a

GAO

United States Government Accountability Office

Report to Congressional Requesters

July 2004 PEACEKEEPING

Multinational Force 

and Observers 

Maintaining 

Accountability, but 

State Department 

Oversight Could Be 

Improved

GAO-04-883
www.gao.gov/cgi-bin/getrpt?GAO-04-883.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Joseph 

Christoff at (202) 512-8979 or 

christoffj@gao.gov. 

Highlights of GAO-04-883, a report to 

congressional requesters 

July 2004

PEACEKEEPING

Multinational Force and Observers 

Maintaining Accountability, but State 

Department Oversight Could Be Improved 

The State Department has fulfilled some but not all of its operational and 

financial oversight responsibilities for MFO, but lack of documentation 

prevented us from determining the quality and extent of its efforts. State has 

not consistently recruited candidates suited for the leadership position of 

the MFO’s civilian observer unit, which monitors and verifies the parties’ 

compliance with the treaty. State also has not evaluated MFO’s financial 

practices as required by State’s guidelines because they lacked staff with 

expertise in this area. However, State recently formed an MFO management 

advisory board to improve its oversight of MFO operations. 

MFO has taken actions in recent years to improve its personnel system, 

financial accountability, and internal controls. For example, it has provided 

incentives to retain experienced staff and taken steps to standardize its 

performance appraisal system. It has received clean opinions on its annual 

financial statements and on special reviews of its internal controls. MFO has 

also controlled costs, reduced its military and civilian personnel levels, and 

kept its budget at $51 million since 1995, while meeting mission objectives 

and Treaty party expectations. 

U.S. Infantry Battalion Deployed as MFO Peacekeepers 

MFO faces a number of personnel, management, and budgetary challenges. 

For example, leading practices suggest its employees’ access to alternative 

dispute resolution mechanisms for discrimination complaints, and the 

gender imbalance in its workforce, could be issues of concern. Moreover, 

MFO lacks oversight from an audit committee or senior management review 

committee to ensure the independence of its external auditors. Finally, 

MFO’s budget is likely to increase because of costs associated with replacing 

its antiquated helicopter fleet. U.S. and MFO efforts to obtain support from 

other contributors generally have not succeeded. Army, State, and MFO 

officials have yet to agree who should pay the increased costs associated 

with changes in the composition and pay scales of U.S. troops deployed at 

MFO. 

Since 1982, the Multinational Force 

and Observers (MFO) has 

monitored compliance with the 

security provisions of the EgyptianIsraeli Treaty of Peace. The United 

States, while not a party to the 

treaty, contributes 40 percent of 

the troops and a third of MFO’s 

annual budget. All personnel in the 

MFO civilian observer unit (COU) 

are Americans. 

GAO (1) assessed State’s oversight 

of the MFO, (2) reviewed MFO’s 

personnel and financial 

management practices, and (3) 

reviewed MFO’s emerging budget 

challenges and U.S. MFO cost 

sharing arrangements. 

GAO recommends that the 

Secretary of State (1) resolve the 

concern of recruiting for the chief 

COU post; (2) ensure that staff with 

accounting expertise carry out 

State’s MFO financial oversight 

responsibilities; (3) direct State’s 

MFO advisory board to monitor 

State’s compliance with its 

oversight guidelines; and (4) work 

to reconcile Army and State views 

on the MFO cost-sharing 

arrangement. 

We received comments from DOD, 

State, and MFO. DOD and MFO 

generally agreed with our 

conclusions. State agreed with 

three of our recommendations and 

was nonresponsive to the 

recommendation that the oversight 

board monitor State’s compliance 

with MFO oversight guidelines. 
Page i GAO-04-883 MFO Management Review 

Letter 1

Results in Brief 2

Background 4

State Has Met Some of Its Oversight Responsibilities but Has 

Limited Evidence Documenting These Efforts 10

MFO Has Taken Some Actions to Improve Personnel Management 

but has not Systematically Reformed Its Personnel System 15

MFO Has Improved Financial Accountability, but Additional 

Oversight May Be Needed 19

After 9 Years of Flat Budgets, MFO Faces Financial and Other 

Challenges 24

Conclusion 31

Recommendations for Executive Action 32

Agency Comments and Our Evaluation 32

Appendix I Scope and Methodology 36 

Appendix II MFO’s Small but Challenging Workforce 39 

Appendix III GAO’s Model for Strategic Human Capital 

Management Planning 41 

Appendix IV Calculating MFO Budget in Terms of 

International Dollars 44 

Appendix V Cost of U.S. Participation in MFO 48 

Appendix VI Comments from the Department of State 51 

Contents 
Page ii GAO-04-883 MFO Management Review 

Appendix VII Comments from the Multinational Force and 

Observers 56 

GAO Comments 61

Tables 

Table 1: MFO Civilian Staff by Location and Type, 2003 39

Table 2: MFO Expenditures in Nominal and International Dollars 45

Table 3: Cost of U.S. Participation in MFO, Fiscal Years 1995 

through 2003 48

Table 4: U.S. Troop Contributions to the MFO as a Percentage of 

the Total, Fiscal Years 1995 through 2003 49

Figures 

Figure 1: Sinai Peninsula and MFO Area of Operations 6

Figure 2: U.S. Soldiers on Duty at an MFO Outpost Near South 

Camp 7

Figure 3: MFO Organizational Chart (as of December 2003) 9

Figure 4: MFO Budget in Nominal and Constant Purchasing Power 

Dollars 25

Figure 5: U.S. Army Helicopter Options for MFO Service 27

Figure 6: Total Number of MFO Troops (including U.S. troops) and 

Number of U.S. Troops for Fiscal Years 1995 through 2003 29

Figure 7: Cost of U.S. Participation in MFO 30

Figure 8: Excerpts from GAO’s Strategic Human Capital 

Management Model 43

Figure 9: Percentage of MFO Dollar Budget Spent in Israel and 

Egypt 44

Figure 10: Percentage of MFO International Dollar Budget Spent in 

Israel and Egypt 46
Page iii GAO-04-883 MFO Management Review 

Abbreviation 

COU Civilian Observer Unit 

COSO Committee of Sponsoring Organizations of the Treadway 

 Commission 

DOD Department of Defense 

HNSI Holmes and Narver Services, Incorporated 

MFO Multinational Force and Observers 

NEA Bureau of Near Eastern Affairs, U.S. Department of State 

NEA/EX Office of the Executive Director, Bureau of Near Eastern 

 Affairs 

NEA/RA Office of Regional Affairs, Bureau of Near Eastern Affairs 

OIG Office of Inspector General, U.S. Department of State 

PPP Purchasing Power Parity 

U.N. United Nations 

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reproduce this material separately. 
Page 1 GAO-04-883 MFO Management Review 

July 23, 2004 

Congressional Requesters 

Following years of violent confrontation, Egypt and Israel signed a treaty 

on March 26, 1979, that ended the existing state of war and agreed to the 

withdrawal of all Israeli forces from the Sinai. Although the treaty 

proposed that U.N. forces and observers supervise these security 

arrangements, the United States committed to providing a multinational 

force if the U.N. process failed. When the U.N. Security Council failed to 

reach an agreement, the governments of Egypt and Israel signed a protocol 

to the treaty in 1981 that established the Multinational Force and 

Observers (MFO). The treaty can be terminated by the consent of the 

parties; it does not contain a specific end date or establish specific 

conditions that, if met, would allow MFO to withdraw troops. MFO 

currently has 1,685 troops and a civilian workforce of about 108 

international and local national staff who manage the organization and its 

annual budget of $51 million. To manage its operations, the MFO has 

developed personnel, financial management, budget, and internal control 

systems. This review examines these systems including MFO’s personnel 

practices as they pertain primarily to its international civilian workforce. 

The United States, although not a party to either the treaty or the protocol, 

agreed to provide military forces and a group of civilian observers to the 

MFO to monitor compliance with military limitations. The United States 

now contributes the largest share of military troops and about one third of 

the organization’s financial resources. In addition, the Department of State 

conducts oversight of U.S. participation in the MFO. In 2001, the United 

States reviewed its commitments worldwide to security and peacekeeping 

operations, and in 2003 reduced the number of troops serving in the MFO. 

Given your interest in MFO’s management practices and State’s oversight 

responsibilities, we (1) assessed the Department of State’s oversight of the 

MFO, (2) reviewed MFO’s personnel policies and practices, (3) examined 

MFO’s financial management practices, and (4) reviewed MFO’s emerging 

budgetary challenges and cost-sharing arrangements. 

To achieve our objectives, we interviewed officials at the Departments of 

State and Defense (DOD), and the MFO and collected key documents from 

those officials. We reviewed State’s guidelines for overseeing MFO’s 

activities and finances. We met with MFO officials in Rome, Cairo, and Tel 

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-04-883 MFO Management Review 

Aviv; with Egyptian military and foreign affairs officials in Cairo; and with 

Israeli military and foreign affairs officials in Jerusalem. We also visited 

MFO force installations in the Sinai Peninsula. We reviewed MFO budget 

and related documents and the external audit reports of finances and 

internal controls. Finally, we met with MFO, State, and DOD officials to 

discuss the MFO budget and U.S. contribution to the MFO. We determined 

that the data they provided were sufficiently reliable for purposes of 

reviewing trends in the MFO budget and U.S. contributions between fiscal 

years 1995 and 2003. A detailed description of our scope and methodology 

is included in appendix 1. We conducted our review from September 2003 

to May 2004 in accordance with generally accepted government auditing 

standards. 

State has fulfilled some but not all of its operational and financial 

oversight responsibilities described in its guidelines for overseeing the 

MFO. Overall, we could not determine the full extent of the department’s 

efforts because it did not document the nature, quality, and range of its 

oversight activities. For example, a State official visited MFO locations 

twice a year to observe MFO operations and compare these observations 

to MFO regulations. However, because he did not document the results of 

his visits, we could not determine the range and quality of his oversight 

activities. In addition, the guidelines called for State officials within the 

Bureau of Near Eastern Affairs (NEA) to review the external auditors’ 

reports and evaluate MFO financial practices. While staff reviewed the 

auditors’ reports, they did not evaluate MFO financial practices because 

they lacked the accounting expertise to do so. State is exploring options 

for obtaining the necessary financial expertise; however, it has not yet 

determined how it will address this issue. The guidelines also direct State 

oversight through the transfer of U.S. government personnel to key MFO 

positions. While State has successfully recruited staff for the civilian 

observers unit, a number of chiefs of the unit exhibited poor leadership 

capabilities. Recruiting for the chief observer post remains a concern for 

State because many candidates at State seek higher priority posts, such as 

the U.S. Embassy in Cairo, to enhance their careers rather than seek an 

MFO position. In response to recommendations made by the State’s Office 

of the Inspector General in February 2004, NEA agreed to form a board to 

improve its oversight of MFO operations and to address civilian observer 

unit personnel issues. In June 2004, the board held its initial meeting and 

discussed, among other topics, various approaches for recruiting for the 

chief observer post. However, the board has not yet developed the range 

of issues that it will address or established timelines for resolving these 

issues. 

Results in Brief 
Page 3 GAO-04-883 MFO Management Review 

MFO has made changes to improve its personnel system and respond to 

some employee concerns. To improve its ability to retain experienced 

staff, MFO provided recontracting bonuses and incentive awards to staff. 

In addition, MFO standardized its employee performance reviews to 

improve the transparency of its appraisal system and upgraded the chief of 

personnel services position to a longer-term civilian position for greater 

expertise and continuity. MFO has also taken steps to improve workforce 

planning but has not undertaken a systematic review of its personnel 

system since 1985. Moreover, leading personnel practices suggest that 

other aspects of MFO’s personnel system could be reviewed and 

subsequently modified. For example, MFO regulations and procedures do 

not clearly provide for outside mediation or external avenues of appeal for 

MFO employee complaints involving discrimination or sexual harassment. 

In addition, the MFO has neither addressed disparities in the 

representation of women in its workforce, especially in management 

positions, nor identified where barriers may operate to exclude certain 

groups and address these barriers. 

The MFO has taken steps to improve its financial management and 

internal controls over the past 9 years. MFO installed a new financial 

management system and hired a management review officer to improve 

the efficiency and effectiveness of its operations. In addition, MFO 

changed its external auditor since the prior auditor had audited MFO’s 

records for several years. Both auditors issued unqualified or “clean” 

opinions on MFO’s annual financial statements. In addition, the current 

auditor audited the organization’s internal controls and provided a clean 

opinion as well. Internal controls are audited every 3 years at MFO. 

