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entitled 'Foreign Assistance: Measures to Prevent Inadvertent Payments 
to Terrorists under Palestinian Aid Programs Have Been Strengthened, 
but Some Weaknesses Remain' which was released on May 19, 2009. 

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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

May 2009: 

Foreign Assistance: 

Measures to Prevent Inadvertent Payments to Terrorists under 
Palestinian Aid Programs Have Been Strengthened, but Some Weaknesses 
Remain: 

GAO-09-622: 

GAO Highlights: 

Highlights of GAO-09-622, a report to congressional committees. 

Why GAO Did This Study: 

The U.S. government is one of the largest donors to Palestinians. It 
provided nearly $575 million in assistance in fiscal year 2008. This 
assistance is provided through the U.S. Agency for International 
Development (USAID) and through contributions to international 
organizations, primarily the United Nations Relief and Works Agency for 
Palestine Refugees in the Near East (UNRWA). The Department of State 
(State) oversees U.S. contributions to UNRWA. To help ensure that U.S. 
funds for these programs are not provided to individuals or entities 
engaged in terrorist activities, USAID and State must comply with 
restrictions under U.S. law. GAO was asked to (1) assess the extent to 
which USAID has complied with its antiterrorism policies and procedures 
and (2) assess State’s and UNRWA’s policies and procedures to support 
conformance with U.S. statutory conditions. GAO reviewed U.S. and UNRWA 
documents; interviewed USAID, State, and UNRWA officials; and conducted 
fieldwork in Israel, Jerusalem, and Jordan. 

What GAO Found: 

USAID strengthened its antiterrorism policies and procedures and 
complied with them in making new prime awards, but had weaknesses 
related to compliance at the subaward level. (“Prime awardee” refers to 
an organization that directly receives USAID funding to implement 
projects. “Subawardee” refers to an organization that receives funding 
from prime awardees.) USAID strengthened its policies and procedures in 
response to our 2006 recommendations by, for example, strengthening its 
vetting process, which involves investigating a person or entity for 
links to terrorism. Since 2006, USAID has instituted new procedures to 
monitor prime awardee compliance with antiterrorism requirements, which 
have allowed it to take some actions to address areas of concern. The 
agency has hired a specialist who reviews prime awardees’ subaward 
files for compliance with its antiterrorism policies. All 32 new prime 
awards made by USAID in fiscal year 2008 included all applicable 
clauses. USAID obtained the applicable antiterrorism certifications and 
conducted required vetting for all applicable new prime awards. For a 
random sample of fiscal year 2008 subawards, applicable antiterrorism 
certifications were obtained and vetting was conducted. However, an 
estimated 17 percent of subawards had insufficient evidence to assess 
compliance related to mandatory clauses. For the remaining subawards, 
an estimated 5 percent did not contain the mandatory clauses at the 
time of the award. GAO also found limitations in the agency’s 
monitoring of subawards for inclusion of mandatory clauses. 

Since 2003, State and UNRWA have strengthened policies and procedures 
to conform with conditions on U.S. contributions to UNRWA, but 
weaknesses remain. Section 301(c) of the Foreign Assistance Act of 
1961, as amended, prohibits U.S. contributions to UNRWA except on the 
condition that UNRWA take all possible measures to assure that no part 
of the U.S. contribution shall be used to furnish assistance to, among 
others, any refugee who has engaged in any act of terrorism. UNRWA has 
agreed to conform to conditions on U.S. contributions, but State has 
not established criteria to determine whether UNRWA’s actions are 
consistent with this agreement. While State has not defined the key 
term “all possible measures” or defined nonconformance, it has 
strengthened some policies and procedures to oversee UNRWA’s 
conformance. UNRWA has strengthened policies and procedures to promote 
neutrality of its beneficiaries, staff, contractors, and facilities 
that cover a broader range of conduct than covered in section 301(c). 
UNRWA reported denying approximately 110 applications for cash 
assistance to refugees since July 2006, because the agency found the 
refugees’ behavior was inconsistent with UN neutrality or restrictions 
related to section 301(c). However, limitations exist. UNRWA said it 
has screened all staff, contractor, and beneficiary names against a UN 
Security Council list of potential terrorists and found no matches. 
However, the list does not include Hamas and Hezbollah, which the 
United States has designated as foreign terrorist organizations. 
Finally, internal UNRWA audits do not assess controls for all cash 
assistance programs or whether contracts contain antiterrorism clauses. 

What GAO Recommends: 

To strengthen compliance, GAO recommends that the Administrator of 
USAID improve monitoring of subawards. GAO also recommends that the 
Secretary of State consider taking additional steps to oversee UNRWA’s 
conformance with U.S. conditions on funding. USAID, State, and UNRWA 
said they are taking actions to implement GAO’s recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-09-622] or key 
components. For more information, contact Thomas Melito at (202) 512-
9601 or melitot@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

USAID Strengthened Its Antiterrorism Policies and Procedures and 
Complied with Them in Making New Prime Awards, but Has Weaknesses in 
Compliance at the Subaward Level: 

State and UNRWA Have Strengthened Policies and Procedures to Determine 
Whether UNRWA's Actions Are Consistent with Its Agreement to Conform 
with Conditions for Receiving U.S. Funds, but Weaknesses Remain: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

USAID Policies and Procedures: 

UNRWA Policies and Procedures: 

Appendix II: USAID Mission to the West Bank and Gaza Vetting Process: 

Appendix III: UNRWA Policies and Procedures for Cash Assistance, Staff 
Neutrality, Use of UNRWA Facilities, and Contractor Behavior: 

Policies for Cash Assistance to Refugees: 

Policies and Procedures to Promote UNRWA Staff Neutrality: 

Rules and Regulations for the Use of UNRWA Facilities by Outside 
Entities: 

Policies and Procedures Regarding Contractor Behavior: 

Appendix IV: Comments from the U.S. Agency for International 
Development: 

Appendix V: Comments from the U.S. Department of State: 

Appendix VI: Comments from the United Nations Relief and Works Agency 
for Palestine Refugees in the Near East: 

Appendix VII: GAO Contact and Staff Acknowledgments: 

Table: 

Table 1: Key Features of USAID and UNRWA Programs for Assistance to 
Palestinians: 

Figure: 

Figure 1: USAID's Vetting Process for Awards to Aid Palestinians, 
Fiscal Year 2008: 

Abbreviations: 

OFAC: U.S. Department of Treasury's Office of Foreign Assets Control: 

OSO: Operation Support Officer: 

PRM: State Department Bureau of Population, Refugees and Migration: 

PSU: Program Support Unit: 

PVS: Partner Vetting System: 

State: U.S. Department of State: 

the mission: USAID Mission to the West Bank and Gaza: 

UN: United Nations: 

UN 1267 list: Al-Qaida and Taliban Sanctions Committee Consolidated 
List: 

UNRWA: United Nations Relief and Works Agency for Palestine Refugees in 
the Near East: 

USAID: U.S. Agency for International Development: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

May 19, 2009: 

Congressional Committees: 

For decades, the United States has played a leading role in efforts to 
resolve the Israeli-Palestinian conflict. Since 1948, Palestinians in 
the West Bank, Gaza, and neighboring countries have received education, 
economic revitalization, health services, and infrastructure 
assistance. The U.S. government is one of the largest donors to 
Palestinians. It provided nearly $575 million in assistance in fiscal 
year 2008. This assistance is mainly provided bilaterally, through the 
U.S. Agency for International Development (USAID), and multilaterally, 
through contributions to international organizations, primarily the 
United Nations Relief and Works Agency for Palestine Refugees in the 
Near East (UNRWA). The Department of State (State) oversees U.S. 
contributions to UNRWA. The bilateral and multilateral aid programs 
differ substantially in their methods of providing assistance. For 
example, while USAID relies heavily on contractors[Footnote 1] to 
implement projects that improve the welfare of Palestinians, such as 
building water distribution networks, UNRWA hires nearly 30,000 
employees to directly provide social and humanitarian services, such as 
education and health care. To help ensure that U.S. funds for these 
programs are not provided to individuals or entities engaged in 
terrorist activities, USAID and State must comply with restrictions 
under U.S. law when providing funds for Palestinian assistance 
programs. 

The Consolidated Appropriations Act of 2008[Footnote 2] directs the 
Comptroller General to conduct an audit and an investigation of the 
treatment, handling, and uses of all funds for the bilateral West Bank 
and Gaza Program in fiscal year 2008 under the Economic Support Fund, 
including an assessment of the extent to which this program has 
complied with the requirements attached to these funds in this 
legislation.[Footnote 3] In addition, House Report 110-197[Footnote 4] 
directs GAO to assess UNRWA's compliance with conditions required by 
law on U.S. contributions to UNRWA, particularly UNRWA's cash 
assistance program. In response to previous mandates, we assessed 
UNRWA's actions to implement section 301(c) of the Foreign Assistance 
Act of 1961, as amended, in 2003[Footnote 5] and USAID's compliance in 
2006.[Footnote 6] We made no recommendations in our 2003 report. USAID 
implemented four recommendations from our 2006 report, which were 
intended to strengthen USAID efforts to help ensure that U.S. 
assistance to the West Bank and Gaza does not support terrorist 
activities. For example, as we recommended, USAID clarified how its 
antiterrorism policies and procedures would be applied to certain types 
of assistance instruments. 

In response to the appropriations act and the House report, as well as 
a request from the House Foreign Affairs Committee and its Subcommittee 
on the Middle East and South Asia, we (1) assessed the extent to which 
USAID has complied with its policies and procedures to help ensure that 
its programs do not provide support to entities or individuals 
associated with terrorism in the West Bank and Gaza, and (2) assessed 
State's and UNRWA's policies and procedures to support conformance with 
U.S. statutory conditions placed on contributions provided to UNRWA to 
prohibit funding of terrorist-related activities. 

To address the first objective, we analyzed key documents and data 
provided by USAID and interviewed USAID and prime awardee officials in 
Jerusalem, Tel Aviv, and Washington, D.C. We also analyzed (1) all 32 
new prime awards made by USAID in fiscal year 2008 using Economic 
Support Funds and (2) a random sample of 144 out of 2,620 subaward 
agreements that USAID identified for us as made by prime awardees in 
fiscal year 2008. We assessed both prime awards and subawards against 
the requirements stipulated by USAID to help ensure compliance with 
U.S. legal requirements prohibiting support for terrorist-related 
activities. To address the second objective, we analyzed key documents 
and data provided by State and UNRWA; interviewed State officials in 
Jerusalem and Washington, D.C.; interviewed UNRWA officials; and 
observed UNRWA programs in Jordan and the West Bank. 

We conducted this performance audit from August 2008 to May 2009 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. (Appendix I provides a 
detailed discussion of our objectives, scope, and methodology.) 

Results in Brief: 

We found that USAID strengthened its antiterrorism policies and 
procedures and complied with them when making new prime awards, but had 
weaknesses related to compliance at the subaward level. In response to 
our 2006 recommendation, USAID strengthened its antiterrorism policies 
and procedures by clarifying how each would apply to certain types of 
assistance instruments and by strengthening its vetting process, which 
involves investigating a person or entity for links to terrorism. Since 
our 2006 report, USAID has also instituted new procedures to monitor 
prime awardee compliance with antiterrorism requirements, which have 
allowed it to identify and take some actions to address areas of 
concern we found. For example, the agency has hired a compliance 
specialist who reviews prime awardees' subaward files for compliance 
with its antiterrorism policies. All 32 new prime awards made by USAID 
in fiscal year 2008 included all applicable clauses. In addition, USAID 
obtained the antiterrorism certifications, where applicable, and 
conducted required vetting for all applicable new prime awards. We also 
found that USAID vetted all the appropriate officials, when required, 
for our sampled subawards. For our random sample of 144 fiscal year 
2008 subawards, applicable antiterrorism certifications were obtained 
and vetting was conducted. However, regarding mandatory clauses, we 
estimated that insufficient evidence exists to assess compliance for 
approximately 17 percent of the fiscal year 2008 subawards USAID 
identified. For the estimated 83 percent of subawards with sufficient 
evidence to assess compliance, we estimated that approximately 5 
percent had weaknesses related to the inclusion of mandatory clauses 
while the remaining 95 percent did not. We also found limitations in 
how the agency monitors prime awardee compliance with requirements 
related to the inclusion of mandatory clauses in subawards. 

Since our 2003 report, State and UNRWA have strengthened policies and 
procedures to conform with conditions on U.S. contributions to UNRWA, 
but weaknesses remain. Section 301(c) of the Foreign Assistance Act of 
1961, as amended, prohibits U.S. contributions to UNRWA except on the 
condition that UNRWA take all possible measures to assure that no part 
of the U.S. contribution shall be used to furnish assistance to, among 
others, any refugee who has engaged in any act of terrorism. While 
UNRWA has agreed to conform to conditions on U.S. contributions, State 
has not established criteria to determine whether UNRWA's actions are 
consistent with this agreement. For example, State has not defined the 
key term "all possible measures" or defined what would constitute 
nonconformance. Nevertheless, State has strengthened some policies and 
procedures to oversee UNRWA's conformance with conditions on U.S. 
contributions. UNRWA has also implemented and strengthened policies and 
procedures to promote neutrality of its beneficiaries, staff, 
contractors, and facilities that cover a broader range of conduct than 
covered in section 301(c). UNRWA reported denying approximately 110 
applications for discretionary cash assistance to refugees since July 
2006, because the agency found the refugees' behavior was inconsistent 
with UN neutrality or restrictions related to section 301(c). However, 
we found limitations in some of UNRWA's efforts. For example, UNRWA 
told us it has screened all staff, contractor, and beneficiary names 
against a UN Security Council list of potential terrorists and found no 
matches. However, the list is restricted to individuals and entities 
affiliated with Al-Qaida and the Taliban and thus does not specifically 
include major regional groups, such as Hamas and Hezbollah, which the 
United States has designated as foreign terrorist organizations. 
Finally, we found that internal audits of UNRWA do not assess whether 
contracts contain required antiterrorism clauses or assess controls for 
UNRWA's overall cash assistance program. 

To strengthen compliance with USAID policies and procedures at the 
subaward level, we recommend that the Administrator of USAID take 
action to help ensure that prime awardees comply with USAID 
requirements to include mandatory clauses in subawards. In addition, to 
help ensure that assistance is not inadvertently provided to 
terrorists, we recommend that the Secretary of State consider taking 
additional steps to oversee UNRWA's conformance with U.S. conditions on 
funding, such as (1) establishing criteria to evaluate UNRWA's efforts; 
(2) screening the names of UNRWA contractors against lists of 
individuals and entities of concern to the United States; and (3) 
monitoring UNRWA's commitment that future internal audits would assess 
UNRWA's compliance with its neutrality and antiterrorism policies for 
contractors as well as internal controls for cash assistance. 

