a

GAO

United States Government Accountability Office

Report to the Committee on International 

Relations, House of Representatives

April 2006 SECURITY 

ASSISTANCE

State and DOD Need 

to Assess How the 

Foreign Military 

Financing Program for 

Egypt Achieves U.S. 

Foreign Policy and 

Security Goals

GAO-06-437
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

April 2006

SECURITY ASSISTANCE 

State and DOD Need to Assess How the 

Foreign Military Financing Program for 

Egypt Achieves U.S. Foreign Policy and 

Security Goals 

Highlights of GAO-06-437, a report to the 

Committee on International Relations, 

House of Representatives

Since 1979, Egypt has received 

about $60 billion in military and 

economic assistance with about 

$34 billion in the form of foreign 

military financing (FMF) grants 

that enable Egypt to purchase U.S.-

manufactured military goods and 

services. In this report, GAO (1) 

describes the types and amounts of

FMF assistance provided to Egypt; 

(2) assesses the financing 

arrangements used to provide FMF 

assistance to Egypt; and (3) 

evaluates how the U.S. assesses the 

program’s contribution to U.S.

foreign policy and security goals. 

What GAO Recommends

We recommend that the Secretaries

of State and Defense conduct: (1)

an assessment of the impact of

potential shifts in appropriations 

on the Egypt FMF program; and (2)

periodic program-level evaluations 

of the program. Specifically, the

agencies should define the current 

and desired levels of modernization 

and interoperability the U.S. would 

like to achieve.

 

DOD concurred with our

recommendations. State said that

steps to mitigate risks are in place. 

GAO responded that additional 

factors should be included. State 

agreed to try to measure Egypt’s 

modernization goals but defining 

interoperability would be

speculative. Some level of 

capabilities, such as contributions 

to peacekeeping, can be 

measured. 

Egypt is currently among the largest recipients of U.S. foreign assistance, 

along with Israel, Afghanistan, and Iraq. Egypt has received about $1.3 billion 

annually in U.S. foreign military financing (FMF) assistance and has 

purchased a variety of U.S.-manufactured military goods and services such 

as Apache helicopters, F-16 aircraft, and M1A1 tanks, as well as the training 

and maintenance to support these systems. 

The United States has provided Egypt with FMF assistance through a 

statutory cash flow financing arrangement that permits flexibility in how 

Egypt acquires defense goods and services from the United States. In the 

past, the Defense Security Cooperation Agency (DSCA) accumulated large 

undisbursed balances in this program. Because the flexibilities of cash flow 

financing permit Egypt to pay for its purchases over time, Egypt currently 

has agreements for U.S. defense articles and services worth over $2 billion—

some of which are not due for full payment until 2011. The Departments of 

State (State) and Defense (DOD) have not conducted an assessment to 

identify the risks and impacts of a potential shift in FMF funding. 

Officials and many experts assert that the FMF program to Egypt supports 

U.S. foreign policy and security goals; however, State and DOD do not assess 

how the program specifically contributes to these goals. U.S. and Egyptian 

officials cited examples of Egypt’s support for U.S. interests, such as 

maintaining Egyptian-Israeli peace and providing access to the Suez Canal 

and Egyptian airspace. DOD has not determined how it will measure 

progress in achieving key goals such as interoperability and modernizing 

Egypt’s military. For example, the U.S. Central Command, the responsible 

military authority, defines modernization as the ratio of U.S.-to-Soviet 

equipment in Egypt’s inventory and does not include other potentially 

relevant factors, such as readiness or military capabilities. Achieving

interoperability in Egypt is complicated by the lack of a common definition 

of interoperability and limitations on some types of sensitive equipment 

transfers. Given the longevity and magnitude of FMF assistance to Egypt, 

evaluating the degree to which the program meets its goals would be 

important information for congressional oversight, particularly as Congress 

assesses the balance between economic and military assistance to Egypt as 

well as the impact on U.S. foreign policy interests.

Egypt FMF Funds Are Used to Purchase Items Such as F-16 Aircraft, Apache Helicopters, 

and M1A1 Tanks 

Source: DOD.

www.gao.gov/cgi-bin/getrpt?GAO-06-437.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Joseph 

Christoff at (202) 512-8979 or 

christoffj@gao.gov. 
Page i GAO-06-437 Security Assistance

Contents

Letter 1

Results in Brief 2

Background 5

The United States Has Provided $1.3 Billion in Military Assistance to 

Egypt Annually to Purchase Defense Articles and Services 8

Cash Flow Financing Flexibility Allows Egypt to Pay for Defense 

Goods over Multiple Years 11

Officials Assert that FMF Assistance to Egypt Supports U.S. Goals, 

but State and DOD Do Not Evaluate the Program’s Contributions 

to Key Goals 16

Conclusion 20

Recommendations for Executive Action 21

Agency Comments and our Evaluation 21

Appendixes

Appendix I: Objectives, Scope, and Methodology 24

Appendix II: Letter of Request and Letter of Offer and Acceptance 

Process 26

Appendix III: Agency and Organizational Roles and Responsibilities 28

Appendix IV: Example of an Evaluation Framework 30

Appendix V: Comments from the Department of State 32

Appendix VI: Comments from the Department of Defense 36

Appendix VII: GAO Contact and Staff Acknowledgments 38

Table Table 1: Agency and Organizational Roles and Responsibilities 28

Figures Figure 1: Key FMF-Financed Systems Purchased by Egypt Include 

F-16 Aircraft, Apache Helicopters, and M1A1 Tanks 9

Figure 2: FMF Purchases for Egypt Total $7.8 billion 

(1999-2005) 10

Figure 3: DSCA Plan to Disburse Egypt’s Accumulated FMF 

Funds 13

Figure 4: Value of Egypt’s Future FMF Commitments at the End of 

Each Fiscal Year 15

Figure 5: Letter of Request and Letter of Offer and Acceptance 

Review Process 26
Contents

Page ii GAO-06-437 Security Assistance

Figure 6: Using a Logic Model to Link Inputs, Activities, and 

Outputs to Outcomes 31

Abbreviations

CENTCOM U.S. Central Command

DSCA Defense Security Cooperation Agency

FMF Foreign Military Financing

GPRA The Government Performance and Results Act

LOA Letter of Offer and Acceptance

LOR Letter of Request

OMC Office of Military Cooperation

PART Performance Assessment Rating Tool 

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Page 1 GAO-06-437 Security Assistance

United States Government Accountability Office

Washington, D.C. 20548

A

April 11, 2006 Letr

The Honorable Henry J. Hyde

Chairman

The Honorable Tom Lantos

Ranking Minority Member

Committee on International Relations

House of Representatives

After signing the Camp David Peace Accords, Egypt emerged as the second 

largest recipient of U.S. military aid in the world. Since 1979, Egypt has 

received about $60 billion in military and economic assistance overall with 

about $34 billion in the form of foreign military financing (FMF) grants and 

loans that enable Egypt to purchase U.S.-manufactured military goods and 

services. To fund this program, approximately $1.3 billion has been 

appropriated annually and disbursed through a cash flow financing 

arrangement that allows Egypt to spread the payments over several years. 

Specifically, the United States uses FMF funds set aside for Egypt to 

purchase military equipment, services, and training from U.S. contractors 

on Egypt’s behalf. These defense articles and services are to modernize 

Egypt’s armed forces and enhance Egypt’s military interoperability with the 

United States. According to Department of State (State) and Department of 

Defense (DOD) officials, FMF funds also contribute to the U.S. goal of 

maintaining regional stability and supporting Egypt as a partner in the 

Middle East. Recently, congressional committees have sought to alter the 

balance of economic and military assistance provided to Egypt and to 

review the results of the assistance.