However, unlike other international organizations, the MFO does not have 

an audit committee to independently oversee the external audits. 

According to leading internal control practices, an effective audit 

committee can provide an important oversight function. It can also play an 

important role in ensuring effective internal controls because of 

management’s ability to override system controls. Establishing an 

additional oversight body or having the newly established State MFO 

management advisory board review and evaluate MFO financial practices 

could provide further assurance to MFO contributors on the state of MFO 

finances since the Director General has broad management authority not 

found in other international organizations. 

For the past 9 years, MFO’s budget has averaged about $51 million 

annually. However, the organization faces a number of challenges that will 

make it difficult to continue operating within its current budget. Most 

important, the MFO must address the cost of replacing its antiquated fleet 
Page 4 GAO-04-883 MFO Management Review 

of helicopters by fiscal year 2006, which preliminary estimates provided by 

DOD could total about $18 million. As a result of this and other pressures 

on the budget, the major contributors’ cost of supporting the MFO are 

likely to increase if the MFO maintains its current level of operations. 

Israeli and Egyptian officials stated that their governments do not support 

increases in their contributions. U.S. and MFO efforts to obtain support 

from other contributors generally have not succeeded. In addition, U.S. 

officials have yet to make a decision about increasing U.S. support to the 

MFO or adjusting its current cost-sharing arrangements with the MFO. 

Army, State, and MFO officials have yet to agree who should pay the 

increased costs associated with changes in the composition and pay scales 

of U.S. troops under current cost-sharing arrangements. 

In this report, we recommend that the Secretary of State take steps to 

resolve the recurring concern of finding qualified candidates for the chief 

of the civilian observer unit, ensure that staff with accounting expertise 

are available to carry out State’s financial oversight responsibilities for 

MFO and review the terms of the external audits, direct the MFO 

management advisory board to monitor and document the bureau’s 

compliance with its guidelines for overseeing MFO, and work with Army 

officials to reconcile differences between Army and State views about the 

current MFO cost-sharing arrangement. 

We have received oral comments from DOD and written comments from 

the Department of State and MFO, which we have reprinted in appendixes 

VI and VII. DOD generally agreed with our findings and conclusions. The 

Army also provided technical comments. State agreed with three of our 

recommendations but was not responsive to our recommendation to 

direct the advisory board to monitor and document NEA’s compliance 

with its guidelines for overseeing MFO. The MFO generally agreed with 

our comments. 

The mission of the MFO is to observe and report on Israeli and Egyptian 

compliance with the security aspects of the 1979 treaty of peace. The 

agreement established four security zones—three are in the Sinai in Egypt, 

and one is in Israel along the international border. The multinational force 

occupies checkpoints and conducts periodic patrols to observe adherence 

of the treaty parties to agreed force limitations and patrols the Strait of 

Tiran between the Gulf of Aqaba and the Red Sea to ensure the freedom of 

navigation. The agreed force limitations for the four zones (see fig. 1) are: 

• Zone A: One Egyptian mechanized division containing up to 22,000 troops; 

Background 
Page 5 GAO-04-883 MFO Management Review 

• Zone B: Four Egyptian border battalions manned by up to 4,000 personnel; 

• Zone C: MFO-patrolled areas within Egypt, although civil police units with 

light weapons are also allowed; and 

• Zone D: Up to four Israeli infantry battalions totaling up to 4,000 troops. 
Page 6 GAO-04-883 MFO Management Review 

Figure 1: Sinai Peninsula and MFO Area of Operations 
Page 7 GAO-04-883 MFO Management Review 

The Department of State oversees U.S. participation in the MFO, 

nominates a U.S. citizen as the Director General, and helps recruit 

Americans to serve in the MFO civilian observer unit. MFO headquarters 

are located in Rome and the organization also maintains offices in Cairo 

and Tel Aviv to address policy and administration issues. The Force 

Commander—who is responsible for command and control of the force–

and his multinational staff are located in the North Camp at El Gorah in 

the Sinai Peninsula. The U.S. infantry battalion and the coastal patrol unit 

are based in the South Camp near Sharm el Sheikh on the Red Sea (see fig. 

2). The MFO’s annual operating budget of about $51 million is funded in 

equal parts by Egypt, Israel, and the United States.1

 All parties pay their 

contributions in U.S. dollars. 

Figure 2: U.S. Soldiers on Duty at an MFO Outpost Near South Camp 

 1

The governments of Germany, Japan, and Switzerland provided a combined financial 

contribution that averaged about $1.4 million annually between fiscal years 1995 and 2003. 
Page 8 GAO-04-883 MFO Management Review 

Currently, 11 countries deploy troops to the MFO. As of December 2003, 

the MFO military force consisted of 1,685 multinational troops, of which 

687 were from the United States (see fig. 3). Colombia and Fiji also 

provide infantry battalions and Italy provides the coastal patrol unit. In 

addition, there is a civilian observer unit of 15 U.S. citizens that performs 

reconnaissance and verification missions. The chief observer and about 

half of the other observers temporarily resign from the State Department 

to fulfill 1- or 2-year MFO contract commitments; the other civilian 

observers are usually retired U.S. military personnel with renewable 2-year 

MFO contracts. (See app. II for details on the MFO work force.) Retired 

military personnel are often hired for their familiarity with military 

weapons and organizations, while State personnel are often hired for their 

diplomatic skills and experience in the region. All members need to 

become proficient in navigation, map reading, and driving in the Sinai, 

according to an MFO official. 
Page 9 GAO-04-883 MFO Management Review 

Figure 3: MFO Organizational Chart (as of December 2003) 

Note: The Operations function is currently headed by a Norwegian officer. 
Page 10 GAO-04-883 MFO Management Review 

The MFO Director General must be a U.S. citizen that is nominated by the 

State Department and appointed by the parties for a 4-year renewable 

term. The Director General appoints the Force Commander for a 3-year 

term that can also be renewed. The Force Commander cannot be of the 

same nationality as the Director General. MFO’s other civilian employees 

are generally hired on 2-year contracts that can be renewed at the Director 

General’s discretion. 

In a 1995 report, we reported that the parties to the treaty and the U.S. 

government viewed the MFO as effective in helping maintain peace and in 

reducing certain costs. However, we found that State needed to provide 

greater oversight due to a lack of assurance regarding the adequacy of 

internal controls.2

 The report noted that, unlike other international 

organizations, the MFO does not have a formal board of directors or 

independent audit committee to oversee audits. Our recommendations in 

1995 included that State take steps to improve its oversight by examining 

MFO annual financial statements for discrepancies and having MFO’s 

external auditor periodically perform a separate audit of MFO internal 

controls that State was to review. State has implemented our 

recommendations except for examining MFO’s financial statements for 

discrepancies.3

State has developed but not completely fulfilled its operational and 

financial oversight responsibilities described in its guidelines for 

overseeing the MFO. These oversight responsibilities included evaluating 

MFO financial practices, conducting oversight visits of MFO operations, 

and recruiting staff for the civilian observers’ unit. We could not determine 

the full extent of the department’s compliance with its guidelines because 

it does not have sufficient documentation to describe the quality and range 

of its efforts. The Office of Regional Affairs within State’s Bureau of Near 

Eastern Affairs (NEA) is the single U.S. focal point for all MFO-United 

States government interaction and oversight. NEA’s guidelines called for 

State officials to review the external auditors’ reports and evaluate MFO 

 2

U.S. General Accounting Office Peacekeeping: Assessment of U.S. Participation in the 

Multinational Force and Observers. GAO/NSIAD-95-113 (Washington, D.C.: Aug. 15, 1995).

3

In our 1995 review, State officials said that management of the U.S contribution was based 

on a relationship of mutual trust with MFO management coupled with the reports of MFO’s 

external auditor. We noted, however, that the generally accepted auditing standards for 

financial statement audits do not require an opinion on MFO internal controls and that 

MFO’s external auditor reports had not included one. 

State Has Met Some 

of Its Oversight 

Responsibilities but 

Has Limited Evidence 

Documenting These 

Efforts 
Page 11 GAO-04-883 MFO Management Review 

financial practices. While reviews of the auditors’ reports were performed, 

the staff did not possess the accounting expertise to evaluate MFO 

financial practices and did not do so. NEA is exploring options for 

obtaining the necessary expertise; however, it has not finalized its 

approach for redressing this issue. According to the guidelines, oversight 

is also informally conducted through the transfer of U.S. government 

personnel to key MFO positions, including a U.S. civilian observer unit. 

While State has successfully recruited many civilian observers, it has had 

difficulty in consistently recruiting candidates with strong leadership 

capabilities for the chief position. Recruiting for the chief observer post 

remains a concern because many candidates at State seek higher priority 

posts, such as the U.S. Embassy in Cairo, to enhance their careers rather 

than seek an MFO position. In response to a February 2004 

recommendation made by the State Office of the Inspector General (OIG), 

NEA agreed to form an advisory board to oversee MFO operations. In June 

2004, the advisory board had its initial meeting and discussed options for 

making the chief observer position more attractive. The board has not 

fully developed the range of issues that it will address or established 

timelines for resolving these issues. 

NEA developed guidelines for conducting MFO oversight in 1995 and 

updated the guidelines in 2002; however, the guidelines did not require 

that NEA document its oversight efforts. The guidelines sought to ensure 

that (1) U.S. government agreements and foreign policy objectives were 

being met; (2) MFO personnel practices were appropriate and in 

accordance with MFO regulations; (3) MFO operations were in 

compliance with its regulations; and (4) MFO resources were spent 

appropriately, financial transactions were recorded accurately, and 

internal controls were adequate. We could not determine whether State 

fully complied with its oversight responsibilities because it did not have 

sufficient documentation to support the extent and quality of its oversight 

efforts. 

We reviewed documentation to support State’s efforts to provide oversight 

of MFO from 1996 to 2004. These documents recorded communication 

between MFO and State officials about daily activities and operations of 

the MFO. However, we found that this documentation did not fully 

describe State’s oversight efforts, the condition of MFO operations, State’s 

views on MFO policies/practices, or recommendations for improving MFO 

operations. As a result, we could not determine the extent and quality of 

NEA oversight activities. The maintenance of accurate and timely records 

document efforts undertaken, and reviews by management help ensure 

Guidelines Did Not 

Require Documentation of 

Oversight Efforts 
Page 12 GAO-04-883 MFO Management Review 

that management directives are carried out. Records are an integral part of 

an entity’s stewardship of government resources. In addition, 

documentation provides information so that oversight activities can be 

assessed over time. 

While State has met some aspects of the guidelines for overseeing MFO, it 

has not fully complied with its guidelines in other areas such as evaluating 

MFO’s financial practices. As discussed below, we reviewed the 

operational and financial oversight guidelines and State’s efforts for 

complying with them. 

NEA guidelines called for its officials to maintain regular communications 

with key MFO officials, discuss U.S. foreign policy issues with MFO, and 

participate in the annual MFO Trilateral Meeting between Egyptian, Israeli, 

and U.S. officials. We reviewed letters of correspondence, reports, cables, 

and e-mails documenting regular communications with MFO officials and 

State’s participation in the MFO Annual Trilateral Conferences of Major 

Fund Contributors. At the Trilateral, senior MFO officials discussed with 

delegates from Egypt and Israel information of interest to the United 

States. The U.S. delegate conveyed the U.S. position to the treaty parties 

and the MFO and discussed issues that ranged from routine matters 

relating to management and other administrative issues to major issues 

concerning MFO finances. 

NEA guidelines note that the transfer of U.S government personnel to key 

MFO positions—including the U.S. civilian observer unit (COU)—is an 

informal mechanism of U.S. oversight. While NEA has successfully 

recruited many candidates for the civilian observer positions, it has not 

consistently recruited candidates with the qualities that senior State 

officials regard as important for the chief civilian observer post. These 

qualities include having the capacity to exercise strong leadership and 

management skills in a predominantly male military culture in an isolated 

environment. Annually, NEA recruits U.S. government employees for 

about six 1-year observer positions and a chief observer who serves 2 

years in the MFO. State reviews the applications for these posts, develops 

a “short list” from which the MFO Director General selects a candidate, 

provides input into the final selection, and recommends the candidate for 

the chief observer position. In recent years, according to the MFO and 

State officials, ineffective leadership in the chief observer position 

contributed to considerable turnover in the unit. A number of chiefs or 

interim chiefs were dismissed or transferred due to poor leadership 

State Has Fulfilled Some 

but Not All of Its Oversight 

Responsibilities 

State Officials Regularly 

Communicated with MFO 

Officials and Participated in 

Annual Trilateral Meeting 

Recruiting Candidates Suited 

for Chief Observer Position 

Remains a Concern 
Page 13 GAO-04-883 MFO Management Review 

capabilities. These problems resulted in low morale in the unit and to the 

early resignation of several observers. 

