State
Comptroller's Office that the system began to operate in early 1994.
The Company also informed the State Comptroller's Office that as a result of the audit, and in learning
from the errors it made in constructing the Rutenberg Power Station, it had decided to change the
handling of fire detection and ex- tinguishing at power stations: the Company will prepare the detailed
planning for the purpose of issuing a tender; the detection and extinguishing systems will be part of a
combined system; the chief engineer appointed a committee to prepare procedures for planning,
installation, and maintenance of those systems.

Delays in Operating the Iron-Sulphate Injection System
A special system, designed to produce a protective layer to prevent corrosion of the piping of the
condensers by continual injection of iron sulphate into the pipes was set up at the Rutenberg Power
Station. It is important that this system be operational when the power-production units begin operation.
The Company began planning the system, purchasing the equipment, and assem- bling it only in the very
late stages of the power station's construction. The Company completed the planning late in June 1990,
which enabled it to issue a tender for the purchase and assembly of the equipment, and signed a contract
with the supplier in October of that year.
In July 1991, after the power station's first production unit had been opera- tional for almost a year, the
Execution Division informed the Planning Division that the Execution Division had not yet received the
necessary documents to en- able it to issue a tender for building the structure and for the auxiliary serv-
ices of this system. The two divisions corresponded over a long period concerning the arrangements for
forwarding the plans and sketches. The Execution Division argued that the plans had been sent to it
piecemeal, with changes and revisions being made to earlier plans.
Company documents show that during installation, numerous problems arose that caused delay.
According to explanations of the Operations Division to the State Comptroller's Office, failure to operate
the system over an extended peri- od causes potentially irreparable damage to the piping of the
condensers. Only in January 1994 some three-and-a-half years after the first production unit had
become operational did the Company operate the system.

The State Comptroller's Office examined about one-fourth of the contracts with the contractors. In
general, the contracts examined were the result of tenders. The State Comptroller's Office found that in
many instances, tenders were issued and contracts signed before the Company had completed the detailed
planning of the work to be performed, and the Company made changes in the planning and the order of
their execution as the work was executed; work continued for much longer than planned and stipulated in
the contracts; the quantities needed were vastly different than those in the quantity specifications cited in
the tenders and con- tracts. The Company compensated the contractors for the changes and other dis-
turbances it caused during the work. In some of the contracts, the Company bore significant additional
costs because the contractors did not meet its demands.
The following are the findings of the State Comptroller's Office concerning performance of three jobs at
substantial expense.

Construction of the Upper Structure of the Power Station
In March 1986, the Company published a tender for the construction of the upper structure of the power
station. The four bids received were submitted to the Tenders Committee. Contractor A submitted the
lowest bid (NIS 2.7 million), and Contractor B submitted the second lowest bid (NIS 2.9 million). The
two other bids were higher (all the bids were based on prices of April 1986).
In constructing the structure, the Company had to choose, as part of the tech- nical specifications,
between polygon steel rods and welded steel netting. In the tender for construction of the upper structure
of the Ma'or David Power Station, in the 1970s, the Company requested the contractors to offer bids for
each of the two alternatives, and selected welded netting. Before issuing the tender for the construction of
the Rutenberg Power Station, the Company considered the two alternatives, but the tender requested bids
only for the use of the steel rods. The technical specifications accompanying the tender also included a
small quantity of welded netting. Because the detailed plans of the structure were not ready when the
tender was issued, the Company annexed the plans for the Ma'or David Power Station to the tender
documents. The Company explained to the State Comptroller's Office in August 1992 that, by annexing
the Ma'or David Power Station plans, it intended to give the contractors an indication of the work re-
quired on the Rutenberg Power Station.
Very soon after opening the bids, the Planning Division informed the Execution Division of significant
changes in the list of quantities, primarily that welded netting would be used rather than polygon rods.
Company documents indicate that the Planning Division had so informed the Execution Division on
April 10, 1986, four days after the bids were opened.
That same day, the division's Tenders Committee decided "to request the con- tractors who had submitted
the lowest bids to submit new bids based on the amended

