prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.



Report 2: As part of the annual budget formulation process for each fiscal year, DOD establishes for each of nine foreign currencies, a foreign currency budget rate (units of foreign currency per one United States (U S ) Dollar) to use when developing O&M and MILPERS funding requirements for overseas expenditures  Foreign currency budget rates for a particular fiscal year are established approximately 18 months prior to the fiscal year when overseas obligations will be incurred and disbursements made  For example, in June 2015, OUSD(C) issued guidance to, in part, instruct the services on the foreign currency rates to use in building their fiscal year 2017 budgets  In February 2016, as part of the President’s budget, DOD submitted its proposed fiscal year 2017 budget to Congress, and it began incurring obligations against subsequently appropriated amounts on October 1, 2016  DOD has used various methodologies for establishing the foreign currency budget rates  In 2005, we reviewed DOD’s methodology for developing its foreign currency budget rates and reported that DOD’s approach for estimating its foreign currency requirements for the fiscal year 2006 budget was a reasonable approach for forecasting foreign currency rates that could produce a more realistic estimate than its historical approach  In its fiscal year 2006 through 2016 budget requests, DOD used a centered weighted average model that combined both a 5-year average of exchange rates and an average of the most recently observed 12 months of exchange rates  For its fiscal year 2017 request, DOD adjusted its methodology to establish the foreign currency budget rates  Specifically, DOD established its foreign currency rates by calculating a 6-month average of Wall Street Journal rates published every Monday from May 25, 2015, to November 16, 2015  According to an OUSD(C) official, the 6-month average more closely represented foreign currency exchange rates experienced by the department during budget formulation, and it accounted for the strength of the U S  Dollar, which had increased as compared with its historical 5- year average  DOD’s analysis found that the use of the 5-year historical average would have resulted in substantial gains when compared with gains expected from application of the 6-month average  More specifically, DOD projected gains of about $1 billion using the 5-year average of rates  During the fiscal year for which a budget is developed, DOD incurs obligations for its overseas O&M and MILPERS activities  Those obligations are recorded using the foreign currency budget rates  DOD uses various methods for selecting foreign currency rates to liquidate those obligations through disbursements, which may differ from the budget rates  DOD’s preferred payment method for foreign currency transactions is the Department of Treasury’s (Treasury) comprehensive international payment and collection system—the International Treasury Services (ITS gov) system—which serves federal agencies making payments in nearly 200 countries  ITS gov offers a number of rates, including advanced rates available up to 5 days in advance of disbursement, and the spot rate  The spot rate is the price for foreign currencies for delivery in 2 business days  While advanced rates, like spot rates, are based on the current market rate, advanced rates at the time they are selected are generally higher than the spot rate, with the 5-day advanced rate being the highest, because the rates are locked in ahead of the actual value date  While the spot rate can be more cost-effective, it requires immediate transaction processing, which may not be feasible for all disbursements  Differences between obligations incurred at the foreign currency budget rates and the amounts that DOD actually disburses drive gains or losses in the appropriated amounts DOD has available for its planned overseas expenditures  For example, if DOD budgeted for the U K  Pound at a rate of  6289 (that is, 1 U S  Dollar buys  6289 U K  Pounds) as it did in fiscal year 2016, and the rate experienced at the time of disbursement was  6845, then DOD would have requested more funds than were actually needed for transactions involving the U K  Pound  That would have resulted in a gain from the transaction—meaning that DOD would need less funds than were budgeted for the transaction  Conversely, a current rate that is lower than what was budgeted will result in a loss—and DOD would require more funds than were budgeted for the transaction  Within each of the services’ O&M and MILPERS appropriations accounts, amounts are available for overseas activities  Amounts obligated for overseas activities, along with associated foreign currency gains and losses, are managed by the services as part of the overall management of their O&M and MILPERS appropriations accounts  Service components use foreign currency fluctuation accounts within their O&M and MILPERs appropriations to manage realized gains and losses in direct programs due to fluctuations in foreign exchange rates  The service-level foreign currency fluctuation accounts are maintained at various budgetary levels within the service components  In fiscal year 1979, Congress appropriated $500 million to establish the FCFD account for purposes of maintaining the budgeted level of operations in the MILPERS and O&M appropriation accounts by mitigating substantial gains or losses to those appropriations caused by foreign currency rate fluctuations  FCFD appropriations are different from the O&M and MILPERS appropriations in two ways  First, FCFD account amounts are no-year amounts, meaning that they are available until expended, while in general, O&M and MILPERS appropriations are 1-year amounts and expire at the end of the fiscal year for which they were appropriated  Expired O&M and MILPERS amounts remain available only for limited purposes for 5 additional fiscal years  At the end of the 5-year expired period, any remaining O&M or MILPERS amounts, obligated or unobligated, are canceled and returned to Treasury  Second, FCFD account amounts may be used only to pay obligations incurred because of fluctuations in currency exchange rates of foreign countries, while O&M amounts are available for diverse expenses necessary for the operation and maintenance of the services and MILPERS amounts are available for service personnel-related expenses, such as pay, permanent changes of station travel, and expenses of temporary duty travel, among other purposes  Amounts from the FCFD account may be transferred to service-level foreign currency fluctuation accounts within O&M and MILPERS appropriation accounts to offset losses in buying power due to unfavorable differences between the budget rate and the foreign currency exchange rate prevailing at the time of disbursement  The FCFD account may be replenished in several ways  Amounts transferred from the FCFD to O&M and MILPERS appropriations may be returned when not needed to liquidate obligations because of subsequent favorable foreign currency rates in relation to the budget rate, or because other amounts have become available to cover obligations  A transfer back to the FCFD of unneeded amounts must be made before the end of the second fiscal year of expiration following the fiscal year of availability of the O&M or MILPERS appropriation to which the funds were originally transferred  Amounts may also be transferred to the FCFD account even if they did not originate there  Specifically, DOD may transfer to the FCFD account any unobligated O&M and MILPERS amounts unrelated to foreign currency exchange fluctuations so long as the transfers are made not later than the end of the second fiscal year of expiration of the appropriation  While multiple transfers of these unobligated amounts may be made during a fiscal year, any such transfer is limited so that the amount in the FCFD account does not exceed the statutory maximum of $970 million at the time of transfer  When the FCFD account balance is at the maximum balance, the services normally retain in their service- level O&M and MILPERs foreign currency fluctuation accounts any gains resulting from favorable foreign currency rates  Finally, any amounts transferred, whether from the FCFD account to an O&M or MILPERS account, or from an O&M or MILPERS account to the FCFD, are merged with the account and assume the characteristics of that account, including the period of availability of the funds contained in the account  Visibility of service-level foreign currency fluctuation account and FCFD transactions is maintained through the services’ accounting systems and execution reports  DOD uses the following reports to track its foreign currency funds: Foreign Currency Fluctuations, Defense Report (O&M): provides data on O&M foreign currency gains and losses for each service, by currency, including data on projected gains or losses for any remaining obligations that have not yet been liquidated and disbursed at the time of the report  Foreign Currency Fluctuation, Defense Report (MILPERS): provides data on MILPERS foreign currency gains and losses for each service, by currency, including data on projected gains or losses for any remaining obligations that have not yet been disbursed at the time of the report  In 2013 we analyzed and reported on carryover balances in federal accounts, which amounted to $2 2 trillion in fiscal year 2012, and we found that greater examination of carryover balances by an agency provides opportunities for enhanced oversight of their management of federal funds and may help identify opportunities for potential budgetary savings  Carryover balances are composed of both obligated and unobligated amounts  Only accounts with multi-year or no-year amounts, such as the FCFD, may carry over amounts that remain legally available for new obligations from one fiscal year to the next  DOD’s carryover balances would include FCFD account balances carried from one year to the next  DOD’s FCFD account is composed of unobligated carryover amounts that accumulate when unneeded for transfer to O&M and MILPERS accounts to cover foreign currency fluctuations  FCFD unobligated carryover balances include any expired, unobligated balances from the military services’ O&M and MILPERS accounts, which can include any gains due to favorable foreign currency fluctuations that are not used to cover other losses and that are transferred into the FCFD  DOD revised its foreign currency budget rates in fiscal years 2014 through 2016, which resulted in budget rates in these years that were more closely aligned with rates published by Treasury  Furthermore, the revised budget rates in fiscal years 2014 through 2016 decreased DOD’s projected O&M and MILPERS funding needs  The revised budget rates also decreased potential gains and losses in the amount of funds that DOD had available for its planned overseas expenditures  DOD revised its foreign currency budget rates in fiscal year 2014 and continued to do so in fiscal years 2015 and 2016 before making adjustments to its methodology in fiscal year 2017  According to an OUSD(C) official, the methodology developed in 2017 resulted in budget rates that were more closely aligned with market rates than in previous years, making revision of the 2017 budget rates unnecessary  DOD’s revisions to its foreign currency budget rates in fiscal years 2014 through 2016 resulted in rates that more closely aligned with those published by Treasury  Further, they decreased the expected gains that would have otherwise resulted from a substantial increase in the strength of the U S  Dollar, in fiscal years 2014 through 2016, relative to other foreign currencies from the time the budget rates were set as compared with the rates available once the fiscal year began  Prior to fiscal year 2014, DOD did not revise its foreign currency budget rates  DOD officials did not provide an explanation for why the budget rates for fiscal years 2009 through 2013 were not revised  DOD developed, in November 2015, a set of standard operating procedures that describe the methodology it used for formulating budget rates for the nine foreign currencies included in its budget submission  These procedures also state that DOD is required to update the budget rates once an appropriation is enacted for the fiscal year  For example, if Congress reduces DOD’s appropriations due to favorable foreign currency rates, such as the $1 5 billion reduction in DOD’s total fiscal year 2016 appropriations, OUSD(C) then revises the budget rates to absorb the reduced funding levels  OUSD(C) officials stated that other factors are also considered when determining whether to revise the foreign currency budget rates, and that the department communicates the revised budget rates to the DOD components and Congress  For example, OUSD(C) assesses the value of each of the nine foreign currencies used to develop the budget request relative to the strength of the U S  Dollar during the fiscal year  An OUSD(C) official also noted that the effects that the rate changes would have across these foreign currencies are also considered prior to submitting recommended rate revisions to the OUSD(C) leadership for approval  The official stated that one currency may be experiencing a loss, while another is experiencing a gain, which can affect whether to revise the rates and what those revisions should be  Additionally, the OUSD(C) official stated that “significant” projected gains or losses could drive a revision to the foreign currency budget rates, and that an informal $10 million threshold for projected gains and losses is used to determine when the foreign currency budget rates are revised  According to OUSD(C) officials, DOD components and Congress were notified when the budget rates were revised during fiscal years 2014 through 2016, including an explanation for why the rates were revised  OUSD(C) also includes the budget rates for each of the nine foreign currencies on its website and identifies any instances in which the budget rates were revised with the effective date of any rate revisions  Our analysis of DOD’s use of revised budget rates during fiscal years 2014 through 2016 found that the revised budget rates for those years were more closely aligned with rates published by Treasury  More specifically, for the nine foreign currencies included in DOD’s budget, our analysis comparing DOD’s initial and revised budget rates for fiscal years 2009 through 2017 with average Treasury rates for these years found that DOD’s budget rates differed from Treasury rates by less than 10 percent in about 64 percent of the total 162 occurrences we examined  While we are unaware of any criteria that suggest how closely DOD’s foreign currency budget rates should align with market rates, we used 10 percent as a basis for our analysis because Treasury’s guidance states that amendments to its published exchange rates are required if rates differ from current rates by 10 percent or more  We further examined these occurrences to determine what the differences were between the DOD and Treasury rates before and after DOD began revising its budget rates in fiscal year 2014  Of the 162 occurrences we reviewed, there were 90 occurrences included in our comparison for fiscal years 2009 through 2013, and 72 occurrences were included in our comparison for fiscal years 2014 through 2017  Our analysis shows the following: For fiscal years 2014 through 2017, DOD’s budget rates for its nine foreign currencies differed from Treasury rates by less than 10 percent in about 71 percent of the occurrences  This increased from about 59 percent of the occurrences for the period of fiscal years 2009 through 2013, before DOD began revising its rates after the fiscal year began  For fiscal years 2014 through 2017, DOD’s budget rates differed from Treasury’s rates by 10 percent or more after DOD began revising its rates in fiscal year 2014 in about 29 percent of the occurrences, which is a decrease from about 41 percent of the occurrences prior to fiscal year 2014  Figure 2 below shows the number of occurrences in which DOD’s initial and revised rates differed from Treasury rates by less than 10 percent, and the occurrences in which DOD’s rates differed from Treasury rates by 10 percent or more  The occurrences that are less than 10 percent of Treasury rates are most closely aligned with Treasury rates  According to DOD officials, the differences between DOD’s foreign currency budget rates and Treasury rates are driven primarily by market volatility (that is, the differences in the foreign currency rates from when DOD formulates its budget rates, prior to the fiscal year, and the foreign currency rates determined by Treasury when obligated amounts are liquidated through disbursements during the fiscal year)  According to the OUSD(C) official responsible for formulating and revising the foreign currency budget rates, the delay that occurs between the time when a budget rate is set (approximately 18 months prior to the beginning of a particular fiscal year) and the actual fiscal year is a major factor for why the budget rate may be revised  According to the official, the market rates experienced during fiscal years 2014 through 2016 were substantially different from those expected when the budget rates for those years were developed  Therefore, DOD revised its budget rates during these years to more closely align with market rates experienced  Specifically, this official stated that DOD revised its budget rates during fiscal years 2014 through 2016 to decrease the expected gains that would have otherwise resulted during these fiscal years from a substantial increase in the strength of the U S  Dollar relative to other foreign currencies from the time the budget rates were set as compared with more favorable rates available once the fiscal year began  In order to more closely align its budget rates with market rates, DOD introduced a new methodology to establish the foreign currency budget rates for fiscal year 2017 because DOD anticipated approximately $1 billion in projected gains if it used the prior methodology  As a result of this change in the methodology, according to the OUSD(C) official, DOD did not experience substantial gains or losses in fiscal year 2017  Therefore, DOD did not revise its foreign currency budget rates during fiscal year 2017  However, as previously stated, the official did not provide an explanation as to why the budget rates for fiscal years 2009 through 2013 were not revised  DOD’s use of revised foreign currency budget rates decreased DOD’s projected O&M and MILPERS funding needs and any potential gains and losses that would have occurred due to foreign currency fluctuations during fiscal years 2014 through 2016  Because DOD uses its budget rates to establish its projected annual O&M and MILPERS funding requirements for planned overseas expenditures, any revisions to the budget rates affect DOD’s estimate of its