Recruiting for the leadership post remains a concern because many 

qualified candidates at State desire and accept higher priority posts to 

enhance their careers rather than seek MFO positions. According to a 

senior State official, the qualities that make a good chief observer—

regional experience, including Arabic language skills, and managerial 

experience—are in demand at regional posts with higher priority staffing 

demands. The MFO Director General stated that he would like to broaden 

the pool of candidates and recruit from other sources for the leadership 

position if State could not provide a candidate with appropriate 

credentials. State officials oppose this approach, stating that the position 

was an important symbol of U.S. commitment and required an 

experienced Foreign Service Officer. According to senior State officials, 

the department is reviewing options, such as elevating the position to a 

more senior Foreign Service level, to make the position more attractive to 

Foreign Service Officers. However, a timeline for addressing this issue has 

not yet been established. 

NEA has fulfilled some of its financial oversight responsibilities; however, 

its staff lacked the expertise to perform many required tasks. The 

guidelines called for NEA to review MFO budgets and financial plans; 

analyze income, expenditures, and inflation rates; review and analyze 

annual audit and internal controls reports issued by the external auditor; 

and evaluate MFO financial and auditing regulations. NEA guidelines 

stated that the OIG would provide assistance in evaluating MFO financial 

and auditing regulations. While NEA officials reviewed budgets and 

financial plans, audits, and internal control reports, they did not evaluate 

the financial and auditing regulations of the MFO, review its accounting 

notes, or assess the potential financial impact that inflation rates had on 

the MFO budget request. NEA officials stated that its staff did not possess 

the needed accounting and auditing expertise to fulfill all of the financial 

oversight responsibilities and that the OIG has not provided accounting 

and auditing assistance to NEA since 1998. In June 2004, NEA officials 

stated that they were exploring options for obtaining the necessary 

accounting expertise to review MFO financial practices; however, they 

have not yet determined how they will redress this issue or a establish a 

timeframe for doing so. Leading practices indicate that personnel need to 

Some Financial Oversight 

Responsibilities Were Met, but 

Staff Lacked Financial 

Expertise to Meet All 

Responsibilities 
Page 14 GAO-04-883 MFO Management Review 

possess and maintain the skills to accomplish their assigned duties.4 Staff 

with the required skill could provide reasonable assurance that U.S. 

contributions are being used as intended and that financial reporting is 

reliable—including reports on budget execution, and financial statements. 

Public Law 97-132 authorized U.S. participation in the MFO and 

established a requirement that the President submit annual reports to 

Congress every January 15. The report is to describe, among other things, 

the activities performed by MFO during the preceding year, the 

composition of observers, the costs incurred by the U.S. government 

associated with U.S. troops participating in the MFO, and the results of 

discussions with Egypt and Israel regarding the future of MFO and its 

possible reduction or elimination. State has met the annual reporting 

requirement. 

NEA officials conducted biannual oversight visits to MFO headquarters 

and field locations as called for in the guidelines but did not document the 

results of those visits. In addition, the OIG reported that it found no trip 

reports that were prepared by NEA during that office’s 20 years of MFO 

oversight. The guidelines stated that the purpose of the visits is to observe 

MFO operations and conditions in the field and compare observed 

practices with published MFO regulations. Among other things, oversight 

visits were to include tours of MFO facilities, including offices, 

warehouses, check points, and facilities for U.S. soldiers; meetings with all 

key MFO and U.S. military officials; and meetings with members of the 

U.S. civilian observer unit. According to State officials, briefings were held 

afterwards to describe the visits but written reports of these visits were 

not completed. However, without the maintenance of accurate and timely 

records, it is difficult to determine whether management directives were 

appropriately carried out. 

In November 2003, State’s Inspector General conducted an internal review 

of NEA and made recommendations in February 2004 to improve NEA 

oversight. The OIG recommended that NEA transfer some of its oversight 

responsibilities from its Office of Regional Affairs to the Office of the 

Executive Director of NEA (NEA/EX). The OIG also recommended that 

NEA establish an advisory board to review MFO management practices 

and internal controls, including internal audits, and ensure the 

 4

See U.S. General Accounting Office: Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3.1 (Washington D.C.: Nov. 1999). 

State Annually Reported to 

Congress and Inspected MFO 

Locations 

NEA Is Considering 

Improvements for Conducting 

MFO Oversight 
Page 15 GAO-04-883 MFO Management Review 

independence of these audits. NEA plans to give responsibility for the 

oversight of management/personnel issues to NEA/EX while the Office of 

Regional Affairs retains responsibility for the oversight of policy issues. 

NEA also agreed to form an oversight board to oversee MFO operations 

that is to be chaired by NEA/EX and include representatives from the OIG 

and the bureaus of Human Resources, International Operations, and 

Political-Military Affairs. The board, which met for the first time in midJune 2004, discussed approaches to attracting candidates for the position 

of chief observer and other COU recruiting issues. The board has yet to 

determine its full range of responsibilities or scope of work. In addition, it 

has not yet established timelines for addressing these areas. 

MFO managers have made improvements to MFO’s personnel system but 

have not systematically updated the personnel system since 1985. For 

example, the Director General recently appointed a longer-serving civilian 

with personnel management expertise to replace the short-term military 

personnel officers serving short rotations on the MFO command staff. 

Moreover, leading personnel practices suggest that other aspects of the 

MFO personnel system could be reviewed and subsequently modified. For 

example, MFO regulations and procedures do not clearly provide for 

outside mediation or external avenues of appeal for MFO employee 

complaints involving discrimination or sexual harassment. In addition, the 

MFO has not addressed disparities in the representation of women in its 

workforce, especially in management positions, nor identified where 

barriers may operate to exclude certain groups and address these barriers. 

MFO’s current Director General has taken steps to update personnel 

policies to retain staff. In 2003, the Director General appointed a longerserving civilian with personnel management expertise to replace the shortterm military personnel officers serving short rotations on the MFO 

command staff. According to MFO documents and officials, this new 

manager for personnel in the Sinai provides continuity over personnel 

issues, takes a more active role in recruitment, has surveyed employees 

and acted on their concerns about safety and other quality of life issues, 

and is responsible for the equitable allocation of housing. Moreover, he 

has sought additional training to improve his effectiveness in this new 

role. Finally, MFO leadership has updated grievance procedures pertaining 

to sexual harassment complaints to boost employee confidence in the 

system and reemphasized to employees that they have zero tolerance for 

infractions of this policy. As the current Director General left in June 2004, 

MFO Has Taken Some 

Actions to Improve 

Personnel 

Management but has 

not Systematically 

Reformed Its 

Personnel System 

MFO Has Made Some 

Improvements to Its 

Personnel System 
Page 16 GAO-04-883 MFO Management Review 

his successor will have to demonstrate a similar commitment to these 

changes in personnel policy to ensure that they succeed. 

MFO management is taking steps to improve workforce planning. MFO 

managers stated that the personnel system was originally modeled in 1982 

on State Department and U.N. systems. In addition, the MFO personnel 

manager stated that MFO managers have not undertaken a review of the 

personnel management rules since an outside consultant examined MFO 

personnel policies in 1985. However, MFO reviewed and updated some 

sections of its personnel manual in January 2004. MFO has also begun to 

make increased use of information technology to compare its future work 

requirements with its current human resources, and is using existing U.S. 

Army efficiency reviews of the U.S. contingent’s operations to suggest 

ways to restructure its own military staff (see app. III for excerpts from 

our model for strategic human capital management planning). 

To acquire, develop, and retain talent, MFO management has updated its 

recruitment practices to ensure that its new hires are both qualified and a 

good “fit” for the demanding work conditions in the Sinai. MFO uses 

professional recruiters to obtain civilians better suited to the MFO 

environment. MFO management has also updated its introductory 

materials, handbooks, and Web site to give prospective recruits a more 

comprehensive view of work requirements, benefits, and living conditions. 

MFO managers stated, however, that the “temporary” nature of the MFO 

mission precluded it from developing a career track for international staff. 

It does not, for example, provide the benefits that a career service track 

would offer, such as routine opportunities for promotion and pensions for 

long-serving employees.5

 Nevertheless, the MFO has introduced incentives 

to retain long-serving staff, including pay increases normally worth 2 

percent of salary for every employee who signs a contract extension and 

special nonmonetary service awards for 10-year and 20-year employees. 

The MFO has also introduced improved performance appraisals for new 

staff on their probationary period and at the end of their contract period. 

These appraisals include basic assessments of job skills, performance, 

leadership, communications, cost management, initiative, and adjustment 

to the work environment and document performance feedback sessions. 

Staff are allowed to read and comment on their appraisals. MFO, however, 

 5

MFO employees are eligible to receive a monthly premium worth 7 percent of employees’ 

base salaries for use in retirement plan investments. 
Page 17 GAO-04-883 MFO Management Review 

does not require its managers or staff to use a detailed formal appraisal to 

document annual performance reviews and feedback sessions. Instead, 

managers have the option of declaring that a staff member has performed 

satisfactorily. The new chief of personnel services stated that it was his 

intention to systematically collect employee feedback to help adjust 

MFO’s human capital approaches and workforce planning, but he had not 

yet developed any data collection instruments as of December 2003. 

Despite its efforts to improve its personnel management practices, the 

MFO has not addressed two challenges that leading practices indicate 

could adversely affect its ability to strategically manage its human capital 

resources more effectively. These challenges are (1) the degree to which 

its grievance procedures are subject to outside and neutral arbitration or 

other alternative dispute resolution mechanisms and (2) the gender 

imbalance in the international civilian workforce. 

Although the MFO employee grievance policy encourages early reporting 

and resolution at the lowest level practicable, it does not clearly provide 

for an independent avenue of appeal in cases of discrimination or sexual 

harassment. MFO’s policies against discrimination and harassment allow 

for the possibility of employees using outside mediators to resolve 

complaints when an internal inquiry or investigation determines that 

sexual harassment or discrimination has occurred. However, the decision 

to use mediation rests with the Force Commander or Contingent 

Commander, not the complainant.6

 Furthermore, MFO procedures do not 

allow complainants to seek mediation or pursue appeal outside the MFO 

when an investigation results in a finding that harassment or 

discrimination has not occurred.7

 In contrast, the Equal Employment 

Opportunity Commission calls for U.S. agencies to make alternative 

 6

Multinational Force Standing Orders, Policy Against Discrimination and Harassment, Ch. 

38, § 38.14 (a-b) and 38.15(j) (Vol. 2). These procedures pertain to civilian employees of the 

MFO or to MFO soldiers when the complainant and the accused are soldiers from different 

national contingents. MFO’s policy notes that when the complainant and accused are 

soldiers from the same national contingent, the contingent commander will handle the 

complaint. 

7

Broader MFO regulations allow for international arbitration of disputes or controversies 

involving employment contracts or the regulations, which, the MFO General Counsel 

states, could be invoked by employees who allege harassment or discrimination. 

Nevertheless, these regulations do not specifically cover sexual harassment or 

discrimination, and, according to the General Counsel, in the 22-year history of the MFO 

have never been used by MFO employees to take the organization to outside arbitration. 

MFO Has Not Addressed 

Other Important Personnel 

Management Practices 
Page 18 GAO-04-883 MFO Management Review 

dispute mechanisms, such as mediators, available to complainants and 

U.S. antidiscrimination laws allow complainants to appeal their cases in 

court if necessary.8

We noted in past work that a one single model for international 

organizations’ grievance procedures does not exist because criteria such 

as the degree of independence of a grievance board or committee depend 

on the legal environments in which these organizations operate.9

Nevertheless, our analysis of leading practices in the World Bank and 

other organizations indicates that a lack of clear means for resolving such 

grievances could be a concern for an organization’s management because 

it could undermine employee confidence in the fairness of the personnel 

management system. For example, the U.S. government and the private 

sector employ alternative dispute resolution mechanisms such as 

arbitration, mediation, or management review boards to resolve 

discrimination complaints and other grievances in a cost-effective 

manner.10 Moreover, we noted that U.S. government agencies and 

international organizations have determined that access to alternative 

dispute mechanisms and providing an avenue for an independent appeal 

can enhance employee confidence in the entire human capital system.11

MFO’s current gender imbalance in management may also merit attention. 

