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entitled 'Peacekeeper: Multinational Force And Observers Maintaining
Accountability, but State Department Oversight Could Be Improved' which
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
July 2004:
Peacekeeping:
Multinational Force and Observers Maintaining Accountability, but State
Department Oversight Could Be Improved:
GAO-04-883:
GAO Highlights:
Highlights of GAO-04-883, a report to congressional requesters
Why GAO Did This Study:
Since 1982, the Multinational Force and Observers (MFO) has monitored
compliance with the security provisions of the Egyptian-Israeli Treaty
of Peace. The United States, while not a party to the treaty,
contributes 40 percent of the troops and a third of MFOs annual
budget. All personnel in the MFO civilian observer unit (COU) are
Americans.
GAO (1) assessed States oversight of the MFO, (2) reviewed MFOs
personnel and financial management practices, and (3) reviewed MFOs
emerging budget challenges and U.S. MFO cost sharing arrangements.
What GAO Found:
The State Department has fulfilled some but not all of its operational
and financial oversight responsibilities for MFO, but lack of
documentation prevented us from determining the quality and extent of
its efforts. State has not consistently recruited candidates suited
for the leadership position of the MFOs civilian observer unit, which
monitors and verifies the parties compliance with the treaty. State
also has not evaluated MFOs financial practices as required by States
guidelines because they lacked staff with expertise in this area.
However, State recently formed an MFO management advisory board to
improve its oversight of MFO operations.
MFO has taken actions in recent years to improve its personnel system,
financial accountability, and internal controls. For example, it has
provided incentives to retain experienced staff and taken steps to
standardize its performance appraisal system. It has received clean
opinions on its annual financial statements and on special reviews of
its internal controls. MFO has also controlled costs, reduced its
military and civilian personnel levels, and kept its budget at $51
million since 1995, while meeting mission objectives and Treaty party
expectations.
U.S. Infantry Battalion Deployed as MFO Peacekeepers:
[See PDF for image]
[End of figure]
MFO faces a number of personnel, management, and budgetary challenges.
For example, leading practices suggest its employees access to
alternative dispute resolution mechanisms for discrimination
complaints, and the gender imbalance in its workforce, could be issues
of concern. Moreover, MFO lacks oversight from an audit committee or
senior management review committee to ensure the independence of its
external auditors. Finally, MFOs budget is likely to increase because
of costs associated with replacing its antiquated helicopter fleet.
U.S. and MFO efforts to obtain support from other contributors
generally have not succeeded. Army, State, and MFO officials have yet
to agree who should pay the increased costs associated with changes in
the composition and pay scales of U.S. troops deployed at MFO.
What GAO Recommends:
GAO recommends that the Secretary of State (1) resolve the concern of
recruiting for the chief COU post; (2) ensure that staff with
accounting expertise carry out States MFO financial oversight
responsibilities; (3) direct States MFO advisory board to monitor
States compliance with its oversight guidelines; and (4) work to
reconcile Army and State views on the MFO cost-sharing arrangement.
We received comments from DOD, State, and MFO. DOD and MFO generally
agreed with our conclusions. State agreed with three of our
recommendations and was nonresponsive to the recommendation that the
oversight board monitor States compliance with MFO oversight
guidelines.
www.gao.gov/cgi-bin/getrpt?GAO-04-883.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Joseph Christoff at (202)
512-8979 or christoffj@gao.gov.
Contents:
Letter:
Results in Brief:
Background:
State Has Met Some of Its Oversight Responsibilities but Has Limited
Evidence Documenting These Efforts:
MFO Has Taken Some Actions to Improve Personnel Management but has not
Systematically Reformed Its Personnel System:
MFO Has Improved Financial Accountability, but Additional Oversight May
Be Needed:
After 9 Years of Flat Budgets, MFO Faces Financial and Other
Challenges:
Conclusion:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: MFO's Small but Challenging Workforce:
Appendix III: GAO's Model for Strategic Human Capital Management
Planning:
Appendix IV: Calculating MFO Budget in Terms of International Dollars:
Appendix V: Cost of U.S. Participation in MFO:
Appendix VI: Comments from the Department of State:
Appendix VII: Comments from the Multinational Force and Observers:
GAO Comments:
Tables:
Table 1: MFO Civilian Staff by Location and Type, 2003:
Table 2: MFO Expenditures in Nominal and International Dollars:
Table 3: Cost of U.S. Participation in MFO, Fiscal Years 1995 through
2003:
Table 4: U.S. Troop Contributions to the MFO as a Percentage of the
Total, Fiscal Years 1995 through 2003:
Figures:
Figure 1: Sinai Peninsula and MFO Area of Operations:
Figure 2: U.S. Soldiers on Duty at an MFO Outpost Near South Camp:
Figure 3: MFO Organizational Chart (as of December 2003):
Figure 4: MFO Budget in Nominal and Constant Purchasing Power Dollars:
Figure 5: U.S. Army Helicopter Options for MFO Service:
Figure 6: Total Number of MFO Troops (including U.S. troops) and Number
of U.S. Troops for Fiscal Years 1995 through 2003:
Figure 7: Cost of U.S. Participation in MFO:
Figure 8: Excerpts from GAO's Strategic Human Capital Management Model:
Figure 9: Percentage of MFO Dollar Budget Spent in Israel and Egypt:
Figure 10: Percentage of MFO International Dollar Budget Spent in
Israel and Egypt:
Abbreviation:
COU: Civilian Observer Unit:
COSO: Committee of Sponsoring Organizations of the Treadway Commission:
DOD: Department of Defense:
HNSI: Holmes and Narver Services, Incorporated:
MFO: Multinational Force and Observers:
NEA: Bureau of Near Eastern Affairs, U.S. Department of State:
NEA/EX: Office of the Executive Director, Bureau of Near Eastern
Affairs:
NEA/RA: Office of Regional Affairs, Bureau of Near Eastern Affairs:
OIG: Office of Inspector General, U.S. Department of State:
PPP: Purchasing Power Parity:
U.N.: United Nations:
United States Government Accountability Office:
Washington, DC 20548:
July 23, 2004:
Congressional Requesters:
Following years of violent confrontation, Egypt and Israel signed a
treaty on March 26, 1979, that ended the existing state of war and
agreed to the withdrawal of all Israeli forces from the Sinai. Although
the treaty proposed that U.N. forces and observers supervise these
security arrangements, the United States committed to providing a
multinational force if the U.N. process failed. When the U.N. Security
Council failed to reach an agreement, the governments of Egypt and
Israel signed a protocol to the treaty in 1981 that established the
Multinational Force and Observers (MFO). The treaty can be terminated
by the consent of the parties; it does not contain a specific end date
or establish specific conditions that, if met, would allow MFO to
withdraw troops. MFO currently has 1,685 troops and a civilian
workforce of about 108 international and local national staff who
manage the organization and its annual budget of $51 million. To manage
its operations, the MFO has developed personnel, financial management,
budget, and internal control systems. This review examines these
systems including MFO's personnel practices as they pertain primarily
to its international civilian workforce.
The United States, although not a party to either the treaty or the
protocol, agreed to provide military forces and a group of civilian
observers to the MFO to monitor compliance with military limitations.
The United States now contributes the largest share of military troops
and about one third of the organization's financial resources. In
addition, the Department of State conducts oversight of U.S.
participation in the MFO. In 2001, the United States reviewed its
commitments worldwide to security and peacekeeping operations, and in
2003 reduced the number of troops serving in the MFO.
Given your interest in MFO's management practices and State's oversight
responsibilities, we (1) assessed the Department of State's oversight
of the MFO, (2) reviewed MFO's personnel policies and practices, (3)
examined MFO's financial management practices, and (4) reviewed MFO's
emerging budgetary challenges and cost-sharing arrangements.
To achieve our objectives, we interviewed officials at the Departments
of State and Defense (DOD), and the MFO and collected key documents
from those officials. We reviewed State's guidelines for overseeing
MFO's activities and finances. We met with MFO officials in Rome,
Cairo, and Tel Aviv; with Egyptian military and foreign affairs
officials in Cairo; and with Israeli military and foreign affairs
officials in Jerusalem. We also visited MFO force installations in the
Sinai Peninsula. We reviewed MFO budget and related documents and the
external audit reports of finances and internal controls. Finally, we
met with MFO, State, and DOD officials to discuss the MFO budget and
U.S. contribution to the MFO. We determined that the data they provided
were sufficiently reliable for purposes of reviewing trends in the MFO
budget and U.S. contributions between fiscal years 1995 and 2003. A
detailed description of our scope and methodology is included in
appendix 1. We conducted our review from September 2003 to May 2004 in
accordance with generally accepted government auditing standards.
Results in Brief:
State has fulfilled some but not all of its operational and financial
oversight responsibilities described in its guidelines for overseeing
the MFO. Overall, we could not determine the full extent of the
department's efforts because it did not document the nature, quality,
and range of its oversight activities. For example, a State official
visited MFO locations twice a year to observe MFO operations and
compare these observations to MFO regulations. However, because he did
not document the results of his visits, we could not determine the
range and quality of his oversight activities. In addition, the
guidelines called for State officials within the Bureau of Near Eastern
Affairs (NEA) to review the external auditors' reports and evaluate MFO
financial practices. While staff reviewed the auditors' reports, they
did not evaluate MFO financial practices because they lacked the
accounting expertise to do so. State is exploring options for obtaining
the necessary financial expertise; however, it has not yet determined
how it will address this issue. The guidelines also direct State
oversight through the transfer of U.S. government personnel to key MFO
positions. While State has successfully recruited staff for the
civilian observers unit, a number of chiefs of the unit exhibited poor
leadership capabilities. Recruiting for the chief observer post remains
a concern for State because many candidates at State seek higher
priority posts, such as the U.S. Embassy in Cairo, to enhance their
careers rather than seek an MFO position. In response to
recommendations made by the State's Office of the Inspector General in
February 2004, NEA agreed to form a board to improve its oversight of
MFO operations and to address civilian observer unit personnel issues.
In June 2004, the board held its initial meeting and discussed, among
other topics, various approaches for recruiting for the chief observer
post. However, the board has not yet developed the range of issues that
it will address or established timelines for resolving these issues.
MFO has made changes to improve its personnel system and respond to
some employee concerns. To improve its ability to retain experienced
staff, MFO provided recontracting bonuses and incentive awards to
staff. In addition, MFO standardized its employee performance reviews
to improve the transparency of its appraisal system and upgraded the
chief of personnel services position to a longer-term civilian position
for greater expertise and continuity. MFO has also taken steps to
improve workforce planning but has not undertaken a systematic review
of its personnel system since 1985. Moreover, leading personnel
practices suggest that other aspects of MFO's personnel system could be
reviewed and subsequently modified. For example, MFO regulations and
procedures do not clearly provide for outside mediation or external
avenues of appeal for MFO employee complaints involving discrimination
or sexual harassment. In addition, the MFO has neither addressed
disparities in the representation of women in its workforce, especially
in management positions, nor identified where barriers may operate to
exclude certain groups and address these barriers.
The MFO has taken steps to improve its financial management and
internal controls over the past 9 years. MFO installed a new financial
management system and hired a management review officer to improve the
efficiency and effectiveness of its operations. In addition, MFO
changed its external auditor since the prior auditor had audited MFO's
records for several years. Both auditors issued unqualified or "clean"
opinions on MFO's annual financial statements. In addition, the current
auditor audited the organization's internal controls and provided a
clean opinion as well. Internal controls are audited every 3 years at
MFO. However, unlike other international organizations, the MFO does
not have an audit committee to independently oversee the external
audits. According to leading internal control practices, an effective
audit committee can provide an important oversight function. It can
also play an important role in ensuring effective internal controls
because of management's ability to override system controls.
Establishing an additional oversight body or having the newly
established State MFO management advisory board review and evaluate MFO
financial practices could provide further assurance to MFO contributors
on the state of MFO finances since the Director General has broad
management authority not found in other international organizations.
For the past 9 years, MFO's budget has averaged about $51 million
annually. However, the organization faces a number of challenges that
will make it difficult to continue operating within its current budget.
Most important, the MFO must address the cost of replacing its
antiquated fleet of helicopters by fiscal year 2006, which preliminary
estimates provided by DOD could total about $18 million. As a result of
this and other pressures on the budget, the major contributors' cost of
supporting the MFO are likely to increase if the MFO maintains its
current level of operations. Israeli and Egyptian officials stated that
their governments do not support increases in their contributions. U.S.
and MFO efforts to obtain support from other contributors generally
have not succeeded. In addition, U.S. officials have yet to make a
decision about increasing U.S. support to the MFO or adjusting its
current cost-sharing arrangements with the MFO. Army, State, and MFO
officials have yet to agree who should pay the increased costs
associated with changes in the composition and pay scales of U.S.
troops under current cost-sharing arrangements.
In this report, we recommend that the Secretary of State take steps to
resolve the recurring concern of finding qualified candidates for the
chief of the civilian observer unit, ensure that staff with accounting
expertise are available to carry out State's financial oversight
responsibilities for MFO and review the terms of the external audits,
direct the MFO management advisory board to monitor and document the
bureau's compliance with its guidelines for overseeing MFO, and work
with Army officials to reconcile differences between Army and State
views about the current MFO cost-sharing arrangement.
We have received oral comments from DOD and written comments from the
Department of State and MFO, which we have reprinted in appendixes VI
and VII. DOD generally agreed with our findings and conclusions. The
Army also provided technical comments. State agreed with three of our
recommendations but was not responsive to our recommendation to direct
the advisory board to monitor and document NEA's compliance with its
guidelines for overseeing MFO. The MFO generally agreed with our
comments.
Background:
The mission of the MFO is to observe and report on Israeli and Egyptian
compliance with the security aspects of the 1979 treaty of peace. The
agreement established four security zones--three are in the Sinai in
Egypt, and one is in Israel along the international border. The
multinational force occupies checkpoints and conducts periodic patrols
to observe adherence of the treaty parties to agreed force limitations
and patrols the Strait of Tiran between the Gulf of Aqaba and the Red
Sea to ensure the freedom of navigation. The agreed force limitations
for the four zones (see fig. 1) are:
* Zone A: One Egyptian mechanized division containing up to 22,000
troops;
* Zone B: Four Egyptian border battalions manned by up to 4,000
personnel;
* Zone C: MFO-patrolled areas within Egypt, although civil police units
with light weapons are also allowed; and:
* Zone D: Up to four Israeli infantry battalions totaling up to 4,000
troops.