funding needs  For example, our analysis shows that as a result of revising its budget rates during fiscal years 2014 through 2016, DOD’s projected funding needs for the period of fiscal years 2009 through 2017 decreased from about $60 2 billion to about $57 5 billion—a decrease of about $2 7 billion  To further show the effect that changing foreign currency rates could have on DOD’s projected funding for planned overseas expenditures for fiscal years 2009 through 2017, we also compared DOD’s projected O&M and MILPERS funding needs, based on its initial and revised foreign currency budget rates, against projected funding needs based on the use of foreign currency rates published by Treasury during the fiscal year  Our analysis shows that DOD’s projected O&M and MILPERS foreign currency funding needs using Treasury rates would have been about $58 4 billion, or about $885 million more than the $57 5 billion that DOD had projected using its initial and revised budget rates  DOD also uses foreign currency budget rates to calculate gains or losses attributable to foreign currency fluctuations  Specifically, DOD determines gains and losses due to foreign currency fluctuations by comparing the budget rate (that is, initial or revised budget rate) used to incur obligations against a more current market rate at the time it liquidates its obligations through disbursements  Therefore, revisions to the budget rates not only change DOD’s projected O&M and MILPERS funding requirements for the fiscal year in which the revisions occur, but also change the baseline from which the potential gains or losses would result when DOD liquidates its overseas O&M and MILPERS obligations through disbursements  For example, in fiscal year 2016, Congress reduced DOD’s total appropriations by $1 5 billion  As a result of this reduction and favorable foreign currency rates, DOD revised its fiscal year 2016 budget rates in February 2016 and applied the revised foreign currency budget rates in its calculations of gains and losses due to foreign currency fluctuations since the beginning of the fiscal year to absorb the reduced funding level  In applying the revised budget rates, a $30 million gain DOD had previously projected became a projected loss of about $186 2 million  The use of revised budget rates also affects the movement of funds from the FCFD account  For example, if the use of the revised budget rate creates a loss and DOD is unable to cover the increased costs to its O&M or MILPERS appropriations, funds from the FCFD account may be used to cover its planned overseas expenditures  DOD has taken some steps to reduce costs in selecting foreign currency rates to liquidate its obligations through disbursements  However, DOD organizations are not always selecting the most cost-effective rates to convert U S  Dollars, and DOD has not determined whether opportunities exist to achieve additional efficiencies when making disbursements  DOD liquidates its obligations through disbursements for overseas expenditures using Treasury’s ITS gov system, which provides DOD organizations with a choice of foreign currency rates to apply when making disbursements in a foreign currency  The foreign currency rate chosen determines how many U S  Dollars must be paid for the transaction  Treasury officials explained that customers may choose either the spot rate or an advanced rate  The spot rate is the price for foreign currencies for delivery in 2 business days  Treasury officials explained that advanced rates are exchange rates that are “locked in” and guaranteed by the bank processing the disbursement 5, 4, or 3 days in advance of payment processing, which is known as the “value date” of a disbursement  Normally, the cost of the rate increases the further from the date of disbursement that it is locked in  While DOD often uses a 5-day advanced rate to make its disbursements, the other rate options available, such as a 3-day advanced and a spot rate, can be more cost-effective  We analyzed data provided by Treasury from its ITS gov system and found that for disbursements made during the period of June and July 2017, the 5-day advanced rate was more costly than the 3-day advanced rate  In instances where the spot rate was available, we found that it was also more cost-effective than either the 3- day or 5-day advanced rates  For example, for those transactions processed through ITS gov on June 13, 2017, DOD would have paid 1 U S  Dollar for  881 European Euros if using the 5-day advanced rate;  883 European Euros if using the 3-day advanced rate; and  889 European Euros if using the spot rate  In the case of the Army, an Army Financial Management Command official provided us information indicating that the service has estimated potential cost savings that would result from more consistently selecting 3-day advanced rates through the ITS gov system to make overseas disbursements of amounts, rather than the 5-day advanced rate  More specifically, the Army estimated between $8 million and $10 million in annual savings by transitioning from a 5-day to a 3-day advanced rate when selecting foreign currency rates  According to officials, the Army has transitioned all paying locations to the 3-day advanced rate  The Army estimates that these locations have produced $6 04 million in savings through February 2018  Although the Army indicated that it also planned to analyze whether use of the spot rate was feasible, it had not conducted this review at the time of our review  Data provided to us by Treasury from its ITS gov system indicate that in June and July of 2017, the Air Force used the 5-day advanced rate exclusively for its disbursements, while the Navy and Marine Corps relied on both the 5-day and the 3-day advanced rates  Our analysis of these data show the Air Force would have achieved total savings for those 2 months of about $258,000 if it had made its disbursements using the 3- day versus the 5-day advanced rate  The savings resulting from each transaction varied based on the amount of the transaction  For example, on June 13, 2017, the Air Force disbursed a payment exceeding $3 7 million and would have saved more than $9,000 for that transaction if the 3-day advanced rate had been used  For the same single transaction, if the spot rate had been used instead of the 5-day advanced rate, the Air Force would have saved more than $31,000  The savings associated with the Navy’s and Marine Corps’ disbursements for the same 2-month period showed the potential for less dramatic savings of less than $100 because the Navy and Marine Corps used the 3-day advanced rate as opposed to the 5-day advanced rate for most of its disbursements  Where information on the spot rate was available, its use, as opposed to either the 5-day or 3-day advanced rate, would have resulted in additional savings opportunities for those 2 months  While these examples are illustrative of cost savings opportunities in June and July 2017, Treasury data show that in fiscal year 2016, DOD disbursed more than $11 8 billion through ITS gov and, as of July 2017, had disbursed more than $9 6 billion through ITS gov  Our analysis suggests that DOD could achieve further cost savings by more consistently selecting cost-effective foreign currency rates, such as the 3-day advanced or spot rates, with which to make disbursements  In selecting foreign currency rates, DOD’s Financial Management Regulation states that disbursements should be computed to avoid gains or deficiencies (losses) due to fluctuations in rates of exchange to the greatest extent possible  If there is no rate of exchange established by agreement between the U S  government and the foreign country, then foreign currency transactions are to be conducted at the prevailing rate  The prevailing rate of exchange is the most favorable rate legally available for acquisition of foreign currency for official disbursement and other exchange transactions  Additionally, GAO’s Standards for Internal Control in the Federal Government calls for management to periodically review policies, procedures, and related control activities for continued relevance and effectiveness in achieving the entity’s objectives or addressing related risks  DOD disbursement organizations have flexibility in selecting foreign currency rates to use when making disbursements using ITS gov  There is no DOD-wide requirement for the services to review the rates used to make disbursements and, except for the Army, the services have not conducted such a review  This step is necessary to determine whether there are opportunities for savings by more consistently selecting cost- effective foreign currency rates  We discussed disbursement processes with DOD and Air Force, Navy, and Marine Corps financial management officials, including the factors considered when selecting foreign currency rates  In addition, a Defense Finance and Accounting Service official noted that currencies can have criteria specifying when a payment is made and provided us the ITS gov user’s guide, which addresses “special currency requirements,” such as those that would drive advanced payment for a currency  For example, the user’s guide indicates that payment for transactions involving the Afghanistan Afghani must be made 2 days in advance of the value date, and cannot be made on a Friday  However, information that is contained in the ITS gov user’s guide and that we received from a Treasury official indicate that none of the nine foreign currencies for which DOD budgets place restrictions on when payment must be made; and therefore, this consideration should not drive the use of a specific rate at disbursement  Marine Corps financial management officials told us that the foreign currency rate selected at disbursement is at the discretion of the disbursing officer based on operational requirements, with the understanding that the most favorable rate for the government is the preference, while balancing mission requirements and the time necessary to process the transaction  These officials acknowledged that the 3-day advanced rate can be more cost-effective to the government but indicated that there are occasions when the 5-day advanced rate should be used because it provides more time to process the payments from deployed locations operating in different time zones or with limited communication capabilities  However, we found that OUSD (C) officials and financial management officials with the headquarters of the Air Force, Navy, and Marine Corps were not involved in disbursement, were unaware of what rates were being used at disbursement, and had not reviewed the rationale for selecting one rate over another  For example, Air Force and Navy headquarters officials we spoke with were unable to provide insight as to what drives the decision to use one rate over another  One Navy financial management official told us that he was unaware of any Navy policy that directs a specific rate to be used when disbursing funds, and suggested that the absence of such a policy provides the flexibility for officials to determine which approach is best  Headquarters, Marine Corps officials also stated that they did not monitor foreign currency rates used for disbursements or the reasons why one rate was selected over another  Based on our inquiry, officials indicated that they would analyze the foreign currency rates used for disbursements in 2017 and whether opportunities existed to achieve savings by using other rates available through ITS gov  A Marine Corps official subsequently provided us with information that showed that two of three disbursing offices that currently utilize ITS gov for disbursements use the 3-day advanced rate exclusively and one uses the 5-day advanced rate  The official noted that a technical issue within ITS gov has restricted the disbursing office currently using the 5-day advanced rate from choosing any other rate, but that the service was further assessing options to correct the issue  In our conversations with an official in OUSD(C) about why the other services had not reviewed the foreign currency rates used for disbursements to determine what was being paid through ITS gov and whether there was an opportunity for savings, the official commented that OUSD(C) had not directed the services to conduct any reviews in this area  This official was unaware that different foreign currency rates were used to make disbursements, and assumed that the military services all make disbursements in the same way  However, as discussed above, the services are using different rates resulting in inconsistency across the department  The official further indicated that DOD could perform a review to determine the cost differences of using one disbursement rate over another  Absent a review of the rates the services are using in making disbursements and whether cost savings could be achieved by more consistently selecting the most cost-effective foreign currency rates available for use at disbursement, DOD is at risk for paying more to convert U S  Dollars for overseas expenditures than would otherwise be required  In fiscal years 2009 through 2016, DOD used the FCFD account to cover losses that the services experienced due to foreign currency fluctuations in 6 of the 8 years we reviewed  However, DOD does not effectively manage the FCFD account balance based on projected gains or losses  Transfers of expired unobligated balances from MILPERS and O&M accounts into the FCFD account have been made to replenish the account balance to the statutory limit of $970 million, without consideration of projected losses due to foreign currency fluctuations  Furthermore, DOD’s financial reporting on foreign currency fluctuations for fiscal years 2009 through 2016 contains incomplete and inaccurate information  In fiscal years 2009 through 2016, DOD transferred approximately $1 92 billion out of the FCFD account to cover losses that the services experienced due to foreign currency fluctuations in 6 of the 8 years we reviewed  For these years, DOD transferred funds from the FCFD account to the services’ MILPERS and O&M accounts during the fiscal year in which the funds were obligated for overseas expenses  The transfer amounts were based on both losses realized from actual disbursements and projected losses for any remaining obligations to be liquidated  The projected losses were calculated based on the current foreign currency market rates as of the time of the calculation  Based on the service-level data we reviewed, all of the services reported that they experienced losses in at least 5 of the fiscal years we reviewed  For example, the Army reported that it experienced losses in its MILPERS account for 5 of 8 years, while the Marine Corps reported that it experienced losses in its O&M and MILPERS accounts in each of the 8 years  In addition to the transfers to cover losses within the services’ MILPERS and O&M accounts, in fiscal year 2013 DOD transferred an additional $969 million to the Defense Working Capital Fund to offset fuel cost losses  Since fiscal year 2012, DOD has maintained the FCFD end-of-year account balance at $970 million—the maximum allowed by statute  To replenish the funds that were transferred out of the FCFD account, DOD transferred unobligated balances to the FCFD account from the services’ O&M and MILPERS accounts  While DOD can also replenish the FCFD account or absorb foreign currency losses in certain currencies by transferring to the FCFD account any gains experienced by the services, our analysis found that DOD did not transfer any gains into the FCFD account for fiscal years 2009 through 2016  Figure 3 shows the transfers into and out of the FCFD account and the end-of-year FCFD account balance for fiscal years 2009 through 2016  Our analysis also shows that DOD transferred funds to maintain the FCFD account at its maximum balance since 2012, despite experiencing fewer losses due to foreign currency fluctuations than it had experienced in fiscal years 2009 to 2011  Of the $1 92 billion transferred from the FCFD account to the services’ MILPERS and O&M accounts to cover losses, $464 5 million was transferred since fiscal year 2012, when DOD began maintaining its FCFD account at the maximum level  During that time, some of the services experienced foreign currency gains, while others experienced losses  For example, at the end of fiscal year 2013 the Navy reported a total realized and projected cumulative gain for its O&M and MILPERS accounts of about $98 6 million  In that same year, the Marine Corps reported a cumulative realized and projected loss for its O&M and MILPERS accounts of approximately $12 7 million  Had DOD not transferred unobligated funds back into the FCFD account, it would have retained a positive balance of approximately $505 5 million  However, DOD maintained the account balance at $970 million by transferring approximately $495 3 million in unobligated balances into the account  As part of its management of the FCFD account balance, DOD analyzes data on realized and projected losses as the basis for transferring funds from the FCFD account to the services’ MILPERS and O&M accounts to cover losses  However, DOD does not consider projected losses when making transfers of unobligated O&M and MILPERS balances into the FCFD account  Figure 4 below shows the FCFD account balance that DOD has maintained in relation to the transfers out of the account to cover losses  Specifically, according to the OUSD(C) official responsible for managing the FCFD account, DOD maintains the FCFD account balance at $970 million to maximize unobligated balances within the military services’ O&M and MILPERS accounts before they are canceled and are no longer available to DOD  In addition, this official stated that DOD prefers to maintain the maximum balance in case it is needed due to sudden, unfavorable swings in foreign currency exchange rates  Our review of the documentation used to make transfers into and out of the FCFD account corroborates that DOD maintains the FCFD account balance to maximize the retention of unobligated balances  Specifically, we found instances in which the documentation states that the transfers of unobligated balances into the FCFD account were made for the purpose of replenishing the account balance to the statutory limit  For example, DOD transferred $89 million from the FCFD account to the Army for losses it had realized and projected in fiscal year 2014, and later transferred unobligated balances of the same amount back into the account  DOD’s documentation states that this transfer of unobligated balances was made for the purpose of replenishing the account to $970 million in order to finance estimated foreign currency losses resulting from the decline in value of the U S  Dollar  However, the transfer to the Army already covered the realized losses and projected losses for any remaining disbursements  In other words, estimated foreign currency losses had already been accounted for at the time of the transfer