Security Assistance
State and DOD Need to Assess How the Foreign Military Financing Program for Egypt Achieves U.S. Foreign Policy and Security Goals Gao ID: GAO-06-437 April 11, 2006Since 1979, Egypt has received about $60 billion in military and economic assistance with about $34 billion in the form of foreign military financing (FMF) grants that enable Egypt to purchase U.S.-manufactured military goods and services. In this report, GAO (1) describes the types and amounts of FMF assistance provided to Egypt; (2) assesses the financing arrangements used to provide FMF assistance to Egypt; and (3) evaluates how the U.S. assesses the program's contribution to U.S. foreign policy and security goals.
Egypt is currently among the largest recipients of U.S. foreign assistance, along with Israel, Afghanistan, and Iraq. Egypt has received about $1.3 billion annually in U.S. foreign military financing (FMF) assistance and has purchased a variety of U.S.-manufactured military goods and services such as Apache helicopters, F-16 aircraft, and M1A1 tanks, as well as the training and maintenance to support these systems. The United States has provided Egypt with FMF assistance through a statutory cash flow financing arrangement that permits flexibility in how Egypt acquires defense goods and services from the United States. In the past, the Defense Security Cooperation Agency (DSCA) accumulated large undisbursed balances in this program. Because the flexibilities of cash flow financing permit Egypt to pay for its purchases over time, Egypt currently has agreements for U.S. defense articles and services worth over $2 billion--some of which are not due for full payment until 2011. The Departments of State (State) and Defense (DOD) have not conducted an assessment to identify the risks and impacts of a potential shift in FMF funding. Officials and many experts assert that the FMF program to Egypt supports U.S. foreign policy and security goals; however, State and DOD do not assess how the program specifically contributes to these goals. U.S. and Egyptian officials cited examples of Egypt's support for U.S. interests, such as maintaining Egyptian-Israeli peace and providing access to the Suez Canal and Egyptian airspace. DOD has not determined how it will measure progress in achieving key goals such as interoperability and modernizing Egypt's military. For example, the U.S. Central Command, the responsible military authority, defines modernization as the ratio of U.S.-to-Soviet equipment in Egypt's inventory and does not include other potentially relevant factors, such as readiness or military capabilities. Achieving interoperability in Egypt is complicated by the lack of a common definition of interoperability and limitations on some types of sensitive equipment transfers. Given the longevity and magnitude of FMF assistance to Egypt, evaluating the degree to which the program meets its goals would be important information for congressional oversight, particularly as Congress assesses the balance between economic and military assistance to Egypt as well as the impact on U.S. foreign policy interests.
RecommendationsOur 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.
Director: Team: Phone:GAO-06-437, Security Assistance: State and DOD Need to Assess How the Foreign Military Financing Program for Egypt Achieves U.S. Foreign Policy and Security Goals
This is the accessible text file for GAO report number GAO-06-437
entitled 'Security Assistance: State and DOD Need to Assess How the
Foreign Military Financing Program for Egypt Achieves U.S. Foreign
Policy and Security Goals' which was released on May 12, 2006.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
United States Government Accountability Office:
GAO:
Report to the Committee on International Relations, House of
Representatives:
April 2006:
Security Assistance:
State and DOD Need to Assess How the Foreign Military Financing Program
for Egypt Achieves U.S. Foreign Policy and Security Goals:
GAO-06-437:
GAO Highlights:
Highlights of GAO-06-437, a report to the Committee on International
Relations, House of Representatives.
Why GAO Did This Study:
Since 1979, Egypt has received about $60 billion in military and
economic assistance with about $34 billion in the form of foreign
military financing (FMF) grants that enable Egypt to purchase U.S.-
manufactured military goods and services. In this report, GAO (1)
describes the types and amounts of FMF assistance provided to Egypt;
(2) assesses the financing arrangements used to provide FMF assistance
to Egypt; and (3) evaluates how the U.S. assesses the program‘s
contribution to U.S. foreign policy and security goals.
What GAO Found:
Egypt is currently among the largest recipients of U.S. foreign
assistance, along with Israel, Afghanistan, and Iraq. Egypt has
received about $1.3 billion annually in U.S. foreign military financing
(FMF) assistance and has purchased a variety of U.S.-manufactured
military goods and services such as Apache helicopters, F-16 aircraft,
and M1A1 tanks, as well as the training and maintenance to support
these systems.
The United States has provided Egypt with FMF assistance through a
statutory cash flow financing arrangement that permits flexibility in
how Egypt acquires defense goods and services from the United States.
In the past, the Defense Security Cooperation Agency (DSCA) accumulated
large undisbursed balances in this program. Because the flexibilities
of cash flow financing permit Egypt to pay for its purchases over time,
Egypt currently has agreements for U.S. defense articles and services
worth over $2 billion”some of which are not due for full payment until
2011. The Departments of State (State) and Defense (DOD) have not
conducted an assessment to identify the risks and impacts of a
potential shift in FMF funding.
Officials and many experts assert that the FMF program to Egypt
supports U.S. foreign policy and security goals; however, State and DOD
do not assess how the program specifically contributes to these goals.
U.S. and Egyptian officials cited examples of Egypt‘s support for U.S.
interests, such as maintaining Egyptian-Israeli peace and providing
access to the Suez Canal and Egyptian airspace. DOD has not determined
how it will measure progress in achieving key goals such as
interoperability and modernizing Egypt‘s military. For example, the
U.S. Central Command, the responsible military authority, defines
modernization as the ratio of U.S.-to-Soviet equipment in Egypt‘s
inventory and does not include other potentially relevant factors, such
as readiness or military capabilities. Achieving interoperability in
Egypt is complicated by the lack of a common definition of
interoperability and limitations on some types of sensitive equipment
transfers. Given the longevity and magnitude of FMF assistance to
Egypt, evaluating the degree to which the program meets its goals would
be important information for congressional oversight, particularly as
Congress assesses the balance between economic and military assistance
to Egypt as well as the impact on U.S. foreign policy interests.
Image: Egypt FMF Funds Are Used to Purchase Items Such as F-16
Aircraft, Apache Helicopters, and M1A1 Tanks:
[See PDF for Image]
Source: DOD.
[End of image]
What GAO Recommends:
We recommend that the Secretaries of State and Defense conduct: (1) an
assessment of the impact of potential shifts in appropriations on the
Egypt FMF program; and (2) periodic program-level evaluations of the
program. Specifically, the agencies should define the current and
desired levels of modernization and interoperability the U.S. would
like to achieve.