Figure 1: Sinai Peninsula and MFO Area of Operations:
[See PDF for image]
[End of figure]
The Department of State oversees U.S. participation in the MFO,
nominates a U.S. citizen as the Director General, and helps recruit
Americans to serve in the MFO civilian observer unit. MFO headquarters
are located in Rome and the organization also maintains offices in
Cairo and Tel Aviv to address policy and administration issues. The
Force Commander--who is responsible for command and control of the
force-and his multinational staff are located in the North Camp at El
Gorah in the Sinai Peninsula. The U.S. infantry battalion and the
coastal patrol unit are based in the South Camp near Sharm el Sheikh on
the Red Sea (see fig. 2). The MFO's annual operating budget of about
$51 million is funded in equal parts by Egypt, Israel, and the United
States.[Footnote 2] All parties pay their contributions in U.S.
dollars.
Figure 2: U.S. Soldiers on Duty at an MFO Outpost Near South Camp:
[See PDF for image]
[End of figure]
Currently, 11 countries deploy troops to the MFO. As of December 2003,
the MFO military force consisted of 1,685 multinational troops, of
which 687 were from the United States (see fig. 3). Colombia and Fiji
also provide infantry battalions and Italy provides the coastal patrol
unit. In addition, there is a civilian observer unit of 15 U.S.
citizens that performs reconnaissance and verification missions. The
chief observer and about half of the other observers temporarily resign
from the State Department to fulfill 1-or 2-year MFO contract
commitments; the other civilian observers are usually retired U.S.
military personnel with renewable 2-year MFO contracts. (See app. II
for details on the MFO work force.) Retired military personnel are
often hired for their familiarity with military weapons and
organizations, while State personnel are often hired for their
diplomatic skills and experience in the region. All members need to
become proficient in navigation, map reading, and driving in the Sinai,
according to an MFO official.
Figure 3: MFO Organizational Chart (as of December 2003):
[See PDF for image]
Note: The Operations function is currently headed by a Norwegian
officer.
[End of figure]
The MFO Director General must be a U.S. citizen that is nominated by
the State Department and appointed by the parties for a 4-year
renewable term. The Director General appoints the Force Commander for a
3-year term that can also be renewed. The Force Commander cannot be of
the same nationality as the Director General. MFO's other civilian
employees are generally hired on 2-year contracts that can be renewed
at the Director General's discretion.
In a 1995 report, we reported that the parties to the treaty and the
U.S. government viewed the MFO as effective in helping maintain peace
and in reducing certain costs. However, we found that State needed to
provide greater oversight due to a lack of assurance regarding the
adequacy of internal controls.[Footnote 3] The report noted that,
unlike other international organizations, the MFO does not have a
formal board of directors or independent audit committee to oversee
audits. Our recommendations in 1995 included that State take steps to
improve its oversight by examining MFO annual financial statements for
discrepancies and having MFO's external auditor periodically perform a
separate audit of MFO internal controls that State was to review. State
has implemented our recommendations except for examining MFO's
financial statements for discrepancies.[Footnote 4]
State Has Met Some of Its Oversight Responsibilities but Has Limited
Evidence Documenting These Efforts:
State has developed but not completely fulfilled its operational and
financial oversight responsibilities described in its guidelines for
overseeing the MFO. These oversight responsibilities included
evaluating MFO financial practices, conducting oversight visits of MFO
operations, and recruiting staff for the civilian observers' unit. We
could not determine the full extent of the department's compliance with
its guidelines because it does not have sufficient documentation to
describe the quality and range of its efforts. The Office of Regional
Affairs within State's Bureau of Near Eastern Affairs (NEA) is the
single U.S. focal point for all MFO-United States government
interaction and oversight. NEA's guidelines called for State officials
to review the external auditors' reports and evaluate MFO financial
practices. While reviews of the auditors' reports were performed, the
staff did not possess the accounting expertise to evaluate MFO
financial practices and did not do so. NEA is exploring options for
obtaining the necessary expertise; however, it has not finalized its
approach for redressing this issue. According to the guidelines,
oversight is also informally conducted through the transfer of U.S.
government personnel to key MFO positions, including a U.S. civilian
observer unit. While State has successfully recruited many civilian
observers, it has had difficulty in consistently recruiting candidates
with strong leadership capabilities for the chief position. Recruiting
for the chief observer post remains a concern because many candidates
at State seek higher priority posts, such as the U.S. Embassy in Cairo,
to enhance their careers rather than seek an MFO position. In response
to a February 2004 recommendation made by the State Office of the
Inspector General (OIG), NEA agreed to form an advisory board to
oversee MFO operations. In June 2004, the advisory board had its
initial meeting and discussed options for making the chief observer
position more attractive. The board has not fully developed the range
of issues that it will address or established timelines for resolving
these issues.
Guidelines Did Not Require Documentation of Oversight Efforts:
NEA developed guidelines for conducting MFO oversight in 1995 and
updated the guidelines in 2002; however, the guidelines did not require
that NEA document its oversight efforts. The guidelines sought to
ensure that (1) U.S. government agreements and foreign policy
objectives were being met; (2) MFO personnel practices were appropriate
and in accordance with MFO regulations; (3) MFO operations were in
compliance with its regulations; and (4) MFO resources were spent
appropriately, financial transactions were recorded accurately, and
internal controls were adequate. We could not determine whether State
fully complied with its oversight responsibilities because it did not
have sufficient documentation to support the extent and quality of its
oversight efforts.
We reviewed documentation to support State's efforts to provide
oversight of MFO from 1996 to 2004. These documents recorded
communication between MFO and State officials about daily activities
and operations of the MFO. However, we found that this documentation
did not fully describe State's oversight efforts, the condition of MFO
operations, State's views on MFO policies/practices, or recommendations
for improving MFO operations. As a result, we could not determine the
extent and quality of NEA oversight activities. The maintenance of
accurate and timely records document efforts undertaken, and reviews by
management help ensure that management directives are carried out.
Records are an integral part of an entity's stewardship of government
resources. In addition, documentation provides information so that
oversight activities can be assessed over time.
State Has Fulfilled Some but Not All of Its Oversight Responsibilities:
While State has met some aspects of the guidelines for overseeing MFO,
it has not fully complied with its guidelines in other areas such as
evaluating MFO's financial practices. As discussed below, we reviewed
the operational and financial oversight guidelines and State's efforts
for complying with them.
State Officials Regularly Communicated with MFO Officials and
Participated in Annual Trilateral Meeting:
NEA guidelines called for its officials to maintain regular
communications with key MFO officials, discuss U.S. foreign policy
issues with MFO, and participate in the annual MFO Trilateral Meeting
between Egyptian, Israeli, and U.S. officials. We reviewed letters of
correspondence, reports, cables, and e-mails documenting regular
communications with MFO officials and State's participation in the MFO
Annual Trilateral Conferences of Major Fund Contributors. At the
Trilateral, senior MFO officials discussed with delegates from Egypt
and Israel information of interest to the United States. The U.S.
delegate conveyed the U.S. position to the treaty parties and the MFO
and discussed issues that ranged from routine matters relating to
management and other administrative issues to major issues concerning
MFO finances.
Recruiting Candidates Suited for Chief Observer Position Remains a
Concern:
NEA guidelines note that the transfer of U.S government personnel to
key MFO positions--including the U.S. civilian observer unit (COU)--is
an informal mechanism of U.S. oversight. While NEA has successfully
recruited many candidates for the civilian observer positions, it has
not consistently recruited candidates with the qualities that senior
State officials regard as important for the chief civilian observer
post. These qualities include having the capacity to exercise strong
leadership and management skills in a predominantly male military
culture in an isolated environment. Annually, NEA recruits U.S.
government employees for about six 1-year observer positions and a
chief observer who serves 2 years in the MFO. State reviews the
applications for these posts, develops a "short list" from which the
MFO Director General selects a candidate, provides input into the final
selection, and recommends the candidate for the chief observer
position. In recent years, according to the MFO and State officials,
ineffective leadership in the chief observer position contributed to
considerable turnover in the unit. A number of chiefs or interim chiefs
were dismissed or transferred due to poor leadership capabilities.
These problems resulted in low morale in the unit and to the early
resignation of several observers.
Recruiting for the leadership post remains a concern because many
qualified candidates at State desire and accept higher priority posts
to enhance their careers rather than seek MFO positions. According to a
senior State official, the qualities that make a good chief observer--
regional experience, including Arabic language skills, and managerial
experience--are in demand at regional posts with higher priority
staffing demands. The MFO Director General stated that he would like to
broaden the pool of candidates and recruit from other sources for the
leadership position if State could not provide a candidate with
appropriate credentials. State officials oppose this approach, stating
that the position was an important symbol of U.S. commitment and
required an experienced Foreign Service Officer. According to senior
State officials, the department is reviewing options, such as elevating
the position to a more senior Foreign Service level, to make the
position more attractive to Foreign Service Officers. However, a
timeline for addressing this issue has not yet been established.
Some Financial Oversight Responsibilities Were Met, but Staff Lacked
Financial Expertise to Meet All Responsibilities:
NEA has fulfilled some of its financial oversight responsibilities;
however, its staff lacked the expertise to perform many required tasks.
The guidelines called for NEA to review MFO budgets and financial
plans; analyze income, expenditures, and inflation rates; review and
analyze annual audit and internal controls reports issued by the
external auditor; and evaluate MFO financial and auditing regulations.
NEA guidelines stated that the OIG would provide assistance in
evaluating MFO financial and auditing regulations. While NEA officials
reviewed budgets and financial plans, audits, and internal control
reports, they did not evaluate the financial and auditing regulations
of the MFO, review its accounting notes, or assess the potential
financial impact that inflation rates had on the MFO budget request.
NEA officials stated that its staff did not possess the needed
accounting and auditing expertise to fulfill all of the financial
oversight responsibilities and that the OIG has not provided accounting
and auditing assistance to NEA since 1998. In June 2004, NEA officials
stated that they were exploring options for obtaining the necessary
accounting expertise to review MFO financial practices; however, they
have not yet determined how they will redress this issue or a establish
a timeframe for doing so. Leading practices indicate that personnel
need to possess and maintain the skills to accomplish their assigned
duties.[Footnote 5] Staff with the required skill could provide
reasonable assurance that U.S. contributions are being used as intended
and that financial reporting is reliable--including reports on budget
execution, and financial statements.
State Annually Reported to Congress and Inspected MFO Locations:
Public Law 97-132 authorized U.S. participation in the MFO and
established a requirement that the President submit annual reports to
Congress every January 15. The report is to describe, among other
things, the activities performed by MFO during the preceding year, the
composition of observers, the costs incurred by the U.S. government
associated with U.S. troops participating in the MFO, and the results
of discussions with Egypt and Israel regarding the future of MFO and
its possible reduction or elimination. State has met the annual
reporting requirement.
NEA officials conducted biannual oversight visits to MFO headquarters
and field locations as called for in the guidelines but did not
document the results of those visits. In addition, the OIG reported
that it found no trip reports that were prepared by NEA during that
office's 20 years of MFO oversight. The guidelines stated that the
purpose of the visits is to observe MFO operations and conditions in
the field and compare observed practices with published MFO
regulations. Among other things, oversight visits were to include tours
of MFO facilities, including offices, warehouses, check points, and
facilities for U.S. soldiers; meetings with all key MFO and U.S.
military officials; and meetings with members of the U.S. civilian
observer unit. According to State officials, briefings were held
afterwards to describe the visits but written reports of these visits
were not completed. However, without the maintenance of accurate and
timely records, it is difficult to determine whether management
directives were appropriately carried out.
NEA Is Considering Improvements for Conducting MFO Oversight:
In November 2003, State's Inspector General conducted an internal
review of NEA and made recommendations in February 2004 to improve NEA
oversight. The OIG recommended that NEA transfer some of its oversight
responsibilities from its Office of Regional Affairs to the Office of
the Executive Director of NEA (NEA/EX). The OIG also recommended that
NEA establish an advisory board to review MFO management practices and
internal controls, including internal audits, and ensure the
independence of these audits. NEA plans to give responsibility for the
oversight of management/personnel issues to NEA/EX while the Office of
Regional Affairs retains responsibility for the oversight of policy
issues. NEA also agreed to form an oversight board to oversee MFO
operations that is to be chaired by NEA/EX and include representatives
from the OIG and the bureaus of Human Resources, International
Operations, and Political-Military Affairs. The board, which met for
the first time in mid-June 2004, discussed approaches to attracting
candidates for the position of chief observer and other COU recruiting
issues. The board has yet to determine its full range of
responsibilities or scope of work. In addition, it has not yet
established timelines for addressing these areas.
MFO Has Taken Some Actions to Improve Personnel Management but has not
Systematically Reformed Its Personnel System:
MFO managers have made improvements to MFO's personnel system but have
not systematically updated the personnel system since 1985. For
example, the Director General recently appointed a longer-serving
civilian with personnel management expertise to replace the short-term
military personnel officers serving short rotations on the MFO command
staff. Moreover, leading personnel practices suggest that other aspects
of the MFO personnel system could be reviewed and subsequently
modified. For example, MFO regulations and procedures do not clearly
provide for outside mediation or external avenues of appeal for MFO
employee complaints involving discrimination or sexual harassment. In
addition, the MFO has not addressed disparities in the representation
of women in its workforce, especially in management positions, nor
identified where barriers may operate to exclude certain groups and
address these barriers.
MFO Has Made Some Improvements to Its Personnel System:
MFO's current Director General has taken steps to update personnel
policies to retain staff. In 2003, the Director General appointed a
longer-serving civilian with personnel management expertise to replace
the short-term military personnel officers serving short rotations on
the MFO command staff. According to MFO documents and officials, this
new manager for personnel in the Sinai provides continuity over
personnel issues, takes a more active role in recruitment, has surveyed
employees and acted on their concerns about safety and other quality of
life issues, and is responsible for the equitable allocation of
housing. Moreover, he has sought additional training to improve his
effectiveness in this new role. Finally, MFO leadership has updated
grievance procedures pertaining to sexual harassment complaints to
boost employee confidence in the system and reemphasized to employees
that they have zero tolerance for infractions of this policy. As the
current Director General left in June 2004, his successor will have to
demonstrate a similar commitment to these changes in personnel policy
to ensure that they succeed.