to the Army  In addition, based on data reported by the Air Force, Marine Corps, and Navy, DOD had an estimated cumulative gain of about $30 million for fiscal year 2014 based on the other services’ gains and losses, which could have been transferred to the FCFD account to absorb any additional foreign currency losses elsewhere  However, DOD did not transfer those gains to the FCFD account  Similarly, based on data reported by these services, DOD experienced cumulative realized and projected gains of more than $200 million in fiscal year 2013 and about $92 6 million in fiscal year 2015, but it did not transfer any gains to the FCFD account because the account balance had already reached its maximum using transferred unobligated balances  Despite replenishing the account balance to the maximum amount for the purpose of covering additional losses, the FCFD transfers have not been made to fully offset losses in some years, further raising questions about the need to maintain the balance at the statutory cap of $970 million annually  Specifically, in 3 of the 6 years in which DOD transferred funds from the FCFD account to the services’ MILPERS and O&M accounts, DOD did not use the FCFD account to fully cover the losses that the Air Force, Marine Corps, and Navy experienced  In fiscal year 2011, for example, DOD’s transfers out of the FCFD account to these services covered about 88 percent of the reported MILPERS and O&M losses that these services had realized and projected to lose by the end of the fiscal year  In fiscal year 2012, FCFD transfers covered almost 72 percent of the MILPERS and O&M realized and projected losses reported by the Air Force, Marine Corps, and Navy, as of the end of the fiscal year  In fiscal year 2016, DOD FCFD transfers to these services covered approximately 55 percent of their reported MILPERS and O&M realized and projected losses by the end of the fiscal year  The OUSD(C) official we spoke with stated that FCFD transfers to cover losses begin with a request from the services, and the OUSD(C) office and the services then coordinate on the final transfer amount  In addition, some service officials told us that they try to cover their losses using each service’s available funding before reaching out for assistance from the FCFD account  Therefore, based on a service’s ability to cover the loss, it may not always request an FCFD transfer to cover the full amount of realized and projected losses  Further, according to an OUSD(C) official, the timing of a service’s request for an FCFD transfer may also affect any differences between the amount transferred and the actual losses experienced  Specifically, if a service requests a transfer early in the fiscal year based on realized and projected losses, actual losses experienced as of the end of the fiscal year may be greater than or less than the transfer amount due to foreign currency fluctuations  Using transfers of unobligated balances, DOD has maintained its FCFD account balance at the maximum level allowed by statute because it has not analyzed realized and projected losses to determine what size account balance is necessary to meet the intended purpose of the account  In our prior work, we have developed key questions for evaluating federal account balances that agencies may use to identify the amount of the balance necessary to maintain agency or program operations  Through examination of carryover balances, oversight of agencies’ management of federal funds may be enhanced  Specifically, we reported that understanding an agency’s processes for estimating and managing carryover balances provides information to assess how effectively agencies anticipate program needs, and ensure the most efficient use of resources  To estimate and manage carryover balances, agencies may consider such factors as future needs of the account, economic indicators, and historical data  If an agency does not have a robust strategy in place to manage carryover balances or is unable to adequately explain or support the reported carryover balance, then a more in-depth review is warranted  In those cases, balances may either fall too low to efficiently manage operations or rise to unnecessarily high levels, producing potential opportunities for those funds to be used more efficiently elsewhere  When asked about maintaining the balance at a level necessary to cover losses, rather than at the maximum level allowed by statute, the OUSD(C) official indicated that the OUSD(C) takes a cautious approach and prefers to have the additional flexibility allowed by the higher balance  Further, the official stated that it would be difficult for DOD to attempt to base its unobligated balance transfers and the FCFD account balance on analysis and evaluation, given the unpredictable nature and constant volatility of foreign currency rates  Our guidelines on evaluating carryover balances acknowledge that external events beyond an agency’s control can dramatically affect carryover balances  However, the challenges that are inherent in predicting foreign currency rates do not preclude DOD from conducting analysis to glean insight as to the appropriate size for the balance of the account and what potential opportunities for savings might exist  Specifically, our guidelines suggest that agencies would benefit from considering the sources and fiscal characteristics of an account with carryover balances  In this case, the FCFD account can receive funds from transfers of unobligated balances and realized foreign currency gains  In addition, DOD can make multiple transfers throughout a fiscal year and can transfer funds from the FCFD to and from the services’ O&M and MILPERS accounts simultaneously, if necessary  These characteristics of the FCFD account already provide the department with flexibility, indicating that DOD may be positioned to manage the FCFD balance in a more analytical manner based on any projected losses  Without analyzing any realized or projected losses to determine what balance may be needed to meet the FCFD account’s intended purpose, the account balance may be kept at a higher level than is necessary  As a result, although an exact amount is unknown, DOD may be maintaining balances in the FCFD account that are hundreds of millions of dollars higher than needed to cover any losses it has experienced, and these funds may have been more efficiently used in supporting other defense activities or returned to Treasury after the account is canceled by law  DOD prepares financial reports to monitor the status of its foreign currency funds, but some of DOD’s financial reporting on foreign currency fluctuations for fiscal years 2009 through 2016 is incomplete and inaccurate  DOD’s Financial Management Regulation establishes reporting requirements specifically for tracking all transactions that increase or decrease the FCFD  In accordance with that guidance, the services provide data from their accounting systems to the Defense Finance and Accounting Service to generate reports that are used as a tool with which the services and OUSD(C) can monitor how they are expending funds appropriated for overseas expenditures  For O&M appropriations, the Foreign Currency Fluctuations, Defense (O&M) report provides data on foreign currency gains and losses for each service, by currency, including data on projected gains or losses for any remaining obligations that have not yet been disbursed at the time of the report  The Foreign Currency Fluctuations, Defense Report (MILPERS) provides similar information for the MILPERS appropriation  We reviewed end-of-year Foreign Currency Fluctuations, Defense (O&M) and (MILPERS) reports for fiscal years 2009 through 2016 and found that some of the reporting for O&M was incomplete and inaccurate, which hampers the quality of information available to manage the FCFD account  For instance, we found the following: Incomplete data in the Foreign Currency Fluctuations Defense (O&M) reports: In our review of the end-of-year Foreign Currency Fluctuations Defense (O&M) and (MILPERS) reports we observed several instances of incomplete data in the O&M reports, and these affect managers’ ability to make sound decisions to manage foreign currency gains and losses  First, for the Navy, we found that the report data showed, for multiple currencies across fiscal years 2011 through 2016, values in the realized variance column, indicating that the service had experienced a gain or loss in a particular currency; however, the reports showed values of zero in other columns that are necessary for calculating the gain or loss  Second, the Air Force data for the Turkey Lira, in fiscal year 2012, showed a gain or loss without any data indicating what would have driven the gain or loss  Third, in one instance, Marine Corps data on obligations for fiscal year 2011 were missing from the end-of-year reports until 2014  Missing obligation data for these end-of-year reports indicate a limitation in using these reports for tracking actual gains and losses  Inaccurate data in the Army’s Foreign Currency Fluctuations Defense (O&M) reports: The Army’s Foreign Currency Fluctuation Defense (O&M) reports are inaccurate and cannot be used to reliably track gains or losses, and this hinders managers from making sound decisions regarding the Army’s foreign currency gains and losses  The reports are inaccurate in that the Army’s accounting system charges disbursements to the current fiscal year appropriation rather than to the fiscal year appropriation that incurred the obligation, as required by the Financial Management Regulation  According to officials from the Army Budget Office, the Army designed its General Fund Enterprise Business System (GFEBS) to record disbursements to the current fiscal year based on differing interpretations of a previous version of the Regulation  Because the Army is not recording its disbursements to the fiscal year appropriation as the other services are, Army data are inaccurate and cannot be used by the OUSD(C) official responsible for overseeing DOD’s foreign currency program to track the Army’s foreign currency transactions and maintain full visibility of DOD’s overall gains and losses in a given fiscal year  Army Budget Office officials acknowledged that the Army will need to modify its system to record disbursements consistent with Financial Management Regulation guidance, but it has not developed a plan or timeline for doing so  Without accurate reporting of the Army’s foreign currency transactions, DOD lacks information for tracking and helping to manage the Army’s foreign currency gain and losses  DOD’s Financial Management Regulation specifies the data that must be included in the Foreign Currency Fluctuations Defense (O&M) and (MILPERS) reports and the roles and responsibilities of the services as well as the Defense Finance and Accounting Service for ensuring the quality of those data  However, we identified data issues in our analysis that indicate that quality is inconsistent  For example, officials from the Navy stated that they had observed the incomplete data for some currencies and speculated that the incompleteness was attributable to data entry errors  Similarly, according to an OUSD(C) official, the Defense Finance and Accounting Service is notified when discrepancies are found in the reports and the Defense Finance and Accounting Service officials coordinate with the services to correct the data  However, neither Navy nor the Defense Finance and Accounting Service officials have corrected the data  Although DOD’s Financial Management Regulation specifies the data that are to be included, as well as roles and responsibilities of the services and the Defense Finance and Accounting Service, it does not identify who is responsible for correcting erroneous or missing data  According to an OUSD(C) official, correcting reporting issues is an area that OUSD(C), the Defense Finance and Accounting Service, and the services can improve on, and they would benefit from guidance in the Financial Management Regulation that establishes the steps that should be taken for making such corrections  Further, GAO’s Standards for Internal Control in the Federal Government and the Federal Accounting Standards Advisory Board’s Handbook of Federal Accounting Standards and Other Pronouncements, as Amended, both establish the importance of using reliable and complete information for making decisions  In addition, DOD’s Financial Management Regulation establishes responsibilities for both the DOD components and the Defense Finance and Accounting Service to establish appropriate internal controls to ensure that financial reporting data are complete, accurate, and supportable, in order for managers to make sound decisions and exercise proper stewardship over these resources  Effectively managing foreign currency gains and losses as well as any projected gains or losses for any remaining obligations that have not yet been liquidated through disbursement requires complete and accurate data  OUSD(C) and service officials recognize the importance of reliable data, as well as the need to take steps to improve the quality of the foreign currency gains and losses data  Without OUSD(C) establishing guidance to ensure that the Foreign Currency Fluctuation Defense (O&M) report data that tracks foreign currency gains and losses are complete, DOD and Congress do not have information to make sound decisions and exercise proper stewardship over resources due to foreign currency fluctuations  Furthermore, until the Army establishes a plan and timeline for modifying its system to record foreign currency disbursements in an accurate manner, the Army and DOD will lack quality information for tracking and helping to manage the Army’s and DOD’s foreign currency gain and losses  Congress provides DOD with a significant amount of funding each year to purchase goods and services overseas and to pay service-members stationed abroad  DOD develops and can revise foreign currency budget rates to determine its funding needs and calculate any gains or losses that result from DOD’s overseas expenditures  The Army has estimated potential cost savings that would result from more consistently selecting a more cost-effective foreign currency rate for making disbursements to liquidate its overseas O&M obligations  However, DOD has not fully determined whether additional cost-saving opportunities exist because the services have not reviewed the rates used for foreign currency disbursements  Absent a review of the foreign currency rates the services are using at disbursement, including whether cost-saving opportunities exist, by more consistently selecting cost-effective foreign currency rates, DOD risks paying more than would be required otherwise  Further, while DOD has used the FCFD account to cover losses that resulted from foreign currency fluctuations, it has not managed the FCFD account balance by basing the transfers of unobligated balances into the FCFD account on an analysis of realized and projected losses  Without basing its FCFD account balance on such analyses, DOD may be maintaining balances in the FCFD account that are hundreds of millions of dollars higher than needed to cover any losses it has experienced, and these amounts may have been more efficiently used supporting other defense activities or ultimately returned to Treasury, once expired  Moreover, DOD has not established guidance and other procedures to ensure that complete and accurate data are included in financial reporting on foreign currency funds, and this limits the quality of information available to effectively manage the FCFD account  We are making the following four recommendations to DOD  The Secretary of Defense ensures that: The Under Secretary of Defense (Comptroller), in coordination with the U S  Army, Air Force, Navy, and Marine Corps, should conduct a review of the foreign currency rates used at disbursement to determine whether cost-saving opportunities exist by more consistently selecting cost- effective rates at disbursement  (Recommendation 1) The Under Secretary of Defense (Comptroller) should analyze realized and projected losses to determine the necessary size of the FCFD account balance and use the results of this analysis as the basis for transfers of unobligated balances to the account  (Recommendation 2) The Under Secretary of Defense (Comptroller) should revise the Financial Management Regulation to include guidance on ensuring that data are complete and accurate, including assignment of responsibility for correcting erroneous data in its Foreign Currency Fluctuations Defense (O&M) reports  (Recommendation 3) The Secretary of the Army should develop a plan with timelines for implementing changes to its General Fund Enterprise Business System to accurately record its disbursements, consistent with DOD Financial Management Regulation guidance  (Recommendation 4) We provided a draft of this report to DOD for review and comment  In its written comments, reproduced in appendix II, DOD concurred with our first, third, and fourth recommendations and outlined its plan to address them  DOD partially concurred with our second recommendation that the Under Secretary of Defense (Comptroller) analyze realized and projected losses to determine the necessary size of the FCFD account balance and use the results of the analysis as the basis for transfers of unobligated balances to the account  DOD also provided technical comments, which we incorporated in the report, where appropriate  In partially concurring with our second recommendation, DOD stated that projecting foreign currency gains or losses can be difficult given that foreign currency rates can be volatile due to various factors, such as trade balances, money supply, and national income, as well as arbitrary disturbances that affect foreign currency rates that cannot be predicted or forecasted, such as the departure of the United Kingdom from the European Union  DOD noted that because of the risk and volatility associated with foreign currency rates, the Congress established the FCFD account  We agree that forecasting foreign currency rates is challenging due to market volatility and include examples in our report of the effect of foreign currency rate fluctuations on DOD’s planned foreign currency obligations  Our report also describes the relationship between gains and losses and foreign currency fluctuations, and the movement of funds from the FCFD account to offset any losses  As our report also discusses, DOD calculates actual and projected losses due to foreign currency fluctuations and uses those projections as the basis, at least in part, for any transfers out of the FCFD account to cover losses experienced in the military services’ O&M and MILPERS appropriations  However, our report also notes that DOD does not consider its calculations of actual and future projected losses when making transfers of unobligated O&M and MILPERS balances to replenish the FCFD account  Instead, since fiscal