USAID, State, and UNRWA provided written comments on a draft of this 
report, which are reprinted in appendices IV, V, and VI. USAID, State, 
and UNRWA outlined actions they intend to take to implement our 
recommendations. USAID stated that our work contributed positively to 
the continuous improvement and strengthening of USAID West Bank and 
Gaza mission's compliance with antiterrorism policies and procedures. 
However, USAID disagreed with our finding that insufficient evidence 
was present to assess a significant percentage of fiscal year 2008 
subawards. We maintain that evidence was insufficient because the only 
references to the purchase orders that were included on the mandatory 
clauses were individual handwritten annotations. It was not clear who 
made the annotations and when those annotations were made. State is 
undertaking actions to address all three parts of our recommendation, 
but noted that it will need to address the resource implications of two 
of these. State expressed some concern about the resources required to 
undertake effective screening and noted that conducting additional 
internal audits would result in additional costs to UNRWA. UNRWA made a 
commitment that future internal UNRWA audits would assess the agency's 
compliance with its neutrality and antiterrorism policies for 
contractors and internal controls for cash assistance. 

Background: 

The U.S. government has provided assistance to Palestinians both 
bilaterally and multilaterally for several decades. USAID is the agency 
primarily responsible for implementing the bilateral aid program, while 
State oversees annual contributions to international organizations, 
primarily to UNRWA, for the multilateral program. The focus, size, and 
intent of the bilateral and multilateral programs differ. Table 1 
compares the main characteristics of the two programs. 

Table 1: Key Features of USAID and UNRWA Programs for Assistance to 
Palestinians: 

Fiscal year 2008 U.S. funding; 
USAID: $389.5 million appropriated in Economic Support Funds to provide 
assistance to the West Bank and Gaza. This includes about $900,000 that 
was obligated to the World Food Program to provide food for families in 
Gaza; 
UNRWA: State contributed about $185 million to UNRWA--nearly $171 
million from the Migration and Refugee Assistance account and $14 
million from the Emergency Refugee and Migration Assistance Fund. 

Focus of program; 
USAID: 
Strengthens Palestinian institutions and invests in projects that 
improve the health and welfare of the Palestinian people. Projects 
include funds to: 
* provide technical assistance to Palestinian health institutions; 
* improve water infrastructure in the West Bank, and; 
* provide immediate employment opportunities through the construction 
of small-scale infrastructure; 
Provided over $3.3 million in cash assistance to about 6,000 
recipients, mainly for scholarships and tuition, in fiscal year 2008, 
according to USAID estimates; 
UNRWA: Directly provides social services and humanitarian support to 
Palestinian refugees; UNRWA's 2008 program budget was allocated as 
follows: 
* 52 percent for education services; 
* 19 percent for health; 
* 13 percent for support services; 
* 9 percent for relief and social services; 
* 5 percent for infrastructure and camp improvement, and; 
* 2 percent for microfinance and microenterprise; 
UNRWA reported it spent $88.8 million for cash assistance to refugees 
from January 2006 through December 2008--$36.2 million for cash 
subsidies for food and selective cash assistance from its General Fund 
and $52.6 million in emergency cash assistance from its Emergency 
Appeal. 

Program implementation; 
USAID: Contractors and grantees implement programs; 
UNRWA: UNRWA directly implements most programs and relies minimally on 
contractors to provide supplies and equipment; The majority of UNRWA 
staff are directly involved in providing services, for example, as 
doctors, teachers, social workers or sanitation laborers. Staff costs 
account for much of the agency's regular budget. 

Location and size of organization; 
USAID: USAID Mission to the West Bank and Gaza (the mission), located 
in Tel Aviv, Israel, manages programs. According to USAID officials, 
the mission is staffed by 137 individuals including Foreign Service 
Nationals; 
UNRWA: UNRWA headquarters are in Gaza and Amman, Jordan. UNRWA employs 
nearly 30,000 staff. About 90 percent of these staff are locally-
recruited Palestinian refugees. UNRWA also employs 183 international 
staff. 

Location and funding of projects and services; 
USAID: Mainly the West Bank; USAID used only a small percentage of 
funds for assistance activities in Gaza; 
UNRWA: UNRWA's 2008 to 2009 regular budget for operations was allocated 
among field offices as follows: 
* 31 percent in Gaza; 
* 22 percent in Jordan; 
* 17 percent in the West Bank; 
* 13 percent in Lebanon; 
* 9 percent in Syria; 
* 8 percent in UNRWA headquarters, Amman and Gaza. 

Source: GAO analysis of USAID and UNRWA documents and estimated funding 
amounts for cash assistance. 

Notes: 

UNRWA has two primary sources of funding: (1) the General Fund, which 
is funded through voluntary contributions to UNRWA's regular budget 
annually, and (2) the Emergency Appeal, which is funded through an 
appeal by UNRWA's Commissioner-General to donors for emergency funding 
in response to a crisis in a particular UNRWA field area of operations. 
The United States does not currently limit contributions to UNRWA's 
General Fund to specific purposes. However, as of July 2007, State said 
it placed limitations on all its contributions to UNRWA's Emergency 
Appeal for West Bank and Gaza so that no U.S. funds are to be used for 
UNRWA's emergency cash assistance activities in West Bank and Gaza. 

According to the mission, none of the scholarship or tuition funds were 
provided to the recipients. All assistance was provided directly to the 
relevant school on their behalf. 

[End of table] 

To help ensure that U.S. funds for these programs are not provided to 
individuals or entities engaged in terrorist activities, State and 
USAID must comply with restrictions under U.S. law when providing funds 
for Palestinian assistance programs. For the bilateral aid program, 
section 657(b) of the Consolidated Appropriations Act of 2008 states 
the following: 

"Prior to the obligation of funds appropriated by this Act under the 
heading 'Economic Support Fund' for assistance for the West Bank and 
Gaza, the Secretary of State shall take all appropriate steps to ensure 
that such assistance is not provided to or through any individual, 
private or government entity, or educational institution that the 
Secretary knows or has reason to believe advocates, plans, sponsors, 
engages in, or has engaged in, terrorist activity nor, with respect to 
private entities or educational institutions, those that have as a 
principal officer of the entity's governing board or governing board of 
trustees any individual that has been determined to be involved in, or 
advocating terrorist activity or determined to be a member of a 
designated foreign terrorist organization. The Secretary of State 
shall, as appropriate, establish procedures specifying the steps to be 
taken in carrying out this subsection and shall terminate assistance to 
any individual, entity, or educational institution which she has 
determined to be involved in or advocating terrorist activity." 

In addition, the act states: 

"None of the funds appropriated under title II through V of this Act 
for assistance under the West Bank and Gaza program may be made 
available for the purpose of recognizing or otherwise honoring 
individuals who commit, or have committed, acts of terrorism." 
[Footnote 7] 

The Secretary of State has deferred to USAID, the implementing agency, 
to ensure compliance with these and similar provisions. The USAID 
Mission to the West Bank and Gaza (the mission) developed Mission Order 
21, which outlines USAID's procedures to help ensure that its 
assistance program does not inadvertently provide support to entities 
or individuals associated with terrorism, in accordance with U.S. law. 
[Footnote 8] Mission Order 21 establishes, among others, the following 
requirements: 

* All solicitations and awards for contracts, grants, and subagreements 
must contain the antiterrorism clause. This clause reminds award 
recipients that they must comply with U.S. executive orders and laws 
prohibiting transactions with terrorists, and the provision of 
resources and support to individuals or organizations associated with 
terrorism. UN agencies that receive USAID funds must include a separate 
clause. 

* All U.S. and non-U.S. organizations must sign the antiterrorism 
certification before being awarded a grant or cooperative agreement to 
certify that the organization does not provide material support or 
resources for terrorism. This certification recommends that the 
recipient follow certain steps to comply with its obligation, including 
(1) screening against the U.S. Department of Treasury's Office of 
Foreign Assets Control (OFAC) list[Footnote 9] and the UN Security 
Council's Al-Qaida and Taliban Sanctions Committee Consolidated List 
(UN 1267 list)[Footnote 10] before providing any material support or 
resources to an individual or entity and (2) implementing reasonable 
monitoring and oversight procedures to safeguard against assistance 
being diverted to support terrorist activity. 

* All contracts, subcontracts, grants, cooperative agreements, and 
subgrants must contain the clause restricting facility names, known as 
the naming clause. This clause states, among other things, that no 
assistance shall be provided under this contract or agreement for any 
school, community center or other facility that is named after any 
person or group that has advocated, sponsored, or committed acts of 
terrorism. 

* Certain individuals and organizations need to be vetted, which 
involves checking recipients' names and other identifying information 
against databases and other information sources to determine if they 
have links to terrorism. 

For UNRWA, section 301(c) of the Foreign Assistance Act of 1961, as 
amended, states the following: 

"No contributions by the United States shall be made to the United 
Nations Relief and Works Agency for Palestinian Refugees in the Near 
East except on the condition that the United Nations Relief and Works 
Agency takes all possible measures to assure that no part of the United 
States contribution shall be used to furnish assistance to any refugee 
who is receiving military training as a member of the so-called 
Palestinian Liberation Army or any other guerrilla type organization or 
who has engaged in any act of terrorism."[Footnote 11] 

This clause is commonly referred to as "section 301(c)." 

State is responsible for implementing section 301(c) and, in that 
capacity, oversees U.S. contributions to UNRWA. UNRWA beneficiaries 
include Palestinian refugees and a limited number of individuals 
displaced by the 1967 Arab-Israel conflict. According to UNRWA, most of 
the displaced individuals are in Jordan. 

[Text box: UNRWA’s Beneficiaries: UNRWA’s beneficiaries include 4.6 
million individuals who have registered with UNRWA for refugee status. 
Under UNRWA's operational definition, Palestinian refugees are 
individuals: 
* whose normal place of residence was Palestine between June 1946 and 
May 1948, 
* who lost both their homes and means of livelihood as a result of the 
1948 Arab-Israeli conflict, or, 
* who are descendants through the male line of individuals who became 
refugees in 1948. UNRWA also provides health and education services to 
individuals displaced by the 1967 Arab-Israeli conflict. End of text 
box] 

USAID Strengthened Its Antiterrorism Policies and Procedures and 
Complied with Them in Making New Prime Awards, but Has Weaknesses in 
Compliance at the Subaward Level: 

Since 2006, USAID has strengthened its antiterrorism policies and 
procedures to help ensure that assistance is not inadvertently provided 
to terrorists. USAID complied with its strengthened policies and 
procedures when issuing new prime awards in fiscal year 2008. Although 
USAID's new monthly reporting system was intended, in part, to improve 
compliance at the subaward level, we found that it did not provide 
sufficient information for us to assess compliance. 

USAID Strengthened Its Antiterrorism Policies and Procedures: 

USAID Strengthened Its Antiterrorism Policies and Procedures by 
Clarifying How They Apply to Each Assistance Agreement: 

In response to our 2006 recommendation, USAID strengthened its 
antiterrorism policies and procedures--as outlined in Mission Order 21-
-to help ensure that assistance is not inadvertently provided to 
terrorists by clarifying how those policies and procedures would be 
applied to each type of assistance instrument. Although USAID had 
established antiterrorism provisions that apply to contracts, 
cooperative agreements, and grants, we reported in 2006 that it had not 
clearly articulated how antiterrorism provisions apply to other types 
of assistance instruments, such as purchase orders.[Footnote 12] We 
recommended that USAID develop policies and procedures to address how 
each of its antiterrorism provisions apply to other types of assistance 
instruments. In its October 3, 2007, revision to Mission Order 21, 
USAID strengthened its antiterrorism policies and procedures by listing 
which clauses and certifications would apply to each type of assistance 
instrument--thereby responding to our 2006 recommendation. For example, 
the antiterrorism certification now clearly applies to grants made 
under contracts. In addition, USAID clarified that instruments that can 
function as contracts, such as purchase orders, are subject to the same 
policies as contracts. 

USAID Strengthened Its Vetting Process: 

USAID strengthened its vetting process in response to a 2006 GAO 
recommendation that the mission's vetting management database promote 
data reliability, satisfy technical documentation requirements, and 
meet all applicable security requirements. This recommendation was 
based on our finding that the mission did not routinely collect or 
verify detailed identifying information--such as date and place of 
birth--needed to fully vet individuals. We also identified weaknesses 
in the mission's unclassified database, which was designed to record 
and track vetting results. For example, few safeguards were in place to 
control access to the information stored in the database. In response 
to our recommendation and findings, the following were completed: 

* In December 2006, USAID instituted a new strengthened vetting system, 
called the Partner Vetting System. This system uses U.S. law 
enforcement and intelligence databases to vet the names of individuals 
that it receives from the mission. It also requires additional 
information for individuals being screened, such as the individual's 
government-issued photo identification number and type (e.g., passport 
and passport number). Access to the system is limited to certain 
individuals who may have different levels of access to information in 
the system. For example, the clerks who enter vetting information do 
not have the same level of access as the contracting officer who makes 
the award. 

* USAID placed a U.S. citizen with a security clearance in charge of 
the office responsible for maintaining the vetting system, thereby 
enabling sensitive derogatory information on potential awardees to be 
shared with the mission. Derogatory information indicates that vetted 
organizations or individuals appear to have links with terrorism. 

* USAID conducted additional vetting at the U.S. consulate in Jerusalem 
for organizations receiving cash or in-kind assistance, which serves as 
another review to help ensure that funds are not inadvertently given to 
terrorists. 

According to USAID officials and prime awardees we spoke with, these 
improvements have strengthened controls over the system and decreased 
vetting time from about 9 months to as little as 1 to 2 weeks. 

USAID Enhanced Monitoring Efforts to Provide More Timely Information on 
Compliance: 

In 2008, USAID enhanced its efforts to monitor prime awardee compliance 
with applicable Mission Order 21 requirements by commissioning an 
additional compliance audit, hiring a compliance specialist to conduct 
recurring compliance reviews, and requiring that prime awardees address 
noncompliance findings. USAID commissioned an additional compliance 
audit by contracting with an independent auditing firm to review 15 
prime awardees' compliance with Mission Order 21 during the period from 
June 1, 2006, through January 31, 2008. The audits examined 1,094 
subawards and found 70 total weaknesses; 62 awards contained at least 1 
weakness and 5 of those awards contained multiple weaknesses. Thirty- 
eight of the 70 weaknesses were related to mandatory clauses, 13 were 
related to vetting approval, and 4 were related to vetting procedures. 
The audit also found 15 monthly reporting weaknesses. According to 
USAID officials, where appropriate, prime awardees took actions to 
address the identified weaknesses. They also said that, in response to 
these findings, mandatory clauses were inserted into subawards when 
necessary, and required vetting was conducted and each subawardee 
passed vetting. This one-time audit provided additional feedback to 
USAID on the 15 prime awardees' compliance beyond the existing feedback 
provided through the annual Regional Inspector General audits.[Footnote 
13] 

Building on the one-time additional compliance audit, USAID further 
enhanced its oversight of prime awardees' efforts to comply with their 
Mission Order 21-related requirements by hiring, in 2008, a compliance 
specialist. This specialist is responsible for conducting recurring 
compliance reviews of prime awardees' subaward activities. Previously, 
USAID only examined prime awardee compliance with these requirements as 
part of periodic contract and compliance audits conducted under the 
direction of the Regional Inspector General. According to USAID 
officials, the compliance specialist's reviews allow USAID to monitor 
compliance on a more timely basis than can be done with the annual 
USAID Regional Inspector General audits. In July 2008 the compliance 
specialist began conducting periodic site visits to prime awardee 
locations to review records related to the subawards made under USAID 
contracts and assistance agreements to determine whether they complied 
with Mission Order 21. According to the mission, the compliance 
specialist's review includes inspecting documents related to each 
subaward contract or agreement to confirm that (1) the prime awardee 
had received evidence from USAID that required preaward vetting had 
occurred and the subawardee was eligible; (2) each subaward contract or 
agreement had related mandatory clauses; and (3) where applicable, the 
prime awardee had obtained from subawardees a signed and dated 
antiterrorism certification prior to making the subaward. In addition, 
the mission stated that, whenever possible, the compliance specialist 
reviews the prime awardees' records of subaward activity to determine 
whether all required subawards were included in the monthly subaward 
reports. The compliance specialist uses a standardized checklist to 
determine whether an award is compliant with Mission Order 21. 

