Military Sales to Israel and Egypt

The United States has given billions of dollars in security assistance to both Israel and Egypt. In 1991, Israel convicted one of its Air Force officers of skimming an estimated $40 million in U.S. funds by submitting false purchase orders on U.S.-financed contracts. This incident heightened congressional concerns about the incidence of waste, fraud, and abuse in the Foreign Military Financing Program. This report (1) discusses why Israel and Egypt often buy U.S.-funded goods directly from contractors rather than through the U.S. government and (2) identifies weaknesses in the program. GAO also examines the procurement procedures of each country.

GAO found that: (1) in 1992, Israel and Egypt allocated 60 percent and 20 percent, respectively, of their U.S.-funded FMF funds for commercial procurement; (2) although Israel and Egypt initially obtain price and availability data from the Department of Defense (DOD), they usually purchase U.S.-funded items and services directly from commercial contractors because they offer the best price, availability, and quality; (3) while some items purchased through the DOD Foreign Military Sales (FMS) channel are advantageous to buyers, these items are not always readily available, can often be purchased cheaper, and are limited to U.S. standards; (4) although Israel and Egypt have safeguards to protect the integrity of purchases made through the FMF program, the recent fraudulent collusion between a U.S. commercial contractor and a foreign military official revealed the program's vulnerability to contractor abuses; (5) as a result of DOD audits that uncovered evidence that contractors may have improperly used FMF funds to pay questionable commissions, reimburse foreign officials for travel expenses, and make payments for items that were not of U.S. origin, the Defense Security Assistance Agency (DSAA) has terminated the commercial channel of the FMF program; (6) FMF program weaknesses include the inability of foreign countries to access contractor records, poor contractor record maintenance, and inadequate contract monitoring by foreign procurement authorities; and (7) DOD could reduce its vulnerability to fraud by implementing stronger program controls and having foreign countries contract with the Defense Contract Management Command (DCMC) to conduct capability surveys, price analyses, and quality assurance support.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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