DOD concurred with our recommendations. State said that steps to
mitigate risks are in place. GAO responded that additional factors
should be included. State agreed to try to measure Egypt‘s
modernization goals but defining interoperability would be speculative.
Some level of capabilities, such as contributions to peacekeeping, can
be measured.
[Hyperlink, www.gao.gov/cgi-bin/getrpt?GAO-06-437].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Joseph Christoff at (202)
512-8979 or christoffj@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
The United States Has Provided $1.3 Billion in Military Assistance to
Egypt Annually to Purchase Defense Articles and Services:
Cash Flow Financing Flexibility Allows Egypt to Pay for Defense Goods
over Multiple Years:
Officials Assert that FMF Assistance to Egypt Supports U.S. Goals, but
State and DOD Do Not Evaluate the Program's Contributions to Key Goals:
Conclusion:
Recommendations for Executive Action:
Agency Comments and our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Letter of Request and Letter of Offer and Acceptance
Process:
Appendix III: Agency and Organizational Roles and Responsibilities:
Appendix IV: Example of an Evaluation Framework:
Appendix V: Comments from the Department of State:
Appendix VI: Comments from the Department of Defense:
Appendix VII: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Agency and Organizational Roles and Responsibilities:
Figures:
Figure 1: Key FMF-Financed Systems Purchased by Egypt Include F-16
Aircraft, Apache Helicopters, and M1A1 Tanks:
Figure 2: FMF Purchases for Egypt Total $7.8 billion (1999-2005):
Figure 3: DSCA Plan to Disburse Egypt's Accumulated FMF Funds:
Figure 4: Value of Egypt's Future FMF Commitments at the End of Each
Fiscal Year:
Figure 5: Letter of Request and Letter of Offer and Acceptance Review
Process:
Figure 6: Using a Logic Model to Link Inputs, Activities, and Outputs
to Outcomes:
Abbreviations:
CENTCOM: U.S. Central Command:
DSCA: Defense Security Cooperation Agency:
FMF: Foreign Military Financing:
GPRA: The Government Performance and Results Act:
LOA: Letter of Offer and Acceptance:
LOR: Letter of Request:
OMC: Office of Military Cooperation:
PART: Performance Assessment Rating Tool:
United States Government Accountability Office:
Washington, DC 20548:
April 11, 2006:
The Honorable Henry J. Hyde:
Chairman:
The Honorable Tom Lantos:
Ranking Minority Member:
Committee on International Relations:
House of Representatives:
After signing the Camp David Peace Accords, Egypt emerged as the second
largest recipient of U.S. military aid in the world. Since 1979, Egypt
has received about $60 billion in military and economic assistance
overall with about $34 billion in the form of foreign military
financing (FMF) grants and loans that enable Egypt to purchase U.S.-
manufactured military goods and services. To fund this program,
approximately $1.3 billion has been appropriated annually and disbursed
through a cash flow financing arrangement that allows Egypt to spread
the payments over several years. Specifically, the United States uses
FMF funds set aside for Egypt to purchase military equipment, services,
and training from U.S. contractors on Egypt's behalf. These defense
articles and services are to modernize Egypt's armed forces and enhance
Egypt's military interoperability with the United States. According to
Department of State (State) and Department of Defense (DOD) officials,
FMF funds also contribute to the U.S. goal of maintaining regional
stability and supporting Egypt as a partner in the Middle East.
Recently, congressional committees have sought to alter the balance of
economic and military assistance provided to Egypt and to review the
results of the assistance.
At your request, we reviewed selected aspects of the FMF program for
Egypt including the composition and funding of the program and the U.S.
government's assessment of its contributions. Specifically, we (1)
describe the types and amounts of FMF assistance provided to Egypt, (2)
assess the financing arrangements used to provide FMF assistance to
Egypt, and (3) evaluate how the United States assesses FMF assistance
to Egypt and its contribution to the advancement of U.S. foreign policy
and security goals.
To meet these objectives, we reviewed documentation and interviewed
officials from State, DOD, and the Defense Security Cooperation Agency
(DSCA.) We traveled to Cairo, Egypt, to meet with Egyptian officials at
the Ministry of Defense and U.S. officials at the U.S. Embassy and at
the Office of Military Cooperation (OMC). We also interviewed officials
at U.S. Central Command (CENTCOM) in Tampa, Florida, to discuss their
roles and responsibilities in the FMF program for Egypt. In addition,
we interviewed senior Egyptian officials in Washington, D.C., and
several political and military experts from academic and policy
institutions in Washington, D.C. We examined DOD data collected from
1999 to 2005 to determine the composition of foreign military financing
assistance provided to Egypt. This report examines FMF for Egypt and
does not assess economic assistance to Egypt. We performed our work
from June 2005 through March 2006 in accordance with generally accepted
government auditing standards. A detailed description of our scope and
methodology is included in appendix I of this report.
Results in Brief:
Since 1979, Egypt received more than $60 billion in military and
economic assistance from the United States and is currently among the
largest recipients of U.S. assistance worldwide, along with Israel,
Afghanistan and Iraq. In fiscal year 2005, Egypt received nearly $1.3
billion in FMF grants, which comprises about 80 percent of Egypt's
military procurement budget and more than 25 percent of the total
amount of FMF assistance provided worldwide. Over the life of the
program, Egypt has acquired 36 Apache helicopters, 220 F-16 aircraft,
and 880 M1A1 tanks--among other items--as well as the training and
maintenance to support these systems. According to DOD, the FMF program
has helped Egypt replace its Soviet-era equipment with modern weaponry
and equipment. In the past 6 years, almost $8 billion has been provided
in the form of FMF grants that enable Egypt to acquire U.S.-
manufactured military goods and services.
The United States has provided Egypt with FMF assistance through a
statutory cash flow financing arrangement that gives Egypt the
flexibility to plan for and acquire defense goods and services that can
be paid for over time, similar to installment payments. The arrangement
allows for flexibility in the management of payments and significant
commitments that will need to be paid for in the future. As of 2005,
Israel and Egypt are the only countries permitted to use cash flow
financing. According to DSCA officials, from 1986 to 1998, DSCA managed
the cash flow financing program by limiting new commitments, and by
1998, the Egyptian program accumulated large undisbursed
balances[Footnote 1]of about $2 billion. DSCA and Egyptian military
officials then began planning to eliminate these balances by 2007.