The compliance specialist found problems with some prime awardees' 
compliance with Mission Order 21 and their monthly reports, most of 
which, according to the mission, have been resolved. In his first draft 
summary report, the compliance specialist reviewed 2,883 subawards 
issued by 32 prime awardees for compliance with Mission Order 21. The 
specialist discovered 26 instances where the subaward did not include 
the naming clause, 13 where the subaward did not include the 
antiterrorism clause, and 2 where the antiterrorism certification was 
not signed prior to the award being made. The compliance specialist 
also found 5 instances of noncompliance with Mission Order 21's vetting 
policies. In one of those instances, for example, USAID disallowed the 
costs submitted by the prime awardee because the prime awardee issued 
the subaward without obtaining vetting approval. The mission said the 
subawardees were subsequently vetted and cleared in the remaining four 
cases. According to the mission, awardees have since resolved most 
instances of noncompliance found by the reviewer. The remaining 
instances were not corrected because the award had already expired or 
had been canceled by the prime awardee. Additionally, the compliance 
specialist found 66 instances where prime awardees had not correctly 
reported their subawards in their monthly reports to USAID. 

USAID Complied with Its Strengthened Antiterrorism Policies and 
Procedures at the Prime Award Level: 

USAID Included All Applicable Clauses in All New Prime Awards Made in 
Fiscal Year 2008 and Obtained Required Certifications: 

We found that all 32 new prime awards made by USAID in fiscal year 2008 
contained the appropriate mandatory clauses--the antiterrorism and 
naming clauses--and, where applicable, USAID had obtained the advanced 
antiterrorism certifications,[Footnote 14] as required under Mission 
Order 21. The antiterrorism clause reminds award recipients that they 
must comply with U.S. executive orders and laws prohibiting 
transactions with terrorists and the provision of resources and support 
to individuals or organizations associated with terrorism. The naming 
clause states that no assistance shall be provided under this contract 
or agreement for any school, community center, or other facility that 
is named after any person or group that has advocated, sponsored, or 
committed acts of terrorism.[Footnote 15] USAID officials said there 
are relatively few situations where the United States is providing 
assistance to the West Bank and Gaza that involves naming buildings or 
structures. The antiterrorism certification requires that all U.S. and 
non-U.S. organizations must certify, before being awarded a grant or 
cooperative agreement, that the organization does not provide material 
support or resources for terrorism. 

[Text box: Mission Order 21 requires the USAID Mission to vet the 
following: 
* All prime awardee and subawardee non-U.S. organizations or 
individuals (16 years old or older) proposed for a contract or 
subcontract above $25,000. 
* All prime awardee and subawardee non-U.S. organizations or 
individuals (16 years old or older) proposed to receive cash or in-kind 
assistance under a cooperative agreement, grant, or subgrant. 

* All non-U.S. individuals (16 years old or older) who receive USAID-
financed training, study tours or invitational travel in the United 
States or third countries or who receive training in the West Bank/Gaza 
lasting more than 5 consecutive work days. 
* All entities or specifically identified persons (16 years old or 
older) who directly receive other forms of cash or in-kind assistance, 
with the following exceptions (these thresholds apply to a single award 
and are not cumulative): 
- individuals who receive jobs under employment generation activities, 
- individuals who receive assistance of $1,000 or less, 
- organizations that receive assistance of $2,500 or less, 
- households that receive micro-enterprise loans or assistance of 
$5,000 or less, and, 
- vendors of goods or services acquired by USAID contractors and 
grantees in the ordinary course of business for their own use. 

Even if vetting would not otherwise berequired under these rules, 
vetting will be conducted whenever there is reason to believe that the 
beneficiary of assistance or the vendor of goods or services commits, 
attempts to commit, advocates, facilitates, or participates in 
terrorist acts, or has done so in the past. End of text box] 

USAID Vetted All Applicable New Prime Awards Made in Fiscal Year 2008: 

USAID vetted the appropriate officials for all four new prime awards 
made in fiscal year 2008 that required vetting according to Mission 
Order 21.[Footnote 16] In addition, USAID officials said they vetted, 
in fiscal year 2008, 1,239 individuals in compliance with Mission Order 
21 before they received USAID assistance for scholarships, 
microenterprise loans, and direct cash assistance. 

In establishing requirements for whom to vet, a USAID official said the 
mission has weighed the costs of vetting, the risks of not vetting, and 
the need to meet its foreign assistance goals. According to this 
official, the mission does not vet U.S. organizations or citizens who 
receive assistance due to U.S. privacy law concerns. In addition, U.S. 
organizations and citizens are subject to U.S. criminal statutes. This 
USAID official said that they set certain criteria and dollar 
thresholds that govern whether or not vetting is required. For example, 
USAID only conducts vetting at the prime and subaward levels and only 
vets key individuals associated with the applicable non-U.S. 
organization. As a result, employees of non-U.S. organizations who are 
not key individuals are not vetted. USAID also does not vet non-U.S. 
organizations and individuals that receive contracts unless the 
cumulative value of the contracts received in a 12-month period exceeds 
$25,000. (See appendix II for additional information on the vetting 
process.) 

USAID's New Monthly Subaward Reporting System Did Not Provide 
Sufficient Information for Us to Assess Compliance: 

USAID Instituted a New Monthly Subaward Reporting System: 

USAID instituted a new monthly reporting system in response to a prior 
GAO recommendation. In 2006, GAO recommended that USAID develop a 
review and reporting system to help ensure prime awardees comply with 
the requirements related to subaward vetting, certifications, and 
mandatory clauses. In response, USAID instituted, as part of its plan 
to assess compliance, a monthly reporting requirement under which prime 
awardees (1) submit information on new subawards they have made 
(including the subawardee name and subaward type and value) and copies 
of required mandatory clauses and antiterrorism certifications, and (2) 
indicate whether the required subaward vetting took place prior to the 
award. The prime awardees are to send the mission a spreadsheet listing 
the required information for each subaward, as well as copies of the 
related supporting documentation. The USAID clerk who receives the 
information inputs the amount of each program-related subaward into the 
Partner Vetting System (PVS). This allows the mission to track the 
cumulative amount of contracts awarded to any single awardee to ensure 
that vetting occurs when required. 

Subawards Met Vetting Requirements and Subawardees Provided Required 
Antiterrorism Certifications: 

For each of the 51 subawards from our random sample of 95 subawards 
made to non-U.S. organizations and individuals that required preaward 
vetting, the PVS showed that USAID vetted and approved each subawardee 
prior to the date of the subaward.[Footnote 17] In addition, for each 
of the 35 subawards below the $25,000 threshold the PVS included the 
subawardee's name and the amount of the subaward. This information 
supports the Mission Order 21 requirement to vet a subawardee when the 
cumulative amount given to that subawardee exceeds $25,000. We also 
found that prime awardees obtained the signed antiterrorism 
certification for all six subawards that required this certification. 
[Footnote 18] As required, each certification was dated prior to the 
subaward date. 

Insufficient Evidence to Assess Subaward Compliance with Requirements 
Related to Mandatory Clauses: 

Based on our random stratified sample, we estimate that 17 percent, 
plus or minus 7 percentage points, of all fiscal year 2008 subawards 
identified by USAID did not contain sufficient evidence to determine 
whether the mandatory clauses were included in the subaward at the time 
the subaward was made.[Footnote 19] In conducting our review, we found 
that the reported information, including the subaward information and 
related documentation reported monthly to USAID by prime awardees, did 
not include sufficient evidence to enable us to reasonably conclude 
whether or not the prime awardee had met the requirement to include the 
mandatory clauses in the subaward at the time the subaward was made. 

The monthly reported information was often insufficient because prime 
awardees are only required by USAID to provide copies of the mandatory 
clauses and are not required to include within the mandatory clauses 
specific references to the subaward, such as the subaward number and 
date, or to have the subawardee sign and date the clauses. In many 
instances, the copies of the mandatory clauses provided by prime 
awardees did not contain information identifying the applicable 
subaward or otherwise clearly show that the clauses were included in 
the subawards at the time they were made. Therefore, we asked USAID to 
provide us with copies of the complete subaward documents for each of 
our 144 randomly selected subawards. However, even with the copies of 
actual subaward documents provided by USAID, we could not determine 
whether the mandatory clauses were included at the time the subaward 
was made for many of the subawards in our sample. 

We based our estimate that approximately 17 percent of all fiscal year 
2008 subawards USAID had identified did not contain sufficient evidence 
to assess compliance on 40 subawards from our random sample. All 40 
involved purchase orders issued by 1 prime awardee. For each of the 40 
subawards, we found that the information USAID provided was not 
sufficient to assess compliance because the purchase order documents 
did not contain the mandatory clauses or include a specific reference 
to them even though the October 2007 revisions to Mission Order 21 
required that the mandatory clauses be included in each contract or 
grant agreement, including purchase orders. The information provided by 
USAID consisted of a discrete purchase order and separate additional 
pages containing the mandatory clauses. However, the only references to 
the purchase orders that were included on the copies of the mandatory 
clauses were individual handwritten annotations. It was not clear who 
made the annotations and when they were made. USAID officials said they 
believe the subaward information they provided was sufficient to 
determine compliance because the prime awardee provided USAID with 
copies of the separate purchase order and mandatory clauses attached 
together. However, we found several instances in which copies of the 
same mandatory clauses were provided to us as support for different 
purchase orders in our subaward sample even though these clauses were 
signed and dated with dates that were not consistent with the dates of 
the individual subawards.[Footnote 20] As a result, we could not 
reasonably conclude whether or not the prime awardee complied with the 
requirement to include the mandatory clauses as part of the 40 
subawards at the time they were made. To clearly establish at the time 
of the subaward that subawardees agreed to the mandatory clauses when 
the mandatory clauses are not included within a subaward, we believe 
that: 

* each applicable contract (including purchase orders) or agreement 
should include a direct and specific reference to the existence and 
applicability of the separate mandatory clauses, and: 

* each set of related but separate mandatory clauses should include 
within the clauses specific and direct reference to the contract 
(including purchase orders) or agreement. 

Some Prime Awardees Did Not Comply with Mandatory Clause Requirements 
when They Made Subawards: 

Based on our random stratified sample, we estimate that about 83 
percent, plus or minus 7 percentage points, of all fiscal year 2008 
USAID-identified subawards contain sufficient evidence to assess 
compliance.[Footnote 21] There were 104 subawards in our random sample 
for which we obtained sufficient documentation to determine whether the 
prime awardees complied with requirements related to mandatory clauses. 
We concluded, based on this documentation, that some prime awardees did 
not always comply with requirements by including mandatory clauses in 
subaward files at the time they made the subaward. We estimate that for 
95 percent, plus or minus 4 percentage points, of those subawards with 
sufficient information to assess compliance, prime awardees included 
the mandatory clauses at the time the subaward was made, and, thus were 
in compliance with Mission Order 21. However, based on the evidence 
provided to us, we estimate that for 5 percent, plus or minus 4 
percentage points, of subawards with sufficient information to assess 
compliance, the prime awardee did not include the mandatory clauses at 
the time the subawards were made. 

For 14 of the 104 sampled subawards with sufficient information, the 
evidence provided by USAID established that the prime awardee did not 
include the required mandatory clauses in each applicable subaward at 
the time the subaward was made. For 2 of the 14 subawards, the prime 
awardees later modified the subaward to incorporate the mandatory 
clauses. For another 8 of the 14 subawards, the prime awardee 
subsequently obtained the subawardee's acknowledgement that the 
mandatory clauses were applicable to the subaward by having the 
subawardee sign and date the mandatory clauses. For 3 other subawards, 
while the prime awardee made some efforts to incorporate the required 
mandatory clauses, the required clauses were not included in each 
applicable subaward prior to the completion of work. For the remaining 
subaward, the subaward was already completed when the prime awardee 
noted that the subaward did not include the required mandatory clauses. 

State and UNRWA Have Strengthened Policies and Procedures to Determine 
Whether UNRWA's Actions Are Consistent with Its Agreement to Conform 
with Conditions for Receiving U.S. Funds, but Weaknesses Remain: 

UNRWA has agreed with State to take steps to conform with the condition 
on U.S. contributions set forth in section 301(c) of the Foreign 
Assistance Act of 1961, as amended, and report to State on its efforts 
semiannually. However, State has not established criteria to determine 
whether UNRWA is in conformance with conditions on U.S. funds, though 
it has strengthened some oversight procedures. UNRWA has strengthened 
policies and procedures intended to conform with the conditions on U.S. 
contributions, but we found some weaknesses in UNRWA's efforts, such as 
screening only against a UN terrorist list, in accordance with UN 
policy, and in internal audits of UNRWA operations. 

UNRWA Has Agreed to Conform with Conditions on U.S. Contributions 
through Agreements with State: 

Since late 2006, UNRWA and State have signed 3 annual Frameworks for 
Cooperation and more than 10 letters confirming UNRWA's commitment to 
conform with the condition on U.S. contributions provided in section 
301(c) prior to receiving U.S. funds. In accepting U.S. government 
funding, UNRWA certifies that it is taking all possible measures to 
ensure that no part of the United States contribution is being used to 
furnish assistance to, among others, any refugee who has engaged in any 
act of terrorism. Under the Framework for Cooperation, which is renewed 
annually and signed by both State and UNRWA, UNRWA commits to, among 
other things, (1) conform with the condition in section 301(c) and (2) 
report every 6 months on actions it has taken to ensure conformance 
with the condition in section 301(c). UNRWA agrees to similar terms and 
conditions in U.S. contribution letters before receiving U.S. funds. 
Since October 2006, UNRWA has submitted five semiannual reports to 
State, which describe the agency's actions to enforce rules and 
regulations on staff and beneficiary behavior; monitor UNRWA facilities 
in the West Bank and Gaza; and screen names of individuals and entities 
who receive UNRWA funding against a UN terrorist list. 