list of quantities." Contractor B's new bid was NIS 3 million, and that of Contractor A, NIS 3.2 million.
Contractor A's bid was now higher due to the higher price it submitted for the supply of welded netting.
The division's Tenders Committee decided to select Contractor B. The board of directors' Tenders
Committee approved, subject to legal review of whether the Company would be liable if Contractor A,
which had submitted the lowest bid on the original tender, sued the Company. No documents were found
in the Company files that indicated it had received legal advice on this question.
Several days after the Company informed Contractor B that it had been selected, the contractor revoked
its bid; the Company realized the bank guarantee Contrac- tor B had provided. On May 15, 1986, the
board of directors' Tenders Committee decided to revoke the tender and negotiate with the two other
contractors that had submitted bids. The Company gave Contractor C the job, at a cost of NIS 3.6
Shortly thereafter, both Contractor A and Contractor B filed suit in separate actions. Contractor A sued
for damages and loss of expected profits caused by its not receiving the work. Contractor B demanded
return of the monies the Company had received when realizing the bank guaranty. In a joint judgment,
given in September 1989, the District Court ruled that the Company had rejected Contractor A's bid in
bad faith and in breach of the tender rules. The court ordered the Company to compensate Contractor A
and return the bank guarantee money to Contractor B, and to pay court costs.
The Company and Contractor A appealed the judgment. In April 1993, the Su- preme Court rejected the
Company's appeal and ruled in favor of the contractor. It ordered the Company to pay Contractor A
damages in the amount of 5% of its bid some NIS 160,000 (1986 prices) which was higher than the
judgment granted by the District Court.
The process of selecting the contractor was defective from the start. The Com- pany issued the tender
before it had detailed plans, and annexed the plans of the previously constructed Ma'or David Power
Station as an "indication" of their plans; the Company significantly changed the list of quantities shortly
after the bids were opened, and the bid of the contractor that had submitted the lowest bid for the original
list of quantities was rejected; the board of directors' de- cision to obtain legal advice was not
implemented. The Company gave the job to another contractor at a price NIS 400,000, higher (in terms
of April 1986 prices) than the bid of Contractor A for the job with the amended list of quantities. In
addition, the Company became involved in protracted legal proceedings and lost.
Performance of the work: Contractor C began the work in June 1986. The con- tract provided that it
would finish within sixteen months. The contractor finished at the end of October 1989, two years
Company documents indicate that the delay in construction resulted from changes in the dates for
execution of other work. These changes led to changes in the original time-table for building the
structure, the splitting up of the work, and interruptions in work which the contractor had begun, which
had to be completed at a later date.

Execution Division documents indicate that the Company paid the contractor NIS 326,000 (at April 1986
prices some $220,000) more than the contract price, in order to cover costs the contractor alleged it had
expended as a result of the changes and the delays.

Laying of Cables
In July 1987, the Company published a tender for laying cables in the two pro- duction units and other
parts of the station. The initial estimate of the cost of the work was NIS 2.9 million at then-current prices
($1.8 million).
Eight bids were received. The Company gave the job to Contractor D, whose bid was the lowest, NIS
1.36 million at then-current prices (about $850,000). The Company had not had previous experience with
this contractor, and explained to the State Comptroller's Office that it had received favorable opinions
from other companies that had done business with the contractor.
Despite the sizeable gap between the contractors bid and the Company's esti- mate, the Company did not
examine the reasonableness of its estimate vis-a-vis the reasonableness of the contractor's bid, or the
ability of the contractor to perform the work at the price it bid.
While organizing to perform the work, the contractor requested that the Company release it from the
contract. The principal reason was that the scope of the job was larger than the contractor had thought,
that it did not have the necessary equipment, and that it would consequently lose much money, causing it
to cease operations before finishing the job.
The Company agreed to release the contractor from its obligations under the contract, and contacted
Contractor E, whose bid was the next lowest. After nego- tiations between the parties, Contractor E
agreed to perform the work at the price and terms agreed to by Contractor D. In September 1987, the
Company offered it the job, without examining whether the contractor could meet its con- tractual
Company operating procedures require the Company to maintain a list of suppli- ers, manufacturers,
contractors, and service providers, and to update the lists from time to time. These lists are intended as a
data bank on these entities, which information would possibly affect contractual considerations with
them, e.g., expertise, reputation, past experience with them, their equipment, field in which they operate,
and technical, commercial, economic, safety, and other data. The Execution Division has lists of
contractors that are received from the regis- trar of contractors, but the information required by the
procedures had not been collected.
Company operating procedures also provide that if a tender bid varies unreason- ably from the
Company's initial estimate, the Tenders Committee must exercise discretion and may reexamine the
Company's estimate, and based on the results decide whether to accept the bid. In this instance, the
Company twice contracted with contractors whose bids were less than one-half of the Company's
estimate. In neither instance did the Company conduct the aforementioned examination.