Because the flexibility of cash flow financing permits Egypt to pay for
its purchases over time, some purchases are not due for full payment
until 2011. Egypt currently has letters of offer and
acceptance[Footnote 2] (LOA) agreements for U.S. defense articles and
services that are worth about $2 billion more than available FMF
appropriations to date. Egypt is financially liable to the U.S.
government under the LOAs. However, the U.S. government awards the
contracts that procure the defense articles and services to be
delivered to Egypt and is liable for the payments due on those
contracts.[Footnote 3] DSCA officials stated that, if there were a
reduction in anticipated appropriations, the United States would first
look to Egypt to provide funding consistent with its promise to pay
under the LOAs; however if Egyptian funding were not forthcoming, the
U.S. government would have to continue to meet its contractual
obligations and make payments as they become due. DSCA officials stated
that a reduction in funding would require reducing the scope of
existing contracts, among other things. This may affect the achievement
of FMF program goals in Egypt and some aspects of U.S. relations with
Egypt.
Although officials and several experts assert that the FMF program to
Egypt supports U.S. foreign policy and security goals, State and DOD do
not assess how the program specifically contributes to these goals.
U.S. and Egyptian officials cited examples of Egypt's support for U.S.
interests, such as maintaining Egyptian-Israeli peace and providing
access to the Suez Canal and Egyptian airspace. However, DOD has not
determined how it will measure progress in achieving key goals such as
interoperability and modernizing Egypt's military. For example,
CENTCOM, the responsible military command, measures modernization as
the ratio of U.S. to Soviet-era equipment in Egypt's inventory and does
not include other potentially relevant factors, such as readiness or
military capability. Achieving interoperability with Egypt is
complicated by both the lack of a common definition of interoperability
and limitations on some types of equipment transfers. Although it may
be difficult to measure how FMF assistance to Egypt achieves strategic
goals such as maintaining peace, operational goals such as
modernization and interoperability lend themselves to measurement.
Given the longevity and magnitude of the FMF assistance to Egypt,
assessing the degree to which the program meets its goals would provide
objective and useful performance information for executive decision
makers and overseers. Legislation such as the Government Performance
and Results Act (GPRA)[Footnote 4] and administration initiatives such
as the Office of Management and Budget Performance Assessment Rating
Tool (PART) establish the expectation that federal programs will be
evaluated to provide such important information.[Footnote 5]
To help Congress assess the balance of economic and military assistance
to Egypt, we recommend that the Secretaries of State and Defense
conduct (1) an assessment of the impact of potential shifts in future
appropriations on the Egypt FMF program and (2) periodic program-level
evaluations of the program. The latter would require the United States
to define specific objectives for the goals and identify appropriate
indicators to demonstrate progress toward achieving those objectives.
Specifically, we recommend that the agencies define the current and
desired levels of modernization and interoperability with Egypt,
including the establishment of benchmarks and targets for these and
other goals.
DOD concurred with our recommendations but stated that we should direct
the recommendations primarily to the Secretary of State. However, DOD
and State are joint partners in the FMF program for Egypt--State sets
the broad goals for the program while DOD works closely with Egypt's
military to implement the program. Therefore, the recommendations are
appropriately addressed to both State and DOD. State did not indicate
whether it concurred with our recommendations. In regard to our first
recommendation, State emphasized that steps to mitigate risks are
already in place, such as maintaining reserves to pay costs associated
with terminating contracts. However, contract termination reserves are
last-resort measures that do not represent a comprehensive assessment
for reducing risk associated with possible fluctuations in Egypt's FMF
resources. A risk assessment should include other measures such as
reducing the scope of existing contracts, stopping new orders, or
selling undelivered defense goods.
On our second recommendation, State noted that it would work with DOD
to better define measures for assessing Egypt's modernization goals,
but stated that defining a level of interoperability would be
speculative. However, improving Egypt's ability to operate with the
U.S. and coalition partners has been a critical, yet unmeasured goal of
the program. At a minimum, DOD and State can begin to measure Egyptian
forces' capabilities to operate with allied countries in military
exercises or peacekeeping operations. DOD and State provided technical
comments that we incorporated as appropriate. Comments on a draft of
this report are provided in appendixes V and VI.
Background:
Egypt is currently among the largest recipients of U.S. foreign
assistance, along with Israel, Afghanistan, and Iraq. Since 1979, Egypt
has received an annual average of more than $2 billion in economic and
military aid. Egypt has generally received about $1.3 billion each year
in foreign military financing assistance in the form of grants and
loans. From 1982 to 1988, the United States forgave Egypt's FMF debt to
the United States and began providing military assistance in 1989
solely in the form of grants with no repayment requirement.[Footnote 6]
State and DOD planning documents describe FMF as one of several U.S.
security assistance programs[Footnote 7] which are a subset of U.S.
security cooperation efforts designed to build relationships that
support specified U.S. government interests. These interests include
building friendly nations' capabilities for self-defense and coalition
operations, strengthening military support for containing transnational
threats, protecting democratically elected governments, and fostering
closer military ties between U.S. and recipient nations.[Footnote
8]According to State, the objectives of the FMF program worldwide
include:
* assisting friendly foreign militaries in procuring U.S. defense
articles and services for their countries' self defense and other
security needs;
* promoting coalition efforts in regional conflicts and the global war
on terrorism;
* improving capabilities of friendly foreign militaries to assist in
international crisis response operations;
* contributing to the professionalism of military forces;
* enhancing rationalization, standardization, and interoperability of
friendly foreign military forces;
* maintaining support for democratically elected governments; and:
* supporting the U.S. industrial base by promoting the export of U.S.
defense-related goods and services.
Generally, FMF provides financial assistance in the form of credits or
guarantees to U.S. allies to purchase military equipment, services, and
training from the United States. Recipient countries can use the
assistance to purchase items from the U.S. military departments through
the Foreign Military Sales (FMS) process or directly from private U.S.
companies through direct commercial sales. State is responsible for the
continuous supervision and general direction of security assistance
programs, including FMF, in coordination with DOD. DSCA leads the day-
to-day program implementation for each FMF recipient country in
coordination with other DOD entities at the unified combatant
commands[Footnote 9] and in the recipient countries. CENTCOM's
responsibilities include developing and implementing security
cooperation plans for Egypt and other countries in the Middle East, as
well as coordinating with other government entities on major Egyptian
equipment requests. (See appendix II for a description of the FMS
process for purchasing FMF-funded cases and appendix III for a
description of the roles and responsibilities of the entities involved
in the program.)