According to UNRWA officials, the policies and procedures UNRWA 
established to implement the UN principles of neutrality and 
impartiality and the goals of the International Convention for the 
Suppression of the Financing of Terrorism support UNRWA's conformance 
with U.S. conditions. State officials also told us they agreed that 
UNRWA's efforts to ensure neutrality are consistent with and support 
UNRWA's efforts to meet the condition for receiving U.S. contributions 
under section 301(c). Under the UN principles of neutrality and 
impartiality, UNRWA staff and other personnel should neither seek nor 
accept instructions from any government or other authority external to 
UNRWA. This ensures that staff and other personnel are not involved in 
conduct that is inconsistent with the independence and impartiality 
required by their status as international civil servants or service 
providers to the UN. UNRWA officials said UN neutrality is compatible 
with section 301(c) funding conditions. According to UNRWA, a staff 
member's involvement in a militant group or terrorist activities would 
be clearly contrary to UNRWA's staff regulations and rules and would 
certainly result in termination. In requiring that staff, third 
parties, and facilities be neutral, UNRWA proscribes a range of conduct 
broader than the conduct described in section 301(c). According to 
UNRWA rules, staff member involvement in activities such as running for 
political office in an election or making public political statements 
would result in disciplinary action, including termination. Although 
UNRWA does not require beneficiaries to be politically neutral to 
receive assistance, the agency promotes neutrality within the refugee 
camps and refuses assistance to refugees involved in inappropriate 
behavior, including section 301(c)-related activities. UNRWA defines 
terrorism according to the 1999 International Convention for the 
Suppression of Financing of Terrorism.[Footnote 22] 

State Has Not Established Criteria to Determine UNRWA's Conformance 
with Conditions on U.S. Funds but Has Strengthened Some Oversight 
Procedures: 

State Has Not Established Criteria to Determine UNRWA's Conformance 
with Conditions on U.S. Funds: 

State reported that it has contributed nearly $340 million to UNRWA in 
the last 2 fiscal years, but State has not established written criteria 
to determine whether UNRWA's efforts are consistent with the section 
301(c) conditions that UNRWA has agreed to for receiving U.S. funds. 
Aside from the assessments by State of whether to continue funding 
UNRWA,[Footnote 23] State officials said that they have not developed 
any written criteria to analyze UNRWA's semiannual reports and have not 
assessed UNRWA's efforts against such criteria to determine 
conformance. For example, State has not defined what would constitute 
nonconformance or developed written definitions of key terms, including 
"all possible measures"--a concern we also raised in 2003[Footnote 24]-
-that would help serve as criteria for analyzing UNRWA's semiannual 
reports. In addition, we found that State did not have several 
important UNRWA policy documents, which officials could use to help 
form criteria for their evaluation of UNRWA's conformance, such as 
UNRWA instructions for providing relief and social services (including 
cash assistance) to refugees and the agency's assessment of high-risk 
areas. 

State officials said they consider UNRWA to be in conformance with its 
commitment to adhere to section 301(c) based on State's ongoing review 
of UNRWA's activities and reports through written communications and 
discussions with UNRWA officials. State officials told us that, to be 
consistent with section 301(c), they must affirm that State has an 
internal level of confidence that UNRWA has taken all possible measures 
to ensure that terrorists are not receiving assistance, such as having 
procedures in place and taking measures to respond to issues that 
arise. State officials said that they undertake immediate reviews of 
any information or allegations of possible concern. State officials 
told us that their reviews consist of an evaluation of information 
received from UNRWA and other sources about the allegations or 
questions arising from a review of the semiannual reports. State 
officials also note that they regularly follow up, when necessary, on 
what investigations and disciplinary actions UNRWA undertakes. For 
example, when an allegation arose that UNRWA had employed a member of 
Islamic Jihad, State contacted UNRWA to determine how UNRWA handled the 
allegation. According to State, UNRWA reported that its investigation 
into the matter resulted in the termination of the employee's direct 
supervisors. 

State Has Strengthened Some Policies and Procedures to Oversee UNRWA's 
Conformance with U.S. Conditions: 

Despite the absence of a written evaluation by State of UNRWA's 
conformance with U.S. conditions, we found that State has strengthened 
some policies and procedures to oversee UNRWA's conformance with 
conditions on U.S. funds. In 2003, we reported that State had not 
defined "terrorism" for the purpose of implementing section 301(c), 
[Footnote 25] but State has since concurred with UNRWA in its use of 
the definition of terrorism contained in the International Convention 
for the Suppression of the Financing of Terrorism. In addition, State 
reported that since we began our review it has introduced several new 
policies and procedures to improve oversight by enhancing communication 
with UNRWA on section 301(c). For example, State officials revised the 
job description of the Regional Refugee Coordinator responsible for 
UNRWA to specifically include additional roles and responsibilities for 
monitoring and reporting on section 301(c) conformance. Also, since we 
began our review, State has developed additional formal communication 
procedures to communicate with UNRWA on section 301(c) issues. 
Specifically, State has introduced the following procedures: 

* Monthly senior-level conversations between State's Bureau of 
Population, Refugees and Migration (PRM) and UNRWA on section 301(c) 
and other priority issues. State told us that senior State officials 
began meeting with UNRWA in October 2008 to specifically discuss 
section 301(c)-related issues, including a recent meeting with the 
Director of UNRWA's Gaza field office. 

* Bimonthly meetings between the Regional Refugee Coordinator and the 
U.S.-funded Operation Support Officers (OSO) for the West Bank and Gaza 
who inspect UNRWA facilities, as well as other relevant officials, to 
discuss section 301(c) issues. 

* Meetings between PRM Washington, D.C., staff and West Bank and Gaza 
OSOs to discuss section 301(c) issues during monitoring visits to the 
region. State officials reported that the Regional Refugee Coordinator 
and senior State officials from headquarters have met with West Bank 
and Gaza OSOs six times from November 2008 to April 2009. 

* An exchange of letters between State and UNRWA when incidents that 
are potentially related to section 301(c) occur. State recently 
communicated with UNRWA in a formal letter regarding issues in its most 
recent semiannual compliance report. 

In response to a suggestion we made during our review, State is 
currently assessing the technical feasibility and resources involved in 
identifying UNRWA contractors and funding recipients that may be on the 
U.S. Department of Treasury's Office of Foreign Assets Control (OFAC) 
list of individuals and entities subject to U.S. sanctions, as well as 
consulting internally in order to determine whether and how it would 
undertake such an effort. We discussed with State the feasibility of 
screening the names of UNRWA contractors and funding recipients against 
the OFAC list to determine whether UNRWA funds are going to individuals 
and entities of concern to the United States. As we noted earlier, 
USAID recommends that all U.S. and non-U.S. organizations that sign the 
antiterrorism certification consider following steps that include 
screening names against the OFAC list before providing any material 
support or resources to an individual or entity. UNRWA declined a past 
request by State to screen names against the OFAC list on the grounds 
that doing so contradicts UN policy.[Footnote 26] When we compared a 
list of about 15,000 contractors UNRWA paid between 2002 and 2009 to 
the OFAC list, we found no perfect matches but did find a few possible 
matches.[Footnote 27] One of these possible matches was a 
telecommunications contractor UNRWA paid between 2002 and March 2009, 
which OFAC placed on its list in July 2008 for reasons related to 
allegations of corruption. State officials said they would need to 
discuss with UNRWA what the agency would do with any information 
regarding such possible matches, given the UN's practice of using a UN 
terrorist list rather than lists provided by individual UN member 
governments. UNRWA officials told us that if they are notified of 
potential matches, they would use the information as a trigger to 
conduct their own investigation into the matter in accordance with 
their existing procedures. According to UNRWA officials, this is in 
keeping with UNRWA's practice, which is to take seriously and pursue 
any credible information it receives regarding the possible violation 
of UN neutrality and impartiality principles. 

UNRWA Has Strengthened Policies and Procedures Intended to Conform with 
U.S. Conditions on Contributions, but Limitations Exist: 

UNRWA Reported Denying Refugees Benefits, Including Cash Assistance, 
Due to Inappropriate Conduct: 

UNRWA reported denying approximately 110 applications for discretionary 
cash assistance to refugees since July 2006 because agency 
investigations found the refugees' behavior was inconsistent with UN 
neutrality or restrictions related to section 301(c).[Footnote 28] For 
example, UNRWA reportedly refused burial, rehousing, and other cash 
assistance to refugees following its investigations into the death of 
beneficiaries or their spouses as a result of Israeli military 
incursions and operations, including targeted killings, home 
demolitions, or workshop damage from shelling by Israeli military 
authorities. According to UNRWA officials, such incidents are triggers 
for an UNRWA investigation to determine whether individuals were 
involved in inappropriate behavior and the potential denial of 
benefits. In addition, UNRWA reported that it has denied cash 
assistance for burial expenses to families of beneficiaries it found 
were killed by an explosion while allegedly preparing an explosive 
device, as well as refused cash assistance for post-surgery social care 
to an individual involved in such an explosion. In more than 100 other 
cases, UNRWA reported that it refused cash assistance to individuals 
whose homes were demolished or for burial of family members killed in 
the Israeli operations. The agency reported that it conducted field 
investigations following these Israeli operations, but could not find 
clear evidence that the individuals concerned had engaged in an act of 
terrorism or other inappropriate behavior. However, the agency reported 
that it denied assistance in these cases based on other reasons it 
identified in its investigations, including failure to meet some 
eligibility criteria, competing priorities, or insufficient resources. 

UNRWA officials reported that it applies policies and procedures on 
assistance to refugees that further the agency's conformance with 
section 301(c) conditions. However, they also said that UNRWA provides 
assistance in the context of its humanitarian mandate, meaning that 
agency policy is generally not to deny education or primary healthcare 
benefits. For example, UNRWA officials told us that the child of a 
refugee who was denied benefits because of section 301(c)-related 
behavior would not be disqualified from attending an UNRWA school. 
Similarly, the family of such an individual would remain eligible for 
medical services at an UNRWA health clinic. In some exceptional cases, 
officials stated that UNRWA would not provide education benefits to a 
refugee. For example, UNRWA told us the agency would deny vocational 
training benefits to a young adult UNRWA found to be involved in 
inappropriate behavior. 

UNRWA Reported Disciplining and Terminating Staff Due to Behavior 
Inconsistent with Agency Policies: 

UNRWA reported investigating more than 30 cases since October 2006 
relating to staff activities that were political or otherwise 
inconsistent with UN neutrality and taking disciplinary action, 
including termination, against 7 UNRWA staff as a result of these 
investigations. UNRWA also reported that four terminated staff members 
filed appeals with the Joint Appeals Board, of which UNRWA's 
Commissioner-General dismissed two and two remain ongoing. For example, 
in the last two years, UNRWA reportedly terminated a staff member's 
employment immediately upon his release from Israeli detention for 
conspiring to kidnap an Israeli security officer. UNRWA also reported 
that it terminated staff members for political activity found to be 
inconsistent with the independence and impartiality expected of UNRWA 
staff.[Footnote 29] UNRWA officials also indicated that they denied 
benefits to the families of staff members who were found, through 
investigations, to have been involved in inappropriate behavior. For 
example, after the agency conducted an investigation into the matter, 
UNRWA reportedly denied benefits, including pension benefits, to the 
family of a staff member who was identified by Israeli authorities as a 
militant and was killed by an Israeli military strike. UNRWA reported 
that it also terminated two other staff members for management failures 
in this case. 

UNRWA has implemented several policies to promote staff behavior that 
supports UN neutrality. For example, the UNRWA Organizational 
Development plan introduced additional training to improve staff 
knowledge on UN privileges and immunities and legal capacity in all 
field offices.[Footnote 30] The agency also reported that it performs 
reference checks and background security clearances for job applicants 
and has established procedures to investigate inappropriate staff 
behavior. UNRWA also told us that it seeks information from authorities 
whenever staff are detained, convicted, or refused a permit or targeted 
by Israeli military forces. UNRWA officials said they share the names 
of all UNRWA staff annually with the governments of Egypt, Israel, 
Jordan, Lebanon, Syria, and the Palestinian Authority but have received 
no information on staff members from these governments. Additionally, 
once hired, UNRWA international staff must apply for visas from the 
Governments of Egypt, Israel, Jordan, Lebanon, and Syria to work in 
those areas. UNRWA officials told us that these processes provide 
regional governments, notably in Egypt, Israel, Jordan, Lebanon, and 
Syria, with additional opportunities to scrutinize the profiles of 
UNRWA staff. Additionally, local staff in the West Bank and Gaza must 
apply for permits from the Government of Israel for transit between 
certain areas. For additional information on these policies and 
procedures, see appendix III. 

While UNRWA Reported Monitoring Facilities and Finding No Material 
Misuse, It Continues to Face Recurring Incursions into Facilities: 

Operation Support Officers (OSO) reported no instances in which agency 
facilities were not being used as intended, but UNRWA continues to face 
recurring incursions into its facilities.[Footnote 31] OSOs are to 
formally inspect each UNRWA facility in the West Bank and Gaza every 3 
to 4 months--and informally inspect the facilities during camp visits 
as often as possible--to ensure that UNRWA facilities are used only to 
provide UNRWA aid and services, follow up on the condition of the 
facilities, and report on and immediately address any issues that are 
identified. OSOs are also responsible for removing political posters 
and communicating the importance of UNRWA's neutrality to the community 
during camp visits. Since July 2006 UNRWA has reported more than 150 
incursions into, and other violations of the immunity of, UNRWA 
facilities by armed Israeli military or police forces, Palestinian 
security forces, Palestinian militants or individual Palestinians. For 
example, Israeli forces reportedly used UNRWA school and health 
facilities as shooting positions or for interrogations, and Palestinian 
Authority security forces have also reportedly entered UNRWA 
facilities. In addition, UNRWA reported that armed Palestinian 
militants have forcibly entered or fired weapons at, near, or from 
UNRWA schools. Individual Palestinian beneficiaries who were angered by 
a reduction in UNRWA programming have also taken action against UNRWA 
facilities. UNRWA regularly protests these types of incursions as 
violations of its privileges and immunities under international law, 
and has asked the Palestinian Authority for increased police protection 
in cases involving Palestinian militants. 

UNRWA has introduced formal OSO inspection goals for the Gaza area of 
three inspections per installation per year, which were absent in prior 
years, but UNRWA officials reported that the security situation and 
problems accessing the areas has increased the difficulty of meeting 
these goals. UNRWA reported that OSOs conducted nearly 1,100 formal 
inspections of its facilities in the West Bank and Gaza in 2008, 
meeting approximately 95 percent of its goal. In the West Bank, OSOs 
formally inspected each facility approximately 3.6 times (916 total 
inspections) in 2008, narrowly missing a goal of 4 inspections per 
installation (1024 total inspections). In Gaza, OSOs conducted 172 
formal inspections in 2008. However, this represents less than one 
inspection per installation in the Gaza area. 

