The two largest state-funded haredi school systems will undergo major organizational changes as a result of flawed financial conduct, Israel’s Accountant General Yali Rothenberg wrote in a letter to a series of officials in the Finance, Justice, and Education Ministries on Thursday.

The letter was, in effect, the end to a political and legal saga that began in February, when Rothenberg first warned the two systems about financial discrepancies.

Both Chinuch Atzmai (Independent Education), which is largely affiliated with the Lithuanian haredi sector and the Degel HaTorah party and Bnei Yosef, which is associated with Sephardic haredim and the Shas party, have over 100,000 students and thousands of staff. The systems have a unique legal status in that they receive full state funding but are not part of the national public school system.

Each has received over NIS 3 billion annually in state funding during the past few years, and each shared characteristics with government bodies – they have been directly connected to the government’s bank accounts and have employed a Finance Ministry-appointed accountant to run their finances.
However, the two education systems are not subject to the same level of oversight as public schools. The presence of the publicly appointed accountant enabled the systems to avoid effective financial scrutiny, as they argued that their finances were state-run and therefore not their responsibility.
Yali Rothenberg, Accountant General of the Ministry of Finance attends a press conference at the Ministry of Finance in Jerusalem on October 19, 2023. (credit: NOAM REVKIN FENTON/FLASH90)
Yali Rothenberg, Accountant General of the Ministry of Finance attends a press conference at the Ministry of Finance in Jerusalem on October 19, 2023. (credit: NOAM REVKIN FENTON/FLASH90)
The February report found that Chinuch Atzmai had bypassed its accountant and amassed a tax debt of over NIS 80 million, and another report found that the school system had accrued additional operational debts of over NIS 300 million. Chinuch Atzmai is also facing dozens of challenges in court, including six class action suits against alleged violations of employee rights, such as unexplained salary deductions, unpaid work hours, and more. These legal challenges could lead to hundreds of millions of additional shekels of debt.
Rothenberg wrote on Thursday that the two systems would need to cover their debts independently, and that the debts would not be covered by the state. More importantly, he wrote that beginning in the upcoming school year, the systems would no longer enjoy direct access to state bank accounts and would no longer employ a Finance Ministry accountant. They will instead need to set up their own financial departments led by qualified CFOs, and the Accountant General’s Office will set up a special unit to oversee their financial conduct.

The most important issue for haredi parties

The issue is of utmost importance to the Knesset’s haredi parties, who view their independence from Israel’s public school system as a key factor in maintaining their lifestyle. It also has political implications – Degel Hatorah chairman MK Moshe Gafni threatened in June to quit his position as Knesset Finance Committee chair if a solution was not found to save Chinuch Atzmai from bankruptcy. This, in turn, could have led to a rupture in Israel’s governing coalition.
The issue of the haredi school system is unrelated to the ongoing issue of the haredi exemption from IDF service, whose legal basis expired in July 2023. However, both issues are central to the question of haredi autonomy versus its integration into Israeli society.
Yesh Atid MK Moshe Tur-Paz said in response to the letter, “After prolonged work, justice has been served... no more waste, corruption, and a celebration of funds at taxpayers’ expense. The haredi education must take responsibility for its debts and shoulder the full cost of its financial irresponsibility, of every shekel earmarked for Israeli children that was used for political wheeling and dealing.”
Deputy Education Minister Haim Biton, a member of Shas and a key figure in attempting to come up with a solution for the two school systems, did not comment on the letter by press time.