Members of Congress have periodically sought to alter the balance of
economic and military assistance to Egypt. In 1998, the United States
and Egypt agreed to a 10-year assistance phase-down in conjunction with
a similar package for Israel. The package for Egypt reduced economic
assistance by $40 million each year but did not increase FMF assistance
to Egypt. U.S. economic assistance to Israel was reduced by $120
million each year, and the amount of U.S. military assistance was
increased by $60 million per year. In 2004 and 2005, amendments to the
Consolidated Appropriations bill[Footnote 10] for fiscal year 2005 and
the Foreign Relations Authorization bill[Footnote 11]for fiscal years
2006 and 2007 proposed converting some military assistance to economic
assistance to Egypt. The 2004 amendment was not adopted and did not
become law. Furthermore, as of March 2006, the 2005 amendment has not
been enacted. Additionally, a conference report attached to the fiscal
year 2006 Foreign Operations Appropriations bill requires State to
report to Congress on the balance between economic and military
assistance provided to Egypt, including whether maintaining the current
level of military assistance in relation to economic assistance is
appropriate in light of the political and economic conditions in Egypt
and in the region.[Footnote 12] Although this requirement was not
stipulated in law, it conveys congressional intent to have this
information provided to the Congress.
Over the past decade, Congress and the executive branch laid out a
statutory and managerial framework that provides the foundation for
strengthening government performance and accountability, with GPRA as
its centerpiece.[Footnote 13] GPRA is designed to inform congressional
and executive decision making by providing objective information on the
relative effectiveness and efficiency of federal programs and spending.
A key purpose of the act is to create closer and clearer links between
the process of allocating resources and the results expected to be
achieved with those resources. Program evaluations are objective
studies that answer questions about program performance and results,
and explore ways to improve them. In 2002, OMB implemented the
Performance Assessment Rating Tool (PART) method of assessing federal
programs. PART assesses federal programs in four areas: purpose and
design, strategic planning, management, and results and accountability.
Another assessment tool, which we have discussed in previous reports,
is a logic model.[Footnote 14] This tool can be used to describe a
program's components and desired results, while explaining the strategy
by which the program is expected to achieve its goals. A logic model is
a representation of the relationship between the various components of
a program, typically including at a minimum, inputs, activities,
outputs and outcomes. By specifying the program's theory of what is
expected at each step, a logic model can help evaluators define
measures of the program's progress toward its ultimate goals. (See
appendix IV for details on the logic model.)
The United States Has Provided $1.3 Billion in Military Assistance to
Egypt Annually to Purchase Defense Articles and Services:
Since 1979, Egypt has received about $34 billion in FMF assistance
which the United States has generally appropriated in annual amounts of
approximately $1.3 billion. In fiscal year 2005, Egypt received nearly
$1.3 billion in FMF grants, more than 25 percent of the total amount of
FMF assistance provided worldwide. FMF assistance to Egypt accounts for
80 percent of Egypt's military procurement budget and has served to
replace some of Egypt's Soviet-supplied equipment with modern U.S.
equipment. Egyptian officials stated that 52 percent of their military
inventory is U.S. equipment as of August 2005.
Over the life of the FMF program, Egypt has purchased 36 Apache
helicopters, 220 F-16 aircraft, 880 M1A1 tanks, and the accompanying
training and maintenance to support these systems, among other items
(see fig. 1). According to U.S. and Egyptian officials, the Egyptian
military is better equipped to defend its territory and participate in
operations in the region. For example, the Egyptian military has
participated in peacekeeping missions in East Timor, Bosnia, and
Somalia. In addition, the Egyptian military participates with the
United States in Operation Bright Star, a biannual military exercise
involving forces from other coalition countries, including Germany,
Jordan, Kuwait, and the United Kingdom. The purpose of the exercise is
to conduct field training to enhance military cooperation among U.S.
and coalition partners and strengthen relationships between the United
States and Egypt, as well as other participating partners.
Figure 1: Key FMF-Financed Systems Purchased by Egypt Include F-16
Aircraft, Apache Helicopters, and M1A1 Tanks:
[See PDF for image]
Source: DOD.
[End of figure]
From 1999 to 2005, the United States provided a total of about $7.8
billion to Egypt in FMF funds. Egypt spent almost half of its FMF funds
from 1999 to 2005 (about $3.8 billion) on major equipment such as
aircraft, missiles, ships, and vehicles (see fig. 2). For example,
Egypt spent 8 percent of its FMF funds on missiles, including 822
ground-launched Stinger missiles, 459 air-launched Hellfire missiles,
and 33 sea-launched Harpoon missiles. Egypt also spent 14 percent on
aircraft, including 3 cargo airplanes; 10 percent on communications and
support equipment, including 42 radar systems and 8 switchboards; and 9
percent on supplies and supply operations, including 1,452 masks to
protect against chemical and biological agents.
Figure 2: FMF Purchases for Egypt Total $7.8 billion (1999-2005):
[See PDF for image]
Source: DOD; GAO
Note: Numbers may not add due to rounding.
[End of figure]
Egypt spent the remaining amount of its FMF funds--about $2.5 billion-
-on maintenance, weapons and ammunition, and other requirements. DSCA
adheres to a total package approach when working with Egypt to procure
items through the FMF program, which ensures that the costs of support
articles and services for new equipment are included in the total price
of the item. In addition to the equipment, support items include
training, technical assistance, initial support, and follow-on support.
Egyptian officials stated that approximately one-third of their FMF
funds are dedicated to follow-on support; one-third to upgrade U.S.-
supplied equipment; and nearly one-third to new procurements.
Cash Flow Financing Flexibility Allows Egypt to Pay for Defense Goods
over Multiple Years:
The United States permits Egypt to finance its military purchases using
a statutory cash flow financing arrangement that allows Egypt to make
purchases in one year and pay for them over succeeding years using
grants made from future FMF appropriations. The arrangement allows the
United States to enter into contracts in advance of--and in excess of-
-current FMF appropriations for Egypt. Specifically, Egypt is not
required to pay the full amount of the LOA[Footnote 15] up front. Cash
flow financing allows Egypt to pay only the amount that signed LOAs
require in a given year for specified defense articles and services.