The imbalance may indicate that there are obstacles to women attaining 

management positions that may need to be addressed. The United Nations, 

for example, determined that the gender balance of its professional 

 8

State Department and MFO officials stated that members of the COU from the State 

Department can informally appeal to State in such cases, but State’s OIG has concluded 

that the department has no jurisdiction because COU members are not State employees. 

9

The World Bank, for example, found that no one single model could be easily adapted to 

restructure its grievance procedures to meet its needs, because of the diverse approaches 

to workplace dispute resolution and differing legal structures found among Bank members. 

We noted that the World Bank did not follow through on our recommendation to collect 

meaningful data on employees’ perspective on the fairness and credibility of its proposed 

reforms. See U.S. General Accounting Office, World Bank: Status of Grievance Procedure 

Reforms, GAO/NSIAD-99-96 (Washington, D.C.: May 13, 1999). 

10See Alternative Dispute Resolution: Employers’ Experiences with ADR in the 

Workplace, GAO/GGD-97-157 (Washington, D.C.: Aug. 12, 1997); and Human Capital: The

Role of the Ombudsmen in Dispute Resolution, GAO-01-466 (Washington, D.C.: Apr. 13,

2001). 

11See U.S. General Accounting Office, Human Capital: Preliminary Observations on 

Proposed DHS Human Capital Regulations. GAO-04-479T (Washington, D.C.: Feb. 25,

2004), and GAO/NSIAD-99-96. 
Page 19 GAO-04-883 MFO Management Review 

workforce was problematic, particularly in the management of peace 

operations. To address this imbalance, the United Nations is trying to 

achieve a professional work force with a 50 percent gender balance. We 

examined MFO prepared documents that showed that women represented 

29 percent of the workforce (31 out of 108 international and national 

civilian positions)12 and women filled only 8 percent of management 

positions (1 of 13 as of June 2004).13 In the United States, the Equal 

Employment Opportunity Commission would consider that such a gender 

disparity could be evidence of a differential rate for selection for women 

that warrants management attention. 

State and MFO managers have noted that there are mitigating 

circumstances that may explain the lower representation of women in 

MFO’s workforce. They stated a number of factors that might make the 

MFO posts in the Sinai an unattractive workplace for women: It is a 

predominantly male and military culture, there are few posts that allow for 

accompaniment by spouses, and it has no facilities for children. 

Nevertheless, these gender differences also exist at MFO locations in 

Rome, Tel Aviv, and Cairo, where these factors are not necessarily a 

concern. Leading practices among public organizations include evaluating 

the composition of their workforce, identifying differences in 

representation among groups, identifying where barriers may operate to 

exclude certain groups, and addressing these barriers. 

The MFO has taken steps to improve its financial accountability and its 

related financial internal controls over the past 9 years. It has also taken 

additional steps to improve its financial reporting to the State Department 

and to strengthen internal controls in response to recommendations we 

made to the MFO through the Department of State in 1995. Since then, the 

external auditors of its financial statements found no material weaknesses. 

The external auditors who reviewed MFO internal controls determined 

that the internal controls they tested were effective. However, internal 

control standards adopted by the MFO suggest that the MFO could do 

more to enhance the external audit function, particularly through the use 

of an independent audit committee to review the scope of activities of the 

 12The total includes four vacancies as of early 2004. 

13MFO officials stated that they have selected a female manager as the next chief observer 

of the COU. In addition, MFO officials commented that local support staff hired by its labor 

contractor in Egypt employee some women in professional positions. 

MFO Has Improved 

Financial 

Accountability, but 

Additional Oversight 

May Be Needed 
Page 20 GAO-04-883 MFO Management Review 

internal and external auditors annually.14 MFO and some State officials 

stated that this concern has been addressed by the new audit and review 

mechanisms adopted by the MFO since our last report. Israeli and 

Egyptian officials stated that their governments are satisfied with the 

degree of financial oversight and control they exercise over the MFO. 

Nevertheless, officials from State’s OIG and senior managers within State’s 

NEA Bureau acknowledged that the bureau’s new MFO management 

advisory board needs to examine the issue of creating an external 

oversight board. 

The MFO has taken steps to improve financial accountability and 

strengthen internal controls. To keep the budget under $51 million and 

improve the efficiency of the organization by emulating leading 

commercial management practices, MFO has (1) adopted a business 

activity tracking software program to improve management visibility over 

financial activities and logistics management, and (2) hired a management 

review officer to identify cost savings through the reviews of management 

procedures and contracts.15 Although we have not performed any direct 

testing of the software, or assessed the role or performance of the 

management review officer, both initiatives appear to be positive steps for 

MFO. 

According to MFO staff, its adoption of a commercial business activity 

tracking software package in 2001 led to greater management oversight 

over all stages of procurement and other transactions and has 

strengthened internal controls. MFO officials state that this new system 

has built-in requirements for managerial approval at each step of the 

procurement process. Under this system, MFO procurement officers are 

assigned preset spending authority. Further, all procurement over $50,000 

and any sole source contract over $30,000 requires the approval of the 

Director General. According to MFO officials, the visibility and control 

 14In line with the best practices of major financial institutions in the United States, the 

World Bank, and other international organizations, the MFO assessed its financial controls 

using the criteria for effective internal control established by the Committee of Sponsoring 

Organizations of the Treadway Commission (COSO), according to internal control 

evaluations conducted in 1998 and 2001. This control framework, known as the “Internal 

Control-Integrated Framework,” establishes a common definition of management controls 

and provides a standard by which to assess improvements in these controls. 

15Since 1995, MFO’s leadership has committed itself to keeping the budget under $51 

million. 

MFO Strengthened 

Financial Accountability 

and Internal Controls in 

Recent Years 
Page 21 GAO-04-883 MFO Management Review 

provided by this system have also simplified the external auditor’s task in 

conducting its latest review of internal controls. MFO officials and 

documents did not attribute any budget savings directly to the 

implementation of this new system. However, they stated that they were 

able to reduce the number of staff and centralize four procurement 

operations. MFO officials did not make available the results of any recent 

implementation testing, however, and noted that many of the key 

performance indicators the system will track are under development. 

In 2001, MFO hired a management review officer to identify cost savings 

through the reviews of management procedures, logistics contracts, and 

compliance with MFO requirements and controls. At the request of the 

Director General, this official performs some inspector general functions 

by conducting investigations on specific operations and accountability 

controls, and makes recommendations to improve procedures.16 According 

to MFO records and estimates, the MFO has conducted 19 “most efficient 

organization (i.e., leading practice) reviews” through January 2004. The 

management review officer’s recommendations contributed to more than 

$1.6 million in budgetary savings. 

All MFO special reviews and annual financial audits since 1995 have 

demonstrated to the satisfaction of the external auditor that MFO 

maintained sufficient financial accountability. First, in late 1995, its 

external auditor, Price Waterhouse, reviewed MFO’s internal control 

structure and made recommendations to strengthen them, which MFO 

agreed to adopt.17 Second, in 1996, MFO switched to a new external 

auditor, Reconta Ernst & Young, to conduct its annual financial audits. It 

issued unqualified or clean opinions on MFO’s financial statements 

between 1996 and 2004.18 Third, MFO commissioned the auditor to perform 

 16According to leading public sector internal control practices described in GAO’s 

Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: Nov. 1999), public agencies should have mechanisms in place to 

monitor and review operations and programs. The mechanisms could include an Inspector 

General independent of management to audit and review agency activities. The MFO 

management review officer consults with the Director General on the logic and scope of 

each review in advance, however. 

17Price Waterhouse is now part of PricewaterhouseCoopers. 

18In the external auditor’s opinion, each of the MFO’s financial statements between fiscal 

years 1995 and 2003 was prepared in conformity with modified generally accepted 

accounting principles (GAAP). 

MFO Has Received “Clean” 

Opinions on Annual 

Financial Statements and 

Reports on Internal 

Controls since 1995 
Page 22 GAO-04-883 MFO Management Review 

management compensation and benefits reviews in 1996, 1997, and 1999, 

which concluded that management received compensation and benefits 

substantially in compliance with MFO regulations.19 In 2000, however, the 

Director General terminated further compensation audits on the external 

auditor’s recommendation that concluded that these reviews duplicated 

the annual audit and other reviews. Fourth, MFO commissioned Reconta 

Ernst & Young to perform separate internal control reviews every 3 years 

beginning in 1998. Reports issued in 1998 and 2001 stated that its auditors 

assessed the MFO’s use of internal controls in relation to the criteria 

established in “Internal Control-Integrated Framework” issued by the 

Committee of Sponsoring Organizations (COSO) and found that the 

internal controls it tested were effective.20

The Treaty Protocol and MFO administrative and financial regulations 

provide the Director General responsibility for political, operational, and 

financial control issues pertaining to the organization. However, leading 

practices suggest that the MFO could better use independent input and 

oversight over external audits. The Director General selects and receives 

the reports of the external auditor. In addition, he can change MFO 

operations, policies, and procedures without review, consent, or approval 

from an oversight or senior management board. We previously reported 

that this level of authority is unique among international organizations, 

noting that other international organizations have an independent 

governing body above the chief executive to oversee and approve 

operations and finances. COSO internal control standards note that an 

effective internal control environment could depend in part on the 

attention and direction provided by oversight groups. These groups, such 

as an active and effective board of directors or audit committee, could 

 19The external auditor reached this conclusion in each compensation and benefit report 

using generally accepted auditing standards set forth in Statements of Auditing Standards 

number 35 (SAS 35) “Special Reports – Applying Agreed Upon Procedures to Specified 

Elements, Accounts or Items of a Financial Statement” as stipulated by Professional 

Standards of The American Institute of Certified Public Accountants. 

20The results of the 2004 internal controls review will not be available until autumn 2004, 

according to State Department officials. 

MFO Could Strengthen the 

Independence of the 

External Auditor 
Page 23 GAO-04-883 MFO Management Review 

enhance the audit function through their various review duties.21 Our 

standards for internal controls in the federal government similarly note the 

importance of independent audit committees or senior management 

councils as part of effective monitoring and audit quality assurance.22

MFO and some State officials stated that there is no need for an oversight 

board to provide this extra degree of assurance. They note that our 

concern about the Director General’s autonomy—and the potential for 

abuse of authority raised in our 1995 report—has been mitigated by the 

external auditor’s reviews of management compensation and internal 

controls, as well as steps the MFO has taken to improve financial 

accountability and strengthen internal controls. Moreover, these officials 

stated that the organization is too small to employ a full-time independent 

inspector general. Finally, Israeli and Egyptian officials said that their 

respective governments are satisfied with the degree of oversight that they 

exercise through formal annual meetings, informal daily contacts, and 

review of MFO financial reports. However, officials from State’s OIG and 

NEA acknowledge that a State oversight board could help ensure that the 

scope of work for audits are set independently from MFO management 

direction. Neither State nor its OIG has reviewed the scope of these 

external audits. The Inspector General concluded that, while State can 

only advise the MFO on these matters, the board is important because U.S. 

confidence in the integrity of the MFO is crucial to its continued support 

for the force. 

 21COSO standards caution that not all such mechanisms must be present to conclude that 

an internal control system is effective. They also note that there are no preferred methods 

to conduct and document internal control evaluations because the circumstances that 

different entities and industries are under dictate their choice of evaluation methodologies 

and documentation techniques. Small entities, for example, tend to be less formal and less 

structured than large organizations, and rely more on direct and continuous 

communication between management and lower-level personnel. COSO standards note, 

however, that the evaluation tools described in its framework can be used by entities of 

any size. 

22See U.S. General Accounting Office: Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3.1 (Washington D.C.: Nov. 1999). 
Page 24 GAO-04-883 MFO Management Review 

The MFO has maintained a flat budget of about $51 million for the past 9 

years, but it faces a number of challenges that will make it difficult to 

continue operating within its current budget. In particular, the MFO must 

address the issue of replacing its antiquated fleet of helicopters by fiscal 

year 2006. DOD projects that replacing the fleet could cost about $18 

million. As a result of this and other pressures on the budget, the costs of 

supporting the MFO are likely to increase if the MFO maintains its current 

level of operations. However, Israeli and Egyptian officials stated that their 

governments do not support increases in their contributions, and U.S. and 

MFO efforts to obtain support from other contributors have not 

succeeded. U.S. officials have yet to make a decision about increasing U.S. 

support to the MFO or adjusting its current cost-sharing arrangements 

with the MFO. In addition, the U.S. Army, State, and MFO officials have yet 

to agree on who should pay the increased costs associated with changes in 

the composition and pay scales of U.S. troops under current arrangements. 

