Peacekeeping: Multinational Force And Observers Maintaining Accountability, but State Department Oversight Could Be Improved
Published: 2004-07-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since 1982, the Multinational Force and Observers (MFO) has monitored compliance with the security provisions of the Egyptian-Israeli Treaty of Peace. The United States, while not a party to the treaty, contributes 40 percent of the troops and a third of 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.
section_title: What GAO Found
paragraphs: 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. 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.

section_title: Letter
paragraphs: Following years of violent confrontation, Egypt and Israel signed a treaty  on March 26, 1979, that ended the existing state of war and agreed to the  withdrawal of all Israeli forces from the Sinai. Although the treaty  proposed that U.N. forces and observers supervise these security  arrangements, the United States committed to providing a multinational  force if the U.N. process failed. When the U.N. Security Council failed to  reach an agreement, the governments of Egypt and Israel signed a protocol  to the treaty in 1981 that established the Multinational Force and  Observers (MFO). The treaty can be terminated by the consent of the  parties; it does not contain a specific end date or establish specific  conditions that, if met, would allow MFO to withdraw troops. MFO  currently has 1,685 troops and a civilian workforce of about 108  international and local national staff who manage the organization and its  annual budget of $51 million. To manage its operations, the MFO has  developed personnel, financial management, budget, and internal control  systems. This review examines these systems including MFO’s personnel  practices as they pertain primarily to its international civilian workforce.
The United States, although not a party to either the treaty or the protocol,  agreed to provide military forces and a group of civilian observers to the  MFO to monitor compliance with military limitations. The United States  now contributes the largest share of military troops and about one third of  the organization’s financial resources. In addition, the Department of State  conducts oversight of U.S. participation in the MFO. In 2001, the United  States reviewed its commitments worldwide to security and peacekeeping  operations, and in 2003 reduced the number of troops serving in the MFO.
Given your interest in MFO’s management practices and State’s oversight  responsibilities, we (1) assessed the Department of State’s oversight of the  MFO, (2) reviewed MFO’s personnel policies and practices, (3) examined  MFO’s financial management practices, and (4) reviewed MFO’s emerging  budgetary challenges and cost-sharing arrangements.
To achieve our objectives, we interviewed officials at the Departments of  State and Defense (DOD), and the MFO and collected key documents from  those officials. We reviewed State’s guidelines for overseeing MFO’s  activities and finances. We met with MFO officials in Rome, Cairo, and Tel  Aviv; with Egyptian military and foreign affairs officials in Cairo; and with  Israeli military and foreign affairs officials in Jerusalem. We also visited  MFO force installations in the Sinai Peninsula. We reviewed MFO budget  and related documents and the external audit reports of finances and  internal controls. Finally, we met with MFO, State, and DOD officials to  discuss the MFO budget and U.S. contribution to the MFO. We determined  that the data they provided were sufficiently reliable for purposes of  reviewing trends in the MFO budget and U.S. contributions between fiscal  years 1995 and 2003. A detailed description of our scope and methodology  is included in appendix 1. We conducted our review from September 2003  to May 2004 in accordance with generally accepted government auditing  standards.
subsections: section_title: Background
paragraphs: The mission of the MFO is to observe and report on Israeli and Egyptian  compliance with the security aspects of the 1979 treaty of peace. The  agreement established four security zones—three are in the Sinai in Egypt,  and one is in Israel along the international border. The multinational force  occupies checkpoints and conducts periodic patrols to observe adherence  of the treaty parties to agreed force limitations and patrols the Strait of  Tiran between the Gulf of Aqaba and the Red Sea to ensure the freedom of  navigation. The agreed force limitations for the four zones (see fig. 1) are:    Zone A: One Egyptian mechanized division containing up to 22,000 troops;    Zone B: Four Egyptian border battalions manned by up to 4,000 personnel;     Zone C: MFO-patrolled areas within Egypt, although civil police units with  light weapons are also allowed; and   Zone D: Up to four Israeli infantry battalions totaling up to 4,000 troops.
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. All parties pay their  contributions in U.S. dollars.
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.
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. 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.
section_title: State Has Met Some of Its Oversight Responsibilities but Has Limited Evidence Documenting These Efforts
paragraphs: State has developed but not completely fulfilled its operational and  financial oversight responsibilities described in its guidelines for  overseeing the MFO. These oversight responsibilities included evaluating  MFO financial practices, conducting oversight visits of MFO operations,  and recruiting staff for the civilian observers’ unit. We could not determine  the full extent of the department’s compliance with its guidelines because  it does not have sufficient documentation to describe the quality and range  of its efforts. The Office of Regional Affairs within State’s Bureau of Near  Eastern Affairs (NEA) is the single U.S. focal point for all MFO-United  States government interaction and oversight. NEA’s guidelines called for  State officials to review the external auditors’ reports and evaluate MFO  financial practices. While reviews of the auditors’ reports were performed,  the staff did not possess the accounting expertise to evaluate MFO  financial practices and did not do so. NEA is exploring options for  obtaining the necessary expertise; however, it has not finalized its  approach for redressing this issue. According to the guidelines, oversight  is also informally conducted through the transfer of U.S. government  personnel to key MFO positions, including a U.S. civilian observer unit.  While State has successfully recruited many civilian observers, it has had  difficulty in consistently recruiting candidates with strong leadership  capabilities for the chief position. Recruiting for the chief observer post  remains a concern because many candidates at State seek higher priority  posts, such as the U.S. Embassy in Cairo, to enhance their careers rather  than seek an MFO position. In response to a February 2004  recommendation made by the State Office of the Inspector General (OIG),  NEA agreed to form an advisory board to oversee MFO operations. In June  2004, the advisory board had its initial meeting and discussed options for  making the chief observer position more attractive. The board has not  fully developed the range of issues that it will address or established  timelines for resolving these issues.