The cash flow financing arrangement benefits Egypt in that it can
receive more defense goods and services than it can under other
financing arrangements. However, the program accumulated undisbursed
funds because the agency refrained from making as many new commitments
for goods and services as the annual appropriation would have allowed,
according to DSCA officials. The cash flow financing arrangement allows
for significant commitments to be made based on anticipated
appropriations.
Cash Flow Financing Allows for Flexibility:
Unlike other countries that receive FMF assistance, Egypt and Israel
are currently the only countries that may receive defense goods worth
more than the annual FMF appropriation and pay for them over multiple
years. Cash flow financing enables Egypt to purchase more defense goods
and services than under other financing arrangements and to better plan
its military purchases over a number of years. For example, Egypt may
begin the process of purchasing an F-16 in one year and make
installment payments for the item over the life of the contract.
Traditional financing options for FMF programs permit countries to make
purchases equal to the amount of the particular appropriation in any
given year or save appropriations over multiple years. For example, a
country using traditional financing would have to plan its purchases by
saving its FMF funds over a period of years to accumulate sufficient
funds to make the full payment for the item. All other countries that
receive FMF assistance, except Israel and Egypt, are required to make
their FMF purchases in this manner.
In the Past, DSCA Limited the Number of New Commitments to Less than
the Appropriated Amounts, Allowing Funds to Accumulate:
By 1998, more than $2 billion in undisbursed funds accumulated in
Egypt's FMF account because DSCA did not have a high enough level of
commitments to require disbursements in an amount equal to Egypt's
entire annual FMF appropriation. DSCA officials stated that previous
FMF program managers did not have adequate tools to track Egypt's FMF
current commitments against future FMF disbursement requirements. In
August 1998, DSCA established a system to project estimated commitments
and payments by fiscal year to obtain better control over the cash flow
financing process.
DSCA developed and is now implementing a plan to disburse the
accumulated funds by fiscal year 2007. According to DSCA, OMB
officials, and congressional staff, in 1998, members of Congress and
OMB became concerned about the large balance in Egypt's FMF account and
consulted with DSCA to eliminate it.[Footnote 16] As a result, DSCA
coordinated with OMB and subsequently developed and implemented a plan
in 2002, to disburse $300 million of the undisbursed balances every
year, in addition to the amounts appropriated annually for Egypt's FMF
program, until the undisbursed balances are eliminated in 2007 (see
fig. 3).[Footnote 17]
Figure 3: DSCA Plan to Disburse Egypt's Accumulated FMF Funds:
[See PDF for image]
Source: DCSA; GAO.
[End of figure]
According to DSCA officials, because tracking mechanisms were not in
place before 1998, program managers did not adequately track FMF
commitments against disbursement requirements and available
appropriations. As a result, DSCA's commitments for Egypt's FMF program
were held at a low enough level such that disbursements were less than
the yearly appropriations. This ensured sufficient funds were available
to cover future payments to contractors, according to DSCA.
DSCA developed three databases to track Egypt's FMF expenditures that,
according to DOD officials, address the undisbursed balance problem.
First, one database tracks the amount of FMF funds required for each
project for which an LOA was signed and the amount of funds needed in
each year to make the annual payments. Second, another tracking
database determines the length of time between the U.S. military's
receipt of a signed request to undertake a project for Egypt and its
receipt of a signed LOA to implement the project. This database also
tracks the total amount of funds committed to LOAs in each fiscal year.
Finally, DSCA and the Egyptian Ministry of Defense maintain a
spreadsheet known as the Five Year Defense Plan that lists the items
Egypt plans to buy in the next 5 years, their expected prices, the year
in which Egypt plans to purchase each item, and the total amount of
money available each year for purchases. When an LOA is signed for an
item listed in the Five Year Defense plan, it is entered into the
database and the funds needed to purchase it are subtracted from the
total amount of funds available.
Cash Flow Financing Allows for Significant Commitments that Anticipate
Future Appropriations:
Cash flow financing also permits Egypt to order defense articles and
services that may be paid for with future appropriations or country
funds. As of March 22, 2006, the value of LOAs anticipating future
funding totaled approximately $2 billion, some of which are not due for
full payment until 2011. Due to the nature of cash flow financing, this
number can vary daily because contracts are signed, completed, or
modified daily. For example, from 1997 to 2005, the dollar value of
these commitments at the end of each fiscal year has varied from $1.3
billion to $3.6 billion, whereas the average amount was $2.6 billion
(see fig. 4). These commitments are expected to be paid for with future
appropriations. If future appropriations are not available, Egypt will
be responsible under the LOA to pay these commitments with other
sources.
DSCA officials stated that, if there were a change in the anticipated
appropriations, the United States would seek funding from Egypt to
satisfy the LOAs. If Egypt is unable to pay for the LOAs with its own
funds, the U.S. government would be liable for the payments due on the
underlying contracts executed on Egypt's behalf. To manage payment if
expected funding is reduced, DSCA officials stated that DOD would
consider a range of steps including reducing the scope of the existing
contracts, and stopping new orders, among other things. Additionally,
defense articles and services that have not been delivered would not be
provided to Egypt, if payment had not been received. As a result, DOD
also may use FMF funds held in reserve to pay companies' costs
associated with closing down their production lines and terminating the
contracts.[Footnote 18]However, DSCA officials stated that contract
termination would be considered as a last resort.
Absent the availability of U.S. funds to pay the entire balance of
existing contracts, important implications for the achievement of the
program goals and U.S. relations with Egypt may arise. For example, if
the United States had to terminate multiple contracts on Egypt's behalf
because of a reduction in FMF program funding and Egypt's inability to
provide funding, the U.S. ability to achieve FMF goals such as military
modernization would be affected. In addition, U.S. and Egyptian
officials stated that a shift in funding may affect some elements of
the U.S.-Egyptian relationship.
Figure 4: Value of Egypt's Future FMF Commitments at the End of Each
Fiscal Year:
[See PDF for image]
Source: DSCA; GAO.
