EU aid to the Palestinian Authority worth billions of euros needs an "overhaul" and major changes in some areas, the bloc's Court of Auditors said Wednesday.
If the circumstances are difficult, there are still "a number of aspects of the current approach in need of an overhaul," said Hans Gustaf Wessberg, who wrote the report for the court.
"There is a need for major revisions such as encouraging the PA to undertake more reforms, notably in relation to its civil service," Wessberg said in a court statement.
Additionally, a way needs to be found so that Israel takes "the necessary steps to help ensure (the aid programme) is effective," he added.
Since 1994, the European Union has provided some 5.6 billion euros ($7.7 billion) in aid to the Palestinians, with its main PEGASE programme worth one billion euros ($1.35 billion) in the 2008-12 period in direct assistance to the PA.
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Running PEGASE could be made more effective by increased use of competitive tendering and simplifying its management, the report said.
While PEGASE has contributed to "essential public services ... a considerable number of civil servants in Gaza, due to the political situation, were being paid without going to work," a problem the EU had "not sufficiently addressed."
The PA controls the West Bank but its opponent Hamas runs the narrow Gaza strip which has been under an Israeli blockade since 2006.
The European Commission, the EU's executive arm, welcomed the report, stressing that the auditors had acknowledged that aid had been provided despite difficult circumstances.
By helping the PA "meet its wages and pensions bill for essential service providers and pensioners, and pay for social allowances to most vulnerable groups, the EU is making a tangible contribution to the preparation for a two-state solution to the Israeli-Palestinian conflict," a statement said.
Some of the reports recommendation's were already being implemented, it added.