subsections: section_title: Guidelines Did Not Require Documentation of Oversight Efforts
paragraphs: NEA developed guidelines for conducting MFO oversight in 1995 and  updated the guidelines in 2002; however, the guidelines did not require  that NEA document its oversight efforts. The guidelines sought to ensure  that (1) U.S. government agreements and foreign policy objectives were  being met; (2) MFO personnel practices were appropriate and in  accordance with MFO regulations; (3) MFO operations were in  compliance with its regulations; and (4) MFO resources were spent  appropriately, financial transactions were recorded accurately, and  internal controls were adequate. We could not determine whether State  fully complied with its oversight responsibilities because it did not have  sufficient documentation to support the extent and quality of its oversight  efforts.
We reviewed documentation to support State’s efforts to provide oversight  of MFO from 1996 to 2004. These documents recorded communication  between MFO and State officials about daily activities and operations of  the MFO. However, we found that this documentation did not fully  describe State’s oversight efforts, the condition of MFO operations, State’s  views on MFO policies/practices, or recommendations for improving MFO  operations. As a result, we could not determine the extent and quality of  NEA oversight activities. The maintenance of accurate and timely records  document efforts undertaken, and reviews by management help ensure  that management directives are carried out. Records are an integral part of  an entity’s stewardship of government resources. In addition,  documentation provides information so that oversight activities can be  assessed over time.
section_title: State Has Fulfilled Some but Not All of Its Oversight Responsibilities
paragraphs: 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.
subsections: section_title: State Officials Regularly Communicated with MFO Officials and Participated in Annual Trilateral Meeting
paragraphs: 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.
section_title: Recruiting Candidates Suited for Chief Observer Position Remains a Concern
paragraphs: NEA guidelines note that the transfer of U.S government personnel to key  MFO positions—including the U.S. civilian observer unit (COU)—is an  informal mechanism of U.S. oversight. While NEA has successfully  recruited many candidates for the civilian observer positions, it has not  consistently recruited candidates with the qualities that senior State  officials regard as important for the chief civilian observer post. These  qualities include having the capacity to exercise strong leadership and  management skills in a predominantly male military culture in an isolated  environment. Annually, NEA recruits U.S. government employees for  about six 1-year observer positions and a chief observer who serves 2  years in the MFO. State reviews the applications for these posts, develops  a “short list” from which the MFO Director General selects a candidate,  provides input into the final selection, and recommends the candidate for  the chief observer position. In recent years, according to the MFO and  State officials, ineffective leadership in the chief observer position  contributed to considerable turnover in the unit. A number of chiefs or  interim chiefs were dismissed or transferred due to poor leadership  capabilities. These problems resulted in low morale in the unit and to the  early resignation of several observers.
Recruiting for the leadership post remains a concern because many  qualified candidates at State desire and accept higher priority posts to  enhance their careers rather than seek MFO positions. According to a  senior State official, the qualities that make a good chief observer— regional experience, including Arabic language skills, and managerial  experience—are in demand at regional posts with higher priority staffing  demands. The MFO Director General stated that he would like to broaden  the pool of candidates and recruit from other sources for the leadership  position if State could not provide a candidate with appropriate  credentials. State officials oppose this approach, stating that the position  was an important symbol of U.S. commitment and required an  experienced Foreign Service Officer. According to senior State officials,  the department is reviewing options, such as elevating the position to a  more senior Foreign Service level, to make the position more attractive to  Foreign Service Officers. However, a timeline for addressing this issue has  not yet been established.
section_title: Some Financial Oversight Responsibilities Were Met, but Staff Lacked Financial Expertise to Meet All Responsibilities
paragraphs: NEA has fulfilled some of its financial oversight responsibilities; however,  its staff lacked the expertise to perform many required tasks. The  guidelines called for NEA to review MFO budgets and financial plans;  analyze income, expenditures, and inflation rates; review and analyze  annual audit and internal controls reports issued by the external auditor;  and evaluate MFO financial and auditing regulations. NEA guidelines  stated that the OIG would provide assistance in evaluating MFO financial  and auditing regulations. While NEA officials reviewed budgets and  financial plans, audits, and internal control reports, they did not evaluate  the financial and auditing regulations of the MFO, review its accounting  notes, or assess the potential financial impact that inflation rates had on  the MFO budget request. NEA officials stated that its staff did not possess  the needed accounting and auditing expertise to fulfill all of the financial  oversight responsibilities and that the OIG has not provided accounting  and auditing assistance to NEA since 1998. In June 2004, NEA officials  stated that they were exploring options for obtaining the necessary  accounting expertise to review MFO financial practices; however, they  have not yet determined how they will redress this issue or a establish a  timeframe for doing so. Leading practices indicate that personnel need to  possess and maintain the skills to accomplish their assigned duties. 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.