year 2012, DOD has kept the FCFD account balance at the maximum level allowed by statute by using unobligated balances before they are canceled and are no longer available to DOD, regardless of whether the funds were needed in the account to offset any projected losses  DOD’s comments also stated that projecting gains or losses for foreign currency to determine the size of the FCFD account opens the door to greater uncertainty and risk at a time when the department is working to rebuild readiness and implement the National Defense Strategy  Our report describes the characteristics of the FCFD account that provide DOD with flexibility to manage market volatility, thereby helping to address uncertainty and reduce risk  For example, DOD can make multiple transfers of funds to the FCFD account throughout a fiscal year in response to unforeseen foreign currency fluctuations  The FCFD account can also receive funds from transfers of actual foreign currency gains and/or unobligated balances  As we also noted, DOD made use of its authority to transfer expired unobligated MILPERS and O&M amounts into the FCFD account in the event that actual losses exceeded the projected amounts and additional transfers were deemed necessary  We continue to believe that by analyzing actual and projected losses and basing the transfer of any unobligated balances on these losses, DOD would be better positioned to determine the size of the FCFD account balance that is necessary to meet its intended purpose  Further, such analyses would provide opportunities to more efficiently use unobligated balances for other defense activities or return the balances to Treasury  We are sending copies of this report to the Secretary of Defense, the Under Secretary of Defense (Comptroller), the Secretary of the Army, the Secretary of the Navy, the Secretary of the Air Force, the Commandant of the Marine Corps, and appropriate congressional committees  In addition, the report is available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact me at (202) 512-5431 or russellc@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  Key contributors to this report are listed in appendix III  To describe the Department of Defense’s (DOD) revised foreign currency budget rates since 2009 and the relationship between the revised budget rates and DOD’s projected Operation and Maintenance (O&M) and Military Personnel (MILPERS) funding needs, we reviewed DOD’s foreign currency budget rates for the period of fiscal years 2009 through 2017, and we identified any years during which DOD revised the initial budget rates  We compared DOD’s initial foreign currency budget rates and revised foreign currency budget rates with rates published by the U S  Treasury Department (Treasury) for fiscal years 2009 through 2017  This period corresponded with data available to us on DOD’s initial and revised rates and allowed for use of the most current data available, since DOD had not yet decided whether or not to revise the fiscal year 2018 budget rates, while we were conducting our audit work  We chose rates published by Treasury for this comparison because Treasury has the sole authority to establish for all foreign currencies or credits the exchange rates at which such currencies are to be reported by all agencies of the government  Because Treasury rates are issued quarterly, we averaged Treasury’s first and second quarter rates for each currency and compared the Treasury average with DOD’s initial budget rates  Similarly, we computed an average of the third and fourth quarter Treasury rates for each currency and compared them with the DOD initial or revised budget rates, where applicable  These comparisons are meant to show the difference between DOD’s budget rates and Treasury rates for the first 6 months of the fiscal year, and the difference between DOD’s revised exchange rates and Treasury rates for the last 6 months of the fiscal year  Further, we analyzed the extent to which DOD’s budget rates were within 10 percent of Treasury rates during these same years  We chose 10 percent as the basis for our analysis because Treasury’s guidance states that amendments to the quarterly rates will be published during the quarter to reflect significant changes in the quarterly data, such as rate changes of 10 percent or more  Additionally, to understand the effect that revising the budget rates had on DOD’s O&M and MILPERS funding estimates and on potential gains or losses due to foreign currency fluctuations, we used a three-step approach  First, we identified the amount of O&M and MILPERS funds DOD requested for each currency  We converted the U S  Dollars requested to the total amount of foreign currency needed by multiplying the U S  Dollars requested by DOD’s initial budget rate  Second, we determined the total amount of U S  Dollars required using the revised rates by dividing the total amount of foreign currency needed using DOD’s initial budget rate by DOD’s revised budget rate  We used this same approach to determine the total amount of U S  Dollars required using the average Treasury rates  Third, we computed the differences in DOD’s O&M and MILPERS foreign currency funding needs by subtracting the U S  Dollars required to meet its foreign currency needs based on the average Treasury rates from the amounts required based on DOD’s initial budget rates and DOD’s revised budget rates, respectively  We discussed further with officials from the Office of the Under Secretary of Defense, Comptroller (OUSD(C)) the factors considered in revising the rates and whether those factors are communicated within and outside of the department  To evaluate the extent to which DOD has taken steps to reduce costs in selecting foreign currency rates at which to make disbursements and determine whether opportunities exist to gain additional savings, we reviewed accounting standards and any guidelines that exist regarding disbursements and calculations of foreign currency gains and losses, such as DOD’s Financial Management Regulation 7000 14-R, which calls for the use of prevailing foreign currency rates to make disbursements  We also discussed with agency officials how those guidelines are being carried out, and whether DOD or the services have developed guidance that instructs the services in selecting rates used for disbursements in foreign currencies  Additionally, we examined a non-generalizable selection of data for DOD disbursements made during the months June and July 2017 from Treasury’s International Treasury Service (ITS gov) system to determine which rates DOD used during this period and what savings might be achievable from using alternate rates  We chose data from those 2 months because it was the most recent data available on disbursements at the time Treasury provided the data for our review  Additionally, we discussed with officials from OUSD(C) and the services any analysis and ongoing efforts to transition to more cost-effective rates, including savings that may result  To assess the extent to which DOD has effectively managed the Foreign Currency Fluctuations, Defense (FCFD) account to cover losses, and maintained quality information to manage these funds, we analyzed DOD data for fiscal years 2009 through 2016 on foreign currency gains and losses reported by each of the services as reported in their Foreign Currency Fluctuation, Defense (O&M) and (MILPERS) reports; movements of funds between the FCFD account and the services’ O&M and MILPERS accounts; and the end-of-year FCFD account balances  We chose this time period in order to capture years in which both gains and losses were experienced, and for which DOD had complete data on gains and losses, fund transfers, and end-of-year balances for the FCFD account  Because the Army charges disbursements to the current fiscal year appropriation instead of the fiscal year appropriation that incurred the obligation, we requested that the Army adjust its reported data on foreign currency gains and losses and provide information consistent with how the other services report them, and with DOD’s Financial Management Regulation  However, the Army was unable to provide us with data that were consistent with what was provided by the other services at the time of our review  We, therefore, were unable to use Army data for purposes of comparison with data provided by the other services  We compared the end-of-year FCFD account balances and the use of the account with guidelines established in our prior work on the importance of examining unobligated balances  Additionally, we reviewed and analyzed DOD financial reports on foreign currency gains or losses and compared the reports, including any identified discrepancies, against best practices and standards on accurate reporting and maintaining quality information, such as those in GAO’s Standards for Internal Control in the Federal Government, and the Federal Accounting Standards Advisory Board’s Handbook of Federal Accounting Standards and Other Pronouncements, as Amended  To determine the reliability of the data used in addressing these objectives, we analyzed DOD and Treasury foreign currency rates, data on DOD foreign currency disbursements, and DOD financial reporting data on foreign currency gains and losses to identify any missing or inaccurate information, and we discussed with agency officials any identified abnormalities and how the information was extracted from systems, when appropriate  We found the data to be sufficiently reliable for the purposes of our reporting objectives, with the exception of the financial reporting on financial gains and losses  Specifically, based on problems with the completeness and accuracy of DOD’s financial reporting on foreign currency gains and losses, we found that these data were not sufficiently reliable for the purpose of computing exact totals for the gains and losses DOD experienced  However, because DOD uses these data as the basis for decisions related to management of the FCFD account, we included the data in our analysis to provide insight into the scope of gains and losses experienced  We also spoke with OUSD(C), military service, and Treasury officials regarding the process and systems used to input the reviewed data and generate the foreign currency reports we reviewed  We conducted this performance audit from February 2017 to April 2018 in accordance with generally accepted government auditing standards  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives  In addition to the contact named above, Matt Ullengren, Assistant Director; and Tulsi Bhojwani, Justin Bolivar, Carol Bray, Amie Lesser, Kelly Liptan, Felicia Lopez, Leah Nash, Randy Neice, Jacqueline McColl, Mike Silver, Roger Stoltz, Susan Tindall, John Trubey, Elaine Vaurio, and Cheryl Weissman made key contributions to this report 
Report 2:  Egypt's policy toward Libya also is closely aligned with other foreign backers of the LNA, including France and the United Arab Emirates (UAE)  Reportedly, the three countries are working in concert to strengthen the position of Haftar in order to facilitate the eventual reunification of the Libyan army  A 2019 LNA offensive into southern Libya has placed additional pressure on the Government of National Accord and may complicate U S -backed efforts by the United Nations to facilitate a national dialogue, constitutional referendum, and elections in 2019  To Egypt's south, the government is embroiled in regional disputes with Nile Basin countries, such as Ethiopia, which is nearing completion of the $4 2 billion Grand Ethiopian Renaissance Dam, a major hydroelectric project  Egypt argues that the dam, once filled, will limit the flow of the Nile River below Egypt's agreed share  However, many analysts expect that Egypt will address the dispute by increasing water-use efficiency and investing in desalination, rather than using its military to bomb the dam  Reduced Nile flow into Egypt may exacerbate existing water shortages and cause short-term political problems for the Egyptian government, which faces extensive domestic water needs  In February 2019, President Sisi assumed the one-year chairmanship of the African Union, during which he is expected to promote closer relations with fellow African states  Egypt and Russia, close allies in early years of the Cold War, have again strengthened bilateral ties under President Sisi, who has promised to restore Egyptian stability and international prestige  His relationship with Russian President Vladimir Putin has rekindled, in the words of one observer, "a romanticized memory of relations with Russia during the Nasser era " President Sisi first turned to Russia during the Obama Administration, when U S -Egyptian ties were strained, and Egypt seemed intent on signaling its displeasure with U S  policy  Since 2014, Egypt and Russia have improved ties in a number of ways, including through arms deals  Reportedly, Egypt is upgrading its aging fleet of legacy Soviet MiG-21 aircraft to a fourth generation MiG-29M variant with additional deliveries to Egypt in 2018 (first delivered in April 2017)  Egypt also has purchased 46 standard Ka-52 Russian attack helicopters for its air force  Egypt reportedly also has purchased the naval version of the Ka-52 for use on Egypt's two French-procured Mistral-class helicopter dock vessels (see below), and the S-300VM surface-to-air missile defense system from Russia  In August 2018, Egyptian Defense Minister Mohamed Zaki visited Russia, where he attended a Russian arms exhibition  Additionally, Egypt and Russia reportedly have expanded their cooperation on nuclear energy  In 2015, Egypt reached a deal with Russian state energy firm Rosatom to construct a 4,800-megawatt nuclear power plant in the Egyptian Mediterranean coastal town of Daba'a, 80 miles northwest of Cairo  Russia is lending Egypt $25 billion over 35 years to finance the construction and operation of the nuclear power plant (this will cover 85% of the project's total costs)  The contract also commits Russia to supply the plant's nuclear fuel for 60 years and transfer and store depleted nuclear fuel from the reactors  As Egyptian and Russian foreign policies have become more closely aligned in conflict zones such as eastern Libya, bilateral military cooperation has expanded  One report suggests that Russian Special Forces based out of an airbase in Egypt's western desert (Sidi Barrani) may be aiding General Haftar  In November 2017, Egypt and Russia signed a draft agreement governing the use of each other's air space  While Egyptian-Russian ties have grown warmer in recent years, they are not without complications  In the aftermath of an October 2015 terrorist attack against a Russian passenger jet departing from Sharm El Sheikh, visits to Egypt by Russian tourists, previously the country's largest source of tourists, dropped significantly  Russian commercial aircraft have resumed direct flights to Cairo but not to Sharm El Sheikh  Egypt and Russia also engaged in a trade dispute in 2016 over Russian wheat imports  Egypt is the largest global importer of wheat, and the largest export market for Russian wheat  Aside from Russia, France stands out as a non-U S  country with which President Sisi has sought to build a diplomatic and military procurement relationship  In the last five years, as French-Egyptian ties have improved, Egypt has purchased major air and naval defense systems from French defense contractors, including the following: Four Gowind Corvettes (produced by Naval Group)—This deal was signed in July 2014  As part of the French-Egyptian arrangement, some of the Corvette construction has taken place at the Alexandria Shipyard in Egypt  One FREMM multi-mission Frigate (produced by Naval Group)—Named the Tahya Misr (Long Live Egypt), this vessel was delivered to Egypt in 2015  This ship has participated in an annual joint French-Egyptian naval exercise, known as Cleopatra  In February 2015, Egypt purchased 24 Rafale multirole fighters (produced by Dassault Aviation)  Under the initial agreement, Egypt and France may enter into a new procurement agreement for 12 additional Rafale fighters  According to the manufacturer, the Rafale has flown in combat in Afghanistan, Libya, Mali, Iraq, and Syria and is used by Egypt, Qatar, and India  In 2018, French officials said that the United States would not permit France to export the SCALP air-launched land-attack cruise missile used on the Rafale to Egypt under the International Trade in Arms Regulation (ITAR) agreement  The United States may have been concerned over the transfer of sensitive technology to Egypt  Two Mistral-class Helicopter Carriers (produced by Naval Group)—In the fall of 2015, France announced that it would sell Egypt two Mistral-class Landing Helicopter Dock (LHD) vessels (each carrier can carry 16 helicopters, 4 landing craft, and 13 tanks) for $1 billion  The LHDs (ENS Anwar El Sadat and ENS Gamal Abdel Nasser ) were delivered in 2016  In 2017, Egypt announced that it would purchase Russian 46 Ka-52 Alligator helicopters, which can operate on the LHDs  In January 2019, French President Emmanuel Macron paid a three-day visit to Egypt, where he raised human rights issues in public and with Egyptian authorities and civil society representatives  According to Macron, "I can't see how you can pretend to ensure long-term stability in this country, which was at the heart of the Arab Spring and showed its taste for freedom, and think you can continue to harden beyond what's acceptable or justified for security reasons " President Trump has praised the Egyptian government's counterterrorism efforts while his Administration has worked to restore high-level diplomatic engagement, joint military exercises, and arms sales  Many commentators initially expected President Trump to bring the United States and Egypt closer together, and that largely has been the case  The Administration has withheld some foreign assistance for policy reasons on at least one occasion, however, and the United States has not had an ambassador in Cairo since June 30, 2017  As evidence of improved bilateral ties, the U S  Defense Department notified Congress in November 2018 of a major $1 billion sale of defense equipment to Egypt, consisting of 10 AH-64E Apache Attack Helicopters, among other things  The Egyptian Air Force already possesses 45 less advanced versions of the Apache that were acquired between 2000 and 2014  In January 2019, U S  Secretary of State Michael Pompeo delivered a major policy speech at the American University in Cairo, where he stated: "And as we seek an even stronger partnership with Egypt, we encourage President Sisi to unleash the creative energy of Egypt's people, unfetter the economy, and promote a free and open exchange of ideas  The progress made to date can continue " U S  officials have not yet publicly criticized efforts by supporters of President Sisi to advance amendments to the constitution (see above) to extend the possibility of Sisi's continued presidency  Human