MFO financial reports show that the organization has kept its budget at 

about $51 million between fiscal years 1995 and 2003. Contributions to 

MFO’s annual budget are paid by all parties in U.S. dollars. We reviewed 

MFO’s budget from fiscal years 1995 through 2002. We found that when 

adjusted using a U.S. dollar inflation rate, MFO’s budget has declined 12 

percent between fiscal years 1995 and 2002 (see fig. 4). We also estimated 

the MFO’s budget in constant international dollars because MFO 

purchases goods and services in countries such as Egypt, Israel, and the 

United States, where the U.S. dollar has different purchasing power.23

Because similar goods are inexpensive in dollar terms when purchased in 

Israel and Egypt as compared to the United States, the purchasing power 

of MFO’s budget was significantly greater when measured in constant 1995 

international dollars. This figure was $72 million in fiscal year 1995 and 

$69 million in fiscal year 2002. However, the MFO budget was $51 million 

in fiscal year 1995 and $45 million in fiscal year 2002 when measured in 

fiscal year 1995 dollars. Moreover, we found that, between fiscal years 

1995 and 2002, the MFO budget declined only about 5 percent using 

 23Purchasing power refers to the amount of goods that one international dollar can 

purchase in different countries. An international dollar is equivalent to the amount of goods 

and services that 1 U.S. dollar can purchase in the United States. For example, in 1995, 1 

U.S. dollar could purchase goods in Egypt worth $2.69 in the United States. In 2002, 1 U.S. 

dollar could purchase goods in Egypt worth $2.93 in the United States. For purposes of this 

analysis, we assumed all MFO purchases not made in Egypt or Israel were made in the 

United States because MFO could not provide data regarding purchases made in other 

countries. 

After 9 Years of Flat 

Budgets, MFO Faces 

Financial and Other 

Challenges 

MFO Has Maintained a 

Level Budget of $51 Million 

since 1995 
Page 25 GAO-04-883 MFO Management Review 

constant 1995 international dollars as compared with the 12 percent 

decline in fiscal year 1995 U.S. dollars. This decline was partially offset 

because MFO was able to reduce the economic impact of U.S. dollar 

inflation by shifting more of its purchases to Egypt and Israel during this 

period. MFO increased its purchases in Egypt and Israel from 43 percent 

of its budget in 1995 to 54 percent in 2002 as measured in nominal U.S. 

dollars. When measured in international dollars, however, goods and 

services purchased from those two countries increased from an estimated 

60 percent of the MFO budget in 1995 to almost 70 percent in 2002 (see 

app. IV for details on calculating MFO budget in international dollars). 

Figure 4: MFO Budget in Nominal and Constant Purchasing Power Dollars 

MFO has attained cost savings in recent years through better management 

oversight and reduction of inventory costs. As mentioned previously, the 

adoption of a commercial business activity tracking software package and 

the hiring of a management review officer in 2001 led to greater 

efficiencies in logistics and facilities management, vehicle maintenance, 

personnel, finance, and contracting. As a result, according to a senior MFO 

official, recommendations of the management review officer contributed 

1995 1996 1997 1998 1999 2000 2001 2002

Fiscal year

Dollars in millions

Source: GAO calculations using World Bank and MFO data.

0

40

50

60

70

80

Nominal

FY95 dollars

FY95 international dollars
Page 26 GAO-04-883 MFO Management Review 

to almost $1.7 million in savings. Moreover, according to a senior MFO 

official, more effective management of tracking of freight costs and 

services has contributed to a 46 percent reduction in total storage and 

freight costs between fiscal years 2002 and 2003, or a savings of $265,000. 

Furthermore, its projects to connect its two camps in the Sinai to the 

commercial Egyptian power grid is projected by MFO to save about 

$825,000 a year on electricity costs, once the North Camp project is 

completed in 2004. 

One of the key cost issues for the immediate future is the replacement of 

aging UH-1H Huey helicopters. The U.S. Army provides an aviation 

company with 10 UH-1H helicopters to the MFO to perform various 

mission-related tasks for the MFO. As of December 2003, the unit had 

about 97 associated Army personnel. According to DOD officials, U.S. 

Army plans call for the retirement of its entire UH-1H helicopter fleet by 

fiscal year 2006. Furthermore, Army officials stated that DOD has 

considered various options as replacements for the MFO helicopter fleet 

and is waiting for the Secretary of Defense’s decision on this matter. First, 

the Army is considering outsourcing its MFO aviation unit to a private 

contractor.24 This option would reduce U.S. military personnel 

participation in the MFO, but preliminary DOD estimates indicate that it 

would cost about $18 million in the first year and $13 million annually 

thereafter.25 Second, according to U.S. Army officials, Army is considering 

replacing the MFO Hueys with eight UH-60 Black Hawk helicopters (see 

fig. 5). These officials stated that MFO prefers the outsourcing option 

because there would be no need to upgrade hangar facilities and other 

infrastructure to support the Black Hawks, thereby limiting their financial 

obligation. Officials from Israel and Egypt stated that they would leave the 

decision to the United States. They do not, however, want to incur 

additional financial obligations. 

 24According to Army officials, the helicopter equipment and support would be provided 

through the Logistics Civil Augmentation Program, a single, centrally managed worldwide 

planning and services contract used by the Army to (1) preplan for the use of contractor 

support in contingencies or crises and (2) take advantage of civilian resources in the 

United States and overseas to augment active and reserve forces. Halliburton’s subsidiary, 

Kellogg Brown & Root, currently holds this contract. 

25According to an Army official, this figure is based on a rough order of magnitude cost 

estimate prepared by Kellogg, Brown & Root in 2002. The final cost is likely to be 

significantly higher when adjusted for inflation and a revised statement of work is 

prepared. 

New Challenges 

Complicate Future Budget 

Outlook 
Page 27 GAO-04-883 MFO Management Review 

Figure 5: U.S. Army Helicopter Options for MFO Service 

The need to replace aging infrastructure and fund new capital 

improvement projects will also require additional funding. According to 

U.S. military officers in the Sinai, the North Camp accommodations for the 

soldiers will need to be replaced over the next 2 to 5 years. A senior MFO 

official stated that the MFO has begun to consider replacing some of these 

accommodations and will be exploring several options in the near term. 

However, no plan has been finalized, and the official did not have cost 

estimates to provide as of March 2004. 

As part of U.S. efforts to reduce troop deployments throughout the world 

to better meet the demands of the war on terror—and the cost of these 

deployments—the United States has tried to obtain troop and financial 

contributions from other nations to reduce its MFO obligation, according 

to U.S. officials.26 To date, these efforts have not been successful. In 2003, 

the Department of State requested military contributions from more than 

20 countries that would then enable the United States to draw down its 

forces. Five countries responded favorably, but only an offer by Uruguay 

to send additional transportation personnel to replace a U.S. Army 

transport company was considered feasible by the MFO. The increased 

 26In addition to the income that the MFO receives from the United States, Egypt, and Israel, 

it also receives some additional financial contributions from Japan, Germany, and 

Switzerland. In fiscal year 1995, these countries together provided an additional $1.7 

million to the MFO. However, these annual contributions have steadily declined and totaled 

less than $1 million in fiscal year 2003. 

Efforts to Increase Other 

Sources of Support Have 

Not Generally Succeeded 

Sources: GAO (left), DOD (right).

UH-1H Huey UH-60 Black Hawk
Page 28 GAO-04-883 MFO Management Review 

Uruguayan deployment in July 2003 allowed the Army to draw down its 

MFO contingent by 74 troops.27 U.S. officials also requested financial 

contributions as part of this query, but other countries declined to provide 

this support. U.S. attempts to obtain increased financial contributions 

from Israel and Egypt have also not been successful. 

In addition to the annual U.S. financial contribution to the MFO of about 

$16 million, the United States incurs an annual expense for deploying 

several hundred troops to the MFO that averaged about $45 million 

annually from fiscal years 1995 through 2003. The cost of supplying U.S. 

troops to MFO has risen since fiscal year 1999, even though the number of 

U.S. troops has declined (see figs. 6 and 7). The increase is due to rises in 

salaries and in the amount of special pay provided to U.S. troops. The 

MFO agreed to compensate the U.S. Army for special pay categories and 

other allowances incurred when U.S. troops are deployed to the Sinai. 

However, in recent years, the U.S. Army has raised the rates for some cost 

categories and has created additional costs categories that did not exist at 

the time of the initial or revised cost-sharing arrangement. Currently, Army 

disagrees with State and MFO over who should pay these additional costs. 

 27The United States also reduced its infantry battalion by 104 soldiers in 2003, for a total 

reduction of 178 U.S. troops. 

Army, State, and MFO 

Have Yet to Agree as to 

Who Should Pay the 

Increased Expense for 

Providing U.S. Troops to 

the MFO 
Page 29 GAO-04-883 MFO Management Review 

Figure 6: Total Number of MFO Troops (including U.S. troops) and Number of U.S. 

Troops for Fiscal Years 1995 through 2003 

1995 1997 1999 2001 2003

Fiscal year

Source: GAO analysis of MFO data.

0

500

1,000

1,500

2,000

Troops

Total MFO

FY03

Total U.S.

FY95

U.S. troops as a percentage of total troops

50% 41%
Page 30 GAO-04-883 MFO Management Review 

Figure 7: Cost of U.S. Participation in MFO 

The increased expense for supplying the MFO with U.S. troops is due 

primarily to a rise in troop salaries, which are paid by the Army, and 

changes in special pay categories such as foreign duty pay and family 

separation pay, which are partly paid for by the MFO. For example, 

salaries have increased because beginning in 2002, National Guard troops 

have been deployed instead of active duty soldiers. National Guard troops 

tend to have been in grade longer than active duty soldiers and are 

consequently paid more. The U.S. Army pays for the increases in troop 

salaries. (See app. V for details on the cost of U.S. participation in MFO 

between fiscal years 1995 and 2003.) 

The MFO and the United States agreed to share the costs of providing U.S. 

troops to the MFO in 1982 and revised these arrangements in 1994 and 

1998. Under these agreements, the Army agreed to credit the MFO for the 

costs these troops would have normally incurred had they remained in the 

United States, including food and lodging, base support, and operations 

and maintenance costs. The MFO agreed to pay some of the additional 

costs incurred by the deployment of U.S. troops to the Sinai, including 

special pay categories and other allowances. 
Page 31 GAO-04-883 MFO Management Review 

In the revised 1998 arrangement, the U.S. Army and the MFO did not reach 

specific agreement on how Imminent Danger Pay would be shared. While 

the agreement increased rates for other special pay categories, these rates 

were less than those established in U.S. law. Army officials believe that 

MFO should pay these increased costs for supplying U.S. troops; however, 

MFO and State officials disagree with this position.28 According to an Army 

official, the Army will seek MFO reimbursements for special pay 

categories totaling $3.3 million for fiscal year 2004; an MFO official stated 

in June 2004 that the MFO protested this action to the Army and 

Department of State. In addition, Army officials stated that MFO should 

pay a greater share of the costs for sustaining National Guard troops while 

they are on duty at the MFO. Army officials reduced by $1 million the 

credit it will provide to the MFO for sustaining the U.S. infantry battalion 

in fiscal year 2004 because the formula it used to calculate the credit was 

out-of-date since National Guard battalions have been sent to the MFO in 

place of active duty units in recent years.29 In May 2004, U.S. Army and 

State officials met with MFO officials to discuss differences but did not 

present a unified U.S. government position on how the cost-sharing 

arrangement should be modified. 

The two parties to the treaty and the United States are satisfied that the 

MFO is effectively fulfilling its mission of helping to maintain peace 

between Egypt and Israel. MFO has maintained its peacekeeping operation 

with a multinational force in the Middle East, a troubled and unstable part 

of the world. The organization has modified several of its policies and 

practices to make them consistent with leading practices in financial 

management and personnel. There are, however, opportunities for the 

organization to further improve in these areas. MFO has made several 

changes to its operations even though its budget has been flat for the past 

9 years. The organization has benefited greatly because it has increased 

the amount of goods and services purchased in Israel and Egypt where the 

 28According to State and MFO officials, the MFO is only required to reimburse the Army for 

certain special pay categories at the lower levels set in the March 1982 letter and annexes 

exchanged between the Secretary of State and the MFO Director General, and as increased 

in cost-sharing memorandums of understanding signed in 1994 and 1998. These agreed 

upon rates are lower than those currently provided under U.S. law. 