UNRWA currently does not have an OSO program in Jordan, Lebanon, or 
Syria, but according to UNRWA officials, the agency hopes to receive 
funding that will enable it to expand the OSO program to Lebanon. In 
May, UNRWA selected a new protection officer funded by the European 
Commission to integrate the refugees' protection into UNRWA operations 
in Lebanon, including monitoring and reporting to senior staff on 
protection-related issues. State has reported that it approved funding 
in April 2009 for an expansion of the OSO program to Lebanon. We found 
that facility inspections under the OSO program may address conditions 
that could undermine UNRWA's neutrality. For example, during our visit 
to an UNRWA school in Jordan, where UNRWA does not currently operate an 
OSO program, we saw political graffiti on an exterior wall and posters 
created by teachers to support the school's human rights curriculum 
that had some violent content. Since our visit, UNRWA officials 
reported that the Jordan field office has called upon senior field 
officials to inspect facilities and that West Bank OSOs have shared 
practices with these officials to improve their ability to perform 
functions similar to the OSOs. 

UNRWA Reported Expanding Screening with a UN Security Council List and 
Finding No Matches, but the Screening Process Has Limitations: 

UNRWA told us that it has expanded its use of a UN Security Council 
terrorist list to now screen all recipients of agency funds and that 
none of its staff, contractors, beneficiaries, or microfinance clients 
have appeared on the list, but we found some limitations in the 
agency's screening process. UNRWA screens its staff and contractors 
every 6 months against the UN 1267 list. In addition, for the first 
time, UNRWA screened all 4.6 million Palestinian refugees and 
microfinance clients against this list in December 2008. UNRWA 
officials told us that in addition to its screening and investigations 
of individual applicants prior to providing assistance, the agency 
intends to make such UN 1267 screening of all registered refugees and 
microfinance clients a routine procedure. The agency also enhanced 
transparency by introducing, in February 2009, a policy to disclose on 
its Web site details of UNRWA contracts valued over $100,000, which 
includes contractor names it screens against the UN 1267 list. However, 
the list is limited to those individuals or entities affiliated with Al-
Qaida and the Taliban and thus does not specifically include major 
regional groups, such as Hamas and Hezbollah, which the United States 
has designated as foreign terrorist organizations.[Footnote 32] 
According to UNRWA, the UN Security Council has various working groups 
for terrorism-related issues, but the Sanctions Committee's UN 1267 
list is currently the only such UN terrorist screening list available. 
[Footnote 33] In addition, UNRWA does not conduct pre-employment 
screening of staff. UNRWA stated that screening every 6 months ensures 
that staff are screened during employment probationary periods. 
Furthermore, UNRWA told us it is unable to screen all persons displaced 
by the 1967 conflict who are receiving health and education benefits 
because the agency does not register or collect information on such 
displaced persons in the region. 

Internal Audits of UNRWA Do Not Assess Antiterrorism Controls or the 
Overall Cash Assistance Program: 

UNRWA internal audits of its operations do not explicitly assess 
antiterrorism controls or controls for UNRWA's overall cash assistance 
program. UNRWA reported recent efforts to expand the capacity of its 
Department of Internal Oversight Services, which evaluates the agency's 
financial accounts, assesses the risk of fraud, and reviews the 
adequacy and effectiveness of internal controls systems, by hiring 
additional audit staff.[Footnote 34] However, UNRWA officials reported 
that the department has not audited signed agency contracts to 
determine if staff physically attach the General Conditions of 
Contract, which include an antiterrorism clause and which must be in 
every contract between UNRWA and a contractor. UNRWA told us that the 
legal department ensures that all contracts contain these clauses. The 
Department of Internal Oversight Services also reported on an agency- 
wide risk management effort to identify high-risk areas in 2008 and has 
planned audits related to UNRWA's internal justice system and emergency 
assistance activities in the West Bank and Gaza funded by the agency's 
Emergency Appeal request to donors. However, audits related to several 
high-risk areas identified in the risk management exercise, such as the 
Special Hardship Assistance Program in Gaza and Syria,[Footnote 35] 
camp reconstruction activities in Lebanon and oversight in Gaza are 
contingent on the availability of resources. In addition, since 2007, 
this department has conducted five reviews related to UNRWA staff 
screening processes and fraud prevention and detection, but none 
focused on UNRWA's cash assistance program activities funded through 
the General Fund or Emergency Appeal, such as cash subsidies for food 
or selective or emergency cash assistance. UNRWA reported, however, 
that approximately 10 percent of the department's work involves a 
review of a food aid and cash assistance program. The European 
Commission funds both the assistance program and its review. UNRWA told 
us that future internal audits would assess UNRWA's compliance with its 
neutrality and antiterrorism policies for contractors, as well as 
internal controls for cash assistance. According to agency officials, 
this will have resource implications for the agency. 

While internal audits have not focused on UNRWA's overall cash 
assistance activities, the UN Board of Auditors, UNRWA's external 
auditor, reported on instances of breakdowns or weaknesses in internal 
controls.[Footnote 36] UNRWA officials reported that after the agency 
investigated a case of cash assistance fraud in Gaza, the agency 
conducted a thorough reform of cash management procedures and held the 
senior managers of the program accountable for the systemic weaknesses 
identified and, in doing so, requested and accepted the early 
retirement of the 2 most senior program staff. Specifically, UNRWA 
reported that following this incident, the Gaza field office suspended 
emergency cash assistance (other than for shelter) to individuals and 
focused cash assistance instead on clearly defined target groups such 
as students enrolled in UNRWA schools and refugees enrolled in the 
Special Hardship program. In addition, UNRWA told us that it integrated 
its Emergency Cash Assistance program into a stand-alone Emergency 
Program, which includes a unit to monitor the integrity of emergency 
services. 

Conclusions: 

It is an important U.S. goal to have processes in place to help ensure 
that U.S. funding for Palestinian assistance programs is not provided 
to individuals or entities engaged in terrorist activities. In recent 
years, USAID, State, and UNRWA have strengthened their policies and 
procedures to help ensure that assistance is not inadvertently provided 
to terrorists. In response to our 2006 recommendation, USAID has 
clarified its guidance and improved its system for vetting certain 
recipients of USAID assistance, thereby significantly decreasing its 
vetting times. In addition, State and UNRWA have agreed on a definition 
of terrorism, which addresses a concern we raised in 2003. 

USAID complied with all applicable antiterrorism-related requirements 
when making its new prime awards in fiscal year 2008. Regarding prime 
awardees' fiscal year 2008 subawards identified by USAID, required 
vetting occurred and applicable antiterrorism certifications were 
obtained. However, we estimate that for approximately 17 percent of the 
fiscal year 2008 subawards identified by USAID, there was not 
sufficient information to assess compliance. For the remaining 
subawards, we estimate that 5 percent did not contain the mandatory 
clauses at the time the subaward was made. In addition, the subaward 
information reported by prime awardees was not always sufficient to 
monitor compliance. Action needs to be taken to help ensure that 
mandatory clauses are included within each document and that prime 
awardees provide USAID with sufficient monthly information to clearly 
demonstrate that mandatory clauses have been included in applicable 
subawards. 

State has strengthened policies and procedures to determine whether 
UNRWA's efforts are consistent with its agreement to conform to U.S. 
conditions on funds by, for example, recently introducing additional 
mechanisms for communicating on section 301(c) issues with UNRWA. 
However, State has neither defined criteria for evaluating UNRWA's 
conformance with its commitment for accepting U.S. funds nor screened 
names of UNRWA contractors against the OFAC list. UNRWA has 
strengthened its policies and procedures to conform with conditions on 
U.S. funds, such as expanding screening of all recipients of UNRWA 
funds against the UN 1267 list, but UNRWA's internal audits do not 
determine whether UNRWA contractors have signed contracts that include 
the required antiterrorism clause or assess controls for UNRWA's 
overall cash assistance program. Addressing these weaknesses would 
provide greater assurance that assistance is not inadvertently being 
provided to terrorists. 

Recommendations for Executive Action: 

To strengthen compliance with USAID policies and procedures at the 
subaward level, we recommend that the Administrator of USAID take 
action to help ensure that: 

*the mandatory clauses are included within each subaward contract or 
agreement or, when not included within the contract or agreement there 
is sufficient evidence to clearly establish that the subawardee has 
agreed to comply with mandatory clauses at the time the award is made; 
and: 

* prime awardees provide sufficiently detailed information in their 
monthly subaward reports to clearly demonstrate that mandatory clauses 
were included in the subaward at the time the award was made. 

To help ensure that assistance is not inadvertently provided to 
terrorists, we recommend that the Secretary of State consider taking 
additional steps to oversee UNRWA's conformance with U.S. conditions on 
funding, such as (1) establishing criteria to evaluate UNRWA's efforts; 
(2) screening the names of UNRWA contractors against lists of 
individuals and entities of concern to the United States; and (3) 
monitoring UNRWA's commitment that future internal audits would assess 
UNRWA's compliance with its neutrality and antiterrorism policies for 
contractors as well as internal controls for cash assistance. 

Agency Comments and Our Evaluation: 

USAID, State, and UNRWA provided written comments on a draft of this 
report (see appendices IV, V, and VI). USAID, State, and UNRWA outlined 
actions they plan to take to implement our recommendations. USAID 
stated that our work contributed positively to the continuous 
improvement and strengthening of USAID West Bank and Gaza mission's 
compliance with antiterrorism policies and procedures. However, USAID 
disagreed with the extent of our finding that insufficient evidence was 
present to assess whether a significant percentage of subawards were in 
compliance. We maintain that evidence was insufficient because the only 
references to the purchase orders that were included on the mandatory 
clauses were individual handwritten annotations. It was not clear who 
made the annotations and when those annotations were made. To implement 
our recommendations USAID stated that it will issue new instructions to 
the mission's prime awardees to help ensure that contracts and 
agreements contain clear and specific references to attached clauses 
and clauses likewise contain clear and specific references to the base 
agreement. USAID also plans to instruct prime awardees to explain any 
inconsistencies in their monthly subaward reports. Additionally, USAID 
will require prime awardees to certify that their monthly subaward 
reports are both accurate and complete. 

State recognized that it is appropriate for the department to consider 
taking additional steps to further ensure that U.S. assistance to UNRWA 
is not inadvertently provided to terrorists. State concurred with two 
parts of our recommendation. State said that it will work with UNRWA to 
develop criteria, as appropriate, as well as reporting requirements, 
which will be documented in State and UNRWA's Framework for Cooperation 
for 2010. State also said that the internal audits we recommended would 
prove beneficial to UNRWA's operations and conformance with section 
301(c) and noted UNRWA's written commitment to conduct internal audits 
of key UNRWA processes. State is actively assessing the feasibility of 
screening names of UNRWA contractors against lists of individuals and 
entities of concern to the United States. State said that addressing 
two parts of our recommendation will have resource implications for 
State and UNRWA, since additional resources would be required to 
effectively screen names and conduct additional internal UNRWA audits. 

UNRWA also welcomed our report and findings and made a commitment that 
future internal UNRWA audits would assess the agency's compliance with 
its neutrality and antiterrorism policies for contractors and internal 
controls for cash assistance. UNRWA said it would facilitate State's 
monitoring of this commitment and work with State to develop criteria 
for UNRWA's conformance to section 301(c). In addition, USAID, State 
and UNRWA provided technical comments on a draft of this report, which 
we have incorporated as appropriate. 

We are sending copies of this report to other congressional offices, 
State, USAID, and UNRWA. The report also is available at no charge on 
the GAO Web site at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-9601 or melitot@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. Other contacts and major contributors are 
listed in appendix VII. 

Signed by: 

Thomas Melito: 
Director, International Affairs and Trade: 

List of Congressional Committees:
The Honorable Howard L. Berman:
Chairman:
The Honorable Ileana Ros-Lehtinen:
Ranking Member:
Committee on Foreign Affairs:
House of Representatives: 

The Honorable Gary L. Ackerman:
Chairman:
The Honorable Dan Burton:
Ranking Member:
Subcommittee on the Middle East and South Asia:
Committee on Foreign Affairs:
House of Representatives: 

The Honorable Patrick Leahy:
Chairman:
The Honorable Judd Gregg:
Ranking Member:
Subcommittee on State, Foreign Operations, and Related Programs:
Committee on Appropriations:
United States Senate: 

The Honorable Nita M. Lowey:
Chair:
The Honorable Kay Granger:
Ranking Member:
Subcommittee on State, Foreign Operations, and Related Programs:
Committee on Appropriations:
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Our objectives were to (1) assess the extent to which the U.S. Agency 
for International Development (USAID) has complied with its policies 
and procedures to help ensure that its programs do not provide support 
to entities or individuals associated with terrorism in the West Bank 
and Gaza and (2) assess the Department of State's (State) and UNRWA's 
policies and procedures to support conformance with U.S. statutory 
conditions placed on contributions provided to UNRWA to prohibit 
funding of terrorist-related activities. 

USAID Policies and Procedures: 

To determine the extent to which the USAID Mission to the West Bank and 
Gaza (the mission) complied--at the prime and subaward levels--with its 
policies and procedures to help ensure that its programs do not provide 
support to entities or individuals associated with terrorism in the 
West Bank and Gaza, we identified relevant legal and other requirements 
as well as USAID policies and procedures to comply with those 
requirements. These legal and other requirements are contained in U.S. 
appropriations laws, executive orders, and the U.S. code. Mission Order 
21 is the mission's primary document that details the procedures to 
comply with applicable laws and executive orders to help ensure that 
assistance does not provide support to entities or individuals 
associated with terrorism. The mission revised Mission Order 21 
effective October 3, 2007 to update its antiterrorism procedures in 
response to, among other things, recommendations we made in a 2006 
report. 

We discussed the mission's implementation of Mission Order 21 with the 
USAID Mission Director, senior staff, regional legal advisor, program 
staff, and other officials responsible for managing assistance projects 
and overseeing contracts, grants, and cooperative agreements at the 
USAID Mission in Tel Aviv, Israel, and the U.S. Consulate in Jerusalem. 
We also interviewed five of USAID's implementing partners that had 
received relatively large dollar contracts from USAID in the West Bank, 
Jerusalem, and the United States. We interviewed State, USAID, and 
other officials involved in vetting USAID award recipients. In 
addition, we interviewed USAID's Regional Inspector General in Cairo to 
determine the results of audits of West Bank and Gaza assistance 
programs and steps taken to strengthen USAID's auditing procedures. 