rights advocates have called for Western governments to withhold assistance to Egypt if the amendments are approved  According to Human Rights Watch , "Al-Sisi's government is encouraged by the continued silence of its allies, and if the US, UK, and France want to avoid the destabilizing consequences of entrenching authoritarian rule in Egypt, they should act now " On February 22, 2019, a bipartisan group of national security experts called on U S  officials to "express strong concern about the amendments to the Egyptian constitution now moving through a rapid approval process " Egypt's poor record on human rights and democratization has sparked regular criticism from U S  officials and some Members of Congress  Since FY2012, Members have passed appropriations legislation that withholds the obligation of FMF to Egypt until the Secretary of State certifies that Egypt is taking various steps toward supporting democracy and human rights  With the exception of FY2014, lawmakers have included a national security waiver to allow the Administration to waive these congressionally mandated certification requirements under certain conditions  Over the last year, the Administration has obligated several tranches of FMF to Egypt, including the following: In September 2018, the Administration obligated $1 billion in FY2018 FMF  Per Section 7041(a)(3)(A) of P L  115-141 , the Consolidated Appropriations Act, FY2018, $300 million in FMF remains withheld from obligation until the Secretary of State certifies that Egypt is taking various steps toward supporting democracy and human rights  In previous acts, the amount withheld had been $195 million  FY2018 FMF for Egypt remains available to be expended until September 30, 2019  In August 2018, the Administration waived the certification requirement in Section 7041(a)(3)(B) of P L  115-31 , the Consolidated Appropriations Act, FY2017, allowing for the obligation of $195 million in FY2017 FMF, which occurred in September 2018  However, according to one report, Senator Patrick Leahy has placed a hold on $105 million in FY2017 FMF and is seeking more information on the plight of detained Egyptian-American Moustafa Kassem  In January 2018, the Administration notified Congress of its intent to obligate $1 039 billion in FY2017 FMF out of a total of $1 3 billion appropriated for FY2017  It chose not to obligate $65 7 million in FY2017 FMF  The remaining $195 million had been withheld until a national security waiver was issued in August 2018 (see above)  For FY2019, the President requested a total of $1 381 billion in foreign assistance for Egypt, the same amount requested for the previous year  Nearly all of the requested funds for Egypt are for the FMF account  For FY2020, the request is nearly identical from previous years, as the President is seeking a total of $1 382 billion in bilateral assistance for Egypt  The FY2019 Omnibus ( P L  116-6 ) provides the following for Egypt: a total of $1 419 billion in bilateral U S  foreign assistance for Egypt, of which $1 3 billion is in FMF, $112 5 million in ESF, $3 million in NADR, $2 million in INCLE, and $1 8 million in IMET; and a reauthorization of ESF to support future loan guarantees to Egypt; P L  116-6 sets the following conditions for Egypt: As in previous years, it requires that funds may only be made available when the Secretary of State certifies that the government of Egypt is sustaining the strategic relationship with the United States and meeting its obligations under the 1979 Egypt-Israel Peace Treaty  As in previous years, the act withholds ESF that "the Secretary determines to be equivalent to that expended by the United States Government for bail, and by nongovernmental organizations for legal and court fees, associated with democracy-related trials in Egypt until the Secretary certifies and reports to the Committees on Appropriations that the Government of Egypt has dismissed the convictions issued by the Cairo Criminal Court on June 4, 2013, in Public Prosecution Case No  1110 for the Year 2012 and has not subjected the defendants to further prosecution or if convicted they have been granted full pardons  " This last condition (bolded) was added in 2019 to account for the acquittal of the 43 foreign defendants in Case 173 (see above)  As in previous years, the FY2019 Omnibus also includes a limitation on ESF, stating that no FY2018 ESF or prior-year ESF "may be made available for a contribution, voluntary or otherwise, to the Civil Associations and Foundations Support Fund, or any similar fund, established pursuant to Law 70 on Associations and Other Foundations Working in the Field of Civil Work [informally known as the NGO law] " As in previous years, the act also includes a provision that withholds $300 million of FMF funds until the Secretary of State certifies that the Government of Egypt is taking effective steps to advance, among other things, democracy and human rights in Egypt  The Secretary of State may waive this certification requirement, though any waiver must be accompanied by, among other things, an assessment of the Government of Egypt's compliance with United Nations Security Council Resolution 2270 and other such resolutions regarding North Korea  There has been some concern in the Administration and Congress over Egypt's alleged weapons procurement from North Korea in recent years  P L  115-245 , the Department of Defense (DOD) and Labor, Health and Human Services, and Education Appropriations Act, 2019 and Continuing Appropriations Act, 2019, specifies that the Secretary of Defense may provide Egypt with funds from the Counter-ISIS Train and Equip Fund (CTEF) to enhance its border security  To date, Egypt has not received security assistance from DOD-managed accounts  Between 1946 and 2016, the United States provided Egypt with $78 3 billion in bilateral foreign aid (calculated in historical dollars—not adjusted for inflation)  The 1979 Peace Treaty between Israel and Egypt ushered in the current era of U S  financial support for peace between Israel and its Arab neighbors  In two separate memoranda accompanying the treaty, the United States outlined commitments to Israel and Egypt, respectively  In its letter to Israel, the Carter Administration pledged to "endeavor to take into account and will endeavor to be responsive to military and economic assistance requirements of Israel " In his letter to Egypt, former U S  Secretary of Defense Harold Brown wrote the following: In the context of the peace treaty between Egypt and Israel, the United States is prepared to enter into an expanded security relationship with Egypt with regard to the sales of military equipment and services and the financing of, at least a portion of those sales, subject to such Congressional review and approvals as may be required  All U S  foreign aid to Egypt (or any foreign recipient) is appropriated and authorized by Congress   The 1979 Egypt-Israel Peace Treaty is a bilateral peace agreement between Egypt and Israel, and the United States is not a legal party to the treaty  The treaty itself does not include any U S  aid obligations, and any assistance commitments to Israel and Egypt that could be potentially construed in conjunction with the treaty were through ancillary documents or other communications and were—by their terms—subject to congressional approval (see above)  However, as the peace broker between Israel and Egypt, the United States has traditionally provided foreign aid to both countries to ensure a regional balance of power and sustain security cooperation with both countries  In some cases, an Administration may sign a bilateral "Memorandum of Understanding" (MOU) with a foreign country pledging a specific amount of foreign aid to be provided over a selected time period subject to the approval of Congress  In the Middle East, the United States has signed foreign assistance MOUs with Israel and Jordan  Currently, there is no U S -Egyptian MOU specifying a specific amount of total U S  aid pledged to Egypt over a certain time period  Congress typically specifies a precise allocation of most foreign assistance for Egypt in the foreign operations appropriations bill  Egypt receives the bulk of foreign aid funds from three primary accounts: Foreign Military Financing (FMF), Economic Support Funds (ESF), and International Military Education and Training (IMET)  The United States offers IMET training to Egyptian officers in order to facilitate U S -Egyptian military cooperation over the long term  Since the 1979 Israeli-Egyptian Peace Treaty, the United States has provided Egypt with large amounts of military assistance  U S  policymakers have routinely justified this aid to Egypt as an investment in regional stability, built primarily on long-running military cooperation and sustaining the treaty—principles that are supposed to be mutually reinforcing  Egypt has used U S  military aid through the FMF to (among other things) purchase major U S  defense systems, such as the F-16 fighter aircraft, the M1A1 Abrams battle tank, and the AH-64 Apache attack helicopter  For decades, FMF grants have supported Egypt's purchases of large-scale conventional military equipment from U S  suppliers  However, as mentioned above, the Obama Administration announced that future FMF grants may only be used to purchase equipment specifically for "counterterrorism, border security, Sinai security, and maritime security" (and for sustainment of weapons systems already in Egypt's arsenal)  It is not yet clear how the Trump Administration will determine which U S -supplied military equipment would help the Egyptian military counter terrorism and secure its land and maritime borders  Overall, some defense experts continue to view the Egyptian military as inadequately prepared, both doctrinally and tactically, to face the threat posed by terrorist/insurgent groups such as Sinai Province  According to a former U S  National Security Council official, "they [the Egyptian military] understand they have got a problem in Sinai, but they have been unprepared to invest in the capabilities to deal with it " To reorient the military toward unconventional warfare, the Egyptian military needs, according to one assessment, "heavy investment into rapid reaction forces equipped with sophisticated infantry weapons, optics and communication gear     backed by enhanced intelligence, surveillance and reconnaissance platforms  In order to transport them, Egypt would also need numerous modern aviation assets " In addition to substantial amounts of annual U S  military assistance, Egypt has benefited from certain aid provisions that have been available to only a few other countries  For example Early Disbursal and Interest - Bearing Account : Between FY2001 and FY2011, Congress granted Egypt early disbursement of FMF funds (within 30 days of the enactment of appropriations legislation) to an interest-bearing account at the Federal Reserve Bank of New York  Interest accrued from the rapid disbursement of aid has allowed Egypt to receive additional funding for the purchase of U S -origin equipment  In FY2012, Congress began to condition the obligation of FMF, requiring the Administration to certify certain conditions had been met before releasing FMF funds, thereby eliminating their automatic early disbursal  However, Congress has permitted Egypt to continue to earn interest on FMF funds already deposited in the Federal Reserve Bank of New York  The Excess Defense Articles (EDA) program provides one means by which the United States can advance foreign policy objectives—assisting friendly and allied nations through provision of equipment in excess of the requirements of its own defense forces  The Defense Security Cooperation Agency (DSCA) manages the EDA program, which enables the United States to reduce its inventory of outdated equipment by providing friendly countries with necessary supplies at either reduced rates or no charge  As a designated "major non-NATO ally," Egypt is eligible to receive EDA under Section 516 of the Foreign Assistance Act and Section 23(a) of the Arms Export Control Act  Over the past two decades, U S  economic aid to Egypt has been reduced by over 90%, from $833 million in FY1998 to a request of $75 million for FY2019  Beginning in the mid to late 1990s, as Egypt moved from an impoverished country to a lower-middle-income economy, the United States and Egypt began to rethink the assistance relationship, emphasizing "trade not aid " Congress began to scale back economic aid both to Egypt and Israel due to a 10-year agreement reached between the United States and Israel in the late 1990s known as the "Glide Path Agreement," which gradually reduced U S  economic aid to Egypt to $400 million by 2008  U S  economic aid to Egypt stood at $200 million per year by the end of the George W  Bush Administration, whose relations with then-President Hosni Mubarak suffered over the latter's reaction to the Administration's democracy agenda in the Arab world  During the final years of the Obama Administration, distrust of U S  democracy promotion assistance led the Egyptian government to obstruct many U S -funded economic assistance programs  According to the Government Accountability Office (GAO), the Department of State and the U S  Agency for International Development (USAID) reported hundreds of millions of dollars ($460 million as of 2015) in unobligated prior year ESF funding  As these unobligated balances grew, it created pressure on the Obama Administration to reobligate ESF funds for other purposes  In 2016, the Obama Administration notified Congress that it was reprogramming $108 million of ESF that had been appropriated for Egypt in FY2015 but remained unobligated for other purposes  The Administration claimed that its actions were due to "continued government of Egypt process delays that have impeded the effective implementation of several programs " In 2017, the Trump Administration also reprogrammed FY2016 ESF for Egypt  U S  economic aid to Egypt is divided into two components: (1) USAID-managed programs (public health, education, economic development, democracy and governance); and (2) the U S -Egyptian Enterprise Fund  Both are funded primarily through the Economic Support Fund (ESF) appropriations account  

ground_truth: In response to Russia's annexation of Crimea in March 2014, the President announced the ERI, to reassure allies in Europe of U.S. commitment to their security. This initiative has been funded using OCO appropriations, which Congress provides in addition to DOD's base budget appropriations. The Joint Explanatory Statement accompanying the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017, included a provision for GAO to review matters related to ERI. In this report, we (1) describe changes in ERI's objectives, funding under ERI, and DOD's posture in Europe since 2014 and (2) evaluate the extent to which DOD's planning processes for posture initiatives funded under ERI prioritize those initiatives, estimate their long-term costs, and communicate their estimated costs to Congress. GAO analyzed DOD strategy documentation, budget and cost analysis guidance, budget justification materials, and cost and obligations data. GAO also interviewed knowledgeable officials within the Office of the Secretary of Defense, U.S. European Command, the military services, and the State Department. Since 2014, the Department of Defense (DOD) has expanded the European Reassurance Initiative's (ERI) objectives, increased its funding, and planned enhancements to European posture. DOD expanded ERI's objectives from the short-term reassurance of allies and partners to include deterring Russian aggression in the long term and developing the capacity to field a credible combined force should deterrence fail. With respect to funding, DOD will have requested approximately $4.5 billion for ERI's posture enhancements through the end of fiscal year 2017 (about $3.2 billion for fiscal year 2017 alone), and in July 2016 EUCOM identified funding needs for future posture initiatives. The expansion of ERI's objectives has contributed to DOD's enhancing its posture in Europe. Specifically, DOD has increased the size and duration of Army combat unit deployments, planned to preposition Army equipment in Eastern Europe, added new enduring locations (e.g., locations that DOD expects to access and use to support U.S. security interests for the foreseeable future), improved infrastructure, and negotiated new agreements with European nations. As of April 2017, DOD was considering further force enhancements under ERI as part of the department's ERI budget request. DOD also was reviewing whether new enduring locations to support ERI were needed and was considering other improvements to existing infrastructure. DOD's process for planning ERI has not established priorities among posture initiatives funded under ERI relative to those in its base budget, nor estimated long-term sustainment costs for some posture initiatives funded under ERI, nor communicated future costs to Congress. ERI is being planned using a separate process from DOD's established processes and is funded from DOD's overseas contingency operations (OCO) appropriations. GAO found several weaknesses: Lack of prioritization : DOD establishes priorities among ERI posture initiatives but has not evaluated them against base budget initiatives using its posture management process. As a result, DOD lacks an understanding of the relative importance of ERI initiatives and may be investing in projects that it will not continue should OCO funding become unavailable. Lack of sustainment costs : EUCOM and the military services have not fully estimated the long-term costs to sustain equipment and construction funded under ERI. Based on DOD's approach for calculating rough order sustainment costs, GAO determined that these costs could be substantial. DOD officials said that GAO correctly applied DOD's approach for estimating sustainment costs, but noted that actual costs may be lower, because the military services may not fully fund sustainment. In the absence of comprehensive estimates, DOD has been limited in its ability to assess affordability and plan for future costs. Not communicating future costs : DOD limits Congress's visibility into the resources needed to implement ERI and achieve its objectives because it does not include future costs in its ERI budget request. This is a public version of a classified report issued in August 2017. Information on specific posture planning, guidance, and budget estimates that DOD deemed to be classified have been omitted from this report. GAO recommends that DOD prioritize ERI posture initiatives against initiatives in its base budget, develop cost estimates for sustaining initiatives, and communicate future costs to Congress. DOD partially concurred with GAO's recommendations. GAO continues to believe that these recommendations are warranted.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.