29These reimbursement costs originally were calculated based on the cost to the U.S. Army 

of sustaining an active duty infantry battalion in the United States. According to an Army 

document, the cost-sharing formula is out-of-date because the Army does not generally pay 

costs for National Guard troops that are deployed in the United States. 

Conclusion 
Page 32 GAO-04-883 MFO Management Review 

purchasing power of the U.S. dollar had increased during that period. 

Despite these changes, MFO contributors may face increased budgetary 

challenges due to the possible replacement of MFO’s helicopter fleet. State 

is the organization charged with overseeing U.S. participation in the MFO 

and recruits State employees to fill key MFO positions. Nevertheless, State 

has not provided employees who possess the expertise to carry out many 

of its financial oversight responsibilities. In addition, MFO raised concerns 

about the leadership capabilities of some of the staff whom State recruited 

for the chief civilian observer post. Finally, since the MFO does not have 

an external oversight board, as do many international organizations, 

effective State oversight of MFO and agreement between the United States 

and the MFO on cost-sharing arrangements is essential to ensure that the 

cost of U.S. troop participation is equitably shared. 

While NEA has begun to address some of the issues that are stated below, 

it has not established timelines for their resolution. To promote improved 

oversight of the MFO and ensure that NEA redresses these issues, we 

recommend that the Secretary of State take the following four actions: 

• resolve the recurring concern of finding qualified candidates for the chief 

of the civilian observer unit; 

• ensure that staff with accounting expertise are available to carry out 

NEA’s financial oversight responsibilities for MFO and, if necessary, 

review the terms of MFO’s external audits to ensure that they are 

appropriate; 

• direct the MFO management advisory board to monitor and document 

NEA’s compliance with its guidelines for overseeing the MFO; and 

• work with Army officials to reconcile differences between Army and State 

views about the current MFO cost-sharing arrangements. 

The Department of State and MFO provided technical and written 

comments on a draft of this report (see apps. VI and VII). The Department 

of Defense provided oral comments and generally agreed with our 

findings. It also provided technical comments that we incorporated where 

appropriate. The Department of State agreed with three of the four 

recommendations and did not respond to one of the recommendations. 

State agreed with our conclusion that it had experienced problems in 

consistently recruiting chief observers with the necessary leadership skills 

Recommendations for 

Executive Action 

Agency Comments 

and Our Evaluation 
Page 33 GAO-04-883 MFO Management Review 

and stated that the new State MFO Management Advisory Board is 

considering measures to encourage highly qualified State employees to fill 

the chief observer position. State agreed with our recommendation that 

staff with accounting expertise carry out NEA’s financial oversight 

responsibilities for MFO. However, State believes that the current NEA 

oversight regime provides the assurances necessary and its limited 

resources do not allow hiring additional accounting personnel to evaluate 

MFO’s financial practices. As a result, State plans to ask the OIG to 

periodically evaluate MFO’s accounting and financial practices. We do not 

agree that the current oversight regime provides the assurances necessary 

regarding MFO’s finances. We found that NEA did not perform several 

aspects of MFO financial management oversight—such as evaluating MFO 

financial practices— because of a lack of expertise among NEA staff. We 

agree, however, that having the OIG periodically review MFO accounting 

and financial practices is sufficient. Finally, State also agreed with our 

recommendation to work with Army to reconcile differences about 

current MFO cost sharing arrangements. 

State was not responsive to our recommendation to direct the MFO 

Management Advisory Board to monitor and document NEA’s compliance 

with its guidelines for overseeing MFO. State responded that it plans to 

supplement the annual report to Congress that describes its MFO 

oversight activities with quarterly reports to the newly formed advisory 

board. The OIG recommended that NEA establish an advisory board 

because it found that while NEA policy oversight was strong, its 

management and personnel oversight were not as satisfactory. While the 

board works to define its authority and responsibilities, it should ensure 

that NEA exercise more concerted oversight of MFO activities by 

complying with NEA guidelines and documenting its efforts for overseeing 

MFO. 

The MFO generally agreed with the report’s findings. The MFO welcomed 

the report’s recommendations for State to improve the recruiting process 

for the chief observer and for the U.S. government to develop a unified 

position regarding the Army’s claims for increased payments by the MFO. 

MFO also stated that it would consider our report’s findings regarding 

additional outside mediation or review mechanisms for complaints 

involving discrimination and sexual harassment. It also noted that it will 

also consider our findings of a perceived gender imbalance in the MFO 

workforce. 

The MFO took exception to our finding that, with few exceptions, MFO 

employees tend to stay in the same positions for which they were 
Page 34 GAO-04-883 MFO Management Review 

contracted. They stated that six headquarters’ employees had been 

promoted or transferred from other positions. However, the MFO 

personnel manual states that there is not a career path for employees due 

to the temporary nature of the organization. Moreover, MFO does not have 

systems in place that establish standard employment grades for its 

positions, requirements for competitive promotion opportunities, or 

advertise opportunities for promotion. We interviewed several longserving staff in the field who stated that opportunities for advancement 

were not available and that they have remained in the position for which 

they were hired. Finally, MFO accepts that there are opportunities to 

improve its human resource management but noted that the adoption of 

U.S. government or U.N. human resource practices may entail significant 

costs and overhead for a small organization. We agree that organizations 

must be careful to consider their unique characteristics and circumstances 

when considering the applicability of human resources practices that we 

have identified in appendix III. MFO also disagreed with the factual 

accuracy of one of the numbers in appendix II. We made changes to reflect 

MFO corrections. 

We are sending copies of this report to other interested Members of 

Congress. We are also providing copies of this report to the Secretary of 

State, the Secretary of Defense, and the Director General of the 

Multinational Force and Observers. We will also make copies available to 

others upon request. In addition, this report will be available at no charge 

on the GAO Web site at http://www.gao.gov.

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

at (202) 512-8979 or christoffj@gao.gov, or Phyllis Anderson at (202) 512-

7364 or andersonp@gao.gov. In addition to the persons named above, B. 

Patrick Hickey, Lynn Cothern, Elizabeth Guran, and Bruce Kutnick made 

key contributions to this report. 

Joseph A. Christoff 

Director, International Affairs and Trade 
Page 35 GAO-04-883 MFO Management Review 

List of Requesters 

The Honorable Joseph I. Lieberman 

Ranking Minority Member 

Committee on Governmental Affairs 

United States Senate 

The Honorable Daniel K. Akaka 

Ranking Minority Member 

Subcommittee on Financial Management, the Budget, 

 and International Security 

Committee on Governmental Affairs 

United States Senate 

The Honorable Richard J. Durbin 

Ranking Minority Member 

Subcommittee on Oversight of Government Management, 

 the Federal Workforce, and the District of Columbia 

Committee on Governmental Affairs 

United States Senate 

The Honorable Mark Pryor 

United States Senate 
Appendix I: Scope and Methodology 

Page 36 GAO-04-883 MFO Management Review 

We (1) assessed the Department of State’s oversight responsibilities for 

U.S. participation in the MFO, (2) reviewed MFO’s personnel policies and 

practices, (3) examined MFO’s financial management and accountability, 

and (4) reviewed emerging budgetary challenges. 

We focused our audit work at MFO and State on activities and transactions 

starting in 1996 through 2004, the period subsequent to the prior GAO 

report. We visited MFO offices in Rome, Cairo, and Tel Aviv and force 

installations in the Sinai Peninsula. We also met with the Israeli and 

Egyptian Ministries of Foreign Affairs and Defense in Jerusalem and Cairo. 

To assess the Department of State’s oversight responsibilities, we 

reviewed the oversight guidelines developed by the Office of Regional 

Affairs of State’s Bureau of Near Eastern Affairs (NEA/RA) and supporting 

documentation including State’s Annual Reports to Congress, cables, MFO 

Director General Annual Reports for the Trilateral Conferences of Major 

Fund Contributors, MFO external auditors’ financial statement audit and 

internal control reports and turnover statistics of staff working in the 

civilian observer unit. We could not determine the full extent of State’s 

efforts because it did not document the nature, quality, and range of its 

oversight activities. We also met with State/NEA officials responsible for 

overseeing U.S. participation in the MFO to discuss the frequency, nature, 

and extent of State contact with MFO. We discussed the views of the 

Egyptian and Israeli governments on the MFO’s performance with military 

and foreign affairs officials from both countries. We interviewed NEA and 

MFO officials and current and former members of the Civilian Observer 

Unit to obtain an understanding of State’s recruiting efforts and 

interaction with the COU. We met with officials from State’s Office of 

Inspector General (OIG) to discuss their inspection of NEA, and we also 

reviewed relevant OIG reports. In addition, we assessed the status of 

State’s compliance with prior GAO recommendations. 

To review MFO’s personnel management system, we examined MFO 

personnel regulations, internal reports and briefings that described 

personnel policy changes, personnel statistics, performance appraisal 

forms, and other documentation on the organization’s personnel practices. 

We also examined leading human capital management policies and 

practices of public organizations to determine if MFO personnel 

regulations and policies relating to employee expectation setting, 

performance appraisals, employee grievance processes, alternative dispute 

resolution mechanisms, and sexual harassment policies followed the spirit 

of leading practices. We interviewed MFO officials, members of the 

Appendix I: Scope and Methodology 
Appendix I: Scope and Methodology 

Page 37 GAO-04-883 MFO Management Review 

civilian observer unit, MFO staff, and NEA officials to obtain their views 

on the organization’s personnel system. 

To examine MFO’s financial management and accountability, we reviewed 

the external auditors’ financial statement audits and internal control 

reports, other special reviews performed by the external auditor, and 

reports completed by State’s OIG. We also reviewed MFO management 

review officer’s reports, MFO financial regulations, and documentation on 

MFO’s recently installed financial management system. We discussed the 

scope and nature of the management review officer’s position and recent 

work with MFO officials. We interviewed NEA, DOD, MFO, Israeli, and 

Egyptian officials to determine their views on MFO’s financial 

management and the degree of accountability of the Director General. 

To report on some of the potential budgetary challenges MFO may face, 

we examined budget data and supporting documentation for fiscal years 

1995 through 2003 provided by MFO, NEA, and the U.S. Army’s Office of 

Assistant Secretary of the Army for Financial Management and 

Comptroller. We discussed with DOD, State, and MFO officials trend data 

on costs and estimates for substituting U.S. Army UH-60 Black Hawk 

helicopters or a private contractor’s helicopter unit for the current MFO 

force of UH-1H Huey helicopters. We did not verify the accuracy or 

completeness of the estimates or verify the accuracy of the budgetary 

savings MFO officials associated with particular cost saving initiatives. 

To assess the reliability of the data on the costs associated with U.S. 

participation in the MFO, we (1) interviewed State, Army, and MFO 

officials about the sources of their data and the means used to calculate 

costs, (2) reviewed MFO’s annual financial reports and State’s annual 

report to Congress on the MFO, (3) traced U.S. Army’s reported costs for 

its contributions to the MFO back to the source documents, (4) traced the 

Army’s calculation of the costs associated with providing salaries to the 

soldiers stationed with the MFO—these salary costs constitute over 

80 percent of the total costs of the U.S. Army contribution to the MFO– 

back to the DOD personnel composite standard pay and reimbursement 

rates for fiscal years 1999 through 2003, (5) performed tests on the data 

provided by the U.S. Army regarding the cost of U.S. participation in the 

MFO between 1999 and 2003 to check for obvious errors or 

miscalculations, and (6) reviewed the report of the MFO’s independent 

external auditor on State’s contributions. However, we did not audit the 

data and are not expressing an opinion on them. We determined that the 

data were sufficiently reliable for the purpose of reporting the total costs 

of U.S. participation in the MFO. 
Appendix I: Scope and Methodology 

Page 38 GAO-04-883 MFO Management Review 

We conducted our review from September 2003 to May 2004 in accordance 

with generally accepted government auditing standards. 
Appendix II: MFO’s Small but Challenging 

Workforce 

Page 39 GAO-04-883 MFO Management Review 

MFO has a small and varied professional civilian workforce of 108 

international and local national staff located in Rome, Cairo, and Tel Aviv.1

Contractors provide an additional 59 expatriate support staff and 454 local 

workers. Eight of the 13 management-level employees are U.S. citizens. 

The international staff, including 14 U.S. citizens, support and direct the 

operations of 1,685 peacekeeping troops from 11 countries with unit or 

individual tours of duty varying between about 2 months and 1 year.2

 A 

further 15 U.S. citizens serve in the civilian observer unit (COU): about 

half the observers, including the chief observer, temporarily resign from 

the State Department to fulfill 1- to 2-year contract commitments; the 

other half are civilian contractors, usually recruited from retired U.S. 

military personnel serving under renewable 2-year contracts. Table 1 

provides details on MFO personnel locations, types, and numbers. 

Table 1: MFO Civilian Staff by Location and Type, 2003 

Location 

International– 

managerial and 

other direct hire 

civilians 

COU 

staff 

(U.S.) 

National – 

Administration 

& Support

(Italian and 

Israeli)

Total MFO 

employees

LocalProfessional 

Contract Hire 

Civilians 

(Egyptian)

Contracted 

Technical and 

Support Staffa

(expatriates) 

Sub-Contracted 

Local Technical 

and Support 

Personnel 

(Egyptian)b

Total 

staff at 

MFO 

sites

Rome 12 - 11 23 - - - 23

Tel Aviv 1 - 18 19 - - - 19

Cairo 2 - 0 2 14 - - 16

Sinai 49 15 - 64 15 59 454 592

Total 64 15 29 108 29 59 454 650

a

U.S.-based firm Holmes and Narver Services Incorporated (HNSI) employs the expatriate technical 

and support staff. 

b

An HNSI subcontractor, Care Services, Incorporated, provides these employees. 

MFO working conditions present challenges for management and staff. 

MFO workers have limited prospects for advancement or job mobility 

because the organization views itself as having a temporary mission. The 

international workforce has decreased by about 62 percent since 1982. 

With few exceptions, MFO employees tend to stay in the same positions 

 1

The total includes four vacant international positions in the Sinai. 

2

Other international civilian staff come from Great Britain (35), Australia (2), Canada (2), 

France (1), New Zealand (2), Italy (1), and Mexico (1). A staff member of unidentified 

nationality fills one position. 

Appendix II: MFO’s Small but Challenging 

Workforce 
Appendix II: MFO’s Small but Challenging 

Workforce 

Page 40 GAO-04-883 MFO Management Review 

for which they were contracted and its many long-serving workers in 

administrative positions lack opportunities to progress to higher positions. 

MFO managers stated that while MFO’s pay scales and other benefits help 

it successfully compete for staff with oil companies and other commercial 

international organizations in the region, it is challenging to find civilian 

employees with the ability to work successfully in the austere military 

atmosphere and isolated living environment in the Sinai. The main camp at 

El Gorah in the northern part of the Sinai is in a sparsely populated area 

with few amenities outside the camp. Only 17 military and civilian 

positions in the Sinai allow for accompaniment by a spouse, and facilities 

for children are lacking. Visits by family members are also very limited. 

The force’s personnel system reflects the “temporary” nature of the MFO’s 

mission; most international contractors serve under initial 2-year contracts 

that can be renewed at the discretion of the Director General. According 

to MFO documents, employment with the MFO is not a career service and 

initial employment with the MFO does not carry any expectation of 

contract renewal or extension. Several long-term employees stated that 

there are limited job progression opportunities with the MFO. Heightened 

concerns about terrorism since September 11, 2001, and ongoing violence 

in areas under Israeli control has led to significantly restricted 

opportunities for travel off the bases. 
Appendix III: GAO’s Model for Strategic 

Human Capital Management Planning 

Page 41 GAO-04-883 MFO Management Review 

U.S. and international public organizations have found that strategic 

workforce planning is essential to (1) aligning an organization’s human 

capital program with its current and emerging mission and programmatic 

goals and (2) developing long-term strategies for acquiring, developing, 

and retaining staff to achieve programmatic goals.1

 We have developed a 

strategic human capital management model based on leading practices to 

help U.S. and international public organizations assess their efforts to 

address the key challenges to developing a consistent and strategic 

approach to human capital management. We caution that agencies 

applying this model must be careful to recognize the unique characteristics 

and circumstances that make organizations different from one another and 

to consider the applicability of practices that have worked elsewhere to 

their own management practices.2

Our work has shown that the public organizations face four key human 

capital challenges that undermine agency efficiency. The model consists of 

four cornerstones designed to help public organizations address the 

challenges in the four areas—leadership; strategic human capital planning; 

acquiring, developing, and retaining talent; and results-oriented 

organizational culture. Each cornerstone is associated with two critical 

factors that an agency’s approach to strategic human capital planning must 

address. Moreover, for each of the eight critical success factors, the model 

describes three levels of progress in an agency’s approach to strategic 

human capital planning: 

• Level 1: The approach to human capital is largely compliance-based; the 

agency has yet to realize the value of managing human capital strategically 

to achieve results; existing human capital approaches have yet to be 

assessed in light of current and emerging agency needs. 

• Level 2: The agency recognizes that people are a critical asset that must be 

managed strategically; new human capital policies, programs, and 

practices are being designed and implemented to support mission 

accomplishment. 

 1

See U.S. General Accounting Office, Human Capital: Key Principles for Effective 

Strategic Workforce Planning, GAO-04-39 (Washington, D.C.: Dec. 11, 2003).

2

See U.S. General Accounting Office, Human Capital: A Self-Assessment Checklist for 

Agency Leaders, GAO/OCG-00-14G (Washington, D.C.: Sep. 1, 2000). 

Appendix III: GAO’s Model for Strategic 

Human Capital Management Planning 
Appendix III: GAO’s Model for Strategic 

Human Capital Management Planning 

Page 42 GAO-04-883 MFO Management Review 

• Level 3: The agency’s human capital approaches contribute to improved 

agency performance; human capital considerations are fully integrated 

into strategic planning and day-to-day operations; the agency is 

continuously seeking ways to further improve its “people management” to 

achieve results. 

Figure 8 illustrates the critical success factors an organization in the 

second level of progress must address as it develops a strategic approach 

to managing its human capital. 
Appendix III: GAO’s Model for Strategic 

Human Capital Management Planning 

Page 43 GAO-04-883 MFO Management Review 

Figure 8: Excerpts from GAO’s Strategic Human Capital Management Model 

• Commitment to Human 

Capital Management

 Demonstrated 

commitment of top 

managers to continuously 

improve human capital 

management and support 

efforts to integrate human 

capital approaches with 

organizational goals

 Human capital 

professionals aid 

organizational leaders in 

developing strategic and 

program plans and design 

strategies to meet the 

organization's current and 

future plans

• Role of the Human 

Capital Function

Leadership

Strategic 

Human Capital 

Planning

Acquiring, 

Developing, and 

Retaining 

Talent

Developing a 

Results-Oriented 

Organizational 

Culture

• Integration and 

Alignment

 Human capital 

approaches 

demonstrably support 

the organization's 

mission, programmatic 

goals, and results

 Complete, valid, and 

reliable data inform 

decisions involving human 

capital, and are used to 

link human capital 

objectives to organizational 

goals

• Data-Driven Human 

Capital Decisions

• Targeted Investment in 

People

 Strategies for investing in 

human capital are fully 

integrated with needs 

identified through its 

strategic and annual 

planning. Organization 

provides resources and 

incentives to develop the 

value of their people to 

increase the performance 

capacity of the organization

 Managers tailor human 

capital approach to meet 

organizational needs, 

explore opportunities to 

enhance competitiveness 

as an employer, and 

eliminate barriers to 

effective human capital 

management

• Human Capital Approaches 

Tailored to Meet 

Organizational Needs

• Empowerment and 

Inclusion

 Staff empowered and 

included at all levels to 

work collaboratively with 

management to help 

organization meet program 

goals, a process furthered 

by management efforts to 

build a diverse workforce, 

maintain a zero tolerance 

of discrimination, and 

address and reduce the 

causes of workplace 

conflict

 Individual performance 

management integrated 

with organizational goals; 

and management held 

accountable for achieving 

these goals through use of 

clearly defined, 

transparent, and 

consistently communicated 

performance expectations

• Unit and Individual 

Performance Linked to 

Organizational Goals

Source: U.S. General Accounting Office: A Model of Strategic Human Capital Management. GAO-02373SP

(Washington, D.C.: Mar. 15, 2002).

Underlying Principles

1. People are assets whose value can be enhanced 

through investment. As with any investment, the goal 

is to maximize value while managing risk.

2. An organization's human capital approaches should be designed, 

implemented, and assessed by the standard of how well they help 

the organization achieve results and pursue its mission.
Appendix IV: Calculating MFO Budget in 

Terms of International Dollars 

Page 44 GAO-04-883 MFO Management Review 

The MFO receives dollar contributions from Egypt, Israel, and the United 

States and purchases goods and services from Egypt, Israel, the United 

States, and other countries. The MFO’s budget has remained flat at 51 

million in nominal dollars between fiscal years 1995 and 2002, although it 

has declined about 12 percent over the same period when adjusted for U.S. 

inflation. However, MFO officials stated that they increased the 

purchasing power of its budget by shifting its purchases of goods and 

services away from the United States and other countries to relatively 

lower cost Egyptian and Israeli markets. As figure 9 demonstrates, MFO 

spending in Egypt and Israel rose from 43 to 54 percent of the budget 

between fiscal years 1995 and 2002. On average, the MFO spent 26 percent 

of its budget in Egypt and 23 percent in Israel in this period. By converting 

the MFO’s budget into international dollars, we are able to better assess 

the impact of these shifts to the lower cost Egyptian and Israeli markets 

on the overall purchasing power of the MFO budget. 

Figure 9: Percentage of MFO Dollar Budget Spent in Israel and Egypt 

As table 2 demonstrates, expressing the MFO budget in international 

dollars reveals that: (1) the purchasing power of the budget—ranging 

between $72.3 million in fiscal year 1995 and $69 million in fiscal year 

2002–was significantly higher than its nominal level of $51 million 

suggests; and (2) the real decline in the budget between fiscal years 1995 

and 2002 was about 5 percent rather than 12 percent. 

Appendix IV: Calculating MFO Budget in 

Terms of International Dollars 

0

10

20

30

40

50

60

100

Fiscal year

Percentage

1995 1996 1997 1998 1999 2000 2001 2002

Israel

Source: GAO.

Egypt
Appendix IV: Calculating MFO Budget in 

Terms of International Dollars 

Page 45 GAO-04-883 MFO Management Review 

Table 2: MFO Expenditures in Nominal and International Dollars 

Fiscal years 

1995 1996 1997 1998 1999 2000 2001 2002

In 1995 international dollars, millions 

Egypt 32.1 31.0 29.6 32.6 31.8 30.6 29.4 34.0

Israel 10.9 10.4 10.5 12.5 12.4 12.5 12.9 14.3

US and other countriesa 29.4 28.1 27.1 23.3 23.2 22.3 22.2 20.8

Total $72.3 $69.5 $67.2 $68.3 $67.4 $65.4 $64.5 $69.0

 

In nominal dollars, millions 

Egypt 11.7 12.2 12.4 14.2 14.2 14.4 13.6 14.2

Israel 10.1 10.3 10.6 12.4 12.1 12.5 12.9 13.5

US and other countriesa 29.2 28.5 28.0 24.4 24.7 24.1 24.5 23.3

Total $51.0 $51.0 $51.0 $51.0 $51.0 $51.0 $51.0 $51.0

 

Budget in real fiscal year 1995 dollars, millions $51.0 $50.0 $49.2 $48.6 $48.0 $47.0 $45.9 $45.1

 

Nominal dollars (percentage) 

Egypt 23 24 24 28 28 28 27 28

Israel 20 20 21 24 24 25 25 26

US and other countriesa 57 56 55 48 48 47 48 46

 

1995 international dollars (percentage) 

Egypt 44 45 44 48 47 47 46 49

Israel 15 15 16 18 18 19 20 21

US and other countriesa 41 40 40 34 34 34 34 30

Source: GAO calculations using World Bank and MFO data. 

a

The MFO reported its total expenditures in Egypt, Israel, and the United States between 1995 and 

2002, but breakdowns are not available for the other countries. For computational purposes, we 

assumed that purchases made in the other countries are made in the United States. 
Appendix IV: Calculating MFO Budget in 

Terms of International Dollars 

Page 46 GAO-04-883 MFO Management Review 

Moreover, figure 10 demonstrates that MFO purchased a larger proportion 

of its goods and services in Egypt and Israel when calculated in 

international dollars than the nominal-dollar budget expenditures 

suggest—70 percent versus 54 percent for fiscal year 2002, for example. 