Performance of the work: The work was to be completed within thirty months. The work progressed
slowly, and the Company detected defects in execution. After several delays, the Company began to use
its own employees, while the contractor complained about disturbances during the work and about delays
in receiving plans and materials from the Company's warehouses. In April 1989, after it had com- pleted
50% of the work, the contractor ceased working on the site. The Company paid it the contract price in
accordance with the percentage of work the con- tractor had performed. The contractor submitted a list of
disturbances it had suffered during its performance of the work, and the Company agreed to pay an
additional NIS 120,000. According to Company information, the contractor went into receivership.
After Contractor E ceased operations on the job, the Company gave, in April 1989 and without issuing a
tender, the work of laying the cables on a per hour payment basis to Contractor F, who had not
participated in the original tender. The parties agreed on a contract for six months at an estimated cost of
NIS 340,000 (about $190,000). The Company received an option to extend the contract an additional
three months.
Employees of the Company and of the contractor worked together to lay the cables. In June 1989, less
than three months after their work began, the contract was extended for six months, and the contractor
doubled its work force. The contract amount rose to NIS 1.4 million (some $770,000). The decision had
been made by the division's Tenders Committee, and it was approved by the director general, though
Company operating procedures require that contracts involving payments in excess of $750,000 be
approved by the board of director's Tenders Committee. The Company paid for per hour work for the
first production unit alone, about NIS 1.7 million at February 1989 prices (about $940,000).
In May 1990, the Company decided to give the same contractor the job of laying the cables for the
second production unit, also on an hourly basis. The contract provided for an estimated payment of NIS
1.94 million (about $960,000). This con- tract also was not brought to the board of directors' Tenders
Committee for approval.
The reason given for paying on an hourly basis for the work on the two produc- tion units was the large
amount of work necessary to complete the laying and installation of the cables, and the need to meet the
time-table. Company records indicate that Company and contractor employees worked a total of 443,000
hours in laying the cables. According to calculations of the State Comptroller's Office, based on
Company data, the total cost of the work at July 1987 prices (when the Company contracted with
Contractor D), had reached NIS 12 million (about $7.5 million), while the original estimate was NIS 2.9
million. The Company explained, as the revised annual budgets show, that the scope of the cable-laying
work had increased by some 40% over that which had been planned at the time of the original tender. In
its response, in August 1992, to a question of the State Comptroller's Office, the Company indicated that
the scope had actually increased by some 90%, and that 70,000 of all the hours spent were those of
Company supervisory personnel - an investment in time that would have been necessary, in its opinion,
in any event.

The State Comptroller's Office's calculations show that even accepting the Com- pany's explanation
regarding the 90% increase in the scope of the work and regarding the number of hours spent on
supervision, the cost of execution was still approximately twice as large as the original estimate.
The State Comptroller's Office found several defects in the Company's contracts for laying the cables: the
Company did not reexamine the reasonableness of its estimate in comparison to the reasonableness of the
bids it had received; the Company ultimately used its employees to do the work, and gave the contractor
some of the work on an hourly basis; the Company offered the work on an hourly basis without obtaining
the necessary approval of the board of directors' Tenders Committee. The work took much longer than
planned, and its cost greatly exceeded the Company's estimate.

Construction of Scaffolding
The Company published, towards the end of 1985, a tender for the supply and con- struction of
scaffolding at the station for a period of two years. Of the five bids received, the Company accepted that
of Contractor G, whose bid of NIS 334,000 at November 1985 prices was the lowest. 70% of the contract
prices were linked to the construction wages index and 30% to the equipment price index. The Company
did not commit itself in the contract to supply the contractor with the entire work. The cost of the work
over the two-year period reached some NIS 270,000 at then-current prices.
An appendix to the contract stipulated that the Company could extend the contract annually, but no more
than an additional two years, provided that the parties mutually agree. In November 1987, the contractor
submitted an offer to renew the contract for another year on new terms that significantly benefited the
contractor. The main changes were an increase of 30% in the prices to cover the Company's demand that
the new contract explicitly provide for the work to be performed according to the Israeli standard for
scaffolding, which the contractor claimed would increase its costs, and linkage of all the prices to the
construc- tion wages index.
The Company's Tenders Committee consented to the contractor's demands and decided that the changes
would take effect on December 1, 1987. The parties agreed on a one-year extension, with the Company
having the option to extend the agreement for another year. The committee's main reason for agreeing to
the extension was that the contractor's bid prices were much lower than those of the other bidders, and
that changing scaffolding during construction of the station would involve great expense and would
negatively affect construc- tion.
In early 1988, the parties signed a contract for one year at an amount of NIS 410,000 (hereafter the
second contract). The prices stated in the second con- tract had not been calculated in conformity with the
approval of the Tenders Committee, and had not even been demanded by the contractor: linkage of 100%
to the construction wages index had been calculated from commencement of the first