[End of figure]
State and DOD have not conducted an assessment to identify the impacts
of a potential reduction in FMF funding below the levels that are
planned to be requested. According to applicable internal control
standards for the federal government, an organization should identify
risks--such as a reduction in funding--and decide upon the internal
control activities required to mitigate those risks and achieve
efficient and effective operations, reliable financial reporting, and
compliance with laws and regulations.[Footnote 19]Management should
then plan a course of action for mitigating risks, developing
mechanisms to anticipate, identify, and react to change.
Officials Assert that FMF Assistance to Egypt Supports U.S. Goals, but
State and DOD Do Not Evaluate the Program's Contributions to Key Goals:
U.S. officials and several experts we consulted assert that FMF
assistance to Egypt has supported U.S. strategic goals such as regional
stability, the war on terrorism, and Egyptian-Israeli peace.
Furthermore, U.S. and Egyptian officials state that FMF has promoted a
modern Egyptian military by replacing 52 percent of its aging Soviet-
era military equipment with U.S. equipment, and improved U.S.-Egyptian
interoperability through joint military exercises. U.S. officials also
stated that the U.S.-Egyptian relationship resulted in expedited access
through the Suez Canal and the right to fly over Egyptian territory.
Although DOD and State can describe the qualitative benefits the United
States receives from Egypt, the departments have conducted no
systematic, outcome-based assessment of how the FMF program furthers
U.S. goals. GPRA and PART establish the expectation that federal
programs determine whether they are meeting agency and program goals--
annual and long-term--and how performance can be improved to achieve
better results.
Officials and Experts Cite Examples of Egypt's Support for U.S. Goals:
Officials and several experts assert that Egypt supports the U.S. goals
of the FMF program, which are found in State's annual Mission
Performance Plan for Egypt and its Congressional Budget Justification.
Specific goals include (1) modernizing and training Egypt's military;
(2) facilitating Egypt's participation as a coalition partner; (3)
providing force protection to the U.S. military in the region; and (4)
helping guarantee U.S. access to the Suez Canal and overflight routes.
Another key goal of the program is to enhance Egypt's interoperability
with U.S. forces. DOD officials stated that broader security
cooperation and assistance goals found in DOD's regional Theater
Security Cooperation Plan also apply to Egypt's FMF program, which we
found to be consistent with State's goals for the program.
Egyptian and U.S. officials cited several examples of Egypt's support
for U.S. goals. For example, Egypt:
* deployed about 800 military personnel to the Darfur region of the
Sudan in 2004;
* trained 250 Iraqi police and 25 Iraqi diplomats in 2004;
* deployed a military hospital and medical staff to Bagram Air Base in
Afghanistan from 2003 to 2005, where nearly 100,000 patients received
treatment;
* provided over-flight permission to 36,553 U.S. military aircraft
through Egyptian airspace from 2001 to 2005; and:
* granted expedited transit of 861 U.S. naval ships through the Suez
Canal during the same period and provided all security support for
those ship transits.
State and DOD Do Not Evaluate How FMF Assistance to Egypt Achieves U.S.
Goals:
State and DOD have not systematically evaluated how the FMF program
specifically contributes to achieving U.S. goals, particularly
modernization and interoperability. DOD currently conducts assessments
of security assistance activities in the region and regularly reviews
selected FMF-funded purchases at the country level. However, these
assessments do not provide information on specific FMF goals for Egypt
or progress made in achieving them.
DOD rates the collective effectiveness of a mix of programs on a
regional basis,[Footnote 20] including FMF, International Military
Education and Training, military-to-military contacts, and others. At
the country level, DOD and Egyptian officials regularly review the
status of selected FMF-funded purchases through financial management,
program management, and in-progress reviews. In addition, a Military
Coordination Committee, comprised of senior DOD and Egyptian military
officials, meets annually to discuss specific FMF purchases and types
of equipment that have been or may be procured. These efforts reflect
DOD's attention to assessing broad activities and certain financial and
management aspects of FMF to Egypt, but they do not provide a
comprehensive assessment of how FMF contributes to achieving U.S. goals.
We have reported that, although it can be difficult to isolate one
program's effect from another's or to assess a program's impact or
benefit, such assessments can help decision makers make more informed
choices when faced with limited resources and competing
priorities.[Footnote 21] While some U.S. foreign policy and security
goals, such as regional stability or maintaining a strong U.S.-Egyptian
relationship, may be difficult to measure quantitatively, key FMF
program goals--such as interoperability and modernization--better lend
themselves to measurement.
* DOD has not defined the degree of interoperability that it seeks to
achieve with the Egyptian military, nor has it determined how to
measure progress towards this goal. According to DOD doctrine,[Footnote
22] interoperability is the ability of communications and other
systems, units, or forces to provide services to each other so that
forces can operate effectively together and information can be
exchanged directly and satisfactorily. The doctrine also states that
the degree of interoperability should be defined in specific cases.
Achieving interoperability in Egypt is complicated by both the lack of
a common definition of interoperability and limitations on some types
of sensitive equipment transfers. CENTCOM officials also stated that
they would prefer to operate with Egyptian forces according to the
interoperability standard used by the United States. They noted,
however, that the Egyptian military's definition of interoperability is
limited to participation in joint exercises, such as Operation Bright
Star. Additionally, Egypt and the U.S. use interim short-term solutions
to minimize limitations with respect to interoperability. For example,
U.S. officials stated they have established temporary communications
installations on certain equipment and have flown alongside Egyptian C-
130s to facilitate Egypt's participation in a joint exercise. Egypt
lacks specific equipment that limits its interoperability with U.S.
forces, but DOD has not formally assessed this limitation and its
implications on interoperability.
According to DOD policy,[Footnote 23] the desired level of
interoperability cannot be ascertained within a general statement of
policy but is dependent on factors unique to certain areas--such as
compatible doctrine, tactics, techniques, and procedures. U.S. CENTCOM
officials acknowledged that measuring interoperability in Egypt would
vary greatly depending on the operation conducted, the type and size of
systems used, and the timing of events. State officials acknowledged
that it is possible to measure levels of interoperability through
specific capabilities demonstrated by Egyptian forces participating in
specific operations. For example, it would be possible to measure the
capabilities of Egyptian forces participating in peacekeeping
operations.
* DOD has similarly not defined how it will determine the extent to
which FMF assistance contributes to the modernization of Egypt's armed
forces. Currently, the Egyptian benchmark is based on a percentage of
U.S.-versus-Soviet equipment in Egypt's inventory, as reported by the
Egyptian military. According to Egyptian military officials, 52 percent
of its current military inventory is U.S. equipment. By 2020, Egypt's
goal is to increase this amount to 66 percent. DOD officials stated
that they believe Egypt's ratio of U.S.-to-Soviet equipment is accurate
but acknowledged that they do not maintain their own data to support
the statistics.
