The EU is knowingly paying Palestinian civil servants who have not worked in years, its spending watchdog says.

The Luxembourg-based European Court of Auditors published its findings in a report, out on Wednesday (11 December), on the EU's "Pegase" programme.

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It noted that the Union has paid the Palestinian Authority (PA) around €200 million a year between 2008 and 2012 to cover public sector salaries.

The money has funded approximately half of the PA’s 170,000 civil servants and pensioners.

Beneficiaries are supposed to meet basic EU criteria.

But in Gaza, up to 24 percent of people on the payroll of the PA's health and education ministries did not show up to work in 2010.

The PA's State Audit and Administrative Control Bureau is also paying the salaries of 90 officials who are unable to do their jobs.

Out of 10 individual Pegase beneficiaries selected by the audit for interviews, three said that they are not working and one failed to turn up for the interview.

"While Pegase is intended to support public services for the benefit of the Palestinian population, the payment of non-performing civil servants does not serve this objective,” the EU report said.

The auditors added that the European Commission and the EU's foreign service have turned a blind eye to the problem.

“Given the amount of money which the EU is providing through Pegase … it would have been expected that they could obtain such information from the PA,” the court said.

Pegase is part of broader EU efforts to support the two-state solution to the Arab-Israeli conflict.

The EU money is designed to maintain essential public services and to help vulnerable families.

The EU auditor noted that political instability in Gaza and the near-bankrupt state of the PA are part of the problem.

The Palestinian territories, which are physically separated by Israel, also split in political terms in 2007 when Palestinian militants Hamas took control of Gaza from rival faction Fatah.

The court noted that an Israeli attack in 2009 devastated Gaza infrastructure.

It also pointed out that Israeli restrictions on PA income tax receipts have helped to bleed its coffers dry, undermining international attempts to create a "viable" Palestinian state alongside Israel.