At your request, we reviewed selected aspects of the FMF program for 

Egypt including the composition and funding of the program and the U.S. 

government’s assessment of its contributions. Specifically, we (1) describe 

the types and amounts of FMF assistance provided to Egypt, (2) assess the 

financing arrangements used to provide FMF assistance to Egypt, and (3) 

evaluate how the United States assesses FMF assistance to Egypt and its 

contribution to the advancement of U.S. foreign policy and security goals. 

To meet these objectives, we reviewed documentation and interviewed 

officials from State, DOD, and the Defense Security Cooperation Agency 

(DSCA.) We traveled to Cairo, Egypt, to meet with Egyptian officials at the 

Ministry of Defense and U.S. officials at the U.S. Embassy and at the Office 

of Military Cooperation (OMC). We also interviewed officials at U.S. 

Central Command (CENTCOM) in Tampa, Florida, to discuss their roles 
Page 2 GAO-06-437 Security Assistance

and responsibilities in the FMF program for Egypt. In addition, we 

interviewed senior Egyptian officials in Washington, D.C., and several 

political and military experts from academic and policy institutions in 

Washington, D.C. We examined DOD data collected from 1999 to 2005 to 

determine the composition of foreign military financing assistance 

provided to Egypt. This report examines FMF for Egypt and does not 

assess economic assistance to Egypt. We performed our work from June 

2005 through March 2006 in accordance with generally accepted 

government auditing standards. A detailed description of our scope and 

methodology is included in appendix I of this report.

Results in Brief Since 1979, Egypt received more than $60 billion in military and economic 

assistance from the United States and is currently among the largest 

recipients of U.S. assistance worldwide, along with Israel, Afghanistan and 

Iraq. In fiscal year 2005, Egypt received nearly $1.3 billion in FMF grants, 

which comprises about 80 percent of Egypt’s military procurement budget 

and more than 25 percent of the total amount of FMF assistance provided 

worldwide. Over the life of the program, Egypt has acquired 36 Apache 

helicopters, 220 F-16 aircraft, and 880 M1A1 tanks—among other items—as 

well as the training and maintenance to support these systems. According 

to DOD, the FMF program has helped Egypt replace its Soviet-era 

equipment with modern weaponry and equipment. In the past 6 years, 

almost $8 billion has been provided in the form of FMF grants that enable 

Egypt to acquire U.S.-manufactured military goods and services. 

The United States has provided Egypt with FMF assistance through a 

statutory cash flow financing arrangement that gives Egypt the flexibility to 

plan for and acquire defense goods and services that can be paid for over 

time, similar to installment payments. The arrangement allows for 

flexibility in the management of payments and significant commitments 

that will need to be paid for in the future. As of 2005, Israel and Egypt are 

the only countries permitted to use cash flow financing. According to 

DSCA officials, from 1986 to 1998, DSCA managed the cash flow financing 

program by limiting new commitments, and by 1998, the Egyptian program 

accumulated large undisbursed balances1 of about $2 billion. DSCA and 

1

Undisbursed balances, as defined by DSCA, are funds that are apportioned, obligated to the 

FMF program for Egypt, and committed against LOAs that have not yet been paid to a 

contractor or U.S. government activity for defense articles and services being provided to 

Egypt.
Page 3 GAO-06-437 Security Assistance

Egyptian military officials then began planning to eliminate these balances 

by 2007. Because the flexibility of cash flow financing permits Egypt to pay 

for its purchases over time, some purchases are not due for full payment 

until 2011. Egypt currently has letters of offer and acceptance2

 (LOA) 

agreements for U.S. defense articles and services that are worth about $2 

billion more than available FMF appropriations to date. Egypt is financially 

liable to the U.S. government under the LOAs. However, the U.S. 

government awards the contracts that procure the defense articles and 

services to be delivered to Egypt and is liable for the payments due on 

those contracts.3

 DSCA officials stated that, if there were a reduction in 

anticipated appropriations, the United States would first look to Egypt to 

provide funding consistent with its promise to pay under the LOAs; 

however if Egyptian funding were not forthcoming, the U.S. government 

would have to continue to meet its contractual obligations and make 

payments as they become due. DSCA officials stated that a reduction in 

funding would require reducing the scope of existing contracts, among 

other things. This may affect the achievement of FMF program goals in 

Egypt and some aspects of U.S. relations with Egypt.

Although officials and several experts assert that the FMF program to 

Egypt supports U.S. foreign policy and security goals, State and DOD do 

not assess how the program specifically contributes to these goals. U.S. 

and Egyptian officials cited examples of Egypt’s support for U.S. interests, 

such as maintaining Egyptian-Israeli peace and providing access to the 

Suez Canal and Egyptian airspace. However, DOD has not determined how 

it will measure progress in achieving key goals such as interoperability and 

modernizing Egypt’s military. For example, CENTCOM, the responsible 

military command, measures modernization as the ratio of U.S. to Sovietera equipment in Egypt’s inventory and does not include other potentially 

relevant factors, such as readiness or military capability. Achieving

interoperability with Egypt is complicated by both the lack of a common 

definition of interoperability and limitations on some types of equipment 

transfers. Although it may be difficult to measure how FMF assistance to 

2

In this context, Letters of Offer and Acceptance (LOAs) are agreements signed between 

foreign governments and the United States governing the terms and conditions of the 

procurement of U.S. defense articles and services. 

3 22 U.S.C. § 2762 provides authority to the President to enter into a contract for the 

procurement of defense articles and services for sale to any foreign country or international 

organization in advance of or in excess of an appropriation as long as the foreign country 

provides assurances to pay the full amount of the contract and any costs or damages due to 

cancellation. 
Page 4 GAO-06-437 Security Assistance

Egypt achieves strategic goals such as maintaining peace, operational goals 

such as modernization and interoperability lend themselves to 

measurement. Given the longevity and magnitude of the FMF assistance to 

Egypt, assessing the degree to which the program meets its goals would 

provide objective and useful performance information for executive 

decision makers and overseers. Legislation such as the Government 

Performance and Results Act (GPRA)4

 and administration initiatives such 

as the Office of Management and Budget Performance Assessment Rating 

Tool (PART) establish the expectation that federal programs will be 

evaluated to provide such important information.5

To help Congress assess the balance of economic and military assistance to 

Egypt, we recommend that the Secretaries of State and Defense conduct 

(1) an assessment of the impact of potential shifts in future appropriations 

on the Egypt FMF program and (2) periodic program-level evaluations of 

the program. The latter would require the United States to define specific 

objectives for the goals and identify appropriate indicators to demonstrate 

progress toward achieving those objectives. Specifically, we recommend 

that the agencies define the current and desired levels of modernization 

and interoperability with Egypt, including the establishment of 

benchmarks and targets for these and other goals. 

DOD concurred with our recommendations but stated that we should 

direct the recommendations primarily to the Secretary of State. However, 

DOD and State are joint partners in the FMF program for Egypt—State sets 

the broad goals for the program while DOD works closely with Egypt’s 

military to implement the program. Therefore, the recommendations are 

appropriately addressed to both State and DOD. State did not indicate 

whether it concurred with our recommendations. In regard to our first 

recommendation, State emphasized that steps to mitigate risks are already 

in place, such as maintaining reserves to pay costs associated with 

terminating contracts. However, contract termination reserves are lastresort measures that do not represent a comprehensive assessment for 

4

Pub. L. No. 103-62, 107 Stat. 285 (1993).

5

GPRA instituted a governmentwide requirement for agencies to, among other things, report 

on their results in achieving their agency and program goals. According to OMB, the PART 

initiative builds on GPRA by providing more credible outcome-based performance 

information to foster debate among decision makers. To date, OMB has not conducted a 

review of the FMF program in the Middle East region. State officials expect a PART review 

of security assistance to the Middle East and North African countries in August 2006.
Page 5 GAO-06-437 Security Assistance

reducing risk associated with possible fluctuations in Egypt’s FMF 

resources. A risk assessment should include other measures such as 

reducing the scope of existing contracts, stopping new orders, or selling 

undelivered defense goods.