Report 1: Global defense posture is an enabler of U S  defense activities and military operations overseas and is a central means of defining and communicating U S  strategic interests to allies, partners, and adversaries  It is driven by a hierarchy of national-level and DOD-specific guidance, which includes the National Defense Strategy and the National Military Strategy  Under DOD Instruction 3000 12, global defense posture includes three elements: Forces: forward stationed or rotationally deployed forces, U S  military capabilities, equipment, and units (assigned or allocated)  Footprint: networks of U S  foreign and overseas locations, infrastructure, facilities, land, and prepositioned equipment  Agreements: treaties and access, transit, support, and status- protection agreements and arrangements with allies and partners that set the terms regarding the U S  military’s presence within the territory of the host country  EUCOM is one of six geographic combatant commands and is responsible for missions in all of Europe, large portions of Asia, parts of the Middle East, and the Arctic and Atlantic Oceans (see figure 1)  EUCOM evaluates the adequacy of posture in Europe to support relevant plans and achieve military objectives  EUCOM shares responsibility with the Chairman of the Joint Chiefs of Staff and the Office of the Secretary of Defense for U S  military relations with allies and partners in Europe and the North Atlantic Treaty Organization (NATO)  The number of U S  military sites located in EUCOM’s area of responsibility and the number of military personnel assigned to Europe have decreased substantially since the end of the Cold War, and two heavy combat brigades had been deactivated by the end of fiscal year 2014  As of May 2016, EUCOM supported one airborne infantry brigade and one Stryker brigade, as well as approximately 62,000 military personnel across approximately 250 sites  Since 2009, we have reported on issues related to DOD’s efforts to estimate and report on the total cost of its global defense posture  In 2009, we identified weaknesses in DOD’s approach for adjusting its global defense posture and recommended, among other things, that DOD issue guidance for estimating total costs for global defense posture and modify its annual report to Congress to include the total cost to complete each planned posture initiative  In February 2011, we reported that EUCOM lacked comprehensive cost data in a key posture planning document and that therefore decision makers lacked critical information that they needed to make fully informed posture decisions  We recommended that the Chairman of the Joint Chiefs of Staff revise the Joint Staff’s posture planning guidance to include direction on how the combatant commands should analyze costs and benefits when considering changes to posture and to require that posture plans include comprehensive cost estimates  DOD agreed with the recommendations in both reports and subsequently took steps to implement them  In June 2012, we reported that DOD did not fully understand the cost implications of two posture initiatives in Europe—including its decision to return two heavy brigades from Europe to the United States—and that key posture planning documents did not completely and consistently include cost data  We recommended that DOD fully estimate the cost implications of these two initiatives, clarify components’ roles and responsibilities for estimating costs, and develop a standard reporting format for cost data  DOD generally agreed with our recommendations and has taken steps to implement two of them  Following the President’s June 2014 announcement of ERI, EUCOM identified five lines of effort that it would pursue under ERI, as described in table 1  Three of ERI’s lines of effort are expected to enhance DOD’s posture in Europe  For example, DOD is using ERI to increase the forces present in Europe by rotating an armored brigade combat team and elements of a combat aviation brigade to Europe every nine months  DOD also plans to enhance its footprint in Europe by using ERI funding to make infrastructure improvements and establish locations for prepositioned equipment  Finally, in order to implement ERI’s lines of effort and support U S  activities, DOD is partnering with the State Department to negotiate host nation agreements that, among other things, establish protections for U S  military personnel and provide DOD the authority to improve host nation installations and infrastructure  DOD is also supporting additional exercises and training to improve interoperability with partner countries while providing them with the capability and capacity to defend themselves, but these efforts are not expected to affect DOD’s long-term posture in Europe  Since 2014, DOD has expanded ERI’s objectives, increased its funding, and planned enhancements to posture in Europe  In fiscal years 2015 and 2016, ERI’s objective was to provide short-term reassurance to allies, and the initiative had little funding for long-term enhancements to posture  DOD focused its efforts on bolstering the security and capacity of NATO allies and partners by funding training, conducting exercises, and temporarily rotating Army and Air Force units to Eastern Europe  In fiscal year 2017, DOD expanded ERI’s objectives to include deterring Russian aggression in the long term and developing the capacity to field a credible combined force should deterrence fail  Recognizing that ERI’s expanded objectives would require DOD to alter its posture in Europe, DOD has requested increased ERI funding  DOD will have requested approximately $4 5 billion in ERI funding for posture enhancements through the end of fiscal year 2017; about $3 2 billion of this was requested for use in fiscal years 2017  During the time of our review, EUCOM had identified a need for additional funding over the next several years for additional posture enhancements in Europe  Specific details about EUCOM’s future posture plans and funding requirements were omitted because they are classified  DOD has requested increased funding to support planned enhancements to all three posture elements—forces, footprint, and agreements—in Europe: Force deployments to Eastern Europe: In fiscal years 2015 and 2016, the Army deployed armored brigade combat teams to Eastern Europe to provide short-term reassurance to allies and partners, which DOD officials said included Estonia, Latvia, Lithuania, and Poland, among other countries  These short-duration deployments were intermittent and focused on demonstrating U S  commitment to allies and partners  Additionally, the Air Force deployed air units on 4- month rotations to help protect allies’ and partners’ air space  In the fiscal year 2017 budget justification materials provided to Congress, as ERI’s objectives expanded, DOD requested funding to retain Air Force fighter units in Europe  It also began deploying a rotational armored brigade combat team so that one such brigade would be present in Europe at all times (see figure 2)  The first deployment, in January 2017, included approximately 4,000 personnel, 90 Abrams tanks, 90 Bradley Infantry fighting vehicles, and 112 supporting vehicles  Additionally, DOD began procuring and prepositioning equipment for two planned armored brigades in Europe, one of which will include modernized tanks, as an additional deterrent  According to Army officials, these force enhancements in Europe give the Army the ability to quickly deploy a substantial ground force in the event of a conflict  As of April 2017, DOD was still evaluating force enhancements in Europe as part of its fiscal year 2018 budget submission  Specific details were omitted because they are classified  New locations and improvements to infrastructure: Since ERI was announced in 2014, DOD has established new enduring locations in Europe  An enduring location is designated by DOD and is a geographic site that DOD expects to access and use to support U S  security interests for the foreseeable future  During our review, DOD had not yet determined whether additional enduring locations would be needed to support ERI  In addition to establishing new enduring locations, DOD plans to improve installations and infrastructure  From fiscal years 2015 through 2017, DOD requested funding in its budget justification submissions to Congress for major military construction projects in nine European countries and to improve support infrastructure—such as roads, railheads, and airbasing—at these locations  Major military construction projects are those projects specified in National Defense Authorization Acts  During the time of our review, DOD was considering addition improvements to existing infrastructure, specific details of which are classified  According to DOD and State Department officials, DOD is also working with U S  allies and partners to determine what infrastructure improvements to roads, railroads, and bridges need to occur outside enduring locations to allow rapid response to a conflict  New host nation agreements: Since ERI was announced, DOD and the State Department have completed host nation agreements with six European nations in support of ERI efforts: Romania, Bulgaria, and Poland, implementing previous agreements, in order to facilitate U S  construction on installations and areas in the host country (June and July 2015 and June 2016)  Estonia, Latvia, and Lithuania, providing an overarching framework for protections for U S  personnel and U S  access to installations in host nations (January 2017)  DOD is using a separate process instead of its established posture planning process to plan for ERI’s posture initiatives because of the emergent nature of ERI requirements and their having been funded through the OCO budget  DOD has established global defense posture management and base budget development processes that plan for posture initiatives and collectively support the department’s efforts to establish priorities, evaluate resource requirements, and develop strategy and policy  As a result of its not using its established processes, DOD is not prioritizing posture initiatives funded under ERI against posture initiatives funded through its base budget, estimating these initiatives’ long-term sustainment costs, or communicating their future costs to Congress  DOD is planning ERI posture initiatives outside of its established processes and is funding these enduring initiatives—including rotational deployments and infrastructure projects—out of its OCO budget  We have previously identified risks associated with DOD’s practice of completing construction projects outside of its established processes  For example, in September 2016 we reported that DOD had not issued implementing guidance to establish a formal process for reevaluating ongoing contingency construction projects when missions change and that as a result DOD risked completing unnecessary construction projects  We also found that DOD lacked visibility into the amount of funding it was spending on operations and maintenance-funded construction projects in U S  Central Command and that this increased financial risk and duplication risk for the department  Like U S  Central Command, EUCOM is using DOD’s OCO budget to fund construction projects and is planning those projects outside of its established processes  Based on our analysis, DOD plans to spend approximately $503 million from fiscal year 2015 through the end of fiscal year 2017 on ERI-related construction projects—about $279 million for major military construction projects and $224 million for minor military construction and facilities maintenance and repair projects (hereafter, minor construction and repair), as shown in table 2  DOD has established global defense posture management and base budget development processes that plan for posture initiatives and collectively support the department’s efforts to establish priorities, evaluate resource requirements, and develop strategy and policy  According to DOD Instruction 3000 12, DOD’s global defense posture processes apply to DOD forces, footprint, and agreements that support joint and combined global operations and plans in foreign countries  According to the instruction, DOD’s components use these processes to address planning for global defense posture, resource requirements, and policy development, among other things  Further, it states that these processes are overseen by an executive council that provides recommendations, inputs, and expertise on global defense posture to key national strategy products  DOD’s Planning, Programming, Budgeting, and Execution Process serves as the annual resource allocation process for DOD and is intended to enable DOD to align resources to prioritized capabilities; balance necessary warfighting capabilities with risk, affordability, and effectiveness; and provide mechanisms for making and implementing fiscally sound decisions in support of the national security strategy and the national defense strategy  DOD is using a separate and evolving process to plan ERI’s posture initiatives—rather than following its established processes—because ERI is being funded through DOD’s OCO budget  According to officials from the Office of the Secretary of Defense, Cost Assessment and Program Evaluation, the department has recognized that the short-term planning process used to develop DOD’s OCO budget can create problems when it is used to plan for enduring initiatives  As a result, DOD has developed a separate process to plan for ERI  As part of the fiscal year 2018 planning process, EUCOM provided a prioritized list of potential requirements and an estimate of its annual costs by appropriation account to the Director for Cost Assessment and Program Evaluation  According to officials from the Office of the Secretary of Defense, Cost Assessment and Program Evaluation, DOD completed its review and provided recommendations to DOD’s senior leaders for approval in October 2016 and final decisions were made within DOD in April 2017  The specific criteria by which DOD assessed EUCOM’s potential requirements are classified  DOD is requesting funds for ERI’s posture initiatives as part of its OCO budget, which is generally intended to be short-term funding for ongoing contingency operations  In February 2009, the Office of Management and Budget, in collaboration with DOD, issued criteria to assist in determining whether funding properly belonged in DOD’s base budget or in its OCO budget  These criteria were updated in September 2010 and currently indicate that funding requests should be for specific geographic areas where combat or direct combat support operations occur (such as Iraq and Afghanistan)  Further, budget items must meet other criteria  For example, OCO funding requests may be for constructing facilities and infrastructure in the theater of operations in direct support of combat operations  In these cases, the level of construction should be the minimum needed to meet operational requirements, and construction completed at enduring locations must be tied to surge operations or major changes in operational requirements  In January 2017, we reported that DOD did not apply the OCO criteria to ERI prior to deciding to budget for its requirements using its OCO budget  We recommended that DOD, in consultation with the Office of Management and Budget, reevaluate and revise the criteria for determining what can be included in OCO budget requests  DOD concurred with our recommendation and noted that it plans to propose revised OCO criteria  As of May 2017, the department has not implemented our recommendation  DOD’s planning for ERI’s posture initiatives does not establish priorities for ERI initiatives relative to those in the base budget, estimate long-term sustainment costs for some posture initiatives funded under ERI, or communicate future ERI costs to Congress  When planning ERI’s posture initiatives, DOD establishes priorities among ERI’s initiatives but does not review posture initiatives funded under ERI relative to those funded in the military services’ base budgets  DOD’s posture management process is intended to establish priorities among global posture elements and is overseen by a Global Posture Executive Council  According to DOD Instruction 3000 12, the Executive Council is responsible for reviewing, prioritizing, and endorsing across the combatant commands key posture elements such as military construction projects and international agreements  The Executive Council’s endorsements inform the military services’ budget deliberations  For the fiscal year 2017 ERI budget, EUCOM requested funding for several posture initiatives, including the continuous, rotational deployment of an armored brigade combat team and the establishment of prepositioned equipment in Europe  Officials representing the Under Secretary of Defense for Policy and the Director, Cost Assessment and Program Evaluation said that as part of its planning process for ERI the Deputy’s Management Action Group evaluated and prioritized posture initiatives funded under ERI  However, DOD could not provide documentation that it had established priorities relative to posture initiatives funded through the base budget  Further, the Global Posture Executive Council did not review or prioritize posture initiatives funded under ERI relative to posture initiatives funded through DOD’s base budget  Similarly, as DOD prepared the fiscal year 2018 ERI budget request, the Global Posture Executive Council did not prioritize EUCOM’s proposed ERI posture initiatives relative to initiatives funded through DOD’s base budget  More detailed information about these proposals, and their potential funding requirements, are classified  According to officials from the Office of the Under Secretary of Defense for Policy and the Joint Staff, DOD did not prioritize posture initiatives funded under ERI against base-budget funded posture initiatives, because ERI is funded through DOD’s OCO budget—which does not directly affect the services’ base budgets  However, because it does not prioritize ERI initiatives against other initiatives funded through the base budget, DOD lacks an understanding of the relative importance of initiatives funded under ERI and may begin investing in projects that it would not support in the absence of funding from DOD’s OCO budget  For example, Army officials noted that if funding were to become unavailable in DOD’s OCO budget, the Army is unsure how initiatives funded under ERI would rank in importance relative to other posture initiatives funded in its base budget  Consequently, the Army would be forced to make critical—and potentially costly—decisions quickly and without a clear idea of which posture initiatives were most important to the department  In planning for posture initiatives funded under ERI, EUCOM and the military services have not fully estimated the long-term sustainment costs of ERI’s posture initiatives to establish prepositioned equipment and construct new facilities  DOD’s global defense posture guidance indicates that, when evaluating potential changes to posture, the combatant commands should work with the military services to estimate the full cost of planned posture initiatives, including sustainment costs  DOD’s guidance on economic analysis also notes the importance of understanding both the size and timing of costs  Finally, our prior work has demonstrated that comprehensive cost estimates of current and future resource requirements are critical to making funding decisions and assessing program affordability  DOD leadership emphasized throughout the fiscal year 2018 budget review process that the services would need to fund ERI posture sustainment costs through their respective base budgets, but DOD did not direct the services and EUCOM to estimate these costs as they would have under their established processes  Officials from the Office of the Secretary of Defense, Cost Assessment and Program Evaluation said that DOD leadership emphasized that the military services would need to fund all future sustainment costs for ERI projects from their base budgets  Based on DOD’s approach for calculating rough order sustainment costs, we determined that ERI sustainment costs for prepositioned equipment and construction could be substantial  Army and Air Force officials said that they were working to identify and incorporate these costs into future base budget submissions  DOD officials said that we correctly applied DOD’s approach for estimating sustainment costs, but noted that actual costs may be lower than the estimated costs, because the military services may not fully fund sustainment  Additionally, officials said that EUCOM is trying to negotiate burden sharing agreements with host nations; however, it is unclear whether these negotiations will be successful or how any resulting agreements would affect DOD’s future costs  Without comprehensive estimates of the sustainment costs for the prepositioned equipment and major military construction projects in Europe, DOD decision makers have been limited in their ability to evaluate the affordability of these initiatives  Further, in the absence of these estimates, the services have been limited in their ability to plan for costs in future budgets, because they have an incomplete understanding of the magnitude of those costs and of when they are likely to be incurred  The funding plan that DOD submits to Congress for ERI does not contain information about ERI’s future costs  This is in contrast to the way DOD submits its funding plan for its base budget, where DOD provides Congress with cost projections over a 5-year period, by appropriation, leaving Congress with a better understanding of how and when to allocate resources  In reviewing the fiscal year 2018 ERI request, the Director for Cost Assessment and Program Evaluation assessed future costs associated with posture initiatives funded under ERI  We previously reported that DOD was not developing enduring requirements funded through its OCO budget as part of its budget and programming process  Officials from the Office of the Under Secretary of Defense (Comptroller) and the Office of the Secretary of Defense, Cost Assessment and Program Evaluation told us that DOD has not been required to provide estimates for future OCO costs for ERI to Congress previously  An official from the Office of the Under Secretary of Defense (Comptroller) told us that DOD does not plan to provide these future costs to Congress along with its fiscal year 2018 ERI budget submission  Additionally, in preparing its posture requirements, EUCOM did not identify assumptions regarding host nation and NATO burden sharing  For example, officials from the Office of the Under Secretary of Defense for Policy said that DOD has submitted a request to the NATO Security Investment Programmé for $200 million in funding to build a facility in Poland to store Army equipment  Officials told us that, as a result, this construction project was identified as a lesser priority in EUCOM’s fiscal year 2018 request for funding  A senior Army officer told us that completion of a facility in Poland was critical to its plans in Europe  Officials from the U S  Mission to NATO told us that as of July 2016 NATO had approved funding to complete preliminary architectural and engineering design for this project  Officials expect additional funding will be made available in July 2017 to complete final design and site preparation and the full cost of the project will be approved in early 2019  However, these officials noted that additional funding beyond what has been approved by NATO may be required to meet U S -specific requirements  Similarly, EUCOM officials said that they are working to identify opportunities to defray future costs through host nation contributions, but it is unclear how much funding—if any—host nations will provide moving forward  Congress has expressed interest in knowing the future costs of enduring activities being funded through DOD’s OCO budget  The Senate Appropriations Committee’s report accompanying a bill for DOD’s fiscal year 2015 appropriations stated that the committee does not have an understanding of enduring activities funded by the OCO budget  The committee further noted that there is a potential for risk in continuing to fund non-contingency-related activities through the OCO budget  Both GAO’s and other federal standards emphasize that agencies should provide complete and reliable information on the costs of programs externally, so that decision makers can make informed decisions when allocating resources  DOD has not provided Congress projections of future costs for posture initiatives funded under ERI because it is reviewing those requirements outside of its budget and programming processes, and DOD officials said that the department is not required to provide this information  As a result, DOD is limiting congressional visibility into the resources needed to achieve ERI’s objectives  If DOD does not provide Congress with projections of the future costs of posture initiatives funded under ERI and information on its assumptions pertaining to host nation support and burden sharing, it will continue to impede congressional visibility into the resources that are needed to fully implement these initiatives  Russia’s annexation of Crimea and the subsequent threat of further aggression led DOD to establish and later expand ERI’s objectives and enhance posture in Europe to support a new U S  strategy toward Russia  DOD has requested funding for these enhancements using its OCO budget; however, the processes DOD uses to develop its OCO budget were not designed to plan for and fund long-term, enduring initiatives such as ERI  By following a separate planning process when funding ERI with OCO, DOD is taking on risk by not reviewing and prioritizing ERI posture plans against other posture initiatives, estimating the costs for sustaining ERI initiatives, and providing Congress with estimates of ERI’s future costs  DOD risks making decisions that lack a strategic vision in comparison to other DOD priorities and may fund initiatives that cannot be sustained over the long term  Furthermore, Congress is likely to face challenges in assessing DOD’s estimated costs for ERI and the affordability of initiatives funded under ERI over the long term  To better ensure that DOD can target resources to its most critical initiatives and establish priorities across its base budget and overseas contingency operations budget, we recommend that the Secretary of Defense prioritize posture initiatives under ERI relative to those funded in its base budget as part of its established posture-planning processes  (Recommendation 1) To better enable decision makers to evaluate the full long-term costs of posture initiatives under ERI, we recommend that the Secretary of Defense direct EUCOM and the military services to develop estimates for the sustainment costs of prepositioned equipment and other infrastructure projects under ERI and ensure that the services plan for these long-term costs in future budgets  (Recommendation 2) To support congressional decision making, we recommend that the Secretary of Defense provide to Congress, along with the department’s annual budget submission, estimates of the future costs for posture initiatives funded under ERI and other enduring costs that include assumptions such as those pertaining to the level of host nation support and burden sharing  (Recommendation 3) We provided a draft of the classified report to DOD for review and comment  DOD partially concurred with all three of our recommendations, and we have reproduced DOD’s comments on the classified report in appendix II  DOD also provided technical comments, which we incorporated as appropriate  DOD partially concurred with our first recommendation to use its established posture-planning processes to prioritize ERI’s posture initiatives relative to those funded in DOD’s base budget  In its comments, DOD stated that it will continue to prioritize the negotiation of international agreements supporting ERI through the Global Posture Executive Council, and that an on-going Strategic Review will inform ERI and guide both EUCOM and the services in their program planning efforts  These are positive steps  DOD also stated it will adjudicate its ERI-funded force requirements through its global force management process, adding that it will continue to resource OCO funds for ERI requirements until there is a sufficient increase in DOD’s base budget to do so  However, we continue to believe, as noted in our report, that DOD could improve its planning for posture initiatives funded under ERI, whether or not they are funded through OCO, by using DOD’s established posture planning processes  Although DOD’s global force management process directly affects overseas military posture in the near term, this process is not designed to evaluate long-term posture priorities  If DOD does not prioritize the forces and infrastructure projects funded under ERI against those funded using the military services’ base budgets, it will continue to lack an understanding of the relative importance of the posture initiatives funded under ERI  Without such an understanding, DOD increases the risk that the services will need to make critical and potentially costly decisions without a clear idea of which posture initiatives are most critical to the department  DOD partially concurred with our second recommendation that EUCOM and the military services develop estimates for future sustainment costs and plan for these costs in future budgets  In its comments, DOD stated that its components will continue to estimate the sustainment costs for prepositioned stocks and other infrastructure projects during DOD’s annual program and budget review process  DOD also commented that without additional topline base budget funding, some portion of the associated sustainment costs will need to be financed with OCO funds  However, as we noted in our report, neither the Army nor the Air Force has fully estimated these potentially significant future costs, nor had either service incorporated them into their future budgets  Using OCO funds would mark a departure from DOD leadership’s emphasis that the services would need to fund ERI posture sustainment costs through their respective base budgets  Additionally, not developing robust estimates for sustaining these initiatives could increase long-term fiscal risk for the department if DOD shifts more ERI-associated enduring costs into its OCO budget  In the absence of robust cost estimates and deliberate planning to address those costs in future budgets, DOD will continue to be limited in its ability to evaluate the affordability of posture initiatives funded under ERI, and the military services may not plan adequate funding to sustain posture investments in Europe  DOD partially concurred with our third recommendation, to provide Congress with estimates of the future costs for posture initiatives funded under ERI and information on any underlying assumptions, such as those pertaining to the level of host nation support and burden sharing  In its comments, DOD stated that it does not currently prepare a formal 5-year Future Years Defense Program for OCO-related costs  Moreover, DOD commented that it factors in host nation support and burden sharing when preparing budget estimates for Congress  However, DOD does not state whether it will begin to provide Congress future estimates and any underlying assumptions with its budget submission  It is critical that DOD increase congressional visibility into ERI’s future costs and its underlying assumptions to facilitate congressional oversight and reasonably ensure that initiatives can be sustained over the long-term  We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, and the Commander, U S  European Command  In addition, the report is available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact me at (404) 679-1816 or pendletonj@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made major contributions to this report are listed in Appendix III  The Army and Air Force identified approximately $224 million in unspecified minor military construction and facilities maintenance and repair projects (hereafter, minor construction and repair) that were programmed or obligated for the European Reassurance Initiative (ERI) in fiscal years 2015 through 2017  This includes $157 million for minor construction and repair projects identified by the Army and nearly $67 million for minor construction and repair projects identified by the Air Force  According to U S  European Command officials, Navy and Marine Corps construction projects funded under ERI were either major military construction or exercise-related construction projects  The tables below do not include Navy and Marine Corps exercise-related construction projects  Using the data provided by the military services, we compiled the programmed and obligated funding for these minor construction and repair projects by fiscal year, country, location, and project name in tables 3 and 4  The information in these tables was provided by U S  Army Europe and U S  Air Force Europe in response to our request for a list of minor military construction and repair projects  The data provided did not identify the appropriations used for each project  Accordingly, we have not conducted a review to examine whether funds were appropriately used for a given project  In addition to the contact named above, Kevin O’Neill, Assistant Director; Alex Winograd, Analyst-in-Charge; Scott Bruckner, Adrianne Cline, Martin De Alteriis, Joanne Landesman, Jennifer Leotta, Carol Petersen, Michael Shaughnessy, and Jena Sinkfield all made key contributions to this report 


Report 2:  Egypt's policy toward Libya also is closely aligned with other foreign backers of the LNA, including France and the United Arab Emirates (UAE)  Reportedly, the three countries are working in concert to strengthen the position of Haftar in order to facilitate the eventual reunification of the Libyan army  A 2019 LNA offensive into southern Libya has placed additional pressure on the Government of National Accord and may complicate U S -backed efforts by the United Nations to facilitate a national dialogue, constitutional referendum, and elections in 2019  To Egypt's south, the government is embroiled in regional disputes with Nile Basin countries, such as Ethiopia, which is nearing completion of the $4 2 billion Grand Ethiopian Renaissance Dam, a major hydroelectric project  Egypt argues that the dam, once filled, will limit the flow of the Nile River below Egypt's agreed share  However, many analysts expect that Egypt will address the dispute by increasing water-use efficiency and investing in desalination, rather than using its military to bomb the dam  Reduced Nile flow into Egypt may exacerbate existing water shortages and cause short-term political problems for the Egyptian government, which faces extensive domestic water needs  In February 2019, President Sisi assumed the one-year chairmanship of the African Union, during which he is expected to promote closer relations with fellow African states  Egypt and Russia, close allies in early years of the Cold War, have again strengthened bilateral ties under President Sisi, who has promised to restore Egyptian stability and international prestige  His relationship with Russian President Vladimir Putin has rekindled, in the words of one observer, "a romanticized memory of relations with Russia during the Nasser era " President Sisi first turned to Russia during the Obama Administration, when U S -Egyptian ties were strained, and Egypt seemed intent on signaling its displeasure with U S  policy  Since 2014, Egypt and Russia have improved ties in a number of ways, including through arms deals  Reportedly, Egypt is upgrading its aging fleet of legacy Soviet MiG-21 aircraft to a fourth generation MiG-29M variant with additional deliveries to Egypt in 2018 (first delivered in April 2017)  Egypt also has purchased 46 standard Ka-52 Russian attack helicopters for its air force  Egypt reportedly also has purchased the naval version of the Ka-52 for use on Egypt's two French-procured Mistral-class helicopter dock vessels (see below), and the S-300VM surface-to-air missile defense system from Russia  In August 2018, Egyptian Defense Minister Mohamed Zaki visited Russia, where he attended a Russian arms exhibition  Additionally, Egypt and Russia reportedly have expanded their cooperation on nuclear energy  In 2015, Egypt reached a deal with Russian state energy firm Rosatom to construct a 4,800-megawatt nuclear power plant in the Egyptian Mediterranean coastal town of Daba'a, 80 miles northwest of Cairo  Russia is lending Egypt $25 billion over 35 years to finance the construction and operation of the nuclear power plant (this will cover 85% of the project's total costs)  The contract also commits Russia to supply the plant's nuclear fuel for 60 years and transfer and store depleted nuclear fuel from the reactors  As Egyptian and Russian foreign policies have become more closely aligned in conflict zones such as eastern Libya, bilateral military cooperation has expanded  One report suggests that Russian Special Forces based out of an airbase in Egypt's western desert (Sidi Barrani) may be aiding General Haftar  In November 2017, Egypt and Russia signed a draft agreement governing the use of each other's air space  While Egyptian-Russian ties have grown warmer in recent years, they are not without complications  In the aftermath of an October 2015 terrorist attack against a Russian passenger jet departing from Sharm El Sheikh, visits to Egypt by Russian tourists, previously the country's largest source of tourists, dropped significantly  Russian commercial aircraft have resumed direct flights to Cairo but not to Sharm El Sheikh  Egypt and Russia also engaged in a trade dispute in 2016 over Russian wheat imports  Egypt is the largest global importer of wheat, and the largest export market for Russian wheat  Aside from Russia, France stands out as a non-U S  country with which President Sisi has sought to build a diplomatic and military procurement relationship  In the last five years, as French-Egyptian ties have improved, Egypt has purchased major air and naval defense systems from French defense contractors, including the following: Four Gowind Corvettes (produced by Naval Group)—This deal was signed in July 2014  As part of the French-Egyptian arrangement, some of the Corvette construction has taken place at the Alexandria Shipyard in Egypt  One FREMM multi-mission Frigate (produced by Naval Group)—Named the Tahya Misr (Long Live Egypt), this vessel was delivered to Egypt in 2015  This ship has participated in an annual joint French-Egyptian naval exercise, known as Cleopatra  In February 2015, Egypt purchased 24 Rafale multirole fighters (produced by Dassault Aviation)  Under the initial agreement, Egypt and France may enter into a new procurement agreement for 12 additional Rafale fighters  According to the manufacturer, the Rafale has flown in combat in Afghanistan, Libya, Mali, Iraq, and Syria and is used by Egypt, Qatar, and India  In 2018, French officials said that the United States would not permit France to export the SCALP air-launched land-attack cruise missile used on the Rafale to Egypt under the International Trade in Arms Regulation (ITAR) agreement  The United States may have been concerned over the transfer of sensitive technology to Egypt  Two Mistral-class Helicopter Carriers (produced by Naval Group)—In the fall of 2015, France announced that it would sell Egypt two Mistral-class Landing Helicopter Dock (LHD) vessels (each carrier can carry 16 helicopters, 4 landing craft, and 13 tanks) for $1 billion  The LHDs (ENS Anwar El Sadat and ENS Gamal Abdel Nasser ) were delivered in 2016  In 2017, Egypt announced that it would purchase Russian 46 Ka-52 Alligator helicopters, which can operate on the LHDs  In January 2019, French President Emmanuel Macron paid a three-day visit to Egypt, where he raised human rights issues in public and with Egyptian authorities