section_title: State Annually Reported to Congress and Inspected MFO Locations
paragraphs: 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.
section_title: NEA Is Considering Improvements for Conducting MFO Oversight
paragraphs: In November 2003, State’s Inspector General conducted an internal review  of NEA and made recommendations in February 2004 to improve NEA  oversight. The OIG recommended that NEA transfer some of its oversight  responsibilities from its Office of Regional Affairs to the Office of the  Executive Director of NEA (NEA/EX). The OIG also recommended that  NEA establish an advisory board to review MFO management practices  and internal controls, including internal audits, and ensure the  independence of these audits. NEA plans to give responsibility for the  oversight of management/personnel issues to NEA/EX while the Office of  Regional Affairs retains responsibility for the oversight of policy issues.  NEA also agreed to form an oversight board to oversee MFO operations  that is to be chaired by NEA/EX and include representatives from the OIG  and the bureaus of Human Resources, International Operations, and  Political-Military Affairs. The board, which met for the first time in mid- June 2004, discussed approaches to attracting candidates for the position  of chief observer and other COU recruiting issues. The board has yet to  determine its full range of responsibilities or scope of work. In addition, it  has not yet established timelines for addressing these areas.
section_title: MFO Has Taken Some Actions to Improve Personnel Management but has not Systematically Reformed Its Personnel System
paragraphs: 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.
subsections: section_title: MFO Has Made Some Improvements to Its Personnel System
paragraphs: MFO’s current Director General has taken steps to update personnel  policies to retain staff. In 2003, the Director General appointed a longer- serving civilian with personnel management expertise to replace the short- term military personnel officers serving short rotations on the MFO  command staff. According to MFO documents and officials, this new  manager for personnel in the Sinai provides continuity over personnel  issues, takes a more active role in recruitment, has surveyed employees  and acted on their concerns about safety and other quality of life issues,  and is responsible for the equitable allocation of housing. Moreover, he  has sought additional training to improve his effectiveness in this new  role. Finally, MFO leadership has updated grievance procedures pertaining  to sexual harassment complaints to boost employee confidence in the  system and reemphasized to employees that they have zero tolerance for  infractions of this policy. As the current Director General left in June 2004,  his successor will have to demonstrate a similar commitment to these  changes in personnel policy to ensure that they succeed.
MFO management is taking steps to improve workforce planning. MFO  managers stated that the personnel system was originally modeled in 1982  on State Department and U.N. systems. In addition, the MFO personnel  manager stated that MFO managers have not undertaken a review of the  personnel management rules since an outside consultant examined MFO  personnel policies in 1985. However, MFO reviewed and updated some  sections of its personnel manual in January 2004. MFO has also begun to  make increased use of information technology to compare its future work  requirements with its current human resources, and is using existing U.S.  Army efficiency reviews of the U.S. contingent’s operations to suggest  ways to restructure its own military staff (see app. III for excerpts from  our model for strategic human capital management planning).
To acquire, develop, and retain talent, MFO management has updated its  recruitment practices to ensure that its new hires are both qualified and a  good “fit” for the demanding work conditions in the Sinai. MFO uses  professional recruiters to obtain civilians better suited to the MFO  environment. MFO management has also updated its introductory  materials, handbooks, and Web site to give prospective recruits a more  comprehensive view of work requirements, benefits, and living conditions.  MFO managers stated, however, that the “temporary” nature of the MFO  mission precluded it from developing a career track for international staff.  It does not, for example, provide the benefits that a career service track  would offer, such as routine opportunities for promotion and pensions for  long-serving employees. Nevertheless, the MFO has introduced incentives  to retain long-serving staff, including pay increases normally worth 2  percent of salary for every employee who signs a contract extension and  special nonmonetary service awards for 10-year and 20-year employees.
The MFO has also introduced improved performance appraisals for new  staff on their probationary period and at the end of their contract period.  These appraisals include basic assessments of job skills, performance,  leadership, communications, cost management, initiative, and adjustment  to the work environment and document performance feedback sessions.  Staff are allowed to read and comment on their appraisals. MFO, however,  does not require its managers or staff to use a detailed formal appraisal to  document annual performance reviews and feedback sessions. Instead,  managers have the option of declaring that a staff member has performed  satisfactorily. The new chief of personnel services stated that it was his  intention to systematically collect employee feedback to help adjust  MFO’s human capital approaches and workforce planning, but he had not  yet developed any data collection instruments as of December 2003.
section_title: MFO Has Not Addressed Other Important Personnel Management Practices
paragraphs: 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. 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. In contrast, the Equal Employment  Opportunity Commission calls for U.S. agencies to make alternative  dispute mechanisms, such as mediators, available to complainants and  U.S. antidiscrimination laws allow complainants to appeal their cases in  court if necessary.