We focused our review on the mission's prime award contracts, grants, 
and cooperative agreements and subawards that were made during fiscal 
year 2008 through the Economic Support Fund, in accordance with the 
mandate contained in the Consolidated Appropriations Act for fiscal 
year 2008 (PL 110-161). To determine whether the mission's prime awards 
contained the applicable antiterrorism certification and clauses as 
required by Mission Order 21, we reviewed copies of all 32 new prime 
awards issued by the mission during fiscal year 2008. To determine 
whether the subawards complied with relevant Mission Order 21 
requirements, we selected a random stratified sample of 95 subawards 
made to non-U.S. organizations and 49 subawards made to U.S. 
organizations, a total of 144 subawards. Initially, we selected a 
random sample of 147 subawards. However, because one of the reported 
subawards (to a U.S. organization) identified by USAID was not actually 
executed, we had a random sample of 146 subawards. We also removed from 
the sample 2 subawards that did not require mandatory clauses, 
resulting in a random stratified sample of 144 subawards. Our sample of 
49 subawards made to U.S. organizations was drawn from a subpopulation 
of 101 subawards and our sample of 95 subawards made to non-U.S. 
organizations was drawn from a subpopulation of 2,519 subawards. We 
selected these subaward sample sizes to estimate compliance rates with 
confidence intervals of no more than plus or minus 10 percent for both 
the U.S. organizations and the non-U.S. organizations. The percentages 
we report for all subawards are weighted to reflect the fact that we 
oversampled the U.S. subawards in order to ensure that we obtained a 
sufficient number for making projections for that strata. 

We selected these random stratified samples from a universe of 2,620 
new fiscal year 2008 subawards identified by the mission based on 
subaward activity reported to the mission by prime awardees. The 
mission developed the universe by assembling the subaward spreadsheets 
that were available as of October 2008 and provided by each partner who 
had an active prime award during the period from October 3, 2007 
through September 30, 2008. The spreadsheets included U.S. and non-U.S. 
subawards. From the subawards reported on these spreadsheets, the 
mission identified subawards made during the period from October 1, 
2007 through September 30, 2008 and filtered out all subawards made 
outside of those dates. The mission then created a list containing the 
names of the organizations receiving each subaward and the start and 
end date of each subaward. At our request, the mission then added 
information to the list to include the amount and type of each subaward 
(e.g. contract, grant). In addition, if the mission found a subaward 
reported in New Israeli Shekels, it replaced the amount in shekels with 
an estimated conversion to U.S. dollars to help facilitate the GAO 
selection process. In addition, if the mission found an entry with an 
end date listed as "immediately," it replaced this word with a date 
identical to the start date. The mission's objective was to include all 
individual subaward agreements and exclude any extensions and 
modifications to those awards. However, according to the mission, their 
attempt to exclude extensions and modifications was limited to those 
instances in which the information was available from the prime 
awardee's monthly reports. As a result, our sample included several 
modifications and extensions. In addition, our sample included 2 
instances in which prime awardees bundled multiple procurements and 
reported them as a single subaward. We did not attempt to correct for 
these cases, but instead made a modification to the decision rules we 
used to determine compliance. 

We examined in detail (1) the vetting documentation maintained by the 
mission on its Partner Vetting System (PVS) to determine if the mission 
had vetted non-U.S. prime awardees and a sample of subawardees as 
required by Mission Order 21 and (2) prime award and subaward 
documentation for a sample of subawardees to determine if the 
antiterrorism certifications were signed and the mandatory clauses were 
included in the prime awards and subawards as required by Mission Order 
21. We reviewed the vetting information in the PVS for all four prime 
awards made to non-U.S. organizations and a random stratified sample of 
95 subawards made to non-U.S. organizations. The remaining 28 prime 
awards and 49 subawards were made to U.S. organizations, and so were 
not subject to vetting. We compared the vetting date to the award date 
to determine if the mission vetted the appropriate non-U.S. 
organizations prior to the date of award. To understand the mission's 
vetting process, we interviewed various mission officials including the 
head of the Program Support Unit, which is the division responsible for 
the vetting process. To determine whether the subawards contained the 
required mandatory clauses and whether required antiterrorism 
certifications were obtained, we reviewed applicable documentation for 
a random sample of 95 subawards made to non-U.S. organizations and 49 
subawards made to U.S. organizations, a total of 144 subawards. 

UNRWA Policies and Procedures: 

To assess UNRWA's and State's policies and procedures to support 
conformance with U.S. statutory conditions placed on assistance to 
UNRWA, we reviewed the applicable federal law--section 301(c) of the 
Foreign Assistance Act of 1961, as amended. We also reviewed 
documentation on 3 Frameworks for Cooperation between State and UNRWA 
and 10 U.S. contributions letters that describe UNRWA's agreement to 
conform with U.S. conditions on funds for 2007 through 2009; State's 
processes for overseeing UNRWA's conformance to U.S. conditions; and 
documents describing State discussions on UNRWA's conformance to U.S. 
conditions. We also interviewed State officials in Amman, Jordan; 
Jerusalem; and Washington D.C., including the Regional Refugee 
Coordinator in Jerusalem, who are responsible for implementing section 
301(c) and overseeing U.S. contributions to UNRWA. 

To describe UNRWA policies and procedures to help ensure that all 
possible measures were taken to assure U.S. funds were not used to 
furnish assistance to any refugee who, among other things, engaged in 
any act of terrorism, we reviewed our 2003 report on UNRWA,[Footnote 
37] as well as UNRWA and UN budget, policy, and program documents for 
fiscal years 2007 and 2008. We also examined five UNRWA semiannual 
reports on UNRWA's efforts to conform to agreements with U.S. 
conditions on funds from July 2006 through December 2008. These reports 
provide data on staff disciplinary actions, denial of benefits to 
refugees, inspections of and incursions into UNRWA facilities, and 
screening of recipients of UNRWA funds against the UN Security 
Council's Al-Qaida and Taliban Sanctions Committee Consolidated List 
(UN 1267 list). We also interviewed UNRWA headquarters and field 
officials in Amman, Jordan and Jerusalem responsible for implementing 
and overseeing UNRWA's programs, including the Commissioner-General; 
Deputy Commissioner-General; Directors of UNRWA Field Offices; senior 
officials in the Departments of Administrative Support, Finance, 
Internal Oversight, Legal Affairs, and several program offices; and 
staff responsible for monitoring facilities in the West Bank and Gaza 
areas. Furthermore, to obtain information on UNRWA's programs and 
oversight activities in the agency's refugee camps, we visited three 
camps in the West Bank and outside Amman (Jalazone, Jabal el-Hussein, 
and Baqa'a refugee camps) where we spoke with UNRWA staff and 
Palestinian refugees about their understanding of the agency's policies 
and procedures. We also met with an official from the government of 
Israel's Ministry of Foreign Affairs Department for UN Political 
Affairs. 

Additionally, we compared a list of contractors used by UNRWA from 2002 
to 2009 with the U.S. Department of Treasury's Office of Foreign Assets 
Controls (OFAC) Specially Designated Nationals and Blocked Persons 
list, as of February 3, 2009. Our relatively basic computerized 
matching comparison focused strictly on the "name" field supplied by 
UNRWA and OFAC, including both individuals and entities, although 
information for the place of birth and date of birth fields were 
available for some individuals in the OFAC list. The UNRWA list 
contained approximately 20,000 records with names, while the OFAC list 
contained approximately 9,000 primary names and more than 5,000 
aliases. We removed "tokens" or parts of names, such as prefixes or 
suffixes on names, in each list to make the matching process possible. 
For the UNRWA list of names, we then removed any name which only 
comprised one token, such as the name "Ali." The original OFAC list 
contained a string of information including names, dates of birth, and 
places of birth that were wrapped on multiple lines. After converting 
the data into a more usable form, taking into account both primary 
names and aliases, we were able to produce a usable file from the OFAC 
list with approximately 14,600 names. 

Matching was complicated by a number of factors, such as name formats 
that varied, many names that had been translated from foreign 
languages, and multiple aliases for some of the individuals named. We 
addressed these issues to the extent possible with the available 
software and performed a comparison of these names to produce potential 
matches between the two lists. While a perfect match between the two 
lists would require the records in each list to be identically matched, 
we found that names in the two lists may have varied in terms of the 
number of tokens, punctuation considerations, the translation of 
foreign sounding names and variations in spelling. Therefore, we 
identified records that were reasonably similar to be potential 
matches. For each potential match, we performed a manual review of the 
available information on the records using other Internet sources, to 
help determine whether these were possible matches. It is worth noting 
that more sophisticated software, specifically dedicated to the Arabic 
language that takes into account linguistics or phonetic sounds for 
each name, may reveal additional information about potential matches. 

We conducted this performance audit from August 2008 to May 2009 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

[End of section] 

Appendix II: USAID Mission to the West Bank and Gaza Vetting Process: 

Mission Order 21 states that the USAID Mission to the West Bank and 
Gaza must vet certain non-U.S. recipients of USAID funding, which 
involves checking recipients' names and other identifying information 
against databases and other information sources to determine if they 
are involved with terrorism. The Program Support Unit (PSU) at the 
USAID Mission coordinates the vetting process for those requiring 
vetting, as shown in figure 1. 

Figure 1: USAID's Vetting Process for Awards to Aid Palestinians, 
Fiscal Year 2008: 

[Refer to PDF for image: illustration] 

1. Potential awardees submit vetting forms either directly or through a 
prime awardee to the COTR or AOTR who reviews and submits them to PSU 
in Tel Aviv. 

2. PSU in Tel Aviv: Verifies that vetting information is complete; 
Enters information into Partner Vetting System. 

3. USAID’s Vetting Center in Washington, D.C. runs names against data 
bases. 

4. Vetting results generated. 

5. PSU reviews vetting results in Tel Aviv. 

6. Did the Vetting Center in Washington, D.C. find possible derogatory 
information? (Decision point)
If no, proceed to #7; 
If yes, skip to #14. 

7. Is the award in the form of a contract to a organization or any 
award to an individual? (Decision point)
If no, skip to #11; 
If yes, proceed to #8. 

8. USAID proceeds with award. 

9. PSU records final results in Partner Vetting System. 

10. USAID notifies prime awardee of results. 

11. Is the assistance award in the form of cash or in-kind assistance, 
under a cooperative agreement, grant or subgrant regardless of dollar 
amount including grants under contracts? (Decision point) If yes, 
proceed to #12. 

12. Consulate General in Jerusalem conducts secondary vetting for cash 
or in-kind assistance awards to organizations. 

13. Did the Consulate General in Jerusalem find possible derogatory 
information during secondary vetting? (Decision point)
If no, go back to #8; 
If yes, proceed to #14. 

14. PSU consults with Deputy Mission Director and CTO on vetting 
results. Mission can request additional identifying information from the
potential awardee. 

15. Does the Deputy Mission Director agree that the information is 
derogatory? (Decision point)
If no, proceed to #16; 
If yes, skip to #19. 

16. Vetting Working Group in Jerusalem reviews all information and
renders a recommendation. 

17. Consul General in Jerusalem reviews Vetting Working Group 
recommendation. 

18. Did Consul General determine that information is derogatory? 
(Decision point) 
If no, go to #8; 
If yes, proceed to #19. 

19. USAID disapproves award or subaward. (Award not made) 
Go to #9. 

Source: GAO analysis of USAID documents and Art Explosion. 

Note: The following acronyms refer to USAID personnel who manage 
awards: Contracting Officer's Technical Representative (COTR), 
Agreement Officer's Technical Representative (AOTR), and Cognizant 
Technical Officer (CTO). 

[End of figure] 

[End of section] 

Appendix III: UNRWA Policies and Procedures for Cash Assistance, Staff 
Neutrality, Use of UNRWA Facilities, and Contractor Behavior: 

UNRWA has several policies and procedures to help support UN neutrality 
and UNRWA's conformance with conditions on receiving U.S. funds. This 
appendix provides additional information on specific policies and 
procedures that UNRWA uses to implement its cash assistance activities 
and promote the neutrality of agency staff, facilities, and 
contractors. 

Policies for Cash Assistance to Refugees: 

Policies for Special Hardship and Cash Assistance: 

UNRWA has policies to oversee the relief and social services assistance 
it provides to refugees, including special instructions for Special 
Hardship, selective, and emergency cash assistance.[Footnote 38] UNRWA 
policy is to provide Special Hardship cash subsidies for food only to 
registered Palestinian refugees. In addition, UNRWA staff are to screen 
applicants' eligibility for cash assistance. The screening process 
includes a home visit by a social worker and follow-up checks to ensure 
assistance has been used for the designated purpose. Under written 
UNRWA instructions for assistance, if a family has other sources of 
income, such as Palestinian Authority ministries or charitable 
organizations, it may be disqualified from receiving UNRWA cash 
assistance. Agency officials also reported that UNRWA uses a 
computerized distribution list for Special Hardship cash subsidies for 
food, which has been reviewed by finance and social services staff in 
the field. Similarly, agency policy states that senior field staff are 
responsible for overseeing cash distributions, a social worker is 
required to be present at each distribution point, and refugees must 
provide certain documentation to receive cash assistance. In addition, 
senior officials in the Department of Relief and Social Services are 
required to conduct random visits and review case files to ensure 
proper handling of Special Hardship cases by social workers and staff. 
Social workers are also to rotate among areas to alleviate social 
pressures they may face from refugees. UNRWA also recently introduced 
the use of a needs-based formula, the proxy means test formula, as 
criteria for receipt of certain social services, such as Special 
Hardship assistance, in order to target benefits to those in most need. 

Other Policies for Cash Assistance: 

UNRWA has additional measures to oversee its cash assistance 
activities. For example, for both selective and emergency UNRWA cash 
assistance, UNRWA policy is that social workers are to make field 
inquiries to examine an applicant's emergency circumstances prior to 
making a recommendation for assistance. Depending on the amount of 
assistance recommended, senior relief and social services officials at 
varying levels of hierarchy must then review the recommendation. Social 
workers are to conduct follow-up visits with beneficiaries, and senior 
field officials are to perform random checks to determine whether funds 
are spent for approved uses. In addition, relief and social services 
officials in the field must report monthly to the head of the 
department on any selective or emergency cash assistance approved and 
issued. 

Policies and Procedures to Promote UNRWA Staff Neutrality: 

UNRWA reported that it has implemented various policies and procedures 
to promote staff neutrality, including both pre-and post-hire policies 
on staff behavior. In cases where UNRWA investigates and finds staff 
behavior inconsistent with UNRWA policies, UNRWA policy is to 
discipline or terminate the staff. 

General Policies for UNRWA Staff Neutrality: 

UNRWA reported that it has implemented various policies and procedures 
to promote staff neutrality. For example, UNRWA requires staff to sign 
a neutrality pledge in each employment contract and an annual 
verification statement on outside activities. Officials reported that 
staff receive information on neutrality policies during their induction 
upon employment, including training on UNRWA privileges, immunities and 
responsibilities, and staff receive ongoing guidance from senior 
officials in the field and headquarters. UNRWA staff rules also require 
staff members to avoid actions and public pronouncements that may 
adversely reflect on the integrity, independence and impartiality 
required by their positions. While UNRWA does not expect staff to give 
up their national sentiments or their political and religious 
convictions, the agency requires staff to bear in mind the reserve and 
tact incumbent upon them by their employment at UNRWA. For instance, 
staff may exercise their right to vote, but may not engage in any 
political activity inconsistent with independence and impartiality. 
UNRWA staff rules and regulations do not prohibit membership in and 
payment of normal financial contributions to a political party, 
provided that membership does not obligate, entail or result in 
statements or actions that violate the staff member's UN neutrality and 
impartiality obligations. 