On our second recommendation, State noted that it would work with DOD 

to better define measures for assessing Egypt’s modernization goals, but 

stated that defining a level of interoperability would be speculative. 

However, improving Egypt’s ability to operate with the U.S. and coalition 

partners has been a critical, yet unmeasured goal of the program. At a 

minimum, DOD and State can begin to measure Egyptian forces’ 

capabilities to operate with allied countries in military exercises or 

peacekeeping operations. DOD and State provided technical comments 

that we incorporated as appropriate. Comments on a draft of this report are 

provided in appendixes V and VI. 

Background Egypt is currently among the largest recipients of U.S. foreign assistance, 

along with Israel, Afghanistan, and Iraq. Since 1979, Egypt has received an 

annual average of more than $2 billion in economic and military aid. Egypt 

has generally received about $1.3 billion each year in foreign military 

financing assistance in the form of grants and loans. From 1982 to 1988, the 

United States forgave Egypt’s FMF debt to the United States and began 

providing military assistance in 1989 solely in the form of grants with no 

repayment requirement.6

State and DOD planning documents describe FMF as one of several U.S. 

security assistance programs7 which are a subset of U.S. security 

cooperation efforts designed to build relationships that support specified 

U.S. government interests. These interests include building friendly 

nations’ capabilities for self-defense and coalition operations, 

strengthening military support for containing transnational threats, 

protecting democratically elected governments, and fostering closer 

6

FMF is authorized under Sections 23 and 24 of the Arms Export Control Act.

7

According to DSCA, the five major U.S. security assistance programs are: direct 

commercial contracts, peacekeeping operations, foreign military sales, foreign military 

financing, and international military education and training. DSCA has also identified excess 

defense articles, draw-downs, and other programs as security assistance.
Page 6 GAO-06-437 Security Assistance

military ties between U.S. and recipient nations.8According to State, the 

objectives of the FMF program worldwide include:

• assisting friendly foreign militaries in procuring U.S. defense articles 

and services for their countries’ self defense and other security needs;

• promoting coalition efforts in regional conflicts and the global war on 

terrorism;

• improving capabilities of friendly foreign militaries to assist in 

international crisis response operations; 

• contributing to the professionalism of military forces;

• enhancing rationalization, standardization, and interoperability of 

friendly foreign military forces;

• maintaining support for democratically elected governments; and

• supporting the U.S. industrial base by promoting the export of U.S. 

defense-related goods and services.

Generally, FMF provides financial assistance in the form of credits or 

guarantees to U.S. allies to purchase military equipment, services, and 

training from the United States. Recipient countries can use the assistance 

to purchase items from the U.S. military departments through the Foreign 

Military Sales (FMS) process or directly from private U.S. companies 

through direct commercial sales. State is responsible for the continuous 

supervision and general direction of security assistance programs, 

including FMF, in coordination with DOD. DSCA leads the day-to-day 

program implementation for each FMF recipient country in coordination 

with other DOD entities at the unified combatant commands9

 and in the 

recipient countries. CENTCOM’s responsibilities include developing and 

implementing security cooperation plans for Egypt and other countries in 

the Middle East, as well as coordinating with other government entities on 

8

Other State and DOD classified or sensitive planning documents describe the global, 

regional and country-level goals and objectives for security cooperation and assistance 

programs. 

9

A unified combatant command has operational control of U.S. combat forces from two or 

more military departments and is normally organized on a geographic basis. 
Page 7 GAO-06-437 Security Assistance

major Egyptian equipment requests. (See appendix II for a description of 

the FMS process for purchasing FMF-funded cases and appendix III for a 

description of the roles and responsibilities of the entities involved in the 

program.) 

Members of Congress have periodically sought to alter the balance of 

economic and military assistance to Egypt. In 1998, the United States and 

Egypt agreed to a 10-year assistance phase-down in conjunction with a 

similar package for Israel. The package for Egypt reduced economic 

assistance by $40 million each year but did not increase FMF assistance to 

Egypt. U.S. economic assistance to Israel was reduced by $120 million each 

year, and the amount of U.S. military assistance was increased by $60 

million per year. In 2004 and 2005, amendments to the Consolidated 

Appropriations bill10 for fiscal year 2005 and the Foreign Relations 

Authorization bill11 for fiscal years 2006 and 2007 proposed converting 

some military assistance to economic assistance to Egypt. The 2004 

amendment was not adopted and did not become law. Furthermore, as of 

March 2006, the 2005 amendment has not been enacted. Additionally, a 

conference report attached to the fiscal year 2006 Foreign Operations 

Appropriations bill requires State to report to Congress on the balance 

between economic and military assistance provided to Egypt, including 

whether maintaining the current level of military assistance in relation to 

economic assistance is appropriate in light of the political and economic 

conditions in Egypt and in the region.12 Although this requirement was not 

stipulated in law, it conveys congressional intent to have this information 

provided to the Congress. 

Over the past decade, Congress and the executive branch laid out a 

statutory and managerial framework that provides the foundation for 

strengthening government performance and accountability, with GPRA as 

its centerpiece.13 GPRA is designed to inform congressional and executive 

decision making by providing objective information on the relative 

effectiveness and efficiency of federal programs and spending. A key 

purpose of the act is to create closer and clearer links between the process 

10H.R. 4818, 108th Cong. (2004).

11 H.R. 2601, 109th Cong. (2005).

12H.R. Rep. No. 109-265, at 88 (2005). 

13Pub. L. No. 103-62, 107 Stat. 285 (1993).
Page 8 GAO-06-437 Security Assistance

of allocating resources and the results expected to be achieved with those 

resources. Program evaluations are objective studies that answer questions 

about program performance and results, and explore ways to improve 

them. In 2002, OMB implemented the Performance Assessment Rating Tool 

(PART) method of assessing federal programs. PART assesses federal 

programs in four areas: purpose and design, strategic planning, 

management, and results and accountability. Another assessment tool, 

which we have discussed in previous reports, is a logic model.14 This tool 

can be used to describe a program’s components and desired results, while 

explaining the strategy by which the program is expected to achieve its 

goals. A logic model is a representation of the relationship between the 

various components of a program, typically including at a minimum, inputs, 

activities, outputs and outcomes. By specifying the program’s theory of 

what is expected at each step, a logic model can help evaluators define 

measures of the program’s progress toward its ultimate goals. (See 

appendix IV for details on the logic model.) 

The United States Has 

Provided $1.3 Billion in 

Military Assistance to 

Egypt Annually to 

Purchase Defense 

Articles and Services 

Since 1979, Egypt has received about $34 billion in FMF assistance which 

the United States has generally appropriated in annual amounts of 

approximately $1.3 billion. In fiscal year 2005, Egypt received nearly $1.3 

billion in FMF grants, more than 25 percent of the total amount of FMF 

assistance provided worldwide. FMF assistance to Egypt accounts for 80 

percent of Egypt’s military procurement budget and has served to replace 

some of Egypt’s Soviet-supplied equipment with modern U.S. equipment. 

Egyptian officials stated that 52 percent of their military inventory is U.S. 

equipment as of August 2005. 

Over the life of the FMF program, Egypt has purchased 36 Apache 

helicopters, 220 F-16 aircraft, 880 M1A1 tanks, and the accompanying 

training and maintenance to support these systems, among other items (see 

fig. 1). According to U.S. and Egyptian officials, the Egyptian military is 

better equipped to defend its territory and participate in operations in the 

region. For example, the Egyptian military has participated in 

peacekeeping missions in East Timor, Bosnia, and Somalia. In addition, the 

14GAO, Program Evaluation: Strategies for Assessing How Information Dissemination 

Contributes to Agency Goals, GAO-02-923 (Washington, D.C.: Sept. 2002); and Federal 

Motor Carrier Safety Administration: Education and Outreach Programs Target Safety 

and Consumer Issues, but Gaps in Planning and Evaluation Remain, GAO-06-103

(Washington, D.C.: Dec. 2005). 
Page 9 GAO-06-437 Security Assistance

Egyptian military participates with the United States in Operation Bright 

Star, a biannual military exercise involving forces from other coalition 

countries, including Germany, Jordan, Kuwait, and the United Kingdom. 

