State Comptroller uncovers misuse of gov’t statutory funds

In a perfect world, money deposited in government funds would be used only for the purposes for which the funds were set up. However, as the State Comptroller’s report published today reveals, the Ministry of Finance manages statutory funds in a problematic manner. The funds, State Comptroller Matanyahu Englman finds, are used for purposes other than their original aims, sometimes as a small cash reserve to plug holes in the budget. There is no orderly list of all the funds and their amounts, and a significant portion of the funds are not managed properly.

The State Comptroller says, “The Budget Division has in several cases used funds left unused in budgetary capital funds to solve fiscal problems by diverting their budgetary sources for other uses, and in return, it has authorized a commitment in the same amount for the fund’s benefit.” A prominent example of this is the diversion of funds from the Cleaning Fund (a statutory fund for cleaning and preserving buildings), totaling NIS 2.26 billion in 2016-2021. As far as is known, this method of operation continued afterwards, but was not examined by the State Comptroller.

According to the Comptroller’s report, “This action serves as a one-time solution without creating long-term solutions for fiscal problems and causes the fiscal problem to be postponed until the next year in which the authorization to commit would be exercised.” The Comptroller adds, “The use of funds for other purposes, which were defined as the purposes of the funds, as occurred, for example, in the Cleaning Fund, was carried out without a uniform mechanism and in accordance with decisions of various levels, thereby harming the purposes for which the capital funds were established and appropriated from the state budget.”

The report indicates a systemic failure in the definitions and management of government capital funds. The Budget Division does not maintain a list of the number and scope of the budgetary funds, even though some of them are statutory. At the same time, the Accountant General’s Division at the Ministry of Finance maintains a list of 54 extra-budgetary capital funds and third-party deposits, without a clear distinction between them, totaling about NIS 44.4 billion, but in its financial statements it reports only 16 capital funds totaling about NIS 36 billion.

Another deficiency noted by the State Comptroller is that the Accountant General manages 38 funds totaling NIS 8 billion, which were classified as liabilities for accounting purposes, even though some of them may be capital funds that should be presented as part of capital. This figure reflects the lack of transparency in financial management.

Lack of uniformity in definitions

The State Comptroller concludes, “This implies that the Ministry of Finance does not have accurate information on budgetary funds and extra-budgetary funds.” It also found, “The Accountant General Division does not have a list of all budgetary capital funds, even though the need for a complete list of all capital funds arose in the Division as early as 2007, due to the need to list them in financial statements.”

Another problem, the report finds, is the lack of uniformity in definitions. The Accountant General Division defined the terms “fund”, “budgetary fund” and “extra-budgetary fund” in a 2011 directive. However, significant differences were found between the Accountant General Division and the Budget Division in terms of how the terms are defined. Differences were also found between the definitions in the Accountant General Division directive and the accounting definitions used in practice by the Division. Examples of capital funds that suffer from this lack of uniformity are the Vehicle Fund, the IDF Camp Relocation Fund, and the Metro Fund.

Another worrying figure emerging from the report concerns the Property Tax Compensation Fund. At the end of 2023, after the outbreak of the war, more than NIS 4 billion was withdrawn from this fund. The Comptroller notes, “As the war continues and regulations are expanded, including the addition of extra criteria, there is doubt about the fund’s ability to meet the obligations created as a result, within the existing accumulation framework, without increasing it.” He mentions that a similar comment was already made in the State Comptroller’s report in 2012 that referred to damage in the Second Lebanon War.

Due to the findings, the State Comptroller insists, “Management of the Ministry of Finance, including the Budget Division and the Accounting Division, must reexamine the use of the fund mechanism, the need it fulfills, its scope, and the significant increase in its use.” “The State Comptroller added that the relevant divisions must “form a uniform outline for defining capital funds, for their establishment, their characteristics, and for coordinating information regarding their scope and monitoring at all times, including the manner of their full registration.”

Published by Globes, Israel business news – en.globes.co.il – on May 6, 2025.

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