Prehire Policies for UNRWA Staff Neutrality: 

Officials reported that UNRWA performs reference checks and background 
security clearances in accordance with the policies for each field 
office area and asks whether applicants have been convicted of any 
crimes prior to hiring them. The screening processes differ by level of 
staff responsibility and the type of governance and security structures 
in the field area. UNRWA conducts background and security screenings 
with the assistance of the governments of Jordan and Syria in those 
field areas, under agreements UNRWA negotiated with host governments 
during early years of agency operations in the 1950s. For example, in 
Jordan, once a hiring review board has selected a candidate for a 
position, UNRWA will send the Government of Jordan a formal notice 
asking if the government has any concerns regarding the individual; the 
government then performs a security screening. Representatives from the 
governments of Jordan and Syria are also members of the UNRWA hiring 
panel in those field areas and may provide input on potential staff. 
UNRWA reported instances in which a government did not approve of UNRWA 
hiring an individual, and although UNRWA was not told the reason for 
the concerns, the individual was not hired. UNRWA also shares the names 
of all staff with host governments, including Israel and the 
Palestinian Authority, on an annual basis under the 1946 Convention on 
the Privileges and Immunities of the United Nations. 

Policies for Investigating UNRWA Staff Behavior: 

UNRWA has also established procedures to investigate inappropriate 
staff behavior, which may result in the disciplining or termination of 
staff. For example, investigations may consist of fact-finding 
investigations or formal Boards of Inquiry involving legal officers or 
senior management, with the technical assistance of UNRWA's Department 
of Legal Affairs or Department of Internal Oversight Services. Staff 
members have an obligation to report misconduct and are protected from 
retaliation under UNRWA's whistleblower and antireprisal policy, and 
according to officials, the agency takes swift disciplinary action 
whenever there is evidence of staff member involvement in inappropriate 
political or military activities. Officials stated that this 
disciplinary action is well-known, predictable and consistent, and has 
a deterrent effect. UNRWA told us the agency also has formal procedures 
for staff to appeal investigation results through the UNRWA Joint 
Appeals Board, but the Commissioner General is responsible for all 
final determinations. Staff may also seek recourse after the UNRWA 
Joint Appeals Board process through the UN Administrative Tribunal, the 
decision of which is binding on UNRWA as a UN agency.[Footnote 39] 

Rules and Regulations for the Use of UNRWA Facilities by Outside 
Entities: 

UNRWA field offices have established rules and regulations for the use 
of UNRWA facilities in Jordan, Lebanon, and the West Bank by outside 
entities, and the Gaza and Syria field offices have a policy of not 
permitting use of UNRWA facilities by any outside entity. Use of UNRWA 
facilities in Jordan, Lebanon and the West Bank requires a formal 
written request and approval by the field office director. Officials 
reported that a general condition of any UNRWA approval is that the 
organization using an UNRWA facility respects UN neutrality, and UNRWA 
may monitor the event. The agency also has a policy of approving use of 
facilities for non-political activities only. However, UNRWA told us 
that it does allow governmental authorities to request the use of 
facilities for polling stations, providing that campaigning is not 
present. For example, the government of Jordan has used UNRWA schools 
as polling stations. Officials reported that the agency has also 
allowed the use of its facilities for other approved purposes, 
including use by UNRWA summer camps and by international organizations 
such as the United Nations Children's Fund and World Health 
Organization. In addition, certain community-based organizations, 
affiliated to varying extents with UNRWA, may use premises provided by 
UNRWA in all five fields of operation, pursuant to conditions in a 
memorandum of understanding. Officials reported that relief and social 
services staff work closely with and monitor such organizations. 

Policies and Procedures Regarding Contractor Behavior: 

UNRWA's procurement policies and procedures communicate the agency's 
expectations for contractor behavior. In addition to its General 
Conditions for Contract, which includes an antiterrorism clause, when 
signing contracts with the agency, contractors must also abide by the 
UN Supplier Code of Conduct, which includes a conflict of interest and 
corruption clause and outlines corporate policies and practices 
expected of all UN suppliers. According to UNRWA officials, as a UN 
agency, UNRWA also checks contractors against the UN Suspended/Removed 
Vendor Report, which identifies those vendors confirmed to be doing 
business in an unethical or corrupt manner. Individual contracts are 
managed by procurement staff in the Department of Administrative 
Services, and officials reported that any inappropriate conduct would 
result in a termination of contract. 

[End of section] 

Appendix IV: Comments from the U.S. Agency for International 
Development: 

Note: A GAO comment supplementing those in the report text appear at 
the end of this appendix. 

USAID: 
From The American People: 
U.S. Agency for International Development: 
1300 Pennsylvania Avenue, NW: 
Washington, DC 20523: 
[hyperlink, http://www.usaid.gov] 

May 8, 2009: 

Mr. Thomas Melito, Director: 
International Affairs and Trade: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Mr. Melito: 

I am pleased to provide the U.S. Agency for International Development's 
(USAID) formal response on the draft GAO report entitled "Foreign 
Assistance: Measures to Prevent Inadvertent Payments to Terrorists 
under Palestinian Aid Programs Have Been Strengthened, but Some 
Weaknesses Remain" (GAO-09-622). Our comments are limited to those 
sections of the report concerning USAID's assistance and operations. 

The GAO team's field work and draft report contributes positively to 
the continuous improvement and strengthening of USAID West Bank/Gaza's 
compliance with antiterrorism policies and procedures. We are pleased 
to note that the draft GAO report recognized USAID's full compliance 
with vetting and anti-terrorism certification policies and procedures 
with respect to both prime awards and the audited subaward sample. 

The GAO's principal finding related to compliance with the inclusion of 
mandatory clauses in subawards. This finding was based on an estimate 
that a significant percentage of all fiscal year 2008 subawards do not 
contain sufficient evidence to assess whether required clauses form 
part of the subawards. USAID asserts that there is adequate evidence 
that the mandatory clauses do form part of the awards. USAID 
contracting officers and other employees familiar with procedures for 
issuing contracts and grants were able to confirm that the mandatory 
provisions formed part of each award, with only one exception. As a 
result, we believe the GAO's assertion of insufficient evidence should 
be reconsidered. [See comment 1] 

In either case, there are steps that USAID can take to further 
strengthen prime awardee file documentation and reporting that will 
also address the GAO's concerns. In the draft report, the GAO 
recommends that the Administrator of USAID strengthen compliance with 
USAID policies and procedures at the subaward level by ensuring that: 
(a) mandatory clauses are included within each subaward contract or 
agreement, or, when handled outside the contract or agreement there is 
sufficient evidence to clearly establish that the subawardee has agreed 
to comply with mandatory clauses at the time the award is made; and (b) 
prime awardees provide sufficiently detailed information in their 
monthly subaward reports to clearly demonstrate that mandatory clauses 
were included in the subaward at the time the award was made. 

In order to implement the GAO's recommendations, USAID will issue new 
instructions to its prime awardees under the West Bank and Gaza program 
to ensure that contracts and agreements contain clear and specific 
references to attached clauses and that attached clauses, likewise, 
contain clear and specific references to the base agreement. 
Furthermore, prime awardees will also be instructed to explain any 
inconsistencies between the dates on which mandatory clauses were 
incorporated into subawards and the dates of the subawards themselves. 
Lastly, prime awardees will certify to the completeness and accuracy of 
the monthly subaward report. USAID believes that these new measures, 
combined with USAID's semi-annual compliance reviews of all prime 
awardee subaward files, addresses the draft report's underlying 
concern, namely, ensuring that required clauses are included in 
subawards at the time the subawards are made. In addition, USAID's 
proposed action will provide greater assurance that the GAO will have 
the evidence it requires to audit prime awardee compliance in the 
future. 

Thank you for the opportunity to respond to the GAO draft report and 
for the courtesies extended by your staff in the conduct of this 
review. 

Sincerely, 

Signed by: 

Drew W. Luten: 
Acting Assistant Administrator: 
Bureau for Management: 

The following is GAO's comment on USAID's letter dated May 8, 2009. 

GAO Comment: 

1. We maintain that evidence was insufficient to assess compliance 
because the only references to the purchase orders that were included 
on the mandatory clauses were individual handwritten annotations. It 
was not clear who made the annotations and when those annotations were 
made. 

[End of section] 

Appendix V: Comments from the U.S. Department of State: 

United States Department of State: 
Washington, D.C. 20520 

May 6, 2009: 

Ms. Jacquelyn Williams-Bridgers: 
Managing Director: 
International Affairs and Trade: 
Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548-0001: 

Dear Ms. Williams-Bridgers: 

We appreciate the opportunity to review your draft report, "Foreign 
Assistance: Measures to Prevent Inadvertent Payments to Terrorists 
under Palestinian Aid Programs Have Been Strengthened, but Some 
Weaknesses Remain," " GAO lob Code 320618. 

The enclosed Department of State comments are provided for 
incorporation with this letter as an appendix to the final report. 

If you have any questions concerning this response, please contact 
Monique Ramgoolie, Program Officer, Bureau of Population, Refugees and 
Migration at (202) 663-3103. 

Sincerely, 

Signed by: 

James L. Millette: 

cc: GAO - Cheryl Goodman: 
PRM - Samuel Witten (Acting): 
State/OIG - Mark Duda: 

[End of letter] 

Department of State Comments on Draft GAO Report: 

Foreign Assistance: Measures to Prevent Inadvertent Payments to
Terrorists under Palestinian Aid Programs have been Strengthened, but 
Some Weaknesses Remain (GAO-PUB No. 09-622, GAO Code 320618): 

Thank you for allowing the Department of State the opportunity to 
comment on the draft report, "Measures to Prevent Inadvertent Payments 
to Terrorists under Palestinian Aid Programs have been Strengthened, 
but Some Weaknesses Remain." As the GAO has found, the State Department 
has strengthened policies and procedures related to monitoring of the 
United Nations Relief and Works Agency for Palestine Refugees in the 
Near East (UNRWA) with regard to its conformance with the condition 
required by section 301(c) of the Foreign Assistance Act of 1961, as 
amended. Indeed, significant progress has been made since the 2003 GAO 
assessment on monitoring in general. We recognize, as does GAO, that it 
is appropriate for the Department to consider taking additional steps 
to enhance and formalize the measures implemented by the Department to 
further ensure that USG assistance to UNRWA for its critical operations 
is not inadvertently provided to terrorists. In this light, we 
appreciate the recommendations offered by the GAO. 

Recommendations for Executive Action: 

The GAO recommends that the Secretary of State consider taking 
additional steps to oversee UNRWA's conformance with U.S. conditions on 
funding, such as: (1) establishing criteria to evaluate UNRWA's 
efforts; (2) screening the names of UNRWA contractors against lists of 
individuals and entities of concern to the United States; and (3) 
monitoring UNRWA's commitment that future internal audits would assess 
UNRWA's compliance with its neutrality and antiterrorism policies as 
well as its internal controls for cash assistance. 

Establishing Criteria to Evaluate UNRWA's Efforts: 

The Department of State concurs with this recommendation. Currently, 
the Department, particularly the Bureau of Population, Refugees, and 
Migration (PRM), monitors UNRWA's activities, reports, and performance 
on an ongoing basis with respect to UNRWA's conformance with the 
condition required by section 301(c). We undertake an immediate review 
of any information or allegations related to section 301(c) by 
requesting details from UNRWA, including its actions to address any 
allegations or incidents. We also review closely UNRWA's 301(c) 
reports, provided to the Department on a semi-annual basis, asking 
UNRWA for additional details and clarification whenever necessary. 

As noted in the GAO report, continued USG funding for UNRWA is 
contingent upon the Department's conclusion that UNRWA continues to 
take the steps necessary to meet the condition required by section 
301(c). This condition is included in the annual USG-UNRWA Framework 
for Cooperation as well as in all contribution letters that obligate 
Migration and Refugee Assistance (MRA) and Emergency Refugee Migration 
Assistance (ERMA) funds to UNRWA. The Department and UNRWA have worked 
continuously to enhance both UNRWA's policies and procedures and 
State/PRM's oversight of UNRWA's activities as they relate to section 
301(c) and other due diligence measures. For example, with the 
encouragement and funding of the USG, UNRWA has developed the 
successful Operations Support Officer (OSO) program in the West Bank 
and Gaza. As the GAO report notes, in April 2009, the Department 
approved funds for the establishment of an OSO program in Lebanon. 

The GAO report includes several new policies undertaken by the 
Department to improve oversight by enhancing communication with UNRWA 
on issues related to 301(c). These procedures were designed to 
formalize already existing but less formal means of communication 
between the Department of State and UNRWA. In a similar vein, the 
Department will work with UNRWA to develop a formalized checklist of 
criteria including those mechanisms already used informally to evaluate 
UNRWA's conformance with the condition required by 301(c), such as the 
number of OSO inspections and checks against the UN Security Council 
Resolution 1267 list (Al Qaida and Taliban) sanctions regime. The 
Department will work together with UNRWA to develop criteria, as 
appropriate, as well as reporting requirements, the modalities of which 
will be included in future Frameworks for Cooperation beginning in 
2010. 

Screening Names of UNRWA contractors against Lists of Individuals and 
Entities of Concern to the United States: 

The Department of State is actively assessing the feasibility of this 
recommendation. State/PRM is in the process of discussing this issue 
with other personnel within the Department, from other U.S. Government 
agencies, and with UNRWA. UNRWA has confirmed that it already screens 
its list of potential vendors against the list of persons designated 
under UN Security Council Resolution 1267. UNRWA has also confirmed to 
the Department that it would use information provided by us regarding 
potential individuals and entities of concern as a trigger to conduct 
its own investigations as relevant. (As the GAO report notes, in 2006 
the UN declined a request from the Department to screen all of its 
potential contractual and financial arrangements against the list of 
specially designated nationals maintained by the Treasury Department's 
Office of Foreign Assets Control.) 

The Department has some concerns that the resources required to 
undertake effective screening may not be commensurate with the benefits 
that would be achieved from such a program, in light of the costs that 
would likely be associated with screening and the controls that UNRWA 
already has in place. However, State/PRM, in coordination with other 
offices within the Department as well as other USG agencies, is 
actively reviewing and researching this matter to see whether there is 
a feasible mechanism to implement this recommendation. 

Monitoring UNRWA' Commitments regarding Future Internal Audits: 

The Department of State concurs with this recommendation and notes that 
in January 2009, UNRWA committed in writing to conduct internal audits 
of key elements of UNRWA processes, including those related to 
appropriate inclusion of anti-terrorism clauses in UNRWA contracts as 
well as cash assistance. The Department believes that internal audits 
on these topics, as recommended by GAO, would prove beneficial to 
UNRWA's operations and continued conformance of the condition required 
by section 301(c). The Department understands that conducting these 
internal audits would result in additional costs to UNRWA, which 
already suffers from chronic underfunding. The Department is exploring 
funding options to enhance UNRWA's capacity for internal audits, 
including in these two areas. 