and civil society representatives  According to Macron, "I can't see how you can pretend to ensure long-term stability in this country, which was at the heart of the Arab Spring and showed its taste for freedom, and think you can continue to harden beyond what's acceptable or justified for security reasons " President Trump has praised the Egyptian government's counterterrorism efforts while his Administration has worked to restore high-level diplomatic engagement, joint military exercises, and arms sales  Many commentators initially expected President Trump to bring the United States and Egypt closer together, and that largely has been the case  The Administration has withheld some foreign assistance for policy reasons on at least one occasion, however, and the United States has not had an ambassador in Cairo since June 30, 2017  As evidence of improved bilateral ties, the U S  Defense Department notified Congress in November 2018 of a major $1 billion sale of defense equipment to Egypt, consisting of 10 AH-64E Apache Attack Helicopters, among other things  The Egyptian Air Force already possesses 45 less advanced versions of the Apache that were acquired between 2000 and 2014  In January 2019, U S  Secretary of State Michael Pompeo delivered a major policy speech at the American University in Cairo, where he stated: "And as we seek an even stronger partnership with Egypt, we encourage President Sisi to unleash the creative energy of Egypt's people, unfetter the economy, and promote a free and open exchange of ideas  The progress made to date can continue " U S  officials have not yet publicly criticized efforts by supporters of President Sisi to advance amendments to the constitution (see above) to extend the possibility of Sisi's continued presidency  Human rights advocates have called for Western governments to withhold assistance to Egypt if the amendments are approved  According to Human Rights Watch , "Al-Sisi's government is encouraged by the continued silence of its allies, and if the US, UK, and France want to avoid the destabilizing consequences of entrenching authoritarian rule in Egypt, they should act now " On February 22, 2019, a bipartisan group of national security experts called on U S  officials to "express strong concern about the amendments to the Egyptian constitution now moving through a rapid approval process " Egypt's poor record on human rights and democratization has sparked regular criticism from U S  officials and some Members of Congress  Since FY2012, Members have passed appropriations legislation that withholds the obligation of FMF to Egypt until the Secretary of State certifies that Egypt is taking various steps toward supporting democracy and human rights  With the exception of FY2014, lawmakers have included a national security waiver to allow the Administration to waive these congressionally mandated certification requirements under certain conditions  Over the last year, the Administration has obligated several tranches of FMF to Egypt, including the following: In September 2018, the Administration obligated $1 billion in FY2018 FMF  Per Section 7041(a)(3)(A) of P L  115-141 , the Consolidated Appropriations Act, FY2018, $300 million in FMF remains withheld from obligation until the Secretary of State certifies that Egypt is taking various steps toward supporting democracy and human rights  In previous acts, the amount withheld had been $195 million  FY2018 FMF for Egypt remains available to be expended until September 30, 2019  In August 2018, the Administration waived the certification requirement in Section 7041(a)(3)(B) of P L  115-31 , the Consolidated Appropriations Act, FY2017, allowing for the obligation of $195 million in FY2017 FMF, which occurred in September 2018  However, according to one report, Senator Patrick Leahy has placed a hold on $105 million in FY2017 FMF and is seeking more information on the plight of detained Egyptian-American Moustafa Kassem  In January 2018, the Administration notified Congress of its intent to obligate $1 039 billion in FY2017 FMF out of a total of $1 3 billion appropriated for FY2017  It chose not to obligate $65 7 million in FY2017 FMF  The remaining $195 million had been withheld until a national security waiver was issued in August 2018 (see above)  For FY2019, the President requested a total of $1 381 billion in foreign assistance for Egypt, the same amount requested for the previous year  Nearly all of the requested funds for Egypt are for the FMF account  For FY2020, the request is nearly identical from previous years, as the President is seeking a total of $1 382 billion in bilateral assistance for Egypt  The FY2019 Omnibus ( P L  116-6 ) provides the following for Egypt: a total of $1 419 billion in bilateral U S  foreign assistance for Egypt, of which $1 3 billion is in FMF, $112 5 million in ESF, $3 million in NADR, $2 million in INCLE, and $1 8 million in IMET; and a reauthorization of ESF to support future loan guarantees to Egypt; P L  116-6 sets the following conditions for Egypt: As in previous years, it requires that funds may only be made available when the Secretary of State certifies that the government of Egypt is sustaining the strategic relationship with the United States and meeting its obligations under the 1979 Egypt-Israel Peace Treaty  As in previous years, the act withholds ESF that "the Secretary determines to be equivalent to that expended by the United States Government for bail, and by nongovernmental organizations for legal and court fees, associated with democracy-related trials in Egypt until the Secretary certifies and reports to the Committees on Appropriations that the Government of Egypt has dismissed the convictions issued by the Cairo Criminal Court on June 4, 2013, in Public Prosecution Case No  1110 for the Year 2012 and has not subjected the defendants to further prosecution or if convicted they have been granted full pardons  " This last condition (bolded) was added in 2019 to account for the acquittal of the 43 foreign defendants in Case 173 (see above)  As in previous years, the FY2019 Omnibus also includes a limitation on ESF, stating that no FY2018 ESF or prior-year ESF "may be made available for a contribution, voluntary or otherwise, to the Civil Associations and Foundations Support Fund, or any similar fund, established pursuant to Law 70 on Associations and Other Foundations Working in the Field of Civil Work [informally known as the NGO law] " As in previous years, the act also includes a provision that withholds $300 million of FMF funds until the Secretary of State certifies that the Government of Egypt is taking effective steps to advance, among other things, democracy and human rights in Egypt  The Secretary of State may waive this certification requirement, though any waiver must be accompanied by, among other things, an assessment of the Government of Egypt's compliance with United Nations Security Council Resolution 2270 and other such resolutions regarding North Korea  There has been some concern in the Administration and Congress over Egypt's alleged weapons procurement from North Korea in recent years  P L  115-245 , the Department of Defense (DOD) and Labor, Health and Human Services, and Education Appropriations Act, 2019 and Continuing Appropriations Act, 2019, specifies that the Secretary of Defense may provide Egypt with funds from the Counter-ISIS Train and Equip Fund (CTEF) to enhance its border security  To date, Egypt has not received security assistance from DOD-managed accounts  Between 1946 and 2016, the United States provided Egypt with $78 3 billion in bilateral foreign aid (calculated in historical dollars—not adjusted for inflation)  The 1979 Peace Treaty between Israel and Egypt ushered in the current era of U S  financial support for peace between Israel and its Arab neighbors  In two separate memoranda accompanying the treaty, the United States outlined commitments to Israel and Egypt, respectively  In its letter to Israel, the Carter Administration pledged to "endeavor to take into account and will endeavor to be responsive to military and economic assistance requirements of Israel " In his letter to Egypt, former U S  Secretary of Defense Harold Brown wrote the following: In the context of the peace treaty between Egypt and Israel, the United States is prepared to enter into an expanded security relationship with Egypt with regard to the sales of military equipment and services and the financing of, at least a portion of those sales, subject to such Congressional review and approvals as may be required  All U S  foreign aid to Egypt (or any foreign recipient) is appropriated and authorized by Congress   The 1979 Egypt-Israel Peace Treaty is a bilateral peace agreement between Egypt and Israel, and the United States is not a legal party to the treaty  The treaty itself does not include any U S  aid obligations, and any assistance commitments to Israel and Egypt that could be potentially construed in conjunction with the treaty were through ancillary documents or other communications and were—by their terms—subject to congressional approval (see above)  However, as the peace broker between Israel and Egypt, the United States has traditionally provided foreign aid to both countries to ensure a regional balance of power and sustain security cooperation with both countries  In some cases, an Administration may sign a bilateral "Memorandum of Understanding" (MOU) with a foreign country pledging a specific amount of foreign aid to be provided over a selected time period subject to the approval of Congress  In the Middle East, the United States has signed foreign assistance MOUs with Israel and Jordan  Currently, there is no U S -Egyptian MOU specifying a specific amount of total U S  aid pledged to Egypt over a certain time period  Congress typically specifies a precise allocation of most foreign assistance for Egypt in the foreign operations appropriations bill  Egypt receives the bulk of foreign aid funds from three primary accounts: Foreign Military Financing (FMF), Economic Support Funds (ESF), and International Military Education and Training (IMET)  The United States offers IMET training to Egyptian officers in order to facilitate U S -Egyptian military cooperation over the long term  Since the 1979 Israeli-Egyptian Peace Treaty, the United States has provided Egypt with large amounts of military assistance  U S  policymakers have routinely justified this aid to Egypt as an investment in regional stability, built primarily on long-running military cooperation and sustaining the treaty—principles that are supposed to be mutually reinforcing  Egypt has used U S  military aid through the FMF to (among other things) purchase major U S  defense systems, such as the F-16 fighter aircraft, the M1A1 Abrams battle tank, and the AH-64 Apache attack helicopter  For decades, FMF grants have supported Egypt's purchases of large-scale conventional military equipment from U S  suppliers  However, as mentioned above, the Obama Administration announced that future FMF grants may only be used to purchase equipment specifically for "counterterrorism, border security, Sinai security, and maritime security" (and for sustainment of weapons systems already in Egypt's arsenal)  It is not yet clear how the Trump Administration will determine which U S -supplied military equipment would help the Egyptian military counter terrorism and secure its land and maritime borders  Overall, some defense experts continue to view the Egyptian military as inadequately prepared, both doctrinally and tactically, to face the threat posed by terrorist/insurgent groups such as Sinai Province  According to a former U S  National Security Council official, "they [the Egyptian military] understand they have got a problem in Sinai, but they have been unprepared to invest in the capabilities to deal with it " To reorient the military toward unconventional warfare, the Egyptian military needs, according to one assessment, "heavy investment into rapid reaction forces equipped with sophisticated infantry weapons, optics and communication gear     backed by enhanced intelligence, surveillance and reconnaissance platforms  In order to transport them, Egypt would also need numerous modern aviation assets " In addition to substantial amounts of annual U S  military assistance, Egypt has benefited from certain aid provisions that have been available to only a few other countries  For example Early Disbursal and Interest - Bearing Account : Between FY2001 and FY2011, Congress granted Egypt early disbursement of FMF funds (within 30 days of the enactment of appropriations legislation) to an interest-bearing account at the Federal Reserve Bank of New York  Interest accrued from the rapid disbursement of aid has allowed Egypt to receive additional funding for the purchase of U S -origin equipment  In FY2012, Congress began to condition the obligation of FMF, requiring the Administration to certify certain conditions had been met before releasing FMF funds, thereby eliminating their automatic early disbursal  However, Congress has permitted Egypt to continue to earn interest on FMF funds already deposited in the Federal Reserve Bank of New York  The Excess Defense Articles (EDA) program provides one means by which the United States can advance foreign policy objectives—assisting friendly and allied nations through provision of equipment in excess of the requirements of its own defense forces  The Defense Security Cooperation Agency (DSCA) manages the EDA program, which enables the United States to reduce its inventory of outdated equipment by providing friendly countries with necessary supplies at either reduced rates or no charge  As a designated "major non-NATO ally," Egypt is eligible to receive EDA under Section 516 of the Foreign Assistance Act and Section 23(a) of the Arms Export Control Act  Over the past two decades, U S  economic aid to Egypt has been reduced by over 90%, from $833 million in FY1998 to a request of $75 million for FY2019  Beginning in the mid to late 1990s, as Egypt moved from an impoverished country to a lower-middle-income economy, the United States and Egypt began to rethink the assistance relationship, emphasizing "trade not aid " Congress began to scale back economic aid both to Egypt and Israel due to a 10-year agreement reached between the United States and Israel in the late 1990s known as the "Glide Path Agreement," which gradually reduced U S  economic aid to Egypt to $400 million by 2008  U S  economic aid to Egypt stood at $200 million per year by the end of the George W  Bush Administration, whose relations with then-President Hosni Mubarak suffered over the latter's reaction to the Administration's democracy agenda in the Arab world  During the final years of the Obama Administration, distrust of U S  democracy promotion assistance led the Egyptian government to obstruct many U S -funded economic assistance programs  According to the Government Accountability Office (GAO), the Department of State and the U S  Agency for International Development (USAID) reported hundreds of millions of dollars ($460 million as of 2015) in unobligated prior year ESF funding  As these unobligated balances grew, it created pressure on the Obama Administration to reobligate ESF funds for other purposes  In 2016, the Obama Administration notified Congress that it was reprogramming $108 million of ESF that had been appropriated for Egypt in FY2015 but remained unobligated for other purposes  The Administration claimed that its actions were due to "continued government of Egypt process delays that have impeded the effective implementation of several programs " In 2017, the Trump Administration also reprogrammed FY2016 ESF for Egypt  U S  economic aid to Egypt is divided into two components: (1) USAID-managed programs (public health, education, economic development, democracy and governance); and (2) the U S -Egyptian Enterprise Fund  Both are funded primarily through the Economic Support Fund (ESF) appropriations account  

ground_truth: DOD requested about $60 billion for fiscal years 2009 - 2017 to purchase goods and services overseas and reimburse service-members for costs incurred while stationed abroad. DOD uses foreign currency exchange rates to budget and pay (that is, disburse amounts) for these expenses. It also manages the FCFD account to mitigate a loss in buying power that results from foreign currency rate changes. GAO was asked to examine DOD's processes to budget for and manage foreign currency fluctuations. This report (1) describes DOD's revision of its foreign currency budget rates since 2009 and the relationship between the revised rates and projected O&M and MILPERS funding needs; (2) evaluates the extent to which DOD has taken steps to reduce costs in selecting foreign currency rates to disburse funds to liquidate O&M obligations, and determined whether opportunities exist to gain additional savings; and (3) assesses the extent to which DOD has effectively managed the FCFD account balance. GAO analyzed data on foreign currency rates, DOD financial management regulations, a non-generalizable sample of foreign currency disbursement data, and FCFD account balances. The Department of Defense (DOD) revised its foreign currency exchange rates (“budget rates”) during fiscal years 2014 through 2016 for each of the nine foreign currencies it uses to develop its Operation and Maintenance (O&M) and Military Personnel (MILPERS) budget request. These revisions decreased DOD's projected O&M and MILPERS funding needs. DOD's revision of the budget rates during these years also decreased the expected gains (that is, buying power) that would have resulted from an increase in the strength of the U.S. Dollar relative to other foreign currencies. DOD did not revise its budget rates in fiscal years 2009 through 2013. For fiscal year 2017, DOD changed its methodology for producing budget rates, resulting in rates that were more closely aligned with market rates. According to officials, that change made it unnecessary to revise the budget rates during the fiscal year. DOD has taken some steps to reduce costs in selecting foreign currency rates used to pay (that is, disburse amounts) for goods and services, but DOD has not fully determined whether opportunities exist to achieve additional savings. The Army has estimated potential savings of up to $10 million annually by using a foreign currency rate available 3 days in advance of paying for goods or services rather than a more costly rate available up to 5 days in advance. The Army has converted to the use of a 3-day advanced rate. GAO's analysis suggests that DOD could achieve cost savings if the services reviewed and consistently selected the most cost-effective foreign currency rates when paying for their goods and services. Absent a review, DOD is at risk for paying more than it would otherwise be required to conduct its transactions. DOD used the Foreign Currency Fluctuations, Defense (FCFD) account to cover losses (that is, less buying power) due to unfavorable foreign currency fluctuations in 6 of the 8 years GAO reviewed. Since 2012, DOD has maintained the FCFD account balance at the statutory limit of $970 million, largely by transferring unobligated balances before they are cancelled from certain DOD accounts into the FCFD. However, DOD has not identified the appropriate FCFD account balance needed to maintain program operations by routinely analyzing projected losses and basing any transfers into the account on those expected losses. Thus, DOD may be maintaining balances that are hundreds of millions of dollars higher than needed, and that could have been used for other purposes or returned to the Treasury Department (see figure). GAO is making four recommendations, including that DOD review opportunities to achieve cost savings by more consistently selecting the most cost-effective foreign currency rates used for the payment of goods and services, and analyze projected losses to manage the FCFD account balance. DOD generally concurred with the recommendations.