Also, it purchased a significantly greater percentage of its budget in Egypt 

than in Israel on average when calculated in international dollars during 

this period—46 percent versus 18 percent on average.1

Figure 10: Percentage of MFO International Dollar Budget Spent in Israel and Egypt 

An international dollar is equivalent to the amount of goods and services 

that 1 U.S. dollar can purchase in the United States. Two steps are required 

to convert an amount valued in local currency into international dollars: 

• First, convert the local currency figure into U.S. dollars using the official 

exchange rate; and 

• Second, divide this dollar amount by the country-specific purchasing 

power parity (PPP) conversion factor to official exchange rate ratio. 

The PPP conversion factor converts into international dollars the cost of a 

basket of tradable and nontradable goods and services valued in local 

currency units (pounds in the case of Egypt and shekels in the case of 

 1

Data for fiscal year 2003 purchasing power parity in Egypt and Israel are not available as 

of June 2004. 
Appendix IV: Calculating MFO Budget in 

Terms of International Dollars 

Page 47 GAO-04-883 MFO Management Review 

Israel). The PPP conversion factor is the number of local currency units 

required to buy the same amount of goods and services in the domestic 

market that a U.S. dollar would buy in the United States. For example, a 

basket of goods that could be purchased in the United States for $1, equal 

by definition to 1 international dollar, could be bought in Egypt for 1.259 

Egyptian pounds in 1995. Therefore, the PPP conversion factor is 1.259 

Egyptian pounds per international dollar. In calendar year 1995, the 

official annual average exchange rate (based on monthly averages) was 

3.392 Egyptian pounds per U.S. dollar. The ratio of the PPP conversion 

factor to the official exchange rate is 0.371.2

 The nominal dollar amount 

the MFO spent in Egypt in fiscal year 1995 ($11.7 million as shown in table 

2) is divided by the fiscal year ratio, to compute the international dollar 

amount of 32.2 million.3

 2

A ratio of less than 1 implies that a basket of goods in the foreign country costs less in U.S. 

dollars than in the United States. For example, in 2002, a basket of goods that would cost 

$1 in the United States would cost $0.34 in Egypt, $0.81 in Israel, $0.78 in Italy, and $1.22 in 

Switzerland. 

3

The fiscal year conversion factor ratio is calculated as a weighted average of calendar year 

ratios. The calendar year ratio in constant 1995 dollars is computed as the ratio of nominal 

gross domestic product expressed in U.S. dollars to the gross domestic product expressed 

in constant 1995 international dollars. 
Appendix V: Cost of U.S. Participation in MFO 

Page 48 GAO-04-883 MFO Management Review 

The United States agreed in 1981 to provide one third of the annual MFO 

budget and provide a military contingent in support of the force. Annex II 

of the 1982 Exchange of Letters between the MFO Director General and 

the U.S. Secretary of State set the financial arrangements for the U.S. 

military contribution. The Memoranda of Understandings between the 

MFO and the Department of the Army established in 1994 and 1998 

confirm additional understandings and procedures to supplement Annex II 

of the 1982 Exchange of Letters. 

Under the terms of these cost-sharing arrangements, U.S. costs to support 

the MFO has increased from a low of $55.8 million in fiscal year 1996 to 

$70.8 million in fiscal year 2003 as depicted in table 3—a 20 percent 

increase overall. While State Department’s contribution to the annual MFO 

budget has averaged about $16 million since fiscal year 1995, the number 

of U.S. military personnel participating in the MFO has declined 11 percent 

since then, as depicted in table 4 below. However the cost of U.S. military 

participation has risen approximately 25 percent between fiscal year 1996 

and 2003. 

Table 3: Cost of U.S. Participation in MFO, Fiscal Years 1995 through 2003 

Millions of dollars 

Fiscal years 

1995 1996 1997 1998 1999 2000 2001 2002 2003

1. Total Net Cost Of DOD Contributions (A-B) $45.37 $40.34 $41.04 $42.95 $42.55 $44.64 $45.20 $50.82 $54.58

A. Total Non-Reimbursable Costs for DOD 

Contributions 47.27 42.58 43.51 44.29 42.78 45.12 46.43 49.94 55.62

Salary Cost of Troops 40.68 35.72 36.03 35.75 34.46 36.61 37.80 39.92 45.50

Predeployment Training 1.13 1.07 0.99 1.06 0.94 1.09 1.32 2.15 1.20

Special Pays and Allowances: Family 

Separation / Imminent Danger/ Hardship/ 

Foreign Duty/ Per Diem 0.31 0.30 1.39 2.12 2.05 1.89 1.88 2.19 3.01

MFO-Related Travel 0.07 0.12 0.08 0.04 0.11 0.14 0.13 0.18 0.05

Training, Base Operations and Subsistence 

Costsa

 4.47 4.81 4.57 4.82 4.74 4.75 4.63 4.60 3.51

Helicopter Operations & Maintenancea 0.61 0.57 0.45 0.51 0.49 0.63 0.67 0.91. 1.08

B: Total Net DOD Costs Reimbursed by MFO 

(B1-B2) 1.90 2.24 2.47 1.34 0.24 0.48 1.23 -0.88 1.03

B1. Total Reimbursed Costs 6.98 7.62 7.49 6.66 5.47 5.86 6.53 4.63 6.90

• Special Allowances/ Foreign Duty Pay 1.68 1.74 1.88 1.92 2.09 2.09 2.14 2.18 2.24

• Transportation, Per Diem, etc. 1.04 1.55 1.30 1.61 2.40 2.01 2.24 1.04 2.80

Appendix V: Cost of U.S. Participation in 

MFO 
Appendix V: Cost of U.S. Participation in MFO 

Page 49 GAO-04-883 MFO Management Review 

Millions of dollars 

Fiscal years 

1995 1996 1997 1998 1999 2000 2001 2002 2003

• Sale of DOD Supplies and Equipment to 

MFO 4.27 4.33 4.32 3.14 0.98 1.77 2.15 1.37 1.79

B2. Less Offset Credit Provided by DODb 5.08 5.38 5.02 5.32 5.23 5.39 5.30 5.51 5.87

2. Net State Contribution $16.09 $15.41 $15.43 $15.41 $15.60 $15.90 $15.95 $16.02 $16.21

Assessed Share of MFO Cost Paid by State 16.35 16.03 16.09 16.06 16.112 16.37 16.35 16.25 16.35

Less U.S. Share of MFO Budget Surplusc 0.26 0.62 0.66 0.65 0.52 0.47 0.40 0.23 0.14

Total U.S. Net Contribution (1+2) $61.46 $55.75 $56.48 $58.36 $58.14 $60.54 $61.15 $66.87 $70.86

Fiscal Year 2003 Deflator 1.15 1.13 1.11 1.09 1.08 1.06 1.03 1.02 1.00

Total U.S. Net Contribution In Constant 

Fiscal Year 2003 Dollars $70.55 $62.83 $62.52 $63.85 $62.80 $64.12 $63.22 $67.90 $70.80

Source: GAO analysis of U.S. Army data. 

a

Estimates are based on the expense (offset cost) that the United States would have incurred for 

training, food and lodging, base support, and operations and maintenance for such units when 

stationed in the United States . 

b

Credit to the account of the MFO by the U.S. Army for the amount of the offset costs. 

c

MFO returns budget surplus in the form of a reduced assessment for the following fiscal year. 

Table 4: U.S. Troop Contributions to the MFO as a Percentage of the Total, Fiscal Years 1995 through 2003 

Fiscal years 

1995 1996 1997 1998 1999 2000 2001 2002 2003

U.S. Troops 970 917 917 917 871 865 865 865 687

Total MFO Force 1,954 1,896 1,896 1,896 1,844 1,838 1,835 1,835 1,685

U.S. Troops as a Percentage of all MFO 

Troops 50% 48% 48% 48% 47% 47% 47% 47% 41%

As depicted in table 3, a number of factors account for this increase in the 

total cost of U.S. commitments to the MFO over this period: 

• Total troop salaries increased 27 percent, despite a decrease in the U.S. 

troop contingent between fiscal years 1995 and 2002.1

 These salaries 

constitute over 80 percent of the cost of the total Army contribution. In FY 

2002, the Army substituted Army National Guard forces for the regular 

 1

The budgetary impact of the further reduction of U.S. troops from 865 to 687 soldiers in 

late 2003 did not effect DOD’s cost calculations for fiscal year 2003. The impact will be 

measurable beginning in fiscal year 2004. 
Appendix V: Cost of U.S. Participation in MFO 

Page 50 GAO-04-883 MFO Management Review 

Army personnel, contributing to a salary cost increase of 12 percent 

between fiscal years 2002 and 2003. National Guard troops tend to be older 

and have been in grade longer than regular Army forces and are 

consequently paid more. Across-the-board salary increases for all military 

forces is another factor contributing to rising military costs, according to 

Army officials. 

• Special pay and allowances paid to U.S. soldiers participating in the MFO 

mission have increased nearly ten-fold since fiscal year 1995, going from 

about $300,000 to $3 million in fiscal year 2003. Under the March 1982 

Exchange of Letters between the MFO Director General and the Secretary 

of State, the MFO agreed to pay for certain special allowances to U.S. 

military personnel participating in the MFO mission, including a Family 

Separation Allowance for married personnel and Foreign Duty Pay for 

enlisted personnel. The coverage and rates of these existing allowances 

has been expanded since then to include both enlisted men and officers 

and costs about $250 per soldier per month. Moreover, in fiscal year 1997, 

DOD began providing imminent danger pay to military personnel serving 

in Israel and Egypt. The current rate amounts to $225 per soldier per 

month. In fiscal year 2003, the imminent danger pay allowance constituted 

78 percent of total DOD special pays provided to military personnel 

participating in the MFO. 

• Reimbursement payments from DOD to the MFO increased 13 percent. 

Currently, the U.S. Army provides the MFO a credit or “offset” for certain 

costs associated with the support of U.S. forces. These costs are those 

which would normally have been incurred by the U.S. government for food 

and lodging, base support, and operations and maintenance for such units 

when stationed in the United States. 

• MFO purchases of supplies from DOD decreased by about 60 percent. In 

fiscal year 1995, the MFO reimbursed DOD for the purchase of supplies, 

equipment, and rations totaling $4.3 million dollars. MFO has sought to 

replace DOD as a source of supply with lower cost local commercial 

vendors in recent years, limiting its purchases from DOD to medical 

supplies and certain helicopter parts. In fiscal year 2003, these purchases 

totaled about $1.8 million. 
Appendix VI: Comments from the Department 

of State 

Page 51 GAO-04-883 MFO Management Review 

Appendix VI: Comments from the 

Department of State 
Appendix VI: Comments from the Department 

of State 

Page 52 GAO-04-883 MFO Management Review 
Appendix VI: Comments from the Department 

of State 

Page 53 GAO-04-883 MFO Management Review 
Appendix VI: Comments from the Department 

of State 

Page 54 GAO-04-883 MFO Management Review 
Appendix VI: Comments from the Department 

of State 

Page 55 GAO-04-883 MFO Management Review 
Appendix VII: Comments from the 

Multinational Force and Observers 

Page 56 GAO-04-883 MFO Management Review 

Appendix VII: Comments from the 

Multinational Force and Observers 

Note: GAO comments 

supplementing those in 

the report text appear at 

the end of this appendix. 
Appendix VII: Comments from the 

Multinational Force and Observers 

Page 57 GAO-04-883 MFO Management Review 
Appendix VII: Comments from the 

Multinational Force and Observers 

Page 58 GAO-04-883 MFO Management Review 

See comment 1. 
Appendix VII: Comments from the 

Multinational Force and Observers 

Page 59 GAO-04-883 MFO Management Review 

See comment 2. 
Appendix VII: Comments from the 

Multinational Force and Observers 

Page 60 GAO-04-883 MFO Management Review 
Appendix VII: Comments from the 

Multinational Force and Observers 

Page 61 GAO-04-883 MFO Management Review 

The following are additional GAO comments on the Multinational Force 

and Observers letter dated July 9, 2004. 

1. In its comments, MFO stated that the report does not mention a 

number of female employees occupying senior positions. Our analysis 

is based upon information obtained from an early 2004 report that lists 

all international and national staff by gender in management positions. 

There may have been some changes made to the data since that time. 

2. In its comments, MFO stated that there were factual inaccuracies 

regarding the number and classification of civilians employees. GAO 

made changes based upon MFO technical comments and noted that 

these changes disagreed with data in the MFO 2004 Annual Report. 

MFO’s annual report notes that there are 636 civilians, while the 

information provided to us from MFO totaled 650. 

GAO Comments 

(320220) 
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