contract - November 1985 - and not from December 1987, as the committee had decided. Also, the
second contract stipulated, contrary to the committee's decision, that it could be extended annually for
three additional years.
The second contract was extended annually until April 1992. Over the years, the quantity of scaffolding
increased several fold. Payments to the contractor reached NIS 5.5 million at December 1987 prices
(some $3.5 million).
The State Comptroller's Office found the following defects in contracting for supply and construction of
the scaffolding:
1. The tender was held at the end of 1985, when construction of the power station was in its initial
stages. The parties knew, from experience in con- structing other power stations, that after two years,
they would have to decide on extending the contract, and that replacing the scaffolding contractor would
result in on-site problems and costs to the Company.
The quantities that the Company stated in the tender reflected only a small portion of the scaffolding
work that would be needed during construction. This understatement left an opening to submit low bids
for the scaffolding, on the assumption that it would be possible to improve the terms later on, as indeed
2. Changing the terms of the contract in favor of the contractor was possible because the contract was for
a two-year period, and an extension depended on mutual consent. Following the comments of the State
Comptroller's Office, the Company announced that in contracting for scaffolding for the Ma'or David
Power Station Two, the contract would be for an initial period of three years, and only the Company
would have the option to extend the contract.
3. According to the minutes of the Tenders Committee, the main reason the Company agreed to
significantly improve the terms of compensation to the con- tractor was the "additional demands of the
Company that the equipment and work of the contractor meet the Israeli standard for scaffolding (Israeli
Standard 1139)." The State Comptroller's Office pointed out to the Company that the stand- ard was set
in 1982, and that according to the tender, the contractor, already at the time it submitted the initial bid,
should have taken into account that he would have to comply with the standard, since under the general
terms of the ten- der, the contractor undertook "to perform the work at a high professional level in
conformity with the appropriate standards ..."
4. Since the scaffolding work involved both wage and equipment costs, it would have been preferable for
the contract to be linked to these two components. This was not done.
5. As mentioned previously, in negotiating the second contract, the contractor requested an increase of
30% over the prices of the first contract, and the Company agreed. However, the second contract
calculated the prices on the basis of total linkage to the construction wages index of November 1985,
rather than December 1987, causing a rise of some 48%, rather than the 30% demanded by the contractor
and approved by the Tenders Committee. The State Comptroller's Office's calculations show that the
Company paid the contractor an excess of some NIS 660,000 at December 1987 prices (about $420,000).

In its response to the State Comptroller's Office at the end of 1992, the Company indicated that it accepts
the State Comptroller's Office's comments, but added that it was possible to give another interpretation to
the manner in which the linkage was to be calculated, and that it did not therefore sue the contractor for
reimbursement. The Company did not indicate what this interpretation was. The State Comptroller's
Office is of the opinion that the Company should have demanded an adjustment of prices as provided in
the second contract and reimbursement of the overpayment the contractor had received.

According to the 1986 time-table of the Operations Division, the Execution Divi- sion was to have
transferred responsibility for the first production unit to the Operations Division in stages, beginning in
September 1987 and ending at the time of operation, which had been planned for September 1989. As
mentioned previ- ously, operation of the unit began in August 1990. An efficient transfer required those
involved to organize the transfer already during the initial stages of the project.
The State Comptroller's Office found that prior to completion of construction of the Rutenberg Power
Station, the Company did not have operating procedures for transferring installations and equipment to
the Operations Division that would serve as a basis for coordination between the relevant divisions.
In July 1988, the Operations Division proposed procedures for transferring and receiving installations
and equipment, but as of the time the completion of the audit, they had not been instituted.
Company documents indicate that during the transfer of responsibility, the Company implemented
numerous temporary arrangements, which caused additional expense, and that the transfer took much
longer than planned. The lack of prior coordination between Company divisions resulted in the Execution
Division not receiving plans from the Planning Division in the manner appropriate for the Execution
Division to perform the work, and the Operations Division did not receive installations and systems in the
required sequence for their examination and integration in operating the power station. The Execution
Division trans- ferred many installations that were not yet complete and required repair, which had to be
returned several times to the Execution Division for the necessary re- pairs.
The State Comptroller's Office requested data on the date of actual transfer of responsibility so that it
could compare it with the planned date of transfer. The Company did not have this data.


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