The purpose of the exercise is to conduct field training to enhance military 

cooperation among U.S. and coalition partners and strengthen 

relationships between the United States and Egypt, as well as other 

participating partners.

Figure 1: Key FMF-Financed Systems Purchased by Egypt Include F-16 Aircraft, Apache Helicopters, and M1A1 Tanks

From 1999 to 2005, the United States provided a total of about $7.8 billion 

to Egypt in FMF funds. Egypt spent almost half of its FMF funds from 1999 

to 2005 (about $3.8 billion) on major equipment such as aircraft, missiles, 

ships, and vehicles (see fig. 2). For example, Egypt spent 8 percent of its 

FMF funds on missiles, including 822 ground-launched Stinger missiles, 459 

air-launched Hellfire missiles, and 33 sea-launched Harpoon missiles. Egypt 

also spent 14 percent on aircraft, including 3 cargo airplanes; 10 percent on 

communications and support equipment, including 42 radar systems and 8 

switchboards; and 9 percent on supplies and supply operations, including 

1,452 masks to protect against chemical and biological agents.

Source: DOD.
Page 10 GAO-06-437 Security Assistance

Figure 2: FMF Purchases for Egypt Total $7.8 billion (1999-2005)

Note: Numbers may not add due to rounding.

Egypt spent the remaining amount of its FMF funds—about $2.5 billion—

on maintenance, weapons and ammunition, and other requirements. DSCA 

adheres to a total package approach when working with Egypt to procure 

items through the FMF program, which ensures that the costs of support 

articles and services for new equipment are included in the total price of 

the item. In addition to the equipment, support items include training, 

technical assistance, initial support, and follow-on support. Egyptian 

officials stated that approximately one-third of their FMF funds are 

dedicated to follow-on support; one-third to upgrade U.S.-supplied 

equipment; and nearly one-third to new procurements. 

10%

19%

30%

15%

9%

9%

9%

Communications and support

equipment

Maintenance of equipment

Aircraft (14%)

Missiles (8%)

Ships (8%)

Other

Supplies and supply operations

Vehicles

Weapons and ammunition

Sources: DOD; GAO.

Aircraft, missiles, 

and ships

Other

Supplies and supply 

operations

Weapons and 

ammunitions

Communications

and support

Maintenance of 

equipment

Vehicles

Helicopters; ground-, air-, and 

sea-launched missiles; patrol ships; 

ship spare parts

Training, construction of military 

facilities, studies, and program 

management 

Technical assistance for aircraft 

and missiles, aircraft engine and 

combat vehicle repair

Rifles, machine guns, weapons

spare parts, weapons ammunition, 

explosives, rockets

Radio navigation equipment, radar 

systems, construction equipment, 

metal working machinery, safety 

and rescue equipment

Clothing, medical supplies, hand 

tools, automotive supplies, 

transportation and shipping fees

Tanks, self-propelled artillery, cargo 

trucks, ambulances
Page 11 GAO-06-437 Security Assistance

Cash Flow Financing 

Flexibility Allows 

Egypt to Pay for 

Defense Goods over 

Multiple Years 

The United States permits Egypt to finance its military purchases using a 

statutory cash flow financing arrangement that allows Egypt to make 

purchases in one year and pay for them over succeeding years using grants 

made from future FMF appropriations. The arrangement allows the United 

States to enter into contracts in advance of—and in excess of—current 

FMF appropriations for Egypt. Specifically, Egypt is not required to pay the 

full amount of the LOA15 up front. Cash flow financing allows Egypt to pay 

only the amount that signed LOAs require in a given year for specified 

defense articles and services. The cash flow financing arrangement 

benefits Egypt in that it can receive more defense goods and services than 

it can under other financing arrangements. However, the program 

accumulated undisbursed funds because the agency refrained from making 

as many new commitments for goods and services as the annual 

appropriation would have allowed, according to DSCA officials. The cash 

flow financing arrangement allows for significant commitments to be made 

based on anticipated appropriations.

Cash Flow Financing Allows 

for Flexibility

Unlike other countries that receive FMF assistance, Egypt and Israel are 

currently the only countries that may receive defense goods worth more 

than the annual FMF appropriation and pay for them over multiple years. 

Cash flow financing enables Egypt to purchase more defense goods and 

services than under other financing arrangements and to better plan its 

military purchases over a number of years. For example, Egypt may begin 

the process of purchasing an F-16 in one year and make installment 

payments for the item over the life of the contract. Traditional financing 

options for FMF programs permit countries to make purchases equal to the 

amount of the particular appropriation in any given year or save 

appropriations over multiple years. For example, a country using 

traditional financing would have to plan its purchases by saving its FMF 

funds over a period of years to accumulate sufficient funds to make the full 

payment for the item. All other countries that receive FMF assistance, 

except Israel and Egypt, are required to make their FMF purchases in this 

manner.

15In this context, letters of offer and acceptance (LOA) are agreements signed between 

foreign governments and the United States governing the terms and conditions of the 

procurement of U.S. defense articles and services.
Page 12 GAO-06-437 Security Assistance

In the Past, DSCA Limited 

the Number of New 

Commitments to Less than 

the Appropriated Amounts, 

Allowing Funds to 

Accumulate

By 1998, more than $2 billion in undisbursed funds accumulated in Egypt’s 

FMF account because DSCA did not have a high enough level of 

commitments to require disbursements in an amount equal to Egypt’s 

entire annual FMF appropriation. DSCA officials stated that previous FMF 

program managers did not have adequate tools to track Egypt’s FMF 

current commitments against future FMF disbursement requirements. In 

August 1998, DSCA established a system to project estimated commitments 

and payments by fiscal year to obtain better control over the cash flow 

financing process. 

DSCA developed and is now implementing a plan to disburse the 

accumulated funds by fiscal year 2007. According to DSCA, OMB officials, 

and congressional staff, in 1998, members of Congress and OMB became 

concerned about the large balance in Egypt’s FMF account and consulted 

with DSCA to eliminate it.16 As a result, DSCA coordinated with OMB and 

subsequently developed and implemented a plan in 2002, to disburse $300 

million of the undisbursed balances every year, in addition to the amounts 

appropriated annually for Egypt’s FMF program, until the undisbursed 

balances are eliminated in 2007 (see fig. 3). 17

16According to DSCA officials, this balance is committed to specific LOAs.

17According to DSCA, an estimated $130 million of the undisbursed balances will be held in 

reserve to cover unexpected costs. 
Page 13 GAO-06-437 Security Assistance

Figure 3: DSCA Plan to Disburse Egypt’s Accumulated FMF Funds

According to DSCA officials, because tracking mechanisms were not in 

place before 1998, program managers did not adequately track FMF 

commitments against disbursement requirements and available 

appropriations. As a result, DSCA’s commitments for Egypt’s FMF program 

were held at a low enough level such that disbursements were less than the 

yearly appropriations. This ensured sufficient funds were available to cover 

future payments to contractors, according to DSCA. 

DSCA developed three databases to track Egypt’s FMF expenditures that, 

according to DOD officials, address the undisbursed balance problem. 