MFO management is taking steps to improve workforce planning. MFO
managers stated that the personnel system was originally modeled in
1982 on State Department and U.N. systems. In addition, the MFO
personnel manager stated that MFO managers have not undertaken a review
of the personnel management rules since an outside consultant examined
MFO personnel policies in 1985. However, MFO reviewed and updated some
sections of its personnel manual in January 2004. MFO has also begun to
make increased use of information technology to compare its future work
requirements with its current human resources, and is using existing
U.S. Army efficiency reviews of the U.S. contingent's operations to
suggest ways to restructure its own military staff (see app. III for
excerpts from our model for strategic human capital management
planning).
To acquire, develop, and retain talent, MFO management has updated its
recruitment practices to ensure that its new hires are both qualified
and a good "fit" for the demanding work conditions in the Sinai. MFO
uses professional recruiters to obtain civilians better suited to the
MFO environment. MFO management has also updated its introductory
materials, handbooks, and Web site to give prospective recruits a more
comprehensive view of work requirements, benefits, and living
conditions. MFO managers stated, however, that the "temporary" nature
of the MFO mission precluded it from developing a career track for
international staff. It does not, for example, provide the benefits
that a career service track would offer, such as routine opportunities
for promotion and pensions for long-serving employees.[Footnote 6]
Nevertheless, the MFO has introduced incentives to retain long-serving
staff, including pay increases normally worth 2 percent of salary for
every employee who signs a contract extension and special nonmonetary
service awards for 10-year and 20-year employees.
The MFO has also introduced improved performance appraisals for new
staff on their probationary period and at the end of their contract
period. These appraisals include basic assessments of job skills,
performance, leadership, communications, cost management, initiative,
and adjustment to the work environment and document performance
feedback sessions. Staff are allowed to read and comment on their
appraisals. MFO, however, does not require its managers or staff to use
a detailed formal appraisal to document annual performance reviews and
feedback sessions. Instead, managers have the option of declaring that
a staff member has performed satisfactorily. The new chief of personnel
services stated that it was his intention to systematically collect
employee feedback to help adjust MFO's human capital approaches and
workforce planning, but he had not yet developed any data collection
instruments as of December 2003.
MFO Has Not Addressed Other Important Personnel Management Practices:
Despite its efforts to improve its personnel management practices, the
MFO has not addressed two challenges that leading practices indicate
could adversely affect its ability to strategically manage its human
capital resources more effectively. These challenges are (1) the degree
to which its grievance procedures are subject to outside and neutral
arbitration or other alternative dispute resolution mechanisms and (2)
the gender imbalance in the international civilian workforce.
Although the MFO employee grievance policy encourages early reporting
and resolution at the lowest level practicable, it does not clearly
provide for an independent avenue of appeal in cases of discrimination
or sexual harassment. MFO's policies against discrimination and
harassment allow for the possibility of employees using outside
mediators to resolve complaints when an internal inquiry or
investigation determines that sexual harassment or discrimination has
occurred. However, the decision to use mediation rests with the Force
Commander or Contingent Commander, not the complainant.[Footnote 7]
Furthermore, MFO procedures do not allow complainants to seek mediation
or pursue appeal outside the MFO when an investigation results in a
finding that harassment or discrimination has not occurred.[Footnote 8]
In contrast, the Equal Employment Opportunity Commission calls for U.S.
agencies to make alternative dispute mechanisms, such as mediators,
available to complainants and U.S. antidiscrimination laws allow
complainants to appeal their cases in court if necessary.[Footnote 9]
We noted in past work that a one single model for international
organizations' grievance procedures does not exist because criteria
such as the degree of independence of a grievance board or committee
depend on the legal environments in which these organizations
operate.[Footnote 10] Nevertheless, our analysis of leading practices
in the World Bank and other organizations indicates that a lack of
clear means for resolving such grievances could be a concern for an
organization's management because it could undermine employee
confidence in the fairness of the personnel management system. For
example, the U.S. government and the private sector employ alternative
dispute resolution mechanisms such as arbitration, mediation, or
management review boards to resolve discrimination complaints and other
grievances in a cost-effective manner.[Footnote 11] Moreover, we noted
that U.S. government agencies and international organizations have
determined that access to alternative dispute mechanisms and providing
an avenue for an independent appeal can enhance employee confidence in
the entire human capital system.[Footnote 12]
MFO's current gender imbalance in management may also merit attention.
The imbalance may indicate that there are obstacles to women attaining
management positions that may need to be addressed. The United Nations,
for example, determined that the gender balance of its professional
workforce was problematic, particularly in the management of peace
operations. To address this imbalance, the United Nations is trying to
achieve a professional work force with a 50 percent gender balance. We
examined MFO prepared documents that showed that women represented 29
percent of the workforce (31 out of 108 international and national
civilian positions)[Footnote 13] and women filled only 8 percent of
management positions (1 of 13 as of June 2004).[Footnote 14] In the
United States, the Equal Employment Opportunity Commission would
consider that such a gender disparity could be evidence of a
differential rate for selection for women that warrants management
attention.
State and MFO managers have noted that there are mitigating
circumstances that may explain the lower representation of women in
MFO's workforce. They stated a number of factors that might make the
MFO posts in the Sinai an unattractive workplace for women: It is a
predominantly male and military culture, there are few posts that allow
for accompaniment by spouses, and it has no facilities for children.
Nevertheless, these gender differences also exist at MFO locations in
Rome, Tel Aviv, and Cairo, where these factors are not necessarily a
concern. Leading practices among public organizations include
evaluating the composition of their workforce, identifying differences
in representation among groups, identifying where barriers may operate
to exclude certain groups, and addressing these barriers.
MFO Has Improved Financial Accountability, but Additional Oversight May
Be Needed:
The MFO has taken steps to improve its financial accountability and its
related financial internal controls over the past 9 years. It has also
taken additional steps to improve its financial reporting to the State
Department and to strengthen internal controls in response to
recommendations we made to the MFO through the Department of State in
1995. Since then, the external auditors of its financial statements
found no material weaknesses. The external auditors who reviewed MFO
internal controls determined that the internal controls they tested
were effective. However, internal control standards adopted by the MFO
suggest that the MFO could do more to enhance the external audit
function, particularly through the use of an independent audit
committee to review the scope of activities of the internal and
external auditors annually.[Footnote 15] MFO and some State officials
stated that this concern has been addressed by the new audit and review
mechanisms adopted by the MFO since our last report. Israeli and
Egyptian officials stated that their governments are satisfied with the
degree of financial oversight and control they exercise over the MFO.
Nevertheless, officials from State's OIG and senior managers within
State's NEA Bureau acknowledged that the bureau's new MFO management
advisory board needs to examine the issue of creating an external
oversight board.
MFO Strengthened Financial Accountability and Internal Controls in
Recent Years:
The MFO has taken steps to improve financial accountability and
strengthen internal controls. To keep the budget under $51 million and
improve the efficiency of the organization by emulating leading
commercial management practices, MFO has (1) adopted a business
activity tracking software program to improve management visibility
over financial activities and logistics management, and (2) hired a
management review officer to identify cost savings through the reviews
of management procedures and contracts.[Footnote 16] Although we have
not performed any direct testing of the software, or assessed the role
or performance of the management review officer, both initiatives
appear to be positive steps for MFO.
According to MFO staff, its adoption of a commercial business activity
tracking software package in 2001 led to greater management oversight
over all stages of procurement and other transactions and has
strengthened internal controls. MFO officials state that this new
system has built-in requirements for managerial approval at each step
of the procurement process. Under this system, MFO procurement officers
are assigned preset spending authority. Further, all procurement over
$50,000 and any sole source contract over $30,000 requires the approval
of the Director General. According to MFO officials, the visibility and
control provided by this system have also simplified the external
auditor's task in conducting its latest review of internal controls.
MFO officials and documents did not attribute any budget savings
directly to the implementation of this new system. However, they stated
that they were able to reduce the number of staff and centralize four
procurement operations. MFO officials did not make available the
results of any recent implementation testing, however, and noted that
many of the key performance indicators the system will track are under
development.
In 2001, MFO hired a management review officer to identify cost savings
through the reviews of management procedures, logistics contracts, and
compliance with MFO requirements and controls. At the request of the
Director General, this official performs some inspector general
functions by conducting investigations on specific operations and
accountability controls, and makes recommendations to improve
procedures.[Footnote 17] According to MFO records and estimates, the
MFO has conducted 19 "most efficient organization (i.e., leading
practice) reviews" through January 2004. The management review
officer's recommendations contributed to more than $1.6 million in
budgetary savings.
MFO Has Received "Clean" Opinions on Annual Financial Statements and
Reports on Internal Controls since 1995:
All MFO special reviews and annual financial audits since 1995 have
demonstrated to the satisfaction of the external auditor that MFO
maintained sufficient financial accountability. First, in late 1995,
its external auditor, Price Waterhouse, reviewed MFO's internal control
structure and made recommendations to strengthen them, which MFO agreed
to adopt.[Footnote 18] Second, in 1996, MFO switched to a new external
auditor, Reconta Ernst & Young, to conduct its annual financial audits.
It issued unqualified or clean opinions on MFO's financial statements
between 1996 and 2004.[Footnote 19] Third, MFO commissioned the auditor
to perform management compensation and benefits reviews in 1996, 1997,
and 1999, which concluded that management received compensation and
benefits substantially in compliance with MFO regulations.[Footnote 20]
In 2000, however, the Director General terminated further compensation
audits on the external auditor's recommendation that concluded that
these reviews duplicated the annual audit and other reviews. Fourth,
MFO commissioned Reconta Ernst & Young to perform separate internal
control reviews every 3 years beginning in 1998. Reports issued in 1998
and 2001 stated that its auditors assessed the MFO's use of internal
controls in relation to the criteria established in "Internal Control-
Integrated Framework" issued by the Committee of Sponsoring
Organizations (COSO) and found that the internal controls it tested
were effective.[Footnote 21]
MFO Could Strengthen the Independence of the External Auditor:
The Treaty Protocol and MFO administrative and financial regulations
provide the Director General responsibility for political, operational,
and financial control issues pertaining to the organization. However,
leading practices suggest that the MFO could better use independent
input and oversight over external audits. The Director General selects
and receives the reports of the external auditor. In addition, he can
change MFO operations, policies, and procedures without review,
consent, or approval from an oversight or senior management board. We
previously reported that this level of authority is unique among
international organizations, noting that other international
organizations have an independent governing body above the chief
executive to oversee and approve operations and finances. COSO internal
control standards note that an effective internal control environment
could depend in part on the attention and direction provided by
oversight groups. These groups, such as an active and effective board
of directors or audit committee, could enhance the audit function
through their various review duties.[Footnote 22] Our standards for
internal controls in the federal government similarly note the
importance of independent audit committees or senior management
councils as part of effective monitoring and audit quality
assurance.[Footnote 23]
MFO and some State officials stated that there is no need for an
oversight board to provide this extra degree of assurance. They note
that our concern about the Director General's autonomy--and the
potential for abuse of authority raised in our 1995 report--has been
mitigated by the external auditor's reviews of management compensation
and internal controls, as well as steps the MFO has taken to improve
financial accountability and strengthen internal controls. Moreover,
these officials stated that the organization is too small to employ a
full-time independent inspector general. Finally, Israeli and Egyptian
officials said that their respective governments are satisfied with the
degree of oversight that they exercise through formal annual meetings,
informal daily contacts, and review of MFO financial reports. However,
officials from State's OIG and NEA acknowledge that a State oversight
board could help ensure that the scope of work for audits are set
independently from MFO management direction. Neither State nor its OIG
has reviewed the scope of these external audits. The Inspector General
concluded that, while State can only advise the MFO on these matters,
the board is important because U.S. confidence in the integrity of the
MFO is crucial to its continued support for the force.
After 9 Years of Flat Budgets, MFO Faces Financial and Other
Challenges:
The MFO has maintained a flat budget of about $51 million for the past
9 years, but it faces a number of challenges that will make it
difficult to continue operating within its current budget. In
particular, the MFO must address the issue of replacing its antiquated
fleet of helicopters by fiscal year 2006. DOD projects that replacing
the fleet could cost about $18 million. As a result of this and other
pressures on the budget, the costs of supporting the MFO are likely to
increase if the MFO maintains its current level of operations. However,
Israeli and Egyptian officials stated that their governments do not
support increases in their contributions, and U.S. and MFO efforts to
obtain support from other contributors have not succeeded. U.S.
officials have yet to make a decision about increasing U.S. support to
the MFO or adjusting its current cost-sharing arrangements with the
MFO. In addition, the U.S. Army, State, and MFO officials have yet to
agree on who should pay the increased costs associated with changes in
the composition and pay scales of U.S. troops under current
arrangements.
MFO Has Maintained a Level Budget of $51 Million since 1995:
MFO financial reports show that the organization has kept its budget at
about $51 million between fiscal years 1995 and 2003. Contributions to
MFO's annual budget are paid by all parties in U.S. dollars. We
reviewed MFO's budget from fiscal years 1995 through 2002. We found
that when adjusted using a U.S. dollar inflation rate, MFO's budget has
declined 12 percent between fiscal years 1995 and 2002 (see fig. 4). We
also estimated the MFO's budget in constant international dollars
because MFO purchases goods and services in countries such as Egypt,
Israel, and the United States, where the U.S. dollar has different
purchasing power.[Footnote 24] Because similar goods are inexpensive in
dollar terms when purchased in Israel and Egypt as compared to the
United States, the purchasing power of MFO's budget was significantly
greater when measured in constant 1995 international dollars. This
figure was $72 million in fiscal year 1995 and $69 million in fiscal
year 2002. However, the MFO budget was $51 million in fiscal year 1995
and $45 million in fiscal year 2002 when measured in fiscal year 1995
dollars. Moreover, we found that, between fiscal years 1995 and 2002,
the MFO budget declined only about 5 percent using constant 1995
international dollars as compared with the 12 percent decline in fiscal
year 1995 U.S. dollars. This decline was partially offset because MFO
was able to reduce the economic impact of U.S. dollar inflation by
shifting more of its purchases to Egypt and Israel during this period.