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.  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. 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.
MFO’s current gender imbalance in management may also merit attention.  The imbalance may indicate that there are obstacles to women attaining  management positions that may need to be addressed. The United Nations,  for example, determined that the gender balance of its professional  workforce was problematic, particularly in the management of peace  operations. To address this imbalance, the United Nations is trying to  achieve a professional work force with a 50 percent gender balance. We  examined MFO prepared documents that showed that women represented  29 percent of the workforce (31 out of 108 international and national  civilian positions) and women filled only 8 percent of management  positions (1 of 13 as of June 2004). 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.
section_title: MFO Has Improved Financial Accountability, but Additional Oversight May Be Needed
paragraphs: The MFO has taken steps to improve its financial accountability and its  related financial internal controls over the past 9 years. It has also taken  additional steps to improve its financial reporting to the State Department  and to strengthen internal controls in response to recommendations we  made to the MFO through the Department of State in 1995. Since then, the  external auditors of its financial statements found no material weaknesses.  The external auditors who reviewed MFO internal controls determined  that the internal controls they tested were effective. However, internal  control standards adopted by the MFO suggest that the MFO could do  more to enhance the external audit function, particularly through the use  of an independent audit committee to review the scope of activities of the  internal and external auditors annually. 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.
subsections: section_title: MFO Strengthened Financial Accountability and Internal Controls in Recent Years
paragraphs: 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. Although we have not performed any direct  testing of the software, or assessed the role or performance of the  management review officer, both initiatives appear to be positive steps for  MFO.
According to MFO staff, its adoption of a commercial business activity  tracking software package in 2001 led to greater management oversight  over all stages of procurement and other transactions and has  strengthened internal controls. MFO officials state that this new system  has built-in requirements for managerial approval at each step of the  procurement process. Under this system, MFO procurement officers are  assigned preset spending authority. Further, all procurement over $50,000  and any sole source contract over $30,000 requires the approval of the  Director General. According to MFO officials, the visibility and control  provided by this system have also simplified the external auditor’s task in  conducting its latest review of internal controls. MFO officials and  documents did not attribute any budget savings directly to the  implementation of this new system. However, they stated that they were  able to reduce the number of staff and centralize four procurement  operations. MFO officials did not make available the results of any recent  implementation testing, however, and noted that many of the key  performance indicators the system will track are under development.
In 2001, MFO hired a management review officer to identify cost savings  through the reviews of management procedures, logistics contracts, and  compliance with MFO requirements and controls. At the request of the  Director General, this official performs some inspector general functions  by conducting investigations on specific operations and accountability  controls, and makes recommendations to improve procedures. 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.
section_title: MFO Has Received “Clean” Opinions on Annual Financial Statements and Reports on Internal Controls since 1995
paragraphs: 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. 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. Third, MFO commissioned the auditor to perform  management compensation and benefits reviews in 1996, 1997, and 1999,  which concluded that management received compensation and benefits  substantially in compliance with MFO regulations. 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.
section_title: MFO Could Strengthen the Independence of the External Auditor
paragraphs: The Treaty Protocol and MFO administrative and financial regulations  provide the Director General responsibility for political, operational, and  financial control issues pertaining to the organization. However, leading  practices suggest that the MFO could better use independent input and  oversight over external audits. The Director General selects and receives  the reports of the external auditor. In addition, he can change MFO  operations, policies, and procedures without review, consent, or approval  from an oversight or senior management board. We previously reported  that this level of authority is unique among international organizations,  noting that other international organizations have an independent  governing body above the chief executive to oversee and approve  operations and finances. COSO internal control standards note that an  effective internal control environment could depend in part on the  attention and direction provided by oversight groups. These groups, such  as an active and effective board of directors or audit committee, could  enhance the audit function through their various review duties. 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.
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.
section_title: After 9 Years of Flat Budgets, MFO Faces Financial and Other Challenges
paragraphs: 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.
subsections: section_title: MFO Has Maintained a Level Budget of $51 Million since 1995
paragraphs: 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.  Because similar goods are inexpensive in dollar terms when purchased in  Israel and Egypt as compared to the United States, the purchasing power  of MFO’s budget was significantly greater when measured in constant 1995  international dollars. This figure was $72 million in fiscal year 1995 and  $69 million in fiscal year 2002. However, the MFO budget was $51 million  in fiscal year 1995 and $45 million in fiscal year 2002 when measured in  fiscal year 1995 dollars. Moreover, we found that, between fiscal years  1995 and 2002, the MFO budget declined only about 5 percent using  constant 1995 international dollars as compared with the 12 percent  decline in fiscal year 1995 U.S. dollars. This decline was partially offset  because MFO was able to reduce the economic impact of U.S. dollar  inflation by shifting more of its purchases to Egypt and Israel during this  period. MFO increased its purchases in Egypt and Israel from 43 percent  of its budget in 1995 to 54 percent in 2002 as measured in nominal U.S.  dollars. When measured in international dollars, however, goods and  services purchased from those two countries increased from an estimated  60 percent of the MFO budget in 1995 to almost 70 percent in 2002 (see  app. IV for details on calculating MFO budget in international dollars).
MFO has attained cost savings in recent years through better management  oversight and reduction of inventory costs. As mentioned previously, the  adoption of a commercial business activity tracking software package and  the hiring of a management review officer in 2001 led to greater  efficiencies in logistics and facilities management, vehicle maintenance,  personnel, finance, and contracting. As a result, according to a senior MFO  official, recommendations of the management review officer contributed  to almost $1.7 million in savings. Moreover, according to a senior MFO  official, more effective management of tracking of freight costs and  services has contributed to a 46 percent reduction in total storage and  freight costs between fiscal years 2002 and 2003, or a savings of $265,000.  Furthermore, its projects to connect its two camps in the Sinai to the  commercial Egyptian power grid is projected by MFO to save about  $825,000 a year on electricity costs, once the North Camp project is  completed in 2004.
section_title: New Challenges Complicate Future Budget Outlook
paragraphs: 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. 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. 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.
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.
section_title: Efforts to Increase Other Sources of Support Have Not Generally Succeeded
paragraphs: 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. To date, these efforts have not been successful. In 2003,  the Department of State requested military contributions from more than  20 countries that would then enable the United States to draw down its  forces. Five countries responded favorably, but only an offer by Uruguay  to send additional transportation personnel to replace a U.S. Army  transport company was considered feasible by the MFO. The increased  Uruguayan deployment in July 2003 allowed the Army to draw down its  MFO contingent by 74 troops. 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.
section_title: Army, State, and MFO Have Yet to Agree as to Who Should Pay the Increased Expense for Providing U.S. Troops to the MFO
paragraphs: 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.
The increased expense for supplying the MFO with U.S. troops is due  primarily to a rise in troop salaries, which are paid by the Army, and  changes in special pay categories such as foreign duty pay and family  separation pay, which are partly paid for by the MFO. For example,  salaries have increased because beginning in 2002, National Guard troops  have been deployed instead of active duty soldiers. National Guard troops  tend to have been in grade longer than active duty soldiers and are  consequently paid more. The U.S. Army pays for the increases in troop  salaries. (See app. V for details on the cost of U.S. participation in MFO  between fiscal years 1995 and 2003.)
The MFO and the United States agreed to share the costs of providing U.S.  troops to the MFO in 1982 and revised these arrangements in 1994 and  1998. Under these agreements, the Army agreed to credit the MFO for the  costs these troops would have normally incurred had they remained in the  United States, including food and lodging, base support, and operations  and maintenance costs. The MFO agreed to pay some of the additional  costs incurred by the deployment of U.S. troops to the Sinai, including  special pay categories and other allowances.
In the revised 1998 arrangement, the U.S. Army and the MFO did not reach  specific agreement on how Imminent Danger Pay would be shared. While  the agreement increased rates for other special pay categories, these rates  were less than those established in U.S. law. Army officials believe that  MFO should pay these increased costs for supplying U.S. troops; however,  MFO and State officials disagree with this position. 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. 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.
section_title: Conclusion
paragraphs: The two parties to the treaty and the United States are satisfied that the  MFO is effectively fulfilling its mission of helping to maintain peace  between Egypt and Israel. MFO has maintained its peacekeeping operation  with a multinational force in the Middle East, a troubled and unstable part  of the world. The organization has modified several of its policies and  practices to make them consistent with leading practices in financial  management and personnel. There are, however, opportunities for the  organization to further improve in these areas. MFO has made several  changes to its operations even though its budget has been flat for the past  9 years. The organization has benefited greatly because it has increased  the amount of goods and services purchased in Israel and Egypt where the  purchasing power of the U.S. dollar had increased during that period.  Despite these changes, MFO contributors may face increased budgetary  challenges due to the possible replacement of MFO’s helicopter fleet. State  is the organization charged with overseeing U.S. participation in the MFO  and recruits State employees to fill key MFO positions. Nevertheless, State  has not provided employees who possess the expertise to carry out many  of its financial oversight responsibilities. In addition, MFO raised concerns  about the leadership capabilities of some of the staff whom State recruited  for the chief civilian observer post. Finally, since the MFO does not have  an external oversight board, as do many international organizations,  effective State oversight of MFO and agreement between the United States  and the MFO on cost-sharing arrangements is essential to ensure that the  cost of U.S. troop participation is equitably shared.
section_title: Recommendations for Executive Action
paragraphs: 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.
section_title: Agency Comments and Our Evaluation
paragraphs: The Department of State and MFO provided technical and written  comments on a draft of this report (see apps. VI and VII). The Department  of Defense provided oral comments and generally agreed with our  findings. It also provided technical comments that we incorporated where  appropriate. The Department of State agreed with three of the four  recommendations and did not respond to one of the recommendations.  State agreed with our conclusion that it had experienced problems in  consistently recruiting chief observers with the necessary leadership skills  and stated that the new State MFO Management Advisory Board is  considering measures to encourage highly qualified State employees to fill  the chief observer position. State agreed with our recommendation that  staff with accounting expertise carry out NEA’s financial oversight  responsibilities for MFO. However, State believes that the current NEA  oversight regime provides the assurances necessary and its limited  resources do not allow hiring additional accounting personnel to evaluate  MFO’s financial practices. As a result, State plans to ask the OIG to  periodically evaluate MFO’s accounting and financial practices. We do not  agree that the current oversight regime provides the assurances necessary  regarding MFO’s finances. We found that NEA did not perform several  aspects of MFO financial management oversight—such as evaluating MFO  financial practices— because of a lack of expertise among NEA staff. We  agree, however, that having the OIG periodically review MFO accounting  and financial practices is sufficient. Finally, State also agreed with our  recommendation to work with Army to reconcile differences about  current MFO cost sharing arrangements.
State was not responsive to our recommendation to direct the MFO  Management Advisory Board to monitor and document NEA’s compliance  with its guidelines for overseeing MFO. State responded that it plans to  supplement the annual report to Congress that describes its MFO  oversight activities with quarterly reports to the newly formed advisory  board. The OIG recommended that NEA establish an advisory board  because it found that while NEA policy oversight was strong, its  management and personnel oversight were not as satisfactory. While the  board works to define its authority and responsibilities, it should ensure  that NEA exercise more concerted oversight of MFO activities by  complying with NEA guidelines and documenting its efforts for overseeing  MFO.
The MFO generally agreed with the report’s findings. The MFO welcomed  the report’s recommendations for State to improve the recruiting process  for the chief observer and for the U.S. government to develop a unified  position regarding the Army’s claims for increased payments by the MFO.  MFO also stated that it would consider our report’s findings regarding  additional outside mediation or review mechanisms for complaints  involving discrimination and sexual harassment. It also noted that it will  also consider our findings of a perceived gender imbalance in the MFO  workforce.
The MFO took exception to our finding that, with few exceptions, MFO  employees tend to stay in the same positions for which they were  contracted. They stated that six headquarters’ employees had been  promoted or transferred from other positions. However, the MFO  personnel manual states that there is not a career path for employees due  to the temporary nature of the organization. Moreover, MFO does not have  systems in place that establish standard employment grades for its  positions, requirements for competitive promotion opportunities, or  advertise opportunities for promotion. We interviewed several long- serving staff in the field who stated that opportunities for advancement  were not available and that they have remained in the position for which  they were hired. Finally, MFO accepts that there are opportunities to  improve its human resource management but noted that the adoption of  U.S. government or U.N. human resource practices may entail significant  costs and overhead for a small organization. We agree that organizations  must be careful to consider their unique characteristics and circumstances  when considering the applicability of human resources practices that we  have identified in appendix III. MFO also disagreed with the factual  accuracy of one of the numbers in appendix II. We made changes to reflect  MFO corrections.
We are sending copies of this report to other interested Members of  Congress. We are also providing copies of this report to the Secretary of  State, the Secretary of Defense, and the Director General of the  Multinational Force and Observers. We will also make copies available to  others upon request. In addition, this report will be available at no charge  on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-8979 or christoffj@gao.gov, or Phyllis Anderson at (202) 512- 7364 or andersonp@gao.gov. In addition to the persons named above, B.  Patrick Hickey, Lynn Cothern, Elizabeth Guran, and Bruce Kutnick made  key contributions to this report.
section_title: Appendix I: Scope and Methodology
paragraphs: We (1) assessed the Department of State’s oversight responsibilities for  U.S. participation in the MFO, (2) reviewed MFO’s personnel policies and  practices, (3) examined MFO’s financial management and accountability,  and (4) reviewed emerging budgetary challenges.
We focused our audit work at MFO and State on activities and transactions  starting in 1996 through 2004, the period subsequent to the prior GAO  report. We visited MFO offices in Rome, Cairo, and Tel Aviv and force  installations in the Sinai Peninsula. We also met with the Israeli and  Egyptian Ministries of Foreign Affairs and Defense in Jerusalem and Cairo.
To assess the Department of State’s oversight responsibilities, we  reviewed the oversight guidelines developed by the Office of Regional  Affairs of State’s Bureau of Near Eastern Affairs (NEA/RA) and supporting  documentation including State’s Annual Reports to Congress, cables, MFO  Director General Annual Reports for the Trilateral Conferences of Major  Fund Contributors, MFO external auditors’ financial statement audit and  internal control reports and turnover statistics of staff working in the  civilian observer unit. We could not determine the full extent of State’s  efforts because it did not document the nature, quality, and range of its  oversight activities. We also met with State/NEA officials responsible for  overseeing U.S. participation in the MFO to discuss the frequency, nature,  and extent of State contact with MFO. We discussed the views of the  Egyptian and Israeli governments on the MFO’s performance with military  and foreign affairs officials from both countries. We interviewed NEA and  MFO officials and current and former members of the Civilian Observer  Unit to obtain an understanding of State’s recruiting efforts and  interaction with the COU. We met with officials from State’s Office of  Inspector General (OIG) to discuss their inspection of NEA, and we also  reviewed relevant OIG reports. In addition, we assessed the status of  State’s compliance with prior GAO recommendations.
To review MFO’s personnel management system, we examined MFO  personnel regulations, internal reports and briefings that described  personnel policy changes, personnel statistics, performance appraisal  forms, and other documentation on the organization’s personnel practices.  We also examined leading human capital management policies and  practices of public organizations to determine if MFO personnel  regulations and policies relating to employee expectation setting,  performance appraisals, employee grievance processes, alternative dispute  resolution mechanisms, and sexual harassment policies followed the spirit  of leading practices. We interviewed MFO officials, members of the  civilian observer unit, MFO staff, and NEA officials to obtain their views  on the organization’s personnel system.
To examine MFO’s financial management and accountability, we reviewed  the external auditors’ financial statement audits and internal control  reports, other special reviews performed by the external auditor, and  reports completed by State’s OIG. We also reviewed MFO management  review officer’s reports, MFO financial regulations, and documentation on  MFO’s recently installed financial management system. We discussed the  scope and nature of the management review officer’s position and recent  work with MFO officials. We interviewed NEA, DOD, MFO, Israeli, and  Egyptian officials to determine their views on MFO’s financial  management and the degree of accountability of the Director General.
To report on some of the potential budgetary challenges MFO may face,  we examined budget data and supporting documentation for fiscal years  1995 through 2003 provided by MFO, NEA, and the U.S. Army’s Office of  Assistant Secretary of the Army for Financial Management and  Comptroller. We discussed with DOD, State, and MFO officials trend data  on costs and estimates for substituting U.S. Army UH-60 Black Hawk  helicopters or a private contractor’s helicopter unit for the current MFO  force of UH-1H Huey helicopters. We did not verify the accuracy or  completeness of the estimates or verify the accuracy of the budgetary  savings MFO officials associated with particular cost saving initiatives.
To assess the reliability of the data on the costs associated with U.S.  participation in the MFO, we (1) interviewed State, Army, and MFO  officials about the sources of their data and the means used to calculate  costs, (2) reviewed MFO’s annual financial reports and State’s annual  report to Congress on the MFO, (3) traced U.S. Army’s reported costs for  its contributions to the MFO back to the source documents, (4) traced the  Army’s calculation of the costs associated with providing salaries to the  soldiers stationed with the MFO—these salary costs constitute over   80 percent of the total costs of the U.S. Army contribution to the MFO–  back to the DOD personnel composite standard pay and reimbursement  rates for fiscal years 1999 through 2003, (5) performed tests on the data  provided by the U.S. Army regarding the cost of U.S. participation in the  MFO between 1999 and 2003 to check for obvious errors or  miscalculations, and (6) reviewed the report of the MFO’s independent  external auditor on State’s contributions. However, we did not audit the  data and are not expressing an opinion on them. We determined that the  data were sufficiently reliable for the purpose of reporting the total costs  of U.S. participation in the MFO.
We conducted our review from September 2003 to May 2004 in accordance  with generally accepted government auditing standards.
section_title: Appendix II: MFO’s Small but Challenging Workforce
paragraphs: MFO has a small and varied professional civilian workforce of 108  international and local national staff located in Rome, Cairo, and Tel Aviv.  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. 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.
MFO working conditions present challenges for management and staff.  MFO workers have limited prospects for advancement or job mobility  because the organization views itself as having a temporary mission. The  international workforce has decreased by about 62 percent since 1982.  With few exceptions, MFO employees tend to stay in the same positions  for which they were contracted and its many long-serving workers in  administrative positions lack opportunities to progress to higher positions.
MFO managers stated that while MFO’s pay scales and other benefits help  it successfully compete for staff with oil companies and other commercial  international organizations in the region, it is challenging to find civilian  employees with the ability to work successfully in the austere military  atmosphere and isolated living environment in the Sinai. The main camp at  El Gorah in the northern part of the Sinai is in a sparsely populated area  with few amenities outside the camp. Only 17 military and civilian  positions in the Sinai allow for accompaniment by a spouse, and facilities  for children are lacking. Visits by family members are also very limited.  The force’s personnel system reflects the “temporary” nature of the MFO’s  mission; most international contractors serve under initial 2-year contracts  that can be renewed at the discretion of the Director General. According  to MFO documents, employment with the MFO is not a career service and  initial employment with the MFO does not carry any expectation of  contract renewal or extension. Several long-term employees stated that  there are limited job progression opportunities with the MFO. Heightened  concerns about terrorism since September 11, 2001, and ongoing violence  in areas under Israeli control has led to significantly restricted  opportunities for travel off the bases.
section_title: Appendix III: GAO’s Model for Strategic Human Capital Management Planning
paragraphs: 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. 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.