First, one database tracks the amount of FMF funds required for each 

project for which an LOA was signed and the amount of funds needed in 

each year to make the annual payments. Second, another tracking database 

determines the length of time between the U.S. military’s receipt of a signed 

Dollars (in millions)

Year

0

500

1,000

1,500

2,000

2,500

3,000

Appropriated funds

Anticipated appropriated funds

Amount of accumulated undisbursed balance disbursed

Amount of accumulated undisbursed balance

2002 2003 2004 2005 2006 2007 2008 

Sources: DSCA; GAO.
Page 14 GAO-06-437 Security Assistance

request to undertake a project for Egypt and its receipt of a signed LOA to 

implement the project. This database also tracks the total amount of funds 

committed to LOAs in each fiscal year. Finally, DSCA and the Egyptian 

Ministry of Defense maintain a spreadsheet known as the Five Year 

Defense Plan that lists the items Egypt plans to buy in the next 5 years, 

their expected prices, the year in which Egypt plans to purchase each item, 

and the total amount of money available each year for purchases. When an 

LOA is signed for an item listed in the Five Year Defense plan, it is entered 

into the database and the funds needed to purchase it are subtracted from 

the total amount of funds available. 

Cash Flow Financing Allows 

for Significant 

Commitments that 

Anticipate Future 

Appropriations

Cash flow financing also permits Egypt to order defense articles and 

services that may be paid for with future appropriations or country funds. 

As of March 22, 2006, the value of LOAs anticipating future funding totaled 

approximately $2 billion, some of which are not due for full payment until 

2011. Due to the nature of cash flow financing, this number can vary daily 

because contracts are signed, completed, or modified daily. For example, 

from 1997 to 2005, the dollar value of these commitments at the end of each 

fiscal year has varied from $1.3 billion to $3.6 billion, whereas the average 

amount was $2.6 billion (see fig. 4). These commitments are expected to be 

paid for with future appropriations. If future appropriations are not 

available, Egypt will be responsible under the LOA to pay these 

commitments with other sources.

DSCA officials stated that, if there were a change in the anticipated 

appropriations, the United States would seek funding from Egypt to satisfy 

the LOAs. If Egypt is unable to pay for the LOAs with its own funds, the 

U.S. government would be liable for the payments due on the underlying 

contracts executed on Egypt’s behalf. To manage payment if expected 

funding is reduced, DSCA officials stated that DOD would consider a range 

of steps including reducing the scope of the existing contracts, and 

stopping new orders, among other things. Additionally, defense articles and 

services that have not been delivered would not be provided to Egypt, if 

payment had not been received. As a result, DOD also may use FMF funds 

held in reserve to pay companies’ costs associated with closing down their 
Page 15 GAO-06-437 Security Assistance

production lines and terminating the contracts.18However, DSCA officials 

stated that contract termination would be considered as a last resort. 

Absent the availability of U.S. funds to pay the entire balance of existing 

contracts, important implications for the achievement of the program goals 

and U.S. relations with Egypt may arise. For example, if the United States 

had to terminate multiple contracts on Egypt’s behalf because of a 

reduction in FMF program funding and Egypt’s inability to provide funding, 

the U.S. ability to achieve FMF goals such as military modernization would 

be affected. In addition, U.S. and Egyptian officials stated that a shift in 

funding may affect some elements of the U.S.-Egyptian relationship.

Figure 4: Value of Egypt’s Future FMF Commitments at the End of Each Fiscal Year 

State and DOD have not conducted an assessment to identify the impacts 

of a potential reduction in FMF funding below the levels that are planned to 

18DOD officials stated that contracts signed by DSCA on Egypt’s behalf for the FMF program 

include termination liability fees that they hold in reserve if Egypt needs to terminate a 

contract for any reason. 

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 

Dollars (in millions)

Sources: DCSA; GAO.

Year
Page 16 GAO-06-437 Security Assistance

be requested. According to applicable internal control standards for the 

federal government, an organization should identify risks—such as a 

reduction in funding—and decide upon the internal control activities 

required to mitigate those risks and achieve efficient and effective 

operations, reliable financial reporting, and compliance with laws and 

regulations.19 Management should then plan a course of action for 

mitigating risks, developing mechanisms to anticipate, identify, and react to 

change.

Officials Assert that 

FMF Assistance to 

Egypt Supports U.S. 

Goals, but State and 

DOD Do Not Evaluate 

the Program’s 

Contributions to Key 

Goals

U.S. officials and several experts we consulted assert that FMF assistance 

to Egypt has supported U.S. strategic goals such as regional stability, the 

war on terrorism, and Egyptian-Israeli peace. Furthermore, U.S. and 

Egyptian officials state that FMF has promoted a modern Egyptian military 

by replacing 52 percent of its aging Soviet-era military equipment with U.S. 

equipment, and improved U.S.-Egyptian interoperability through joint 

military exercises. U.S. officials also stated that the U.S.-Egyptian 

relationship resulted in expedited access through the Suez Canal and the 

right to fly over Egyptian territory. Although DOD and State can describe 

the qualitative benefits the United States receives from Egypt, the 

departments have conducted no systematic, outcome-based assessment of 

how the FMF program furthers U.S. goals. GPRA and PART establish the 

expectation that federal programs determine whether they are meeting 

agency and program goals—annual and long-term—and how performance 

can be improved to achieve better results.

Officials and Experts Cite 

Examples of Egypt’s 

Support for U.S. Goals 

Officials and several experts assert that Egypt supports the U.S. goals of 

the FMF program, which are found in State’s annual Mission Performance 

Plan for Egypt and its Congressional Budget Justification. Specific goals 

include (1) modernizing and training Egypt’s military; (2) facilitating 

Egypt’s participation as a coalition partner; (3) providing force protection 

to the U.S. military in the region; and (4) helping guarantee U.S. access to 

the Suez Canal and overflight routes. Another key goal of the program is to 

enhance Egypt’s interoperability with U.S. forces. DOD officials stated that 

19Internal control standards also include: (1) control environment, (2) control activities, (3) 

information and communication, and (4) monitoring. See GAO, Standards for Internal 

Control in the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1999); 

and Internal Control Management and Evaluation Tool, GAO-01-1008G (Washington, D.C.: 

Aug. 2001).
Page 17 GAO-06-437 Security Assistance

broader security cooperation and assistance goals found in DOD’s regional 

Theater Security Cooperation Plan also apply to Egypt’s FMF program, 

which we found to be consistent with State’s goals for the program. 

Egyptian and U.S. officials cited several examples of Egypt’s support for 

U.S. goals. For example, Egypt:

• deployed about 800 military personnel to the Darfur region of the Sudan 

in 2004;

• trained 250 Iraqi police and 25 Iraqi diplomats in 2004;

• deployed a military hospital and medical staff to Bagram Air Base in 

Afghanistan from 2003 to 2005, where nearly 100,000 patients received 

treatment; 

• provided over-flight permission to 36,553 U.S. military aircraft through 

Egyptian airspace from 2001 to 2005; and

• granted expedited transit of 861 U.S. naval ships through the Suez Canal 

during the same period and provided all security support for those ship 

transits.

State and DOD Do Not 

Evaluate How FMF 

Assistance to Egypt 

Achieves U.S. Goals

State and DOD have not systematically evaluated how the FMF program 

specifically contributes to achieving U.S. goals, particularly modernization 

and interoperability. DOD currently conducts assessments of security 

assistance activities in the region and regularly reviews selected FMFfunded purchases at the country level. However, these assessments do not 

provide information on specific FMF goals for Egypt or progress made in 

achieving them.

DOD rates the collective effectiveness of a mix of programs on a regional 

basis,20 including FMF, International Military Education and Training, 

military-to-military contacts, and others. At the country level, DOD and 

Egyptian officials regularly review the status of selected FMF-funded 

purchases through financial management, program management, and inprogress reviews. In addition, a Military Coordination Committee, 

20U.S. Central Command’s region—or theater—includes Egypt and 27 countries in the Horn 

of Africa, South Asia, and the Middle East.
Page 18 GAO-06-437 Security Assistance

comprised of senior DOD and Egyptian military officials, meets annually to 

discuss specific FMF purchases and types of equipment that have been or 

may be procured. These efforts reflect DOD’s attention to assessing broad 

activities and certain financial and management aspects of FMF to Egypt, 

but they do not provide a comprehensive assessment of how FMF 

contributes to achieving U.S. goals.

