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. 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. 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. 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 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.