Nonetheless, other factors may be useful indicators to measure progress
toward modernization, such as the technical sophistication of Egypt's
units, weapons systems, and equipment to provide humanitarian
assistance; the readiness of Egyptian troops to deploy to a
peacekeeping mission; or the degree to which Egypt's troops are capable
of maintaining a desired level of operational activity during Operation
Bright Star. Developing these and other indicators would help DOD
measure the degree of modernization and, in turn, be better positioned
to determine whether Egypt's goals are reasonable.
While measuring goals in these areas presents some difficulties,
legislation and administration initiatives have recognized the need to
do so. GPRA emphasized the importance of evaluating federal programs.
Program evaluations help policy makers address whether program
activities contributed to their stated goals and can help improve
programs and target resources more effectively.
In addition, OMB recently implemented PART to assess and improve
program performance so that federal agencies can achieve better
results. A PART review is intended to assess aspects of the program in
order to form conclusions about program benefits by looking at the
program's purpose and design, strategic planning, management, and
results--that is, whether the program is meeting its annual and long-
term goals. To date, OMB has not conducted a review of the FMF program
in the Middle East region.
Conclusion:
For the past 27 years, the United States has provided Egypt with more
than $34 billion in FMF assistance to support U.S. strategic goals in
the Middle East. Most of the FMF assistance has been in the form of
cash grants that Egypt has used to purchase U.S. military goods and
services. Like Israel, and unlike all other recipients of U.S. FMF
assistance, Egypt can use the prospects of future congressional
appropriations to contract for defense goods and services that it wants
to procure in a given year through the FMF program. Until 1998, DSCA
limited the number of new commitments to less than the annual
appropriation thereby allowing more than $2 billion in undisbursed
funds to accumulate. If the plan to eliminate the undisbursed funds for
the Egypt FMF program is realized, these funds will be depleted by the
end of fiscal year 2007. As Congress debates the appropriate mix
between military and economic assistance to Egypt, the inherent risks
of such flexible financing warrant careful attention and assessment by
State and DOD.
Similarly, both State and DOD could do a better job assessing and
documenting the achievement of goals as a result of the $34 billion in
past U.S. FMF assistance and the $1.3 billion in annual appropriations
planned to be requested. Periodic program assessments that are
documented and based on established benchmarks and targets for goals
would help Congress and key decision makers make informed decisions. We
agree that expedited transit in the Suez Canal; support for
humanitarian efforts in Darfur, Sudan, and elsewhere; and continuing
offers to train Iraqi security forces are important benefits that the
United States derives from its strategic relationship with Egypt.
However, without a common definition of interoperability for systems,
units, or forces, it is difficult to measure the extent of current and
desired levels of interoperability, nor is it clear how the Egyptian
military has been or could be transformed into the modern,
interoperable force articulated in the U.S. goals for the Egypt FMF
program.
Recommendations for Executive Action:
Given the longevity of the FMF program, its relatively high
appropriation levels, the strategic importance of Egypt in the Middle
East, and congressional interest in assessing the balance between
economic and military assistance provided to Egypt, we recommend that
the Secretaries of State and Defense take the following two actions:
* conduct an assessment of the impact of potential shifts in future
appropriations on the Egypt FMF program. This would include identifying
risks, planning a course of action for mitigating those risks, and
developing mechanisms to anticipate, identify, and react to change; and:
* conduct periodic program-level evaluations of the FMF program to
Egypt. The United States should define specific objectives for the
goals, and identify appropriate indicators that would demonstrate
progress toward achieving those objectives. Specifically, we recommend
that the agencies define the current and desired levels of
modernization and interoperability the United States would like to
achieve. This should include establishing benchmarks and targets for
these and other goals.
Agency Comments and our Evaluation:
We provided a draft of this report to the Secretaries of Defense and
State for their review and comment. DOD and State provided written
responses that are reprinted in appendixes V and VI. Both departments
also provided us with technical comments which we incorporated in the
report as appropriate.
In commenting on our draft report, DOD concurred with our
recommendations but stated that we should direct the recommendations
primarily to the Secretary of State. DOD and State are joint partners
in the FMF program for Egypt--State sets the broad goals for the
program while DOD works closely with Egypt's military to implement the
program. Therefore, the recommendations are appropriately addressed to
both departments.
State did not indicate whether it concurred with our recommendations.
With regard to our first recommendation, State emphasized that steps to
mitigate risks are already in place, such as maintaining reserves to
pay costs associated with terminating FMF contracts. However, contract
termination reserves are last-resort measures that do not represent a
comprehensive assessment for reducing risk associated with possible
fluctuations in the resources of the FMF program for Egypt. As we
specify in the report, a risk assessment should include other measures
such as reducing the scope of existing contracts, stopping new orders,
or selling undelivered defense goods. An assessment that identifies the
risks, including a plan to mitigate and anticipate these risks, would
be appropriate and consistent with federal government internal control
standards.
On our second recommendation, State noted that it will work with DOD to
better define measures for assessing Egypt's modernization goals but
stated that defining a level of interoperability would be speculative.
Improving Egypt's ability to operate with the U.S. and coalition
partners has been a critical, yet unmeasured goal of the program. At a
minimum, DOD and State can begin to measure Egyptian forces'
capabilities to operate with allied countries in military exercises or
peacekeeping operations. Evaluating the degree to which the program
meets its goals would be important information for congressional
oversight, particularly as Congress assesses the balance between
economic and military assistance to Egypt, as well as the impact on
U.S. foreign policy interests.
State commented that our report found that cash flow financing caused
the accumulation of undisbursed balances in the FMF program for Egypt.
DOD made the same comment in their technical comments. We modified the
language in our report to clarify that the flexibilities of cash flow
financing as managed by DSCA in the past allowed for the accumulation
of large undisbursed balances.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to the appropriate congressional committees, and to the Secretaries of
Defense and State and other interested parties. We will also make
copies available to others upon request. In addition, the report will
be available at no charge on the GAO Web site,
[Hyperlink, http:// www.gao.gov].