MFO increased its purchases in Egypt and Israel from 43 percent of its
budget in 1995 to 54 percent in 2002 as measured in nominal U.S.
dollars. When measured in international dollars, however, goods and
services purchased from those two countries increased from an estimated
60 percent of the MFO budget in 1995 to almost 70 percent in 2002 (see
app. IV for details on calculating MFO budget in international
dollars).
Figure 4: MFO Budget in Nominal and Constant Purchasing Power Dollars:
[See PDF for image]
[End of figure]
MFO has attained cost savings in recent years through better management
oversight and reduction of inventory costs. As mentioned previously,
the adoption of a commercial business activity tracking software
package and the hiring of a management review officer in 2001 led to
greater efficiencies in logistics and facilities management, vehicle
maintenance, personnel, finance, and contracting. As a result,
according to a senior MFO official, recommendations of the management
review officer contributed to almost $1.7 million in savings. Moreover,
according to a senior MFO official, more effective management of
tracking of freight costs and services has contributed to a 46 percent
reduction in total storage and freight costs between fiscal years 2002
and 2003, or a savings of $265,000. Furthermore, its projects to
connect its two camps in the Sinai to the commercial Egyptian power
grid is projected by MFO to save about $825,000 a year on electricity
costs, once the North Camp project is completed in 2004.
New Challenges Complicate Future Budget Outlook:
One of the key cost issues for the immediate future is the replacement
of aging UH-1H Huey helicopters. The U.S. Army provides an aviation
company with 10 UH-1H helicopters to the MFO to perform various
mission-related tasks for the MFO. As of December 2003, the unit had
about 97 associated Army personnel. According to DOD officials, U.S.
Army plans call for the retirement of its entire UH-1H helicopter fleet
by fiscal year 2006. Furthermore, Army officials stated that DOD has
considered various options as replacements for the MFO helicopter fleet
and is waiting for the Secretary of Defense's decision on this matter.
First, the Army is considering outsourcing its MFO aviation unit to a
private contractor.[Footnote 25] This option would reduce U.S. military
personnel participation in the MFO, but preliminary DOD estimates
indicate that it would cost about $18 million in the first year and $13
million annually thereafter.[Footnote 26] Second, according to U.S.
Army officials, Army is considering replacing the MFO Hueys with eight
UH-60 Black Hawk helicopters (see fig. 5). These officials stated that
MFO prefers the outsourcing option because there would be no need to
upgrade hangar facilities and other infrastructure to support the Black
Hawks, thereby limiting their financial obligation. Officials from
Israel and Egypt stated that they would leave the decision to the
United States. They do not, however, want to incur additional financial
obligations.
Figure 5: U.S. Army Helicopter Options for MFO Service:
[See PDF for image]
[End of figure]
The need to replace aging infrastructure and fund new capital
improvement projects will also require additional funding. According to
U.S. military officers in the Sinai, the North Camp accommodations for
the soldiers will need to be replaced over the next 2 to 5 years. A
senior MFO official stated that the MFO has begun to consider replacing
some of these accommodations and will be exploring several options in
the near term. However, no plan has been finalized, and the official
did not have cost estimates to provide as of March 2004.
Efforts to Increase Other Sources of Support Have Not Generally
Succeeded:
As part of U.S. efforts to reduce troop deployments throughout the
world to better meet the demands of the war on terror--and the cost of
these deployments--the United States has tried to obtain troop and
financial contributions from other nations to reduce its MFO
obligation, according to U.S. officials.[Footnote 27] To date, these
efforts have not been successful. In 2003, the Department of State
requested military contributions from more than 20 countries that would
then enable the United States to draw down its forces. Five countries
responded favorably, but only an offer by Uruguay to send additional
transportation personnel to replace a U.S. Army transport company was
considered feasible by the MFO. The increased Uruguayan deployment in
July 2003 allowed the Army to draw down its MFO contingent by 74
troops.[Footnote 28] U.S. officials also requested financial
contributions as part of this query, but other countries declined to
provide this support. U.S. attempts to obtain increased financial
contributions from Israel and Egypt have also not been successful.
Army, State, and MFO Have Yet to Agree as to Who Should Pay the
Increased Expense for Providing U.S. Troops to the MFO:
In addition to the annual U.S. financial contribution to the MFO of
about $16 million, the United States incurs an annual expense for
deploying several hundred troops to the MFO that averaged about $45
million annually from fiscal years 1995 through 2003. The cost of
supplying U.S. troops to MFO has risen since fiscal year 1999, even
though the number of U.S. troops has declined (see figs. 6 and 7). The
increase is due to rises in salaries and in the amount of special pay
provided to U.S. troops. The MFO agreed to compensate the U.S. Army for
special pay categories and other allowances incurred when U.S. troops
are deployed to the Sinai. However, in recent years, the U.S. Army has
raised the rates for some cost categories and has created additional
costs categories that did not exist at the time of the initial or
revised cost-sharing arrangement. Currently, Army disagrees with State
and MFO over who should pay these additional costs.
Figure 6: Total Number of MFO Troops (including U.S. troops) and Number
of U.S. Troops for Fiscal Years 1995 through 2003:
[See PDF for image]
[End of figure]
Figure 7: Cost of U.S. Participation in MFO:
[See PDF for image]
[End of figure]
The increased expense for supplying the MFO with U.S. troops is due
primarily to a rise in troop salaries, which are paid by the Army, and
changes in special pay categories such as foreign duty pay and family
separation pay, which are partly paid for by the MFO. For example,
salaries have increased because beginning in 2002, National Guard
troops have been deployed instead of active duty soldiers. National
Guard troops tend to have been in grade longer than active duty
soldiers and are consequently paid more. The U.S. Army pays for the
increases in troop salaries. (See app. V for details on the cost of
U.S. participation in MFO between fiscal years 1995 and 2003.)
The MFO and the United States agreed to share the costs of providing
U.S. troops to the MFO in 1982 and revised these arrangements in 1994
and 1998. Under these agreements, the Army agreed to credit the MFO for
the costs these troops would have normally incurred had they remained
in the United States, including food and lodging, base support, and
operations and maintenance costs. The MFO agreed to pay some of the
additional costs incurred by the deployment of U.S. troops to the
Sinai, including special pay categories and other allowances.
In the revised 1998 arrangement, the U.S. Army and the MFO did not
reach specific agreement on how Imminent Danger Pay would be shared.
While the agreement increased rates for other special pay categories,
these rates were less than those established in U.S. law. Army
officials believe that MFO should pay these increased costs for
supplying U.S. troops; however, MFO and State officials disagree with
this position.[Footnote 29] According to an Army official, the Army
will seek MFO reimbursements for special pay categories totaling $3.3
million for fiscal year 2004; an MFO official stated in June 2004 that
the MFO protested this action to the Army and Department of State. In
addition, Army officials stated that MFO should pay a greater share of
the costs for sustaining National Guard troops while they are on duty
at the MFO. Army officials reduced by $1 million the credit it will
provide to the MFO for sustaining the U.S. infantry battalion in fiscal
year 2004 because the formula it used to calculate the credit was out-
of-date since National Guard battalions have been sent to the MFO in
place of active duty units in recent years.[Footnote 30] In May 2004,
U.S. Army and State officials met with MFO officials to discuss
differences but did not present a unified U.S. government position on
how the cost-sharing arrangement should be modified.
Conclusion:
The two parties to the treaty and the United States are satisfied that
the MFO is effectively fulfilling its mission of helping to maintain
peace between Egypt and Israel. MFO has maintained its peacekeeping
operation with a multinational force in the Middle East, a troubled and
unstable part of the world. The organization has modified several of
its policies and practices to make them consistent with leading
practices in financial management and personnel. There are, however,
opportunities for the organization to further improve in these areas.
MFO has made several changes to its operations even though its budget
has been flat for the past 9 years. The organization has benefited
greatly because it has increased the amount of goods and services
purchased in Israel and Egypt where the purchasing power of the U.S.
dollar had increased during that period. Despite these changes, MFO
contributors may face increased budgetary challenges due to the
possible replacement of MFO's helicopter fleet. State is the
organization charged with overseeing U.S. participation in the MFO and
recruits State employees to fill key MFO positions. Nevertheless, State
has not provided employees who possess the expertise to carry out many
of its financial oversight responsibilities. In addition, MFO raised
concerns about the leadership capabilities of some of the staff whom
State recruited for the chief civilian observer post. Finally, since
the MFO does not have an external oversight board, as do many
international organizations, effective State oversight of MFO and
agreement between the United States and the MFO on cost-sharing
arrangements is essential to ensure that the cost of U.S. troop
participation is equitably shared.
Recommendations for Executive Action:
While NEA has begun to address some of the issues that are stated
below, it has not established timelines for their resolution. To
promote improved oversight of the MFO and ensure that NEA redresses
these issues, we recommend that the Secretary of State take the
following four actions:
* resolve the recurring concern of finding qualified candidates for the
chief of the civilian observer unit;
* ensure that staff with accounting expertise are available to carry
out NEA's financial oversight responsibilities for MFO and, if
necessary, review the terms of MFO's external audits to ensure that
they are appropriate;
* direct the MFO management advisory board to monitor and document
NEA's compliance with its guidelines for overseeing the MFO; and:
* work with Army officials to reconcile differences between Army and
State views about the current MFO cost-sharing arrangements.
Agency Comments and Our Evaluation:
The Department of State and MFO provided technical and written comments
on a draft of this report (see apps. VI and VII). The Department of
Defense provided oral comments and generally agreed with our findings.
It also provided technical comments that we incorporated where
appropriate. The Department of State agreed with three of the four
recommendations and did not respond to one of the recommendations.
State agreed with our conclusion that it had experienced problems in
consistently recruiting chief observers with the necessary leadership
skills and stated that the new State MFO Management Advisory Board is
considering measures to encourage highly qualified State employees to
fill the chief observer position. State agreed with our recommendation
that staff with accounting expertise carry out NEA's financial
oversight responsibilities for MFO. However, State believes that the
current NEA oversight regime provides the assurances necessary and its
limited resources do not allow hiring additional accounting personnel
to evaluate MFO's financial practices. As a result, State plans to ask
the OIG to periodically evaluate MFO's accounting and financial
practices. We do not agree that the current oversight regime provides
the assurances necessary regarding MFO's finances. We found that NEA
did not perform several aspects of MFO financial management oversight-
-such as evaluating MFO financial practices--because of a lack of
expertise among NEA staff. We agree, however, that having the OIG
periodically review MFO accounting and financial practices is
sufficient. Finally, State also agreed with our recommendation to work
with Army to reconcile differences about current MFO cost sharing
arrangements.
State was not responsive to our recommendation to direct the MFO
Management Advisory Board to monitor and document NEA's compliance with
its guidelines for overseeing MFO. State responded that it plans to
supplement the annual report to Congress that describes its MFO
oversight activities with quarterly reports to the newly formed
advisory board. The OIG recommended that NEA establish an advisory
board because it found that while NEA policy oversight was strong, its
management and personnel oversight were not as satisfactory. While the
board works to define its authority and responsibilities, it should
ensure that NEA exercise more concerted oversight of MFO activities by
complying with NEA guidelines and documenting its efforts for
overseeing MFO.
The MFO generally agreed with the report's findings. The MFO welcomed
the report's recommendations for State to improve the recruiting
process for the chief observer and for the U.S. government to develop a
unified position regarding the Army's claims for increased payments by
the MFO. MFO also stated that it would consider our report's findings
regarding additional outside mediation or review mechanisms for
complaints involving discrimination and sexual harassment. It also
noted that it will also consider our findings of a perceived gender
imbalance in the MFO workforce.
The MFO took exception to our finding that, with few exceptions, MFO
employees tend to stay in the same positions for which they were
contracted. They stated that six headquarters' employees had been
promoted or transferred from other positions. However, the MFO
personnel manual states that there is not a career path for employees
due to the temporary nature of the organization. Moreover, MFO does not
have systems in place that establish standard employment grades for its
positions, requirements for competitive promotion opportunities, or
advertise opportunities for promotion. We interviewed several long-
serving staff in the field who stated that opportunities for
advancement were not available and that they have remained in the
position for which they were hired. Finally, MFO accepts that there are
opportunities to improve its human resource management but noted that
the adoption of U.S. government or U.N. human resource practices may
entail significant costs and overhead for a small organization. We
agree that organizations must be careful to consider their unique
characteristics and circumstances when considering the applicability of
human resources practices that we have identified in appendix III. MFO
also disagreed with the factual accuracy of one of the numbers in
appendix II. We made changes to reflect MFO corrections.
We are sending copies of this report to other interested Members of
Congress. We are also providing copies of this report to the Secretary
of State, the Secretary of Defense, and the Director General of the
Multinational Force and Observers. We will also make copies available
to others upon request. In addition, this report will be available at
no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-8979 or christoffj@gao.gov, or Phyllis Anderson
at (202) 512-7364 or andersonp@gao.gov. In addition to the persons
named above, B. Patrick Hickey, Lynn Cothern, Elizabeth Guran, and
Bruce Kutnick made key contributions to this report.
Sincerely,
Signed by:
Joseph A. Christoff
Director, International Affairs and Trade:
List of Requesters:
The Honorable Joseph I. Lieberman:
Ranking Minority Member:
Committee on Governmental Affairs:
United States Senate:
The Honorable Daniel K. Akaka:
Ranking Minority Member:
Subcommittee on Financial Management, the Budget, and International
Security:
Committee on Governmental Affairs:
United States Senate:
The Honorable Richard J. Durbin:
Ranking Minority Member:
Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia:
Committee on Governmental Affairs:
United States Senate:
The Honorable Mark Pryor:
United States Senate:
[End of section]
Appendix I: Scope and Methodology:
We (1) assessed the Department of State's oversight responsibilities
for U.S. participation in the MFO, (2) reviewed MFO's personnel
policies and practices, (3) examined MFO's financial management and
accountability, and (4) reviewed emerging budgetary challenges.
We focused our audit work at MFO and State on activities and
transactions starting in 1996 through 2004, the period subsequent to
the prior GAO report. We visited MFO offices in Rome, Cairo, and Tel
Aviv and force installations in the Sinai Peninsula. We also met with
the Israeli and Egyptian Ministries of Foreign Affairs and Defense in
Jerusalem and Cairo.
To assess the Department of State's oversight responsibilities, we
reviewed the oversight guidelines developed by the Office of Regional
Affairs of State's Bureau of Near Eastern Affairs (NEA/RA) and
supporting documentation including State's Annual Reports to Congress,
cables, MFO Director General Annual Reports for the Trilateral
Conferences of Major Fund Contributors, MFO external auditors'
financial statement audit and internal control reports and turnover
statistics of staff working in the civilian observer unit. We could not
determine the full extent of State's efforts because it did not
document the nature, quality, and range of its oversight activities. We
also met with State/NEA officials responsible for overseeing U.S.
participation in the MFO to discuss the frequency, nature, and extent
of State contact with MFO. We discussed the views of the Egyptian and
Israeli governments on the MFO's performance with military and foreign
affairs officials from both countries. We interviewed NEA and MFO
officials and current and former members of the Civilian Observer Unit
to obtain an understanding of State's recruiting efforts and
interaction with the COU. We met with officials from State's Office of
Inspector General (OIG) to discuss their inspection of NEA, and we also
reviewed relevant OIG reports. In addition, we assessed the status of
State's compliance with prior GAO recommendations.
To review MFO's personnel management system, we examined MFO personnel
regulations, internal reports and briefings that described personnel
policy changes, personnel statistics, performance appraisal forms, and
other documentation on the organization's personnel practices. We also
examined leading human capital management policies and practices of
public organizations to determine if MFO personnel regulations and
policies relating to employee expectation setting, performance
appraisals, employee grievance processes, alternative dispute
resolution mechanisms, and sexual harassment policies followed the
spirit of leading practices. We interviewed MFO officials, members of
the civilian observer unit, MFO staff, and NEA officials to obtain
their views on the organization's personnel system.
To examine MFO's financial management and accountability, we reviewed
the external auditors' financial statement audits and internal control
reports, other special reviews performed by the external auditor, and
reports completed by State's OIG. We also reviewed MFO management
review officer's reports, MFO financial regulations, and documentation
on MFO's recently installed financial management system. We discussed
the scope and nature of the management review officer's position and
recent work with MFO officials. We interviewed NEA, DOD, MFO, Israeli,
and Egyptian officials to determine their views on MFO's financial
management and the degree of accountability of the Director General.
To report on some of the potential budgetary challenges MFO may face,
we examined budget data and supporting documentation for fiscal years
1995 through 2003 provided by MFO, NEA, and the U.S. Army's Office of
Assistant Secretary of the Army for Financial Management and
Comptroller. We discussed with DOD, State, and MFO officials trend data
on costs and estimates for substituting U.S. Army UH-60 Black Hawk
helicopters or a private contractor's helicopter unit for the current
MFO force of UH-1H Huey helicopters. We did not verify the accuracy or
completeness of the estimates or verify the accuracy of the budgetary
savings MFO officials associated with particular cost saving
initiatives.
To assess the reliability of the data on the costs associated with U.S.
participation in the MFO, we (1) interviewed State, Army, and MFO
officials about the sources of their data and the means used to
calculate costs, (2) reviewed MFO's annual financial reports and
State's annual report to Congress on the MFO, (3) traced U.S. Army's
reported costs for its contributions to the MFO back to the source
documents, (4) traced the Army's calculation of the costs associated
with providing salaries to the soldiers stationed with the MFO--these
salary costs constitute over 80 percent of the total costs of the U.S.
Army contribution to the MFO-back to the DOD personnel composite
standard pay and reimbursement rates for fiscal years 1999 through
2003, (5) performed tests on the data provided by the U.S. Army
regarding the cost of U.S. participation in the MFO between 1999 and
2003 to check for obvious errors or miscalculations, and (6) reviewed
the report of the MFO's independent external auditor on State's
contributions. However, we did not audit the data and are not
expressing an opinion on them. We determined that the data were
sufficiently reliable for the purpose of reporting the total costs of
U.S. participation in the MFO.
We conducted our review from September 2003 to May 2004 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II: MFO's Small but Challenging Workforce:
MFO has a small and varied professional civilian workforce of 108
international and local national staff located in Rome, Cairo, and Tel
Aviv.[Footnote 31] Contractors provide an additional 59 expatriate
support staff and 454 local workers. Eight of the 13 management-level
employees are U.S. citizens. The international staff, including 14 U.S.
citizens, support and direct the operations of 1,685 peacekeeping
troops from 11 countries with unit or individual tours of duty varying
between about 2 months and 1 year.[Footnote 32] A further 15 U.S.
citizens serve in the civilian observer unit (COU): about half the
observers, including the chief observer, temporarily resign from the
State Department to fulfill 1-to 2-year contract commitments; the other
half are civilian contractors, usually recruited from retired U.S.
military personnel serving under renewable 2-year contracts. Table 1
provides details on MFO personnel locations, types, and numbers.
Table 1: MFO Civilian Staff by Location and Type, 2003:
Location: Rome;
International-managerial and other direct hire civilians: 12;
COU staff (U.S.) Location: N/A;
National - Administration & Support (Italian and Israeli): 11;
Total MFO employees: 23;
Local-Professional Contract Hire Civilians (Egyptian): N/A;
Contracted Technical and Support Staff[A] (expatriates): N/A;
Sub-Contracted Local Technical and Support Personnel (Egyptian)[B]:
N/A;
Total staff at MFO sites: 23.
Location: Tel Aviv;
International-managerial and other direct hire civilians: 1;
COU staff (U.S.) Location: N/A;
National - Administration & Support (Italian and Israeli): 18;
Total MFO employees: 19;
Local-Professional Contract Hire Civilians (Egyptian): N/A;
Contracted Technical and Support Staff[A] (expatriates): N/A;
Sub-Contracted Local Technical and Support Personnel (Egyptian)[B]:
N/A;
Total staff at MFO sites: 19.
Location: Cairo;
International-managerial and other direct hire civilians: 2;
COU staff (U.S.) Location: N/A;
National - Administration & Support (Italian and Israeli): 0;
Total MFO employees: 2;
Local-Professional Contract Hire Civilians (Egyptian): 14;
Contracted Technical and Support Staff[A] (expatriates): N/A;
Sub-Contracted Local Technical and Support Personnel (Egyptian)[B]:
N/A;
Total staff at MFO sites: 16.
Location: Sinai;
International-managerial and other direct hire civilians: 49;
COU staff (U.S.) Location: 15;
National - Administration & Support (Italian and Israeli): N/A;
Total MFO employees: 64;
Local-Professional Contract Hire Civilians (Egyptian): 15;
Contracted Technical and Support Staff[A] (expatriates): 59;
Sub-Contracted Local Technical and Support Personnel (Egyptian)[B]:
454;
Total staff at MFO sites: 592.
Total;
International-managerial and other direct hire civilians: 64;
COU staff (U.S.): 15;
National - Administration & Support (Italian and Israeli): 29;
Total MFO employees: 108;
Local- Professional Contract Hire Civilians (Egyptian): 29;
Contracted Technical and Support Staff[A] (expatriates): 59;
Sub-Contracted Local Technical and Support Personnel (Egyptian)[B]:
454;
Total staff at MFO sites: 650.
[A] U.S.-based firm Holmes and Narver Services Incorporated (HNSI)
employs the expatriate technical and support staff.
[B] An HNSI subcontractor, Care Services, Incorporated, provides these
employees.
[End of table]
MFO working conditions present challenges for management and staff. MFO
workers have limited prospects for advancement or job mobility because
the organization views itself as having a temporary mission. The
international workforce has decreased by about 62 percent since 1982.
With few exceptions, MFO employees tend to stay in the same positions
for which they were contracted and its many long-serving workers in
administrative positions lack opportunities to progress to higher
positions.
MFO managers stated that while MFO's pay scales and other benefits help
it successfully compete for staff with oil companies and other
commercial international organizations in the region, it is challenging
to find civilian employees with the ability to work successfully in the
austere military atmosphere and isolated living environment in the
Sinai. The main camp at El Gorah in the northern part of the Sinai is
in a sparsely populated area with few amenities outside the camp. Only
17 military and civilian positions in the Sinai allow for accompaniment
by a spouse, and facilities for children are lacking. Visits by family
members are also very limited. The force's personnel system reflects
the "temporary" nature of the MFO's mission; most international
contractors serve under initial 2-year contracts that can be renewed at
the discretion of the Director General. According to MFO documents,
employment with the MFO is not a career service and initial employment
with the MFO does not carry any expectation of contract renewal or
extension. Several long-term employees stated that there are limited
job progression opportunities with the MFO. Heightened concerns about
terrorism since September 11, 2001, and ongoing violence in areas under
Israeli control has led to significantly restricted opportunities for
travel off the bases.
[End of section]
Appendix III: GAO's Model for Strategic Human Capital Management
Planning:
U.S. and international public organizations have found that strategic
workforce planning is essential to (1) aligning an organization's human
capital program with its current and emerging mission and programmatic
goals and (2) developing long-term strategies for acquiring,
developing, and retaining staff to achieve programmatic goals.[Footnote
33] We have developed a strategic human capital management model based
on leading practices to help U.S. and international public
organizations assess their efforts to address the key challenges to
developing a consistent and strategic approach to human capital
management. We caution that agencies applying this model must be
careful to recognize the unique characteristics and circumstances that
make organizations different from one another and to consider the
applicability of practices that have worked elsewhere to their own
management practices.[Footnote 34]
Our work has shown that the public organizations face four key human
capital challenges that undermine agency efficiency. The model consists
of four cornerstones designed to help public organizations address the
challenges in the four areas--leadership; strategic human capital
planning; acquiring, developing, and retaining talent; and results-
oriented organizational culture. Each cornerstone is associated with
two critical factors that an agency's approach to strategic human
capital planning must address. Moreover, for each of the eight critical
success factors, the model describes three levels of progress in an
agency's approach to strategic human capital planning:
* Level 1: The approach to human capital is largely compliance-based;
the agency has yet to realize the value of managing human capital
strategically to achieve results; existing human capital approaches
have yet to be assessed in light of current and emerging agency needs.
* Level 2: The agency recognizes that people are a critical asset that
must be managed strategically; new human capital policies, programs,
and practices are being designed and implemented to support mission
accomplishment.
* Level 3: The agency's human capital approaches contribute to improved
agency performance; human capital considerations are fully integrated
into strategic planning and day-to-day operations; the agency is
continuously seeking ways to further improve its "people management" to
achieve results.
Figure 8 illustrates the critical success factors an organization in
the second level of progress must address as it develops a strategic
approach to managing its human capital.
Figure 8: Excerpts from GAO's Strategic Human Capital Management Model:
[See PDF for image]
[End of figure]
[End of section]
Appendix IV: Calculating MFO Budget in Terms of International Dollars:
The MFO receives dollar contributions from Egypt, Israel, and the
United States and purchases goods and services from Egypt, Israel, the
United States, and other countries. The MFO's budget has remained flat
at 51 million in nominal dollars between fiscal years 1995 and 2002,
although it has declined about 12 percent over the same period when
adjusted for U.S. inflation. However, MFO officials stated that they
increased the purchasing power of its budget by shifting its purchases
of goods and services away from the United States and other countries
to relatively lower cost Egyptian and Israeli markets. As figure 9
demonstrates, MFO spending in Egypt and Israel rose from 43 to 54
percent of the budget between fiscal years 1995 and 2002. On average,
the MFO spent 26 percent of its budget in Egypt and 23 percent in
Israel in this period. By converting the MFO's budget into
international dollars, we are able to better assess the impact of these
shifts to the lower cost Egyptian and Israeli markets on the overall
purchasing power of the MFO budget.
Figure 9: Percentage of MFO Dollar Budget Spent in Israel and Egypt:
[See PDF for image]
[End of figure]
As table 2 demonstrates, expressing the MFO budget in international
dollars reveals that: (1) the purchasing power of the budget--ranging
between $72.3 million in fiscal year 1995 and $69 million in fiscal
year 2002-was significantly higher than its nominal level of $51
million suggests; and (2) the real decline in the budget between fiscal
years 1995 and 2002 was about 5 percent rather than 12 percent.
Table 2: MFO Expenditures in Nominal and International Dollars:
In 1995 international dollars, millions:
Egypt;
Fiscal years: 1995: $32.1;
Fiscal years: 1996: $31.0;
Fiscal years: 1997: $29.6;
Fiscal years: 1998: $32.6;
Fiscal years: 1999: $31.8;
Fiscal years: 2000: $30.6;
Fiscal years: 2001: $29.4;
Fiscal years: 2002: $34.0.
Israel;
Fiscal years: 1995: $10.9;
Fiscal years: 1996: $10.4;
Fiscal years: 1997: $10.5;
Fiscal years: 1998: $12.5;
Fiscal years: 1999: $12.4;
Fiscal years: 2000: $12.5;
Fiscal years: 2001: $12.9;
Fiscal years: 2002: $14.3.
US and other countries[A];
Fiscal years: 1995: $29.4;
Fiscal years: 1996: $28.1;
Fiscal years: 1997: $27.1;
Fiscal years: 1998: $23.3;
Fiscal years: 1999: $23.2;
Fiscal years: 2000: $22.3;
Fiscal years: 2001: $22.2;
Fiscal years: 2002: $20.8.
Total;
Fiscal years: 1995: $72.3;
Fiscal years: 1996: $69.5;
Fiscal years: 1997: $67.2;
Fiscal years: 1998: $68.3;
Fiscal years: 1999: $67.4;
Fiscal years: 2000: $65.4;
Fiscal years: 2001: $64.5;
Fiscal years: 2002: $69.0.
In nominal dollars, millions:
Egypt;
Fiscal years: 1995: $11.7;
Fiscal years: 1996: $12.2;
Fiscal years: 1997: $12.4;
Fiscal years: 1998: $14.2;
Fiscal years: 1999: $14.2;
Fiscal years: 2000: $14.4;
Fiscal years: 2001: $13.6;
Fiscal years: 2002: $14.2.
Israel;
Fiscal years: 1995: $10.1;
Fiscal years: 1996: $10.3;
Fiscal years: 1997: $10.6;
Fiscal years: 1998: $12.4;
Fiscal years: 1999: $12.1;
Fiscal years: 2000: $12.5;
Fiscal years: 2001: $12.9;
Fiscal years: 2002: $13.5.
US and other countries[A];
Fiscal years: 1995: $29.2;
Fiscal years: 1996: $28.5;
Fiscal years: 1997: $28.0;
Fiscal years: 1998: $24.4;
Fiscal years: 1999: $24.7;
Fiscal years: 2000: $24.1;
Fiscal years: 2001: $24.5;
Fiscal years: 2002: $23.3.
Total;
Fiscal years: 1995: $51.0;
Fiscal years: 1996: $51.0;
Fiscal years: 1997: $51.0;
Fiscal years: 1998: $51.0;
Fiscal years: 1999: $51.0;
Fiscal years: 2000: $51.0;
Fiscal years: 2001: $51.0;
Fiscal years: 2002: $51.0.
Budget in real fiscal year 1995 dollars, millions;
Fiscal years: 1995: $51.0;
Fiscal years: 1996: $50.0;
Fiscal years: 1997: $49.2;
Fiscal years: 1998: $48.6;
Fiscal years: 1999: $48.0;
Fiscal years: 2000: $47.0;
Fiscal years: 2001: $45.9;
Fiscal years: 2002: $45.1.
Nominal dollars (percentage):
Egypt;
Fiscal years: 1995: 23%;
Fiscal years: 1996: 24%;
Fiscal years: 1997: 24%;
Fiscal years: 1998: 28%;
Fiscal years: 1999: 28%;
Fiscal years: 2000: 28%;
Fiscal years: 2001: 27%;
Fiscal years: 2002: 28%.
Israel;
Fiscal years: 1995: 20%;
Fiscal years: 1996: 20%;
Fiscal years: 1997: 21%;
Fiscal years: 1998: 24%;
Fiscal years: 1999: 24%;
Fiscal years: 2000: 25%;
Fiscal years: 2001: 25%;
Fiscal years: 2002: 26%.
US and other countries[A];
Fiscal years: 1995: 57%;
Fiscal years: 1996: 56%;
Fiscal years: 1997: 55%;
Fiscal years: 1998: 48%;
Fiscal years: 1999: 48%;
Fiscal years: 2000: 47%;
Fiscal years: 2001: 48%;
Fiscal years: 2002: 46%.
1995 international dollars (percentage):
Egypt;
Fiscal years: 1995: 44%;
Fiscal years: 1996: 45%;
Fiscal years: 1997: 44%;
Fiscal years: 1998: 48%;
Fiscal years: 1999: 47%;
Fiscal years: 2000: 47%;
Fiscal years: 2001: 46%;
Fiscal years: 2002: 49%.
Israel;
Fiscal years: 1995: 15%;
Fiscal years: 1996: 15%;
Fiscal years: 1997: 16%;
Fiscal years: 1998: 18%;
Fiscal years: 1999: 18%;
Fiscal years: 2000: 19%;
Fiscal years: 2001: 20%;
Fiscal years: 2002: 21%.
US and other countries[A];
Fiscal years: 1995: 41%;
Fiscal years: 1996: 40%;
Fiscal years: 1997: 40%;
Fiscal years: 1998: 34%;
Fiscal years: 1999: 34%;
Fiscal years: 2000: 34%;
Fiscal years: 2001: 34%;
Fiscal years: 2002: 30%.
Source: GAO calculations using World Bank and MFO data.
[A] The MFO reported its total expenditures in Egypt, Israel, and the
United States between 1995 and 2002, but breakdowns are not available
for the other countries. For computational purposes, we assumed that
purchases made in the other countries are made in the United States.
[End of table]
Moreover, figure 10 demonstrates that MFO purchased a larger proportion
of its goods and services in Egypt and Israel when calculated in
international dollars than the nominal-dollar budget expenditures
suggest--70 percent versus 54 percent for fiscal year 2002, for
example. Also, it purchased a significantly greater percentage of its
budget in Egypt than in Israel on average when calculated in
international dollars during this period--46 percent versus 18 percent
on average.[Footnote 35]
Figure 10: Percentage of MFO International Dollar Budget Spent in
Israel and Egypt:
[See PDF for image]
[End of figure]
An international dollar is equivalent to the amount of goods and
services that 1 U.S. dollar can purchase in the United States. Two
steps are required to convert an amount valued in local currency into
international dollars:
* First, convert the local currency figure into U.S. dollars using the
official exchange rate; and:
* Second, divide this dollar amount by the country-specific purchasing
power parity (PPP) conversion factor to official exchange rate ratio.
The PPP conversion factor converts into international dollars the cost
of a basket of tradable and nontradable goods and services valued in
local currency units (pounds in the case of Egypt and shekels in the
case of Israel). The PPP conversion factor is the number of local
currency units required to buy the same amount of goods and services in
the domestic market that a U.S. dollar would buy in the United States.
For example, a basket of goods that could be purchased in the United
States for $1, equal by definition to 1 international dollar, could be
bought in Egypt for 1.259 Egyptian pounds in 1995. Therefore, the PPP
conversion factor is 1.259 Egyptian pounds per international dollar. In
calendar year 1995, the official annual average exchange rate (based on
monthly averages) was 3.392 Egyptian pounds per U.S. dollar. The ratio
of the PPP conversion factor to the official exchange rate is
0.371.[Footnote 36] The nominal dollar amount the MFO spent in Egypt in
fiscal year 1995 ($11.7 million as shown in table 2) is divided by the
fiscal year ratio, to compute the international dollar amount of 32.2
million.[Footnote 37]
[End of section]
Appendix V: Cost of U.S. Participation in MFO:
The United States agreed in 1981 to provide one third of the annual MFO
budget and provide a military contingent in support of the force. Annex
II of the 1982 Exchange of Letters between the MFO Director General and
the U.S. Secretary of State set the financial arrangements for the U.S.
military contribution. The Memoranda of Understandings between the MFO
and the Department of the Army established in 1994 and 1998 confirm
additional understandings and procedures to supplement Annex II of the
1982 Exchange of Letters.
Under the terms of these cost-sharing arrangements, U.S. costs to
support the MFO has increased from a low of $55.8 million in fiscal
year 1996 to $70.8 million in fiscal year 2003 as depicted in table 3-
-a 20 percent increase overall. While State Department's contribution
to the annual MFO budget has averaged about $16 million since fiscal
year 1995, the number of U.S. military personnel participating in the
MFO has declined 11 percent since then, as depicted in table 4 below.
However the cost of U.S. military participation has risen approximately
25 percent between fiscal year 1996 and 2003.
Table 3: Cost of U.S. Participation in MFO, Fiscal Years 1995 through
2003:
Millions of dollars.
1. Total Net Cost Of DOD Contributions (A-B);
Fiscal years: 1995: $45.37;
Fiscal years: 1996: $40.34;
Fiscal years: 1997: $41.04;
Fiscal years: 1998: $42.95;
Fiscal years: 1999: $42.55;
Fiscal years: 2000: $44.64;
Fiscal years: 2001: $45.20;
Fiscal years: 2002: $50.82;
Fiscal years: 2003: $54.58.
A. Total Non-Reimbursable Costs for DOD Contributions;
Fiscal years: 1995: $47.27;
Fiscal years: 1996: $42.58;
Fiscal years: 1997: $43.51;
Fiscal years: 1998: $44.29;
Fiscal years: 1999: $42.78;
Fiscal years: 2000: $45.12;
Fiscal years: 2001: $46.43;
Fiscal years: 2002: $49.94;
Fiscal years: 2003: $55.62.
Salary Cost of Troops;
Fiscal years: 1995: $40.68;
Fiscal years: 1996: $35.72;
Fiscal years: 1997: $36.03;
Fiscal years: 1998: $35.75;
Fiscal years: 1999: $34.46;
Fiscal years: 2000: $36.61;
Fiscal years: 2001: $37.80;
Fiscal years: 2002: $39.92;
Fiscal years: 2003: $45.50.
Predeployment Training;
Fiscal years: 1995: $1.13;
Fiscal years: 1996: $1.07;
Fiscal years: 1997: $0.99;
Fiscal years: 1998: $1.06;
Fiscal years: 1999: $0.94;
Fiscal years: 2000: $1.09;
Fiscal years: 2001: $1.32;
Fiscal years: 2002: $2.15;
Fiscal years: 2003: $1.20.
Special Pays and Allowances: Family Separation / Imminent Danger/ Hardship/ Foreign Duty/ Per Diem;
Fiscal years: 1995: $0.31;
Fiscal years: 1996: $0.30;
Fiscal years: 1997: $1.39;
Fiscal years: 1998: $2.12;
Fiscal years: 1999: $2.05;
Fiscal years: 2000: $1.89;
Fiscal years: 2001: $1.88;
Fiscal years: 2002: $2.19;
Fiscal years: 2003: $3.01.
MFO-Related Travel;
Fiscal years: 1995: $0.07;
Fiscal years: 1996: $0.12;
Fiscal years: 1997: $0.08;
Fiscal years: 1998: $0.04;
Fiscal years: 1999: $0.11;
Fiscal years: 2000: $0.14;
Fiscal years: 2001: $0.13;
Fiscal years: 2002: $0.18;
Fiscal years: 2003: $0.05.
Training, Base Operations and Subsistence Costs[A];
Fiscal years: 1995: $4.47;
Fiscal years: 1996: $4.81;
Fiscal years: 1997: $4.57;
Fiscal years: 1998: $4.82;
Fiscal years: 1999: $4.74;
Fiscal years: 2000: $4.75;
Fiscal years: 2001: $4.63;
Fiscal years: 2002: $4.60;
Fiscal years: 2003: $3.51.
Helicopter Operations & Maintenance[A];
Fiscal years: 1995: $0.61;
Fiscal years: 1996: $0.57;
Fiscal years: 1997: $0.45;
Fiscal years: 1998: $0.51;
Fiscal years: 1999: $0.49;
Fiscal years: 2000: $0.63;
Fiscal years: 2001: $0.67;
Fiscal years: 2002: $0.91;
Fiscal years: 2003: $1.08.
B: Total Net DOD Costs Reimbursed by MFO (B1-B2);
Fiscal years: 1995: $1.90;
Fiscal years: 1996: $2.24;
Fiscal years: 1997: $2.47;
Fiscal years: 1998: $1.34;
Fiscal years: 1999: $0.24;
Fiscal years: 2000: $0.48;
Fiscal years: 2001: $1.23;
Fiscal years: 2002: $-0.88;
Fiscal years: 2003: $1.03.
B1. Total Reimbursed Costs;
Fiscal years: 1995: $6.98;
Fiscal years: 1996: $7.62;
Fiscal years: 1997: $7.49;
Fiscal years: 1998: $6.66;
Fiscal years: 1999: $5.47;
Fiscal years: 2000: $5.86;
Fiscal years: 2001: $6.53;
Fiscal years: 2002: $4.63;
Fiscal years: 2003: $6.90.
* Special Allowances/ Foreign Duty Pay;
Fiscal years: 1995: $1.68;
Fiscal years: 1996: $1.74;
Fiscal years: 1997: $1.88;
Fiscal years: 1998: $1.92;
Fiscal years: 1999: $2.09;
Fiscal years: 2000: $2.09;
Fiscal years: 2001: $2.14;
Fiscal years: 2002: $2.18;
Fiscal years: 2003: $2.24.
* Transportation, Per Diem, etc;
Fiscal years: 1995: $1.04;
Fiscal years: 1996: $1.55;
Fiscal years: 1997: $1.30;
Fiscal years: 1998: $1.61;
Fiscal years: 1999: $2.40;
Fiscal years: 2000: $2.01;
Fiscal years: 2001: $2.24;
Fiscal years: 2002: $1.04;
Fiscal years: 2003: $2.80.
* Sale of DOD Supplies and Equipment to MFO;
Fiscal years: 1995: $4.27;
Fiscal years: 1996: $4.33;
Fiscal years: 1997: $4.32;
Fiscal years: 1998: $3.14;
Fiscal years: 1999: $0.98;
Fiscal years: 2000: $1.77;
Fiscal years: 2001: $2.15;
Fiscal years: 2002: $1.37;
Fiscal years: 2003: $1.79.
B2. Less Offset Credit Provided by DOD[B];
Fiscal years: 1995: $5.08;
Fiscal years: 1996: $5.38;
Fiscal years: 1997: $5.02;
Fiscal years: 1998: $5.32;
Fiscal years: 1999: $5.23;
Fiscal years: 2000: $5.39;
Fiscal years: 2001: $5.30;
Fiscal years: 2002: $5.51;
Fiscal years: 2003: $5.87.
2. Net State Contribution;
Fiscal years: 1995: $16.09;
Fiscal years: 1996: $15.41;
Fiscal years: 1997: $15.43;
Fiscal years: 1998: $15.41;
Fiscal years: 1999: $15.60;
Fiscal years: 2000: $15.90;
Fiscal years: 2001: $15.95;
Fiscal years: 2002: $16.02;
Fiscal years: 2003: $16.21.
Assessed Share of MFO Cost Paid by State;
Fiscal years: 1995: $16.35;
Fiscal years: 1996: $16.03;
Fiscal years: 1997: $16.09;
Fiscal years: 1998: $16.06;
Fiscal years: 1999: $16.112;
Fiscal years: 2000: $16.37;
Fiscal years: 2001: $16.35;
Fiscal years: 2002: $16.25;
Fiscal years: 2003: $16.35.
Less U.S. Share of MFO Budget Surplus[C];
Fiscal years: 1995: $0.26;
Fiscal years: 1996: $0.62;
Fiscal years: 1997: $0.66;
Fiscal years: 1998: $0.65;
Fiscal years: 1999: $0.52;
Fiscal years: 2000: $0.47;
Fiscal years: 2001: $0.40;
Fiscal years: 2002: $0.23;
Fiscal years: 2003: $0.14.
Total U.S. Net Contribution (1+2);
Fiscal years: 1995: $61.46;
Fiscal years: 1996: $55.75;
Fiscal years: 1997: $56.48;
Fiscal years: 1998: $58.36;
Fiscal years: 1999: $58.14;
Fiscal years: 2000: $60.54;
Fiscal years: 2001: $61.15;
Fiscal years: 2002: $66.87;
Fiscal years: 2003: $70.86.
Fiscal Year 2003 Deflator;
Fiscal years: 1995: $1.15;
Fiscal years: 1996: $1.13;
Fiscal years: 1997: $1.11;
Fiscal years: 1998: $1.09;
Fiscal years: 1999: $1.08;
Fiscal years: 2000: $1.06;
Fiscal years: 2001: $1.03;
Fiscal years: 2002: $1.02;
Fiscal years: 2003: $1.00.
Total U.S. Net Contribution In Constant Fiscal Year 2003 Dollars;
Fiscal years: 1995: $70.55;
Fiscal years: 1996: $62.83;
Fiscal years: 1997: $62.52;
Fiscal years: 1998: $63.85;
Fiscal years: 1999: $62.80;
Fiscal years: 2000: $64.12;
Fiscal years: 2001: $63.22;
Fiscal years: 2002: $67.90;
Fiscal years: 2003: $70.80.
Source: GAO analysis of U.S. Army data.
[A] Estimates are based on the expense (offset cost) that the United
States would have incurred for training, food and lodging, base
support, and operations and maintenance for such units when stationed
in the United States .
[B] Credit to the account of the MFO by the U.S. Army for the amount of
the offset costs.
[C] MFO returns budget surplus in the form of a reduced assessment for
the following fiscal year.
[End of table]
Table 4: U.S. Troop Contributions to the MFO as a Percentage of the
Total, Fiscal Years 1995 through 2003:
U.S. Troops;
Fiscal years: 1995: 970;
Fiscal years: 1996: 917;
Fiscal years: 1997: 917;
Fiscal years: 1998: 917;
Fiscal years: 1999: 871;
Fiscal years: 2000: 865;
Fiscal years: 2001: 865;
Fiscal years: 2002: 865;
Fiscal years: 2003: 687.
Total MFO Force;
Fiscal years: 1995: 1,954;
Fiscal years: 1996: 1,896;
Fiscal years: 1997: 1,896;
Fiscal years: 1998: 1,896;
Fiscal years: 1999: 1,844;
Fiscal years: 2000: 1,838;
Fiscal years: 2001: 1,835;
Fiscal years: 2002: 1,835;
Fiscal years: 2003: 1,685.
U.S. Troops as a Percentage of all MFO Troops;
Fiscal years: 1995: 50%;
Fiscal years: 1996: 48%;
Fiscal years: 1997: 48%;
Fiscal years: 1998: 48%;
Fiscal years: 1999: 47%;
Fiscal years: 2000: 47%;
Fiscal years: 2001: 47%;
Fiscal years: 2002: 47%;
Fiscal years: 2003: 41%.
[End of table]
As depicted in table 3, a number of factors account for this increase
in the total cost of U.S. commitments to the MFO over this period:
* Total troop salaries increased 27 percent, despite a decrease in the
U.S. troop contingent between fiscal years 1995 and 2002.[Footnote 38]
These salaries constitute over 80 percent of the cost of the total Army
contribution. In FY 2002, the Army substituted Army National Guard
forces for the regular Army personnel, contributing to a salary cost
increase of 12 percent between fiscal years 2002 and 2003. National
Guard troops tend to be older and have been in grade longer than
regular Army forces and are consequently paid more. Across-the-board
salary increases for all military forces is another factor contributing
to rising military costs, according to Army officials.
* Special pay and allowances paid to U.S. soldiers participating in the
MFO mission have increased nearly ten-fold since fiscal year 1995,
going from about $300,000 to $3 million in fiscal year 2003. Under the
March 1982 Exchange of Letters between the MFO Director General and the
Secretary of State, the MFO agreed to pay for certain special
allowances to U.S. military personnel participating in the MFO mission,
including a Family Separation Allowance for married personnel and
Foreign Duty Pay for enlisted personnel. The coverage and rates of
these existing allowances has been expanded since then to include both
enlisted men and officers and costs about $250 per soldier per month.
Moreover, in fiscal year 1997, DOD began providing imminent danger pay
to military personnel serving in Israel and Egypt. The current rate
amounts to $225 per soldier per month. In fiscal year 2003, the
imminent danger pay allowance constituted 78 percent of total DOD
special pays provided to military personnel participating in the MFO.
* Reimbursement payments from DOD to the MFO increased 13 percent.
Currently, the U.S. Army provides the MFO a credit or "offset" for
certain costs associated with the support of U.S. forces. These costs
are those which would normally have been incurred by the U.S.
government for food and lodging, base support, and operations and
maintenance for such units when stationed in the United States.
* MFO purchases of supplies from DOD decreased by about 60 percent. In
fiscal year 1995, the MFO reimbursed DOD for the purchase of supplies,
equipment, and rations totaling $4.3 million dollars. MFO has sought to
replace DOD as a source of supply with lower cost local commercial
vendors in recent years, limiting its purchases from DOD to medical
supplies and certain helicopter parts. In fiscal year 2003, these
purchases totaled about $1.8 million.
[End of section]
Appendix VI: Comments from the Department of State:
United States Department of State:
Assistant Secretary and Chief Financial Officer:
Washington, D.C. 20520:
JUL 13 2004:
Ms. Jacqueline Williams-Bridgers:
Managing Director:
International Affairs and Trade:
General Accounting Office:
441 G Street, N.W.:
Washington, D.C. 20548-0001:
Dear Ms. Williams-Bridgers:
We appreciate the opportunity to review your draft report,
"PEACEKEEPING: Multinational Force And Observers Maintaining
Accountability But State Department Oversight Could Be Improved," GAO
Job Code 320220.
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
Robert Krantz, Officer in Charge, Bureau of Near Eastern Affairs, at
(202) 647-1766.
Sincerely,
Signed by:
Christopher B. Burnham
cc: GAO - Phyllis Anderson
NEA - Paul Sutphin
State/OIG - Mark Duda:
Department of State Comments on GAO Draft Report
PEACEKEEPING: Multinational Force And Observers Maintaining
Accountability But State Department Oversight Could Be Improved,
(GAO-04-883, GAO Code 320220):
The GAO notes that while NEA has begun to address some of the issues
that cited in the report, it has not established a timeline for their
resolution. To ensure that NEA redresses these issues, the GAO listed
four specific recommendations that the Secretary of State should
address to promote improved oversight of the MFO. We address the four
GAO recommendations below.
We thank GAO for providing us with this opportunity to comment on their
report. The Egyptian-Israeli Peace Treaty and the security arrangements
monitored by the MFO are a cornerstone of our efforts to achieve peace
in the region. Although both treaty parties are strongly committed to
the Peace Treaty, they continue to believe that a credible
Multinational Force and Observers (MFO) is essential; particularly as
tensions along the northern border in the Sinai have ratcheted up.
The GAO report concludes that the treaty parties "are satisfied that
the MFO is effectively fulfilling its mission of helping to maintain
peace between Egypt and Israel." We share that satisfaction; however,
we look forward to working with GAO to strengthen the MFO further, to
build on its past successes and to ensure that it remains a robust
peacekeeping force able to respond to current needs and new
developments in the region.
GAO Recommendation: Resolve the recurring concern of finding qualified
candidates for the chief of the civilian observer unit.
State Response: Although many strong officers have served as Chiefs of
the Civilian Observer Unit, we recognize that there have been a few
lapses in leadership in this position. Many highly qualified Chief
Observers have gone on to positions of great responsibility in the
Department. The incumbent Chief Observer has done a superb job over the
past two years and we are confident that the individual selected as his
replacement will be an equally strong performer.
As noted during the organizational meeting of the MFO Management
Advisory Review Board on June 18, 2004, there are many competing
demands for the pool of potential candidates. For this position to be
competitive with other Department assignments, the Advisory Board
agreed new incentives might be necessary to encourage highly qualified
persons to fill this critical position. To that end, we are exploring
the possibility filling the position with personnel from the Senior
Foreign Service on detail rather than on transfer thereby allowing
greater flexibility in compensation. In addition, although Civil
Service personnel always have been eligible to apply for this position,
we will take steps to advertise that fact. These steps should provide a
larger pool of highly qualified individuals from which to select.
GAO Recommendation: Ensure that staff with accounting experience are
available to carry out NEA's financial oversight responsibilities for
MFO which include evaluating MFO accounting and financial practices and
the reports of external auditors.
State Response: We note that, as the GAO report states, the MFO has had
"clean" audits since 1995. In fact, since its inception, all special
reviews and annual audits, using "U.S. Generally Accepted Accounting
Standards," have demonstrated to the satisfaction of the MFO's external
auditors that the MFO has maintained sufficient financial
accountability and internal controls. Israeli and Egyptian officials
report that they are satisfied with the degree of oversight that they
exercise through formal annual meetings, informal daily contacts and
review of MFO financial reports.
We do not believe the MFO Director General's authorities to effect
management changes to audit and other functions are as autonomous as
the GAO report describes. The MFO currently provides the Department
with information on compensation of senior MFO staff. The MFO also
calls to the Department's attention and provides copies of changes to
MFO regulations, including those relating to authorized expenditures,
to ensure that we are aware of, and have the opportunity to object to,
changes we might consider inappropriate. The MFO provides NEA with
copies of all external financial and management audit reports, as well
as the MFO's internal budget projections.
The Department believes the current oversight regime provides the
necessary assurances and circumstances and limited resources do not
allow hiring additional accounting personnel to evaluate the MFO's
accounting and financial practices and the reports of the external
auditors. These documents have been, and will continue to be, reviewed
by NEA personnel who have substantial experience with budgets and
internal controls. These reviews, while not performed by trained
auditors or accountants provide a good cost effective picture of the
MFO's management practices and financial operations. However, to
further improve on our ability to carry out our financial management
oversight responsibilities we will supplement the routine NEA reviews.
In the past, State OIG auditors periodically evaluated the MFO's
accounting and financial practices and reviewed the scope of MFO
external audits with to ensure that they provide sufficient clarity,
transparency and accuracy. We will ask that State OIG resume this
practice.
GAO Recommendation: Direct the NEA advisory board to monitor and
document NEA's compliance with its guidelines for overseeing the MFO.
State Response: NEA consistently has documented its oversight of the
MFO in its Annual Report to Congress on the Activities of the MFO,
submitted pursuant to Public Law 97-132. The most recent 21 page report
provided an overview of MFO activities during the period January 16
2003 to January 15 2004; including: significant visitors, the Treaty
environment, financial developments, information systems, personnel,
morale support activities, logistics, helicopters, facilities
maintenance and rehabilitation, external audits, force protection,
participation and implementation of force reduction proposals. This
information was obtained by NEA representatives during field visits to
Egypt, Israel and Italy; in telephone conversations with MFO officials
in Rome and the Sinai; and from documents obtained from the MFO. NEA
will supplement this report with quarterly reports to the advisory
board.
GAO Recommendation: Work with Army officials to reconcile differences
between Army and State views about current MFO cost sharing
arrangements.
State Response: There are differences of opinion between the Army and
the MFO relating to cost sharing arrangements that we are trying to
reconcile. Following a May 19-20 Army-MFO meeting, which also was
attended by an NEA representative, the Army undertook to develop a revised and more
transparent cost allocation model and provide it to the MFO for review
and comment in preparation for another meeting. Since legal arguments
can be made in support of both parties, this issue likely will have to
be resolved at a policy level between State and DOD. NEA has
recommended to DOD that the Army not send any further bills to the MFO
that are inconsistent with the existing Army-MFO memorandum of
understanding until it has developed the new model and meets with the
MFO as discussed in the May meeting. If there is no agreement following
the second Army-MFO meeting, then the underlying issue may require
policy level review within the Administration.
[End of section]
Appendix VII: Comments from the Multinational Force and Observers:
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
Multinational Force and Observers
Rome, Italy:
July 9, 2004:
Mr. Joseph A. Christoff:
Director, International Affairs and Trade
United States General Accounting Office
Washington, D.C. 20548:
Dear Mr. Christoff:
Thank you for the opportunity to comment formally on the GAO's proposed
report entitled "Peacekeeping: Multinaticnal Force and Observers
Maintaining Accountability, but State Department Oversight Could be
Improved" (GAO-04-883).
We greatly appreciate the Report's conclusion that "[t]he twc parties
to the treaty and the United States are satisfied that the MFO is
effectively fulfilling its mission of helping to maintain peace between
Egypt and Israel." The men and women of the MFO work hard to carry out
this mission, often in harsh and difficult conditions, and it is good
to know that the significance of their work is recognized and
appreciated.
We also welcome the fact that the Report draws attention to two pending
U.S. Government decisions that have potentially very important
financial implications for the MFO
Helicopter Support. The MFO greatly depends upon and appreciates the
outstanding helicopter support provided by the U.S. Army. We have
maintained close contact with the Army regarding possible transitions
to Blackhawk helicopters, to a private contractor, or to a new Army
light utility helicopter. We will cooperate to carry out whatever the
United States decides. However, changes, particularly to Blackhawks or
to a private contractor, may have profound implications for our
finances. The MFO simply does not have the resources in its current $51
million budget to address the large additional helicopter costs cited
in GAO's report. Accordingly, it is essential that future U.S.
Government decision-making concerning helicopters also address how to
meet the additional costs.
Army Claims for Hazardous Duty Pay and other Increased Allowances. We
also welcome the Report's encouragement to relevant U.S. Government
agencies to arrive at a unified Government position regarding the
Army's claims for greatly increased MFO payments to cover hazardous
duty pay and other increased allowances of U.S. soldiers.	(As the Report
notes, the Army also apparently.intends to substantially cut the offset
credit provided to the MFO pursuant to the U.S.-MFO Participation
Agreement.) The Army is already billing the MFO for over $3.0 million a
year for hazardous duty pay and other allowances that MFO does not
believe are legally due and that it does not have means to pay.
As we've noted in recent correspondence with the Army and the
Department of State, it is in no one's interest to have large, disputed
and un-funded charges accruing on the MFO's accounts. We hope that this
matter can be resolved soon. If it is the collective judgment of the
U.S. Government that the MFO should bear substantially increased costs
for U.S. troops, the United States will need to work with Egypt and
Israel or other donors to obtain the necessary additional funding or
alternatively to discuss with Israel, Egypt and the MFO compensating
cuts in the MFO mission and budget.
Financial Oversight. As the Report notes, the MFO's finances are subject
to the discipline of recurring audits by an independent outside
auditing firm applying U.S. generally accepted auditing standards
(GRAS). This is, as it should be, a rigorous process. We are committed
to full cooperation with the auditors and consistently receive
unqualified opinions. We believe that the clarity, transparency and
accuracy of our financial statements compare favorably with those of
other international and governmental organizations.
We are also fully committed to working with the new State Department
Advisory Board to address any and all issues arising in the MFO-U.S.
Government relationship. We believe the new Advisory Board offers a
useful mechanism to address any U.S. Government information
requirements regarding MFO financial statements or the external audits
of the MFC. As the Report notes, Israel and Egypt have advised us that
they are satisfied with the oversight and information they have from
working alongside us in the field and in their own channels to the MFO.
As to the Board's potential role in relation to the terms of the audit,
we note that the scope and conduct of the annual audit is not set by
the MFO, but by the external auditor according to GARS standards.
Similarly, the auditors determine the scope and conduct of the internal
control-review according to American Institute of Certified Public
Accountants (AICPA) standards, independent of the MFO.
COU Personnel. The Report also notes the recurring past difficulties in
recruiting (and retaining) suitable State Department officers to lead
the Civilian Observer Unit. While the current Chief has done an
outstanding job, the past zecord has been mixed. Accordingly, the MFO
welcomes the measures being taken by;the State Department to improve
the recruiting process.
Personnel Matters. The GAO Report detailed a number of steps taken by
the MFO as a part of. what we view as an ongoing process to update and
improve the MFO personnel system. However, it also encouraged MFO to
consider possible additional changes in two specific areas, taking
account of "leading personnel practices," including GAO's "Model for
Strategic Human Capital Management Planning." The Report. encouraged
MFO management to consider:
* Adding additional outside mediation or review mechanisms for any
complaints involving discrimination and Sexual harassment. (This would
be in addition to the internal mediation and outside third-party arbitration mechanisms
already provided for in the MFO's regulations.):
* Assessing a perceived gender imbalance in the MFO workforce,
particularly in MFO management, and in particular whether there may be
barriers to women attaining management positions. (The Report does not
mention the Tel Aviv Office, where female employees, including the
deputy head of the office, occupy senior positions, or the senior
female members of the Rome staff.) In this connection, earlier this
year, Director General Hughes (whose term of office just ended) asked
our principal executive recruiter to help us.broaden the pool of women
applicants. She undertook to do so.
We respect these suggestions, and the spirit in which they were
offered by GAO. MFO management will consider both matters carefully, in
light of the comments and analysis in the GAO report and the context in
which we operate.
There is one other personnel issue we want to note. The Report suggests
a lack of career mobility inside of the MFO, going so far as to say
that "'[w]ith few exceptions, MFO employees tend to stay in the same
positions for which they were contracted." This is not entirely
correct. The nine people who attended the former Director General's
aily staff meeting at Headquarters illustrate a different pattern. Six
of the nine were originally hired for other positions, some quite
junior, and were promoted; two were promoted to their present positions
from jobs in the Sinai. (The three others were hired from outside the
MFO to provide specialized military, information systems and legal
skills.)
It is true that many MFO employees are hired to provide specialized
skills, often in areas where the MFO may only he one or two deep.
However, as the above shows, even for persons in this situation, there
have been and will remain opportunities for bright and able employees
to advance tc other fields and locations in the MFO.
We accept that there are opportunities to improve our human rescurces
management; we have and will continue to pursue them_ We believe that
caution is necessary, however, to avoid uncritical adoption of human resource management
concepts drawn from the U.S. Government or United Nations that may be
out of scale for a small organization with 108 direct-hire employees,
and that may entail significant costs and overhead.
Factual Issues. Last week, we had the opportunity to review an earlier
draft solely to check factual accuracy, which we appreciated.	GAO
accepted many of the changes we suggested, for which we thank you.
However, some suggested corrections to the text of Annex 11 were not
incorporated, so that scme of the numbers given there for certain types
of employees are not accurate. The correct figures are as shown in the
MFO Annual Report. Further, as we noted earlier, it is not appropriate
to refer to the 464 Egyptian Care Services personnel in the Sinai as
"day laborers." This group includes many highly skilled craftsmen and
other experienced and specialized personnel.
Thank you for your consideration of these comments. The MFO has sought
through out to cooperate with the GAO in all respects, and I hope that
our assistance has been of value in preparing your Report.
Consideration of the Report will be a matter of priority for the MFO
senior staff and the new Director General, James A. Larocco, as he
assumes charge of the MFO.
Our continued best wishes to your colleagues on the GAO team that
prepared the Report.
Sincerely,
Signed by:
K. Scott Gudgeon
Deputy Director General:
GAO Comments:
The following are additional GAO comments on the Multinational Force
and Observers letter dated July 9, 2004.
1. In its comments, MFO stated that the report does not mention a
number of female employees occupying senior positions. Our analysis is
based upon information obtained from an early 2004 report that lists
all international and national staff by gender in management positions.
There may have been some changes made to the data since that time.
2. In its comments, MFO stated that there were factual inaccuracies
regarding the number and classification of civilians employees. GAO
made changes based upon MFO technical comments and noted that these
changes disagreed with data in the MFO 2004 Annual Report. MFO's annual
report notes that there are 636 civilians, while the information
provided to us from MFO totaled 650.
[End of section]
FOOTNOTES
[1] The governments of Germany, Japan, and Switzerland provided a
combined financial contribution that averaged about $1.4 million
annually between fiscal years 1995 and 2003.
[2] U.S. General Accounting Office Peacekeeping: Assessment of U.S.
Participation in the Multinational Force and Observers. GAO/
NSIAD-95-113 (Washington, D.C.: Aug. 15, 1995).
[3] In our 1995 review, State officials said that management of the U.S
contribution was based on a relationship of mutual trust with MFO
management coupled with the reports of MFO's external auditor. We
noted, however, that the generally accepted auditing standards for
financial statement audits do not require an opinion on MFO internal
controls and that MFO's external auditor reports had not included one.
[4] See U.S. General Accounting Office: Standards for Internal Control
in the Federal Government, GAO/AIMD-00-21.3.1 (Washington D.C.: Nov.
1999).
[5] MFO employees are eligible to receive a monthly premium worth 7
percent of employees' base salaries for use in retirement plan
investments.
[6] Multinational Force Standing Orders, Policy Against Discrimination
and Harassment, Ch. 38,  38.14 (a-b) and 38.15(j) (Vol. 2). These
procedures pertain to civilian employees of the MFO or to MFO soldiers
when the complainant and the accused are soldiers from different
national contingents. MFO's policy notes that when the complainant and
accused are soldiers from the same national contingent, the contingent
commander will handle the complaint.
[7] Broader MFO regulations allow for international arbitration of
disputes or controversies involving employment contracts or the
regulations, which, the MFO General Counsel states, could be invoked by
employees who allege harassment or discrimination. Nevertheless, these
regulations do not specifically cover sexual harassment or
discrimination, and, according to the General Counsel, in the 22-year
history of the MFO have never been used by MFO employees to take the
organization to outside arbitration.
[8] State Department and MFO officials stated that members of the COU
from the State Department can informally appeal to State in such cases,
but State's OIG has concluded that the department has no jurisdiction
because COU members are not State employees.
[9] The World Bank, for example, found that no one single model could
be easily adapted to restructure its grievance procedures to meet its
needs, because of the diverse approaches to workplace dispute
resolution and differing legal structures found among Bank members. We
noted that the World Bank did not follow through on our recommendation
to collect meaningful data on employees' perspective on the fairness
and credibility of its proposed reforms. See U.S. General Accounting
Office, World Bank: Status of Grievance Procedure Reforms, GAO/
NSIAD-99-96 (Washington, D.C.: May 13, 1999).
[10] See Alternative Dispute Resolution: Employers' Experiences with
ADR in the Workplace, GAO/GGD-97-157 (Washington, D.C.: Aug. 12, 1997);
and Human Capital: The Role of the Ombudsmen in Dispute Resolution,
GAO-01-466 (Washington, D.C.: Apr. 13, 2001).
[11] See U.S. General Accounting Office, Human Capital: Preliminary
Observations on Proposed DHS Human Capital Regulations. GAO-04-479T
(Washington, D.C.: Feb. 25, 2004), and GAO/NSIAD-99-96.
[12] The total includes four vacancies as of early 2004.
[13] MFO officials stated that they have selected a female manager as
the next chief observer of the COU. In addition, MFO officials
commented that local support staff hired by its labor contractor in
Egypt employee some women in professional positions.
[14] In line with the best practices of major financial institutions in
the United States, the World Bank, and other international
organizations, the MFO assessed its financial controls using the
criteria for effective internal control established by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), according
to internal control evaluations conducted in 1998 and 2001. This
control framework, known as the "Internal Control-Integrated
Framework," establishes a common definition of management controls and
provides a standard by which to assess improvements in these controls.
[15] Since 1995, MFO's leadership has committed itself to keeping the
budget under $51 million.
[16] According to leading public sector internal control practices
described in GAO's Standards for Internal Control in the Federal
Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1999), public
agencies should have mechanisms in place to monitor and review
operations and programs. The mechanisms could include an Inspector
General independent of management to audit and review agency
activities. The MFO management review officer consults with the
Director General on the logic and scope of each review in advance,
however.
[17] Price Waterhouse is now part of PricewaterhouseCoopers.
[18] In the external auditor's opinion, each of the MFO's financial
statements between fiscal years 1995 and 2003 was prepared in
conformity with modified generally accepted accounting principles
(GAAP).
[19] The external auditor reached this conclusion in each compensation
and benefit report using generally accepted auditing standards set
forth in Statements of Auditing Standards number 35 (SAS 35) "Special
Reports - Applying Agreed Upon Procedures to Specified Elements,
Accounts or Items of a Financial Statement" as stipulated by
Professional Standards of The American Institute of Certified Public
Accountants.
[20] The results of the 2004 internal controls review will not be
available until autumn 2004, according to State Department officials.
[21] COSO standards caution that not all such mechanisms must be
present to conclude that an internal control system is effective. They
also note that there are no preferred methods to conduct and document
internal control evaluations because the circumstances that different
entities and industries are under dictate their choice of evaluation
methodologies and documentation techniques. Small entities, for
example, tend to be less formal and less structured than large
organizations, and rely more on direct and continuous communication
between management and lower-level personnel. COSO standards note,
however, that the evaluation tools described in its framework can be
used by entities of any size.
[22] See U.S. General Accounting Office: Standards for Internal Control
in the Federal Government, GAO/AIMD-00-21.3.1 (Washington D.C.: Nov.
1999).
[23] Purchasing power refers to the amount of goods that one
international dollar can purchase in different countries. An
international dollar is equivalent to the amount of goods and services
that 1 U.S. dollar can purchase in the United States. For example, in
1995, 1 U.S. dollar could purchase goods in Egypt worth $2.69 in the
United States. In 2002, 1 U.S. dollar could purchase goods in Egypt
worth $2.93 in the United States. For purposes of this analysis, we
assumed all MFO purchases not made in Egypt or Israel were made in the
United States because MFO could not provide data regarding purchases
made in other countries.
[24] According to Army officials, the helicopter equipment and support
would be provided through the Logistics Civil Augmentation Program, a
single, centrally managed worldwide planning and services contract used
by the Army to (1) preplan for the use of contractor support in
contingencies or crises and (2) take advantage of civilian resources in
the United States and overseas to augment active and reserve forces.
Halliburton's subsidiary, Kellogg Brown & Root, currently holds this
contract.
[25] According to an Army official, this figure is based on a rough
order of magnitude cost estimate prepared by Kellogg, Brown & Root in
2002. The final cost is likely to be significantly higher when adjusted
for inflation and a revised statement of work is prepared.
[26] In addition to the income that the MFO receives from the United
States, Egypt, and Israel, it also receives some additional financial
contributions from Japan, Germany, and Switzerland. In fiscal year
1995, these countries together provided an additional $1.7 million to
the MFO. However, these annual contributions have steadily declined and
totaled less than $1 million in fiscal year 2003.
[27] The United States also reduced its infantry battalion by 104
soldiers in 2003, for a total reduction of 178 U.S. troops.
[28] According to State and MFO officials, the MFO is only required to
reimburse the Army for certain special pay categories at the lower
levels set in the March 1982 letter and annexes exchanged between the
Secretary of State and the MFO Director General, and as increased in
cost-sharing memorandums of understanding signed in 1994 and 1998.
These agreed upon rates are lower than those currently provided under
U.S. law.
[29] These reimbursement costs originally were calculated based on the
cost to the U.S. Army of sustaining an active duty infantry battalion
in the United States. According to an Army document, the cost-sharing
formula is out-of-date because the Army does not generally pay costs
for National Guard troops that are deployed in the United States.
[30] The total includes four vacant international positions in the
Sinai.
[31] Other international civilian staff come from Great Britain (35),
Australia (2), Canada (2), France (1), New Zealand (2), Italy (1), and
Mexico (1). A staff member of unidentified nationality fills one
position.
[32] See U.S. General Accounting Office, Human Capital: Key Principles
for Effective Strategic Workforce Planning, GAO-04-39 (Washington,
D.C.: Dec. 11, 2003).
[33] See U.S. General Accounting Office, Human Capital: A Self-
Assessment Checklist for Agency Leaders, GAO/OCG-00-14G (Washington,
D.C.: Sep. 1, 2000).
[34] Data for fiscal year 2003 purchasing power parity in Egypt and
Israel are not available as of June 2004.
[35] A ratio of less than 1 implies that a basket of goods in the
foreign country costs less in U.S. dollars than in the United States.
For example, in 2002, a basket of goods that would cost $1 in the
United States would cost $0.34 in Egypt, $0.81 in Israel, $0.78 in
Italy, and $1.22 in Switzerland.
[36] The fiscal year conversion factor ratio is calculated as a
weighted average of calendar year ratios. The calendar year ratio in
constant 1995 dollars is computed as the ratio of nominal gross
domestic product expressed in U.S. dollars to the gross domestic
product expressed in constant 1995 international dollars.
[37] The budgetary impact of the further reduction of U.S. troops from
865 to 687 soldiers did no effect DOD's cost calculations for fiscal
year 2003. The impact will be measurable beginning in fiscal year 2004.
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