We have reported that, although it can be difficult to isolate one program’s 

effect from another’s or to assess a program’s impact or benefit, such 

assessments can help decision makers make more informed choices when 

faced with limited resources and competing priorities.21 While some U.S. 

foreign policy and security goals, such as regional stability or maintaining a 

strong U.S.-Egyptian relationship, may be difficult to measure 

quantitatively, key FMF program goals—such as interoperability and 

modernization—better lend themselves to measurement. 

• DOD has not defined the degree of interoperability that it seeks to 

achieve with the Egyptian military, nor has it determined how to 

measure progress towards this goal. According to DOD doctrine,22

interoperability is the ability of communications and other systems, 

units, or forces to provide services to each other so that forces can 

operate effectively together and information can be exchanged directly 

and satisfactorily. The doctrine also states that the degree of 

interoperability should be defined in specific cases. 

Achieving interoperability in Egypt is complicated by both the lack of a 

common definition of interoperability and limitations on some types of 

sensitive equipment transfers. CENTCOM officials also stated that they 

would prefer to operate with Egyptian forces according to the 

interoperability standard used by the United States. They noted, 

however, that the Egyptian military’s definition of interoperability is 

limited to participation in joint exercises, such as Operation Bright Star. 

Additionally, Egypt and the U.S. use interim short-term solutions to 

minimize limitations with respect to interoperability. For example, U.S. 

21GAO, Program Evaluation: Strategies for Assessing How Information Dissemination 

Contributes to Agency Goals, GAO-02-923 (Washington, D.C.: Sept. 2002); and GAO, 

Performance Budgeting: Opportunities and Challenges, GAO-02-1106T (Washington, D.C.: 

Sept. 19, 2002).

22Department of Defense, Dictionary of Military and Associated Terms, April 12, 2001, 

amended August 31, 2005.
Page 19 GAO-06-437 Security Assistance

officials stated they have established temporary communications 

installations on certain equipment and have flown alongside Egyptian 

C-130s to facilitate Egypt’s participation in a joint exercise. Egypt lacks 

specific equipment that limits its interoperability with U.S. forces, but 

DOD has not formally assessed this limitation and its implications on 

interoperability.

According to DOD policy,23 the desired level of interoperability cannot 

be ascertained within a general statement of policy but is dependent on 

factors unique to certain areas—such as compatible doctrine, tactics, 

techniques, and procedures. U.S. CENTCOM officials acknowledged 

that measuring interoperability in Egypt would vary greatly depending 

on the operation conducted, the type and size of systems used, and the 

timing of events. State officials acknowledged that it is possible to 

measure levels of interoperability through specific capabilities 

demonstrated by Egyptian forces participating in specific operations. 

For example, it would be possible to measure the capabilities of 

Egyptian forces participating in peacekeeping operations.

• DOD has similarly not defined how it will determine the extent to which 

FMF assistance contributes to the modernization of Egypt’s armed 

forces. Currently, the Egyptian benchmark is based on a percentage of 

U.S.-versus-Soviet equipment in Egypt’s inventory, as reported by the 

Egyptian military. According to Egyptian military officials, 52 percent of 

its current military inventory is U.S. equipment. By 2020, Egypt’s goal is 

to increase this amount to 66 percent. DOD officials stated that they 

believe Egypt’s ratio of U.S.-to-Soviet equipment is accurate but 

acknowledged that they do not maintain their own data to support the 

statistics. 

Nonetheless, other factors may be useful indicators to measure 

progress toward modernization, such as the technical sophistication of 

Egypt’s units, weapons systems, and equipment to provide 

humanitarian assistance; the readiness of Egyptian troops to deploy to a 

peacekeeping mission; or the degree to which Egypt’s troops are 

capable of maintaining a desired level of operational activity during 

Operation Bright Star. Developing these and other indicators would 

help DOD measure the degree of modernization and, in turn, be better 

positioned to determine whether Egypt’s goals are reasonable.

23Chairman of the Joint Chiefs of Staff Instruction, CJCSI 2700.01B, January 12, 2006. 
Page 20 GAO-06-437 Security Assistance

While measuring goals in these areas presents some difficulties, legislation 

and administration initiatives have recognized the need to do so. GPRA 

emphasized the importance of evaluating federal programs. Program 

evaluations help policy makers address whether program activities 

contributed to their stated goals and can help improve programs and target 

resources more effectively. 

In addition, OMB recently implemented PART to assess and improve 

program performance so that federal agencies can achieve better results. A 

PART review is intended to assess aspects of the program in order to form 

conclusions about program benefits by looking at the program’s purpose 

and design, strategic planning, management, and results—that is, whether 

the program is meeting its annual and long-term goals. To date, OMB has 

not conducted a review of the FMF program in the Middle East region.

Conclusion For the past 27 years, the United States has provided Egypt with more than 

$34 billion in FMF assistance to support U.S. strategic goals in the Middle 

East. Most of the FMF assistance has been in the form of cash grants that 

Egypt has used to purchase U.S. military goods and services. Like Israel, 

and unlike all other recipients of U.S. FMF assistance, Egypt can use the 

prospects of future congressional appropriations to contract for defense 

goods and services that it wants to procure in a given year through the FMF 

program. Until 1998, DSCA limited the number of new commitments to less 

than the annual appropriation thereby allowing more than $2 billion in 

undisbursed funds to accumulate. If the plan to eliminate the undisbursed 

funds for the Egypt FMF program is realized, these funds will be depleted 

by the end of fiscal year 2007. As Congress debates the appropriate mix 

between military and economic assistance to Egypt, the inherent risks of 

such flexible financing warrant careful attention and assessment by State 

and DOD.

Similarly, both State and DOD could do a better job assessing and 

documenting the achievement of goals as a result of the $34 billion in past 

U.S. FMF assistance and the $1.3 billion in annual appropriations planned 

to be requested. Periodic program assessments that are documented and 

based on established benchmarks and targets for goals would help 

Congress and key decision makers make informed decisions. We agree that 

expedited transit in the Suez Canal; support for humanitarian efforts in 

Darfur, Sudan, and elsewhere; and continuing offers to train Iraqi security 

forces are important benefits that the United States derives from its 

strategic relationship with Egypt. However, without a common definition of 
Page 21 GAO-06-437 Security Assistance

interoperability for systems, units, or forces, it is difficult to measure the 

extent of current and desired levels of interoperability, nor is it clear how 

the Egyptian military has been or could be transformed into the modern, 

interoperable force articulated in the U.S. goals for the Egypt FMF 

program.

Recommendations for 

Executive Action

Given the longevity of the FMF program, its relatively high appropriation 

levels, the strategic importance of Egypt in the Middle East, and 

congressional interest in assessing the balance between economic and 

military assistance provided to Egypt, we recommend that the Secretaries 

of State and Defense take the following two actions:

• conduct an assessment of the impact of potential shifts in future 

appropriations on the Egypt FMF program. This would include 

identifying risks, planning a course of action for mitigating those risks, 

and developing mechanisms to anticipate, identify, and react to change; 

and

• conduct periodic program-level evaluations of the FMF program to 

Egypt. The United States should define specific objectives for the goals, 

and identify appropriate indicators that would demonstrate progress 

toward achieving those objectives. Specifically, we recommend that the 

agencies define the current and desired levels of modernization and 

interoperability the United States would like to achieve. This should 

include establishing benchmarks and targets for these and other goals.

Agency Comments and 

our Evaluation

We provided a draft of this report to the Secretaries of Defense and State 

for their review and comment. DOD and State provided written responses 

that are reprinted in appendixes V and VI. Both departments also provided 

us with technical comments which we incorporated in the report as 

appropriate. 

In commenting on our draft report, DOD concurred with our 

recommendations but stated that we should direct the recommendations 

primarily to the Secretary of State. DOD and State are joint partners in the 

FMF program for Egypt—State sets the broad goals for the program while 

DOD works closely with Egypt’s military to implement the program. 