If you or your staff have questions about this report, please contact
me at (202) 512-8979 or christoffj@gao.gov. Contact points for our
offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors to this report are
listed in appendix VII.
Signed By:
Joseph A. Christoff:
Director:
International Affairs and Trade:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
To describe the types and amounts of Foreign Military Financing (FMF)
assistance to Egypt, we examined government and private sector
documents, databases, and reports; we also interviewed U.S. government
officials. Specifically, we interviewed U.S. Department of Defense
(DOD), and Defense Security Cooperation Agency (DSCA) officials. We
examined DSCA data from the Defense Security Assistance Management
System (DSAMS) database for the period 1999 to 2005. We sorted and
categorized this data by type of procurement, year, military service,
and cost to determine the composition of purchases made by funds
provided under the Egypt FMF program. The broad categories of equipment
and services were then examined for specific content and type of
equipment, training, support, or service. In addition, we conducted
multiple interviews with database administrators and information
technology specialists to assess the reliability of the data in this
system. We determined that the DSAMS database is reliable for the
purposes of this report. We also interviewed officials and reviewed
documentation from the U.S. Office of Military Cooperation in Cairo
(OMC), along with U.S. Embassy officials, to better understand the
nature of the program and the types of equipment and services procured
through this program. In addition, we interviewed Egyptian military
officials in Cairo and Ministry of Foreign Affairs officials at the
Egyptian embassy in Washington, D.C.
To assess the financing arrangements used to provide FMF assistance to
Egypt, and determine how undisbursed balances accumulated in the Egypt
FMF program accounts, we examined data from DSCA's Credit System
Database and interviewed officials from the DSCA Middle East and South
Asia Division and Comptroller's Office, as well as the Defense Finance
and Accounting Service. To identify the amounts of accumulated
undisbursed balances, we examined fiscal data by annual appropriation,
total amount of accumulated undisbursed balances, and amount of funds
that had been disbursed by fiscal year. We analyzed this data by fiscal
year and interviewed the database administrator and information
technology specialists responsible for this database. We determined
that the Credit System Database is reliable for the purposes of this
report. To assess the manner in which the undisbursed balances were
being eliminated, we also examined three DSCA databases used to manage
the financing arrangement for the Egypt FMF program: (1) a cash-flow
tracking database that monitors letters of offer and acceptance (LOA)
and the amount of funds needed in each fiscal year, (2) a fiscal year
data base that monitors the time needed to execute a procurement
request, and (3) Egypt's Five Year Defense Plan. We interviewed the
custodians of these databases in DSCA's Middle East and South Asia
Division to develop an understanding of how they are used to manage the
cash flow financing arrangement and the program more generally. We also
met with the Office of Management and Budget (OMB) to gain an
understanding of the plan to eliminate the accumulated undisbursed
balances. We did not examine or assess U.S. economic assistance to
Egypt.
To evaluate how the United States assesses FMF assistance to Egypt and
its contribution to the advancement of U.S. foreign policy and security
goals, we examined multiple U.S. and Egyptian government documents, and
interviewed U.S. and Egyptian government officials and foreign policy
specialists. Specifically, we obtained and analyzed the State
Department's mission and bureau performance plans to understand U.S.
foreign policy and security goals and priorities, and how the executive
branch evaluates those goals. Similarly, we obtained DOD theater and
country security cooperation plans and compared their goals and
priorities to understand how DOD would measure results against them. We
then examined U.S. Central Command's (CENTCOM) evaluation tools to
understand what metrics it used to evaluate program results. In
addition to U.S. and Egyptian government officials, we spoke with
foreign policy experts from the Center for Strategic and International
Studies, Georgetown University, the Council on Foreign Relations, the
Heritage Foundation, the U.S. Institute for Peace, the Middle East
Institute, the National Defense University, the Carnegie Endowment for
International Peace and the Brookings Institute. To assess DOD's
evaluations of security assistance goals, we reviewed various
assessments and identified key components that are inherent in all of
these assessments. We also researched other potential models that may
assist in program evaluation. We interviewed officials from State and
DOD in Washington, D.C., who are responsible for administering and
implementing the FMF program to Egypt. We also met with Egyptian
government officials in Washington, D.C. We traveled to Cairo and met
with State and DOD officials at the U.S. Embassy and the OMC. In
addition, we interviewed CENTCOM officials responsible for the FMF
program to Egypt as well as Egyptian Ministry of Defense officials in
Cairo.
We performed our work from May 2005 through March 2006 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II: Letter of Request and Letter of Offer and Acceptance
Process:
The review and approval process for FMF-funded purchases begins with
the Egyptian military requesting the purchase of certain defense
articles or services, and ends with a signed letter of offer and
acceptance for those goods or services. Figure 5 depicts the review and
approval process below.
Figure 5: Letter of Request and Letter of Offer and Acceptance Review
Process:
[See PDF for image]
Source: GAO.
[End of figure]
The relevant Egyptian military department sends a letter of request
(LOR) to the Egyptian Armament Authority, which then forwards it to the
U.S. OMC in Cairo to be processed. If approved, the LOR is sent back to
the Egyptian Armament Authority and then to the Egyptian Procurement
Office, which forwards it to the DSCA and the appropriate U.S. military
department.
The relevant U.S. military department and agencies--including the Army,
Navy, Air Force, the National Security Agency, and the Defense
Logistics Agency--generate a Letter of Offer and Acceptance (LOA) and
send it to DSCA to coordinate with the State Department and notify
Congress, if required. Once endorsed by DSCA or the relevant military
department or agency, the LOA is sent to Egypt for acceptance and
signature. After acceptance, LOAs are sent to DSCA, DFAS, and the
relevant military department or agency. The country program director
for Egypt registers the LOA into various databases that track the
program.
[End of section]
Appendix III: Agency and Organizational Roles and Responsibilities:
The principal U.S. entities responsible for administering and
implementing the FMF program are State and DOD. The table below further
describes their roles and responsibilities.
Table 1: Agency and Organizational Roles and Responsibilities:
Department or organization: State;
Department or organization: Pol-Mil;
Roles and responsibilities: Supervises and directs security assistance
programs.
Department or organization: DOD;
Department or organization: OSD;
Roles and responsibilities: Supervises security assistance programs and
integrates departmental plans and policies with overall national
security objectives.
Department or organization: DOD;
Department or organization: CENTCOM;
Roles and responsibilities: Responsible for:
* exercising all unified command responsibