In the institutional and legal framework, in which local authorities operate, there exists a certain dichotomy: these authorities are the representative organizations of the inhabitants of a certain locality, but at the same time their powers and modes of operation are circumscribed by the State. In Israel, the governing bodies of the local authority (the municipal, local or regional council) are elected by the citizens (Mayors of municipalities are elected separately by the citizens, in the same elections.), and thus bear responsibility and accountability towards the population. But these bodies are supervised on behalf of the state by the Ministry of the Interior, without the approval of which the local budget, or any local by-laws will not be valid.
The supremacy of the Ministry of the Interior over local government is partly a remnant of the legal set-up at the time of the British colonial administration, but it reflects also the financial dependence of local authorities on the central government. Since the raising of local revenue is limited to a restricted range of taxes, the local authorities' budget is financed to a large extent by grants from the state and by loans, directed by the state to these authorities for public works.
Under these circumstances state audit has to keep in mind that its operations have to serve the interests of the local citizens as well as the interest of the state.
State audit in local authorities centers on the activites of the local, municipal or regional council (henceforth -the council) and of its head (the mayor). In local government in Israel there is no clear distinction between the legislative and budgetary powers of the council and its executive functions of guidance and supervision of the local administration. The council usually has an executive committee as policy formulating body, which represents the majority party and its coalition partners, and each or most of its members fulfill also executive functions, being in charge of one or more of the administrative departments of the local authority.
The decisions of the council, its executive committee and the mayor are the manifest scope of state audit in local authorities. It would be argued that to judge these decisions is the domain of the electorate, which expresses its opinion on the performance and the virtues of, the people, to whom the management of local affairs has been entrusted, by its vote on election day. It could be also said that the Ministry of the Interior is a potential holder of the function to examine decision-making in local authorities, especially since its powers have lately been broadened to include i.e. putting limits on the number of employees of every local authority and to veto any change in their remuneration.
In fact, the electorate is not equipped with the means to detect undesirable decisions or policies, except those which immediately affect the every day life of the citizens, or those which are exposed by the media. The political weapon of elections (in Israel available once in 4 year) is not designed to correct shortcomings in the administration (except as a general threat against misgovernment). The Ministry of the Interior has indeed a department which performs budgetary inspection in local authorities, but it is a controversial question whether it has a constitutional or practical basis to question policy making in local authorities, except in cases of manifestly illegal conduct.
Therefore ultimately, the right and duty of state audit in local authorities rests with the SAI, which has the qualified staff, the access to all relevant information and the political independence, which ensure an impartial and professional evaluation of the policies, their implementation and eventual correction. The published audit reports of the SAI assist the electorate in making the appropriate political and personal choices on election day.
The following case-study contains three examples of state audit in local authorities, which have been chosen to illustrate, within the limits set by the size of the case-study, a varied range of subjects. The three excerpts, from the State Comptroller's reports on audit in various local authorities, deal with issues encountered frequently in state audit of local government: Is the practice of soliciting donations for public buildings by local authorities, aimed at augmenting their often meager resources, acceptable, and under which conditions can state audit condone it? When examining public tenders, should state audit give priority to the principle of equal chances for all bidders or to financial or other interests of the local authority? When accepting a donation for -a public project, should the local authority accede to the wishes of the donor, even when there are doubts regarding the practical benefits of the project?
In all the examples selected, the local authority did not act, prima facie, out of opprobrious motives, but ostensibly kept in mind the public interest. But even so, State Comptroller criticized the decisions taken on the basis of the principle that a public authority has to abide by general rules of conduct which guarantee the integrity of its actions, even if in particular cases, the adherence to them handicaps the easy attainment of its good intentions. Actions with merit of their own, but accomplished in unacceptable ways, may undermine the broader interest of proper public administration and can even be counter-productive. Whenever there is a clash between them, expediency has to give way to long-run considerations of sound public administration.
A. In December 1977 a local council signed an agreement with a private company, whereby the council was obligated to recommend to the Israel Lands Administration that it lease to this company a plot of land for the expansion of its plant. The contract specified that as a gesture of gratitude for the help of the council in obtaining the lease, the company would contribute to the public institution chosen by both sides, a sum of 80, 000 IL for every dunam (quarter of an acre) leased. In fact, the council received from the company in the fiscal year 1978 a contribution of 587,000 IL in the wake of .the council's recommendation that the Land Administration lease to the company an area of 7.3 dunam. This contribution was used to finance the building of a community center.
The Office of the State Comptroller pointed out to the council that it should not have bound the giving of its recommendation, a matter within 'the framework of its duties, to a contribution to one of its social efforts, however worthy its cause. Binding these together, as was done, although the recommendation was not given in consideration of the contribution, creates a serious flaw in proper administration. The council must supply services, that are due from it by law, and if the law sets a fee for the services, only then should the fee be collected.
B. In July 1976 a local council published a request for bids to build a technological branch to a comprehensive school. Four contractors participated in the bidding. The conditions in the public tender specified that the unit costs quoted in the bids may not be changed for any reason, including fluctuations in the price index of construction costs, and that 40% of the cost of the work be paid in progress payments and 60% at the end of the work, in 10 equal monthly payments.
In the course of the audit it was revealed, that one of the contractors conditioned his bid upon linkage to the price index of construction costs, and also upon changes in the aforesaid rates and times of payment. The tender committee did not void this contractor's bid because of the special conditions attached to it, as was required by the regulations with regard to public tenders; it recommended to award the work to this contractor, accepting his request that his bid be linked to the index; providing that he bring his price into line with the lowest one offered. The committee based its decision upon the fact that the contractor whom it recommended was a local resident, employing local people; giving the work to another contractor would affect the livelihood of about 150 residents.
The audit revealed that the contractor did not bring his price into line with the lowest bid, and that the terms of payment, included in the contract with the local council, were improved towards his benefit. For Example, according to the contract 10% of the amount of money involved in the work would be paid upon signing the contract, 80% in progress payments, and 10% upon completion. The council stipulated the change in the conditions of payment upon receiving a 2% discount of the amount involved, and the contractor agreed to it.
In the course of the audit it was pointed out to the council, that if it was interested in giving preference to a local contractor because of its legitimate and reasonable concern for the livelihood of local residents, it should have indicated this fact in its conditions for the public tender and specifically laid down the extent of preference awarded to loced bidders. Not having done this, the acceptance of a bid which was not the lowest, and its agreement to conditions of payment diverging from those officially publicized, impaired competition among the bidders, which is a basic precept in public tenders.
C. In 1971, the Municipality of Haifa received, through a public organization, a grant of $450,000 contributed by a donor abroad, specifically for establishing a maritime school in Haifa. At a meeting of the municipal council, which discussed the question whether to accept the contribution for the purpose it was intended, some members of the council expressed objection to the need for a maritime school in Haifa, since a maritime school in an adjacent town had difficulty at that time in filling its classes. In spite of the objections, the municipal council decided to accept the contribution and to establish the school. In an agreement signed between the municipality and the public organization in March 1971 it was agreed that the organization would construct the school and the municipality would take upon itself the job of connecting the building to water and sewage mains, and to power lines, and also to pave the access roads to the building. It was also agreed that the school would be administered and operated by a corporation established for this purpose.
The school began operating in the school year 1976 as a vocational school, and in that year students from two industrial school were transferred to it. In order to equip it as an industrial school, the municipality had invested the sum of about 700.000IL between 1975 and 1978. In the year 1979 the operation of the school was discontinued, since the number of students fell below that required to maintain a separate school; the students enrolled in it for that year were transferred to another municipal vocational school.
During an on-site inspection made by the Office of the State Comptroller in June 1982 it was found that the building was badly neglected, panes in doors and windows were broken, and the surrounding area overgrown.
In the audit summary it was pointed out to the municipality that it had the obligation to obtain the agreement of the donors or their heirs to the change in the school's purpose, and that if it had no actual plans to keep the school open it should have looked into the possibility of leasing the building to some other public or governmental agency, for the purpose of settling its orderly upkeep. In any event, it was the municipality's duty to ensure that a property of such great value should not be wasted, and should not become a nuisance to the surroundings. In August 1980 the municipality informed the Office of the State Comptroller that it was carrying on negotiations with a public agency to lease the building.