[End of section] 

Appendix VI: Comments from the United Nations Relief and Works Agency 
for Palestine Refugees in the Near East: 

UNRWA: 
United Nations Relief and Works Agency for Palestine Refugees in the 
Near East: 
UNRWA Headquarters Gaza, Office of the Commissioner-General: 
c/o hq amman: 
PO Box 140157: 
Amman 11814: 
Jordan: 

t: +972 8 6777700: 
+962 6 5808556: 
f: +97286777699:
+962 6 5808179: 

[hyperlink, http://www.unrwa.org] 

7 May, 2009: 

Dear Mr. Melito, 

Thank you for requesting our comments on the draft GAO report, "Foreign 
Assistance: Measures to Prevent Inadvertent Payments to Terrorists 
under Palestinian Aid Programs Have Been Strengthened, but Some 
Weaknesses Remain" (GAO-PUB No. 09-622. GAO Code 320618). 

UNRWA welcomes GAO's review, report and findings. The Agency cooperated 
fully with the review and appreciates GAO's collaborative and 
constructive approach throughout the process. 

UNRWA will work closely with the US Department of State to further 
develop criteria to evaluate those internal processes and mechanisms 
that strengthen its compliance with US conditions of funding. UNRWA has 
also made a commitment that future internal UNRWA audits would assess 
the Agency's compliance with its neutrality/anti-terrorism policies for 
contractors as well as internal controls for cash assistance and will 
facilitate monitoring by State of this commitment. 

I take this opportunity to confirm that UNRWA is committed, in 
accordance with UN principles and policies, to UN neutrality,
transparency, accountability and conformance with donor funding 
conditions. I would also like to express my sincere appreciation for 
the vital support of the Government of the United States for the 
humanitarian and human development mission of the Agency. 

Yours sincerely, 

Karen Koning AbuZayd: 
Commissioner-General: 

[End of section] 

Appendix VII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Thomas Melito, (202) 512-9601 or melitot@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Cheryl Goodman, Assistant 
Director; Ashley Alley; Debbie Chung; John Craig; Martin de Alteriis, 
Justin Fisher, Mitchell Karpman, Justin Monroe, Mary Moutsos; John 
Reilly; Suneeti Shah; Elizabeth Singer; and Omar Torres made key 
contributions to this report. 

[End of section] 

Footnotes: 

[1] Throughout this report, we use the term "prime awardee" to refer to 
an organization that directly receives USAID contracts, grants, or 
cooperative agreements to implement U.S. assistance projects. 
"Subawardee" refers to an organization that receives subcontracts or 
subgrants from prime awardees for work on U.S. assistance projects. 

[2] Consolidated Appropriations Act of 2008, Pub.Law No. 110-161, Dec. 
26, 2007. 

[3] This report addresses the extent to which USAID has applied its 
policies and procedures to new awards funded through the Economic 
Support Fund in the West Bank and Gaza Program for fiscal year 2008. A 
separate GAO review will address additional issues regarding the 
treatment, handling, and uses of all funds for the bilateral West Bank 
and Gaza Program in fiscal year 2008. 

[4] State, Foreign Operations, and Related Program Appropriations Bill. 
110th Cong., 1st sess. (June 18, 2007). 

[5] See GAO, Department of State (State) and United Nations Relief and 
Works Agency (UNRWA) Actions to Implement Section 301(c) of the Foreign 
Assistance Act of 1961, [hyperlink, 
http://www.gao.gov/products/GAO-04-276R] (Washington, D.C.: Nov. 17, 
2003). 

[6] See GAO, Foreign Assistance: Recent Improvements Made, but USAID 
Should Do More to Help Ensure Aid Is Not Provided for Terrorist 
Activities in West Bank and Gaza, [hyperlink, 
http://www.gao.gov/products/GAO-06-1062R] (Washington, D.C.: Sept. 29, 
2006). 

[7] Section 657(c)(1), Consolidated Appropriations Act of 2008, PL 110- 
161, Dec. 26, 2007. 

[8] Mission Order 21 cites several legal authorities for its 
antiterrorism procedures. These include (1) Executive Order 13224 
(Sept. 23, 2001), which blocks property and prohibits transactions with 
persons who commit, threaten to commit, or support terrorism; (2) 
sections 2339A and 2339B of Title 18 of the U.S. Code which prohibit 
the provision of material support or resources for terrorist acts or to 
designated foreign terrorist organizations; and (3) Executive Orders 
12947 (Jan. 23, 1995) and 13099 (Aug. 20, 1998) which prohibit 
transactions with terrorists who threaten to disrupt the Middle East 
peace process. Mission Order 21 also includes provisions of special 
relevance to the USAID Mission in the West Bank and Gaza in Section 559 
of the Foreign Operations Export Financing and Related Programs 
Appropriations Act, 2006 (Pub. Law No. 109-102). Similar provisions 
have appeared in subsequent appropriations acts, including the 
Consolidated Appropriations Act of 2008. 

[9] The list of individuals and entities subject to economic and trade 
sanctions based on U.S. foreign policy and national security goals is 
formally called the Specially Designated Nationals and Blocked Persons 
list and commonly referred to as the OFAC list. OFAC publishes the list 
as part of its efforts to administer and enforce U.S. sanctions 
programs. 

[10] The UN Security Council's "Consolidated List established and 
maintained by the 1267 Committee with respect to Al-Qaida, Usama bin 
Laden, and the Taliban and other individuals, groups, undertakings and 
entities associated with them" is referred to as the UN 1267 list. The 
Security Council's Al-Qaida and Taliban Sanctions Committee established 
the list pursuant to paragraph 6 of Security Council resolution 1267 
(Oct. 15, 1999) and the committee oversees governments' implementation 
of the three sanctions measures (assets freeze, travel ban, and arms 
embargo) imposed by the Security Council on individuals and entities on 
the list. 

[11] 22 U.S.C. § 2221(c). 

[12] [hyperlink, http://www.gao.gov/products/GAO-06-1062R]. These other 
types of assistance instruments include consulting agreements, letters 
of understanding, memorandums of understanding, and purchase orders. 

[13] Since 2003, annual appropriation acts have required the 
Administrator of USAID to ensure that audits of all contractors and 
grantees, and significant subcontractors and subgrantees, under the 
West Bank and Gaza Program, are conducted on at least an annual basis. 
In furtherance of this requirement, the USAID Inspector General has 
implemented a program to audit these entities annually. USAID's 
Regional Inspector General must, according to its own policies, audit 
the prime awardees and significant subawardees every fiscal year. While 
a single awardee may receive multiple prime awards for services, only 
one of those prime awards is audited each fiscal year. The Regional 
Inspector General has defined significant subawards as those that have 
a cumulative cost of $300,000 or higher per fiscal year. 

[14] The three prime awardees required to submit antiterrorism 
certifications had signed the certifications prior to the date of the 
award, as required. 

[15] USAID may approve assistance to such a facility only if it 
determines that the purpose and practical effect of such assistance 
will not be to provide recognition to such a person or group. 

[16] These four new prime awards required vetting because they were 
awarded to non-U.S. organizations for amounts greater than $25,000. 

[17] We evaluated a random sample of 144 subawards for compliance with 
applicable requirements from Mission Order 21. In selecting our random 
sample, we selected two random subsamples--one consisting of 49 U.S. 
organizations and individuals and another consisting of 95 non-U.S. 
organizations and individuals--because the vetting requirements are 
only applicable to non-U.S. organizations. Of the 95 non-U.S. 
organizations, 9 were exempt from the vetting requirements, 51 were 
subject to pre-award vetting because the amount of the award exceeded 
$25,000, and the remaining 35 were for amounts below the $25,000 
vetting threshold. 

[18] Our sample included 14 grants, six of which were made to 
nongovernmental organizations and thus were required to have an 
antiterrorism certification, according to Mission Order 21. The 
remaining eight grants were made to either individuals or governmental 
entities and thus did not require an antiterrorism certification. 

[19] We conducted a probability sample of new subawards, stratified by 
either U.S. or non-U.S. subawardees. With a probability sample, each 
subaward in the population had a non-zero probability of being 
included, and that probability could be computed for any member. Each 
sample element selected was subsequently weighted in the analysis to 
account statistically for all the members of the population. The result 
of the sample can be projected to the population from which it was 
selected. Because our sample selection was based on random selections, 
it was only one of a large number of samples that might have been 
drawn. Since each sample could have provided different estimates, we 
express our confidence in the precision of our particular sample's 
result as a 95 percent confidence interval (e.g., plus or minus 7 
percentage points). This is the interval that would contain the actual 
population value for 95 percent of the samples we could have drawn. As 
a result, we are 95 percent confident that each of the confidence 
intervals included within this report will include the true values in 
the study population. 

[20] USAID provided us 6 sets of annotated mandatory clauses for a 
total of 14 separate subawards. 

[21] This estimate was weighted to reflect the fact that we selected 49 
out of a total of 101 U.S. subawards and 95 out of a total of 2,519 non-
U.S. subawards. See appendix I for more information on our methodology. 

[22] The International Convention for the Suppression of the Financing 
of Terrorism defines an offense under the convention to include an 
offense within the scope of and as defined in any of the nine treaties 
listed in the annex to the convention, as well as any other act 
intended to cause death or serious bodily injury to a civilian or any 
other person not taking an active part in the hostilities in a 
situation of armed conflict, when the purpose of such act is to 
intimidate a population or compel a government or international 
organization to do or abstain from doing any act. International 
Convention for the Suppression of the Financing of Terrorism, U.N. Doc 
A/RES/54/109 (Dec. 9, 1999). 

[23] State reported that continued U.S. funding for UNRWA is contingent 
upon State's conclusion that UNRWA continues to take the steps required 
to meet the conditions required by section 301(c). As part of State's 
formal financial approval processes, State's Office of the Legal 
Adviser closely reviews all spending plans, taking section 301(c) and 
other legal requirements into consideration; these spending plans are 
cleared by all relevant bureaus with interests in the funding, with 
final approval by the Director of Foreign Assistance. Each contribution 
to UNRWA is approved by the Assistant Secretary of State's Bureau of 
Population, Refugees and Migration (PRM) based on a written paper that 
includes a section reviewing UNRWA's conformance with the condition 
required by section 301(c). However, we found that this written paper 
is not an evaluation or determination of UNRWA's conformance with 
conditions in section 301(c). 

[24] [hyperlink, http://www.gao.gov/products/GAO-04-276R]. 

[25] [hyperlink, http://www.gao.gov/products/GAO-04-276R]. 

[26] In responding to a U.S. request that UN agencies vet prospective 
and current arrangements against the OFAC list, the UN Legal Counsel 
told State in a January 2006 letter that it would not be appropriate 
for the UN to establish a verification regime that uses a list 
developed by one member state, such as the OFAC list. 

[27] UNRWA provided us with a list of roughly 20,000 contractors it 
paid between 2002 and 2009. We narrowed the list to about 15,000 
contractors by, among other things, eliminating any record that only 
contained 1 part of an individual's name. We used a relatively basic 
methodology to identify potential matches. We did not find any perfect 
matches, since a perfect match between the two lists would require the 
records in each list to be identically matched, and we found that names 
in the two lists varied in the number of name parts, the translation of 
Arabic names to English, spelling, and the type of demographic 
information included. An example of a possible match would be when we 
found names in both lists that were similar but were spelled 
differently. Determining with greater confidence whether other names 
are a likely match requires additional research and more advanced 
procedures. See appendix I for more information on our methodology. 

[28] UNRWA reported that it plans to submit additional information to 
State on any denials of requests for assistance arising from the 
Israeli "Operation Cast Lead" in the Gaza Strip from December 27, 2008 
to January 19, 2009, in its semiannual compliance report covering the 
period from January 2009 to June 2009. 

[29] UNRWA officials told us that following media reports alleging that 
people elected in March 2009 to positions in an UNRWA teachers' union 
were affiliated with political parties, the agency opened an 
investigation as required by and in accordance with UNRWA's Staff Rules 
and Regulations. That investigation is ongoing. UNRWA officials said 
disciplinary action will be taken if the results of the investigation 
show involvement of staff members in political activities contrary to 
UNRWA staff rules and regulations. 

[30] The Commissioner-General launched a comprehensive organizational 
development initiative in late 2005 designed to strengthen and sustain 
UNRWA's capacity for program management and delivery, which resulted in 
an organizational development strategic plan for the 2006 to 2009 time 
period. Goals of the plan include ensuring UNRWA programs for refugees 
are more strategic and focused and an agency culture of accountability. 

[31] [hyperlink, http://www.gao.gov/products/GAO-04-276R]. 

[32] Under a UN policy, UNRWA officials said they do not screen 
contractors against donor country lists. 

[33] UNRWA also reported that, in accordance with UN policy, it uses 
the UN Suspended/Removed Vendor Report, which identifies those vendors 
confirmed to be doing business in an unethical or corrupt manner, to 
screen contractors. 

[34] We did not independently review the results of UNRWA's Department 
of Internal Oversight Services' internal audits because, under a 
current UNRWA policy, donor governments and respective agencies do not 
have access to the results of internal agency audits. 

[35] The Special Hardship Assistance Program is an UNRWA Relief and 
Social Services program, which is comprised of food assistance and a 
cash subsidy for food of up to $40 per year per family member. This 
program is intended to provide a cushion of support to refugees in 
distress who are unable to earn a living because of a particularly 
difficult family situation, ensure minimum standards of nutrition and 
shelter, and intervene with cash grants in case of exceptional family 
difficulties. 

[36] Under the UN Financial Regulations and Rules, the General Assembly 
appoints a Board of Auditors to perform the audit of the accounts of 
the UN and its funds and programs. The board is independent and solely 
responsible for the conduct of the audit, and it audits UNRWA's 
financial statements every 2 years. This board consists of three 
members, each of whom shall be the Auditor-General (or officer holding 
the equivalent title) of a member state. 

[37] GAO, Department of State (State) and United Nations Relief and 
Works Agency (UNRWA) Actions to Implement Section 301(c) of the Foreign 
Assistance Act of 1961, [hyperlink, 
http://www.gao.gov/products/GAO-04-276R] (Washington, D.C.: Nov. 17, 
2003). 

[38] State said it does not currently limit its contributions to 
UNRWA's General Fund to specific purposes, but all U.S. contributions 
to UNRWA's Emergency Appeal for West Bank and Gaza are limited so that 
no U.S. funds are to be used for UNRWA's emergency cash assistance 
activities in West Bank and Gaza. 

[39] The UN Administrative Tribunal Statute and Rules established the 
tribunal to hear and pass judgment on applications alleging non- 
observance of a staff member's contract or terms of appointment. An 
application is receivable before the UN Administrative Tribunal once 
the person concerned has taken the case to a joint appeals body that 
has communicated its opinion to the Secretary-General or in a case 
where the Secretary-General and the staff member concerned agree to 
submit applications directly to the tribunal. 

[End of section] 

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