Our work has shown that the public organizations face four key human  capital challenges that undermine agency efficiency. The model consists of  four cornerstones designed to help public organizations address the  challenges in the four areas—leadership; strategic human capital planning;  acquiring, developing, and retaining talent; and results-oriented  organizational culture. Each cornerstone is associated with two critical  factors that an agency’s approach to strategic human capital planning must  address. Moreover, for each of the eight critical success factors, the model  describes three levels of progress in an agency’s approach to strategic  human capital planning:    Level 1: The approach to human capital is largely compliance-based; the  agency has yet to realize the value of managing human capital strategically  to achieve results; existing human capital approaches have yet to be  assessed in light of current and emerging agency needs.
Level 2: The agency recognizes that people are a critical asset that must be  managed strategically; new human capital policies, programs, and  practices are being designed and implemented to support mission  accomplishment.
Level 3: The agency’s human capital approaches contribute to improved  agency performance; human capital considerations are fully integrated  into strategic planning and day-to-day operations; the agency is  continuously seeking ways to further improve its “people management” to  achieve results.
Figure 8 illustrates the critical success factors an organization in the  second level of progress must address as it develops a strategic approach  to managing its human capital.
subsections: section_title: Data-Driven Human
paragraphs: 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 1. People are assets whose value can be enhanced  2. An organization's human capital approaches should be designed,  through investment. As with any investment, the goal  is to maximize value while managing risk. implemented, and assessed by the standard of how well they help  the organization achieve results and pursue its mission.
section_title: Appendix IV: Calculating MFO Budget in Terms of International Dollars
paragraphs: 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.
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.
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.
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    Second, divide this dollar amount by the country-specific purchasing  power parity (PPP) conversion factor to official exchange rate ratio.
The PPP conversion factor converts into international dollars the cost of a  basket of tradable and nontradable goods and services valued in local  currency units (pounds in the case of Egypt and shekels in the case of  Israel). The PPP conversion factor is the number of local currency units  required to buy the same amount of goods and services in the domestic  market that a U.S. dollar would buy in the United States. For example, a  basket of goods that could be purchased in the United States for $1, equal  by definition to 1 international dollar, could be bought in Egypt for 1.259  Egyptian pounds in 1995. Therefore, the PPP conversion factor is 1.259  Egyptian pounds per international dollar. In calendar year 1995, the  official annual average exchange rate (based on monthly averages) was  3.392 Egyptian pounds per U.S. dollar. The ratio of the PPP conversion  factor to the official exchange rate is 0.371. 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.
section_title: Appendix V: Cost of U.S. Participation in MFO
paragraphs: 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.
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. These salaries  constitute over 80 percent of the cost of the total Army contribution. In FY  2002, the Army substituted Army National Guard forces for the regular  Army personnel, contributing to a salary cost increase of 12 percent  between fiscal years 2002 and 2003. National Guard troops tend to be older  and have been in grade longer than regular Army forces and are  consequently paid more. Across-the-board salary increases for all military  forces is another factor contributing to rising military costs, according to  Army officials.
Special pay and allowances paid to U.S. soldiers participating in the MFO  mission have increased nearly ten-fold since fiscal year 1995, going from  about $300,000 to $3 million in fiscal year 2003. Under the March 1982  Exchange of Letters between the MFO Director General and the Secretary  of State, the MFO agreed to pay for certain special allowances to U.S.  military personnel participating in the MFO mission, including a Family  Separation Allowance for married personnel and Foreign Duty Pay for  enlisted personnel. The coverage and rates of these existing allowances  has been expanded since then to include both enlisted men and officers  and costs about $250 per soldier per month. Moreover, in fiscal year 1997,  DOD began providing imminent danger pay to military personnel serving  in Israel and Egypt. The current rate amounts to $225 per soldier per  month. In fiscal year 2003, the imminent danger pay allowance constituted  78 percent of total DOD special pays provided to military personnel  participating in the MFO.
Reimbursement payments from DOD to the MFO increased 13 percent.
Currently, the U.S. Army provides the MFO a credit or “offset” for certain  costs associated with the support of U.S. forces. These costs are those  which would normally have been incurred by the U.S. government for food  and lodging, base support, and operations and maintenance for such units  when stationed in the United States.
MFO purchases of supplies from DOD decreased by about 60 percent. In  fiscal year 1995, the MFO reimbursed DOD for the purchase of supplies,  equipment, and rations totaling $4.3 million dollars. MFO has sought to  replace DOD as a source of supply with lower cost local commercial  vendors in recent years, limiting its purchases from DOD to medical  supplies and certain helicopter parts. In fiscal year 2003, these purchases  totaled about $1.8 million.
section_title: Appendix VI: Comments from the Department of State
section_title: Appendix VII: Comments from the Multinational Force and Observers
subsections: section_title: GAO Comments
paragraphs: 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.