Therefore, the recommendations are appropriately addressed to both 

departments. 
Page 22 GAO-06-437 Security Assistance

State did not indicate whether it concurred with our recommendations. 

With regard to our first recommendation, State emphasized that steps to 

mitigate risks are already in place, such as maintaining reserves to pay 

costs associated with terminating FMF contracts. However, contract 

termination reserves are last-resort measures that do not represent a 

comprehensive assessment for reducing risk associated with possible 

fluctuations in the resources of the FMF program for Egypt. As we specify 

in the report, a risk assessment should include other measures such as 

reducing the scope of existing contracts, stopping new orders, or selling 

undelivered defense goods. An assessment that identifies the risks, 

including a plan to mitigate and anticipate these risks, would be 

appropriate and consistent with federal government internal control 

standards.

On our second recommendation, State noted that it will work with DOD to 

better define measures for assessing Egypt’s modernization goals but 

stated that defining a level of interoperability would be speculative. 

Improving Egypt’s ability to operate with the U.S. and coalition partners 

has been a critical, yet unmeasured goal of the program. At a minimum, 

DOD and State can begin to measure Egyptian forces’ capabilities to 

operate with allied countries in military exercises or peacekeeping 

operations. Evaluating the degree to which the program meets its goals 

would be important information for congressional oversight, particularly as 

Congress assesses the balance between economic and military assistance 

to Egypt, as well as the impact on U.S. foreign policy interests.

State commented that our report found that cash flow financing caused the 

accumulation of undisbursed balances in the FMF program for Egypt. DOD 

made the same comment in their technical comments. We modified the 

language in our report to clarify that the flexibilities of cash flow financing 

as managed by DSCA in the past allowed for the accumulation of large 

undisbursed balances. 

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies of this report to the 

appropriate congressional committees, and to the Secretaries of Defense 

and State and other interested parties. We will also make copies available 

to others upon request. In additon, the report will be available at no charge 

on the GAO Web site, http://www.gao.gov.
Page 23 GAO-06-437 Security Assistance

If you or your staff have questions about this report, please contact me at 

(202) 512-8979 or christoffj@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 VII.

Joseph A. Christoff

Director, International Affairs and Trade
Page 24 GAO-06-437 Security Assistance

Appendix I

Objectives, Scope, and Methodology AAppenednxidexiIs

To describe the types and amounts of Foreign Military Financing (FMF) 

assistance to Egypt, we examined government and private sector 

documents, databases, and reports; we also interviewed U.S. government 

officials. Specifically, we interviewed U.S. Department of Defense (DOD), 

and Defense Security Cooperation Agency (DSCA) officials. We examined 

DSCA data from the Defense Security Assistance Management System 

(DSAMS) database for the period 1999 to 2005. We sorted and categorized 

this data by type of procurement, year, military service, and cost to 

determine the composition of purchases made by funds provided under the 

Egypt FMF program. The broad categories of equipment and services were 

then examined for specific content and type of equipment, training, 

support, or service. In addition, we conducted multiple interviews with 

database administrators and information technology specialists to assess 

the reliability of the data in this system. We determined that the DSAMS 

database is reliable for the purposes of this report. We also interviewed 

officials and reviewed documentation from the U.S. Office of Military 

Cooperation in Cairo (OMC), along with U.S. Embassy officials, to better 

understand the nature of the program and the types of equipment and 

services procured through this program. In addition, we interviewed 

Egyptian military officials in Cairo and Ministry of Foreign Affairs officials 

at the Egyptian embassy in Washington, D.C. 

To assess the financing arrangements used to provide FMF assistance to 

Egypt, and determine how undisbursed balances accumulated in the Egypt 

FMF program accounts, we examined data from DSCA’s Credit System 

Database and interviewed officials from the DSCA Middle East and South 

Asia Division and Comptroller’s Office, as well as the Defense Finance and 

Accounting Service. To identify the amounts of accumulated undisbursed 

balances, we examined fiscal data by annual appropriation, total amount of 

accumulated undisbursed balances, and amount of funds that had been 

disbursed by fiscal year. We analyzed this data by fiscal year and 

interviewed the database administrator and information technology 

specialists responsible for this database. We determined that the Credit 

System Database is reliable for the purposes of this report. To assess the 

manner in which the undisbursed balances were being eliminated, we also 

examined three DSCA databases used to manage the financing 

arrangement for the Egypt FMF program: (1) a cash-flow tracking database 

that monitors letters of offer and acceptance (LOA) and the amount of 

funds needed in each fiscal year, (2) a fiscal year data base that monitors 

the time needed to execute a procurement request, and (3) Egypt’s Five 

Year Defense Plan. We interviewed the custodians of these databases in 

DSCA’s Middle East and South Asia Division to develop an understanding of 
Appendix I

Objectives, Scope, and Methodology

Page 25 GAO-06-437 Security Assistance

how they are used to manage the cash flow financing arrangement and the 

program more generally. We also met with the Office of Management and 

Budget (OMB) to gain an understanding of the plan to eliminate the 

accumulated undisbursed balances. We did not examine or assess U.S. 

economic assistance to Egypt. 

To evaluate how the United States assesses FMF assistance to Egypt and its 

contribution to the advancement of U.S. foreign policy and security goals, 

we examined multiple U.S. and Egyptian government documents, and 

interviewed U.S. and Egyptian government officials and foreign policy 

specialists. Specifically, we obtained and analyzed the State Department’s 

mission and bureau performance plans to understand U.S. foreign policy 

and security goals and priorities, and how the executive branch evaluates 

those goals. Similarly, we obtained DOD theater and country security 

cooperation plans and compared their goals and priorities to understand 

how DOD would measure results against them. We then examined U.S. 

Central Command’s (CENTCOM) evaluation tools to understand what 

metrics it used to evaluate program results. In addition to U.S. and 

Egyptian government officials, we spoke with foreign policy experts from 

the Center for Strategic and International Studies, Georgetown University, 

the Council on Foreign Relations, the Heritage Foundation, the U.S. 

Institute for Peace, the Middle East Institute, the National Defense 

University, the Carnegie Endowment for International Peace and the 

Brookings Institute. To assess DOD’s evaluations of security assistance 

goals, we reviewed various assessments and identified key components 

that are inherent in all of these assessments. We also researched other 

potential models that may assist in program evaluation. We interviewed 

officials from State and DOD in Washington, D.C., who are responsible for 

administering and implementing the FMF program to Egypt. We also met 

with Egyptian government officials in Washington, D.C. We traveled to 

Cairo and met with State and DOD officials at the U.S. Embassy and the 

OMC. In addition, we interviewed CENTCOM officials responsible for the 

FMF program to Egypt as well as Egyptian Ministry of Defense officials in 

Cairo. 

We performed our work from May 2005 through March 2006 in accordance 

with generally accepted government auditing standards.
Page 26 GAO-06-437 Security Assistance

Appendix II

Letter of Request and Letter of Offer and 

Acceptance Process ApendxiI

The review and approval process for FMF-funded purchases begins with 

the Egyptian military requesting the purchase of certain defense articles or 

services, and ends with a signed letter of offer and acceptance for those 

goods or services. Figure 5 depicts the review and approval process below. 

Figure 5: Letter of Request and Letter of Offer and Acceptance Review Process

The relevant Egyptian military department sends a letter of request (LOR) 

to the Egyptian Armament Authority, which then forwards it to the U.S. 

OMC in Cairo to be processed. If approved, the LOR is sent back to the 

Egyptian Armament Authority and then to the Egyptian Procurement 

Office, which forwards it to the DSCA and the appropriate U.S. military 

department.

The relevant U.S. military department and agencies—including the Army, 

Navy, Air Force, the National Security Agency, and the Defense Logistics 

Agency—generate a Letter of Offer and Acceptance (LOA) and send it to 

DSCA to coordinate with the State Department and notify Congress, if 

Egyptian 

Military 

Department

Egyptian 

Armament 

Authority

Egyptian 

Armament 

Authority

Office of 

Military 

Cooperation

Egyptian 

Procurement 

Office

Defense 

Security 

Cooperation 

Agency

U.S. Military 

Departments

and/or other 

agencies

Egyptian 

Armament 

Authority 

U.S. Military 

Department 

and/or other 

agencies

Defense 

Security 

Cooperation 

Agency

DSCA, Defense 

Finance and 

Accounting 

Service, U.S. 

Military 

Department

Source: GAO.

Letter of Offer and Acceptance Review Process

Letter of Request Review Process
Appendix II

Letter of Request and Letter of Offer and 

Acceptance Process

Page 27 GAO-06-437 Security Assistance

required. Once endorsed by DSCA or the relevant military department or 

agency, the LOA is sent to Egypt for acceptance and signature. After 

acceptance, LOAs are sent to DSCA, DFAS, and the relevant military 

department or agency. The country program director for Egypt registers the 

LOA into various databases that track the program.
Page 28 GAO-06-437 Security Assistance

Appendix III

Agency and Organizational Roles and 

Responsibilities ApendxiI

The principal U.S. entities responsible for administering and implementing 

the FMF program are State and DOD. The table below further describes 

their roles and responsibilities. 

Table 1: Agency and Organizational Roles and Responsibilities

Legend:

CENTCOM – U.S. Central Command

DFAS – Defense Finance and Accounting Service

DOD – Department of Defense

DSCA – Defense Security Cooperation Agency

EAA – Egyptian Armament Authority

EPO – Egyptian Procurement Office

MILDEPS and other agencies – Military Departments (Army, Navy, Air Force, and Marines), Defense 

Logistics Agency, National Security Agency

OMC – Office of Military Cooperation (Cairo, Egypt)

OSD – Office of the Secretary of Defense

Department or organization Roles and responsibilities

State Pol-Mil Supervises and directs security assistance programs.

DOD OSD Supervises security assistance programs and integrates departmental plans and policies with 

overall national security objectives.

CENTCOM Responsible for:

• exercising all unified command responsibilities for security cooperation programs;

• developing and implementing security cooperation plan for Egypt and other countries in the 

Middle East area of responsibility;

• commenting on major Egyptian equipment requests; and 

• coordinating with the Secretary of Defense, Joint Chiefs of Staff, military departments, and U.S. 

embassy officials in Cairo.

DSCA Administers and supervises FMF planning and programs, develops FMF guidance, and approves 

requests for the financing of individual projects and contracts.

OMC Plans and manages in-country aspects of the FMF program to Egypt and reports directly to 

CENTCOM and to the U.S. ambassador to Egypt. OMC assists in:

• managing foreign military sales (FMS) case management;

• training and other support for specific FMS cases;

• monitoring end-use of equipment and training;

• advising on disposal and transfer of weapons and equipment; and 

• evaluating Egyptian strategic and operational capabilities and requirements.

MILDEPS and other 

agencies

Responsible for:

• preparing, executing, and managing individual FMF-funded cases; 

• developing letters of offer and acceptance; 

• soliciting bids and negotiating and awarding contracts; and

• overseeing delivery of defense articles and services. 

DFAS Ensures sufficient funds are available in Egypt’s FMF account and provides spending authority 

approvals to the U.S. military departments to pay for goods and services on Egypt’s behalf.

Egyptian

Ministry of 

Defense

EAA Egyptian entity that manages the FMF program.

Egyptian Procurement 

Office

Directorate of the EAA responsible for reviewing and approving procurement of military goods 

and services through the FMF program.
Appendix III

Agency and Organizational Roles and 

Responsibilities

Page 29 GAO-06-437 Security Assistance

POL-MIL – Bureau of Political-Military Affairs

State – U.S. Department of State

Source: GAO analysis of agency data.
Page 30 GAO-06-437 Security Assistance

Appendix IV

Example of an Evaluation Framework ApendxiIV

The logic model we provide below is a foundation and first step for 

organizing the elements of a program. It is a tool that may help program 

managers identify the necessary elements for an evaluation—but it is not a 

complete evaluation itself. This model can also be used to communicate 

how program funds are used to achieve program goals. Figure 5 depicts 

how FMF dollars (inputs), training and procurement (activities), and the 

resulting equipped and trained military (outputs) can be linked to enhanced 

modernization and interoperability (outcomes). We are not prescribing this 

or any other specific model, and the figure below provides a high-level 

example in aggregate that is meant to be illustrative and does not define all 

of the exact inputs, activities, and outputs of the FMF program for Egypt. A 

program evaluation would typically include a breakdown of these 

aggregated elements in further detail and would include definitions of 

standards, benchmarks, and targets for each program goal. 
Appendix IV

Example of an Evaluation Framework

Page 31 GAO-06-437 Security Assistance

Figure 6: Using a Logic Model to Link Inputs, Activities, and Outputs to Outcomes

a

DOD will need to define standards and desired levels for these terms.

Political environment is highly sensitive to any changes or fluctuations in the program

Activities Outputs

Ongoing Long-Term

Influence

ExternalFactorsExternalFactors

Inputs Direct outcomes Indirect outcomes

Annual FMF 

grant funds

Associated FMF 

program 

overhead costs

U.S. agency, 

private sector, 

and Egyptian 

partnerships

Administer and 

support FMF 

program through 

meetings and 

daily interaction

Procure and 

purchase: 

Equipped 

Egyptian Military

Trained Eyptian 

Military 

Personnel

Maintain capacity and 

modernizationa of 

Egypt’s military

Target:

% modernized

% current

% fiscal year increase

Enhancing 

interoperabilitya of 

Egypt’s military with 

U.S. military

Target:

% interoperability

% current

% fiscal year increase

Access to Suez Canal

Overflight rights for U.S. 

aircraft

Protection of U.S. forces

transiting through canal

Support to U.S. war on 

terror (# or % of requests

honored)

Troops in Sudan

Iraqi training

Hospital in Afghanistan

Hurricane/earthquake 

relief

Continued and improving 

collaborative relationship 

with the U.S.

Stability in Middle East

No war between Egypt and 

Israel

Strong relationship 

between U.S. and Egypt

Training

Equipment

Weapons

systems

Maintenance

Source: GAO.

Components of a Logic Model

Inputs: 

Activities:

Outputs:

Outcomes:

The dollars, staff, technology and other resources available to carry out the program

The actions through which program purposes are carried out

Goods, products, or services produced in terms of amount, quantity, quality or other attributes, such as cost

The results of a program (e.g., client benefits or program consequences) 

Examples include: 

Development of knowledge, attitudes, and skills of program participants

Measurable actions needed to achieve program goals

Ultimate impact or desired condition that the program is seeking to achieve. Long-term goals may or may not be easy quantifiable
Page 32 GAO-06-437 Security Assistance

Appendix V

Comments from the Department of State ApendxiV
Appendix V

Comments from the Department of State

Page 33 GAO-06-437 Security Assistance
Appendix V

Comments from the Department of State

Page 34 GAO-06-437 Security Assistance
Appendix V

Comments from the Department of State

Page 35 GAO-06-437 Security Assistance
Page 36 GAO-06-437 Security Assistance

Appendix VI

Comments from the Department of Defense ApendxiVI
Appendix VI

Comments from the Department of Defense

Page 37 GAO-06-437 Security Assistance
Page 38 GAO-06-437 Security Assistance

Appendix VII

GAO Contact and Staff Acknowledgments ApendxiVI

GAO Contact Mr. Joseph A. Christoff, Director, (202) 512-8979

Staff 

Acknowledgments

Ms. Muriel Forster, Assistant Director. In addition, Nanette J. Barton, 

Stephanie Robinson, Ann M. Ulrich, Lynn Cothern, Martin De Alteriis, 

Grace Lui, and Christine Bonham made significant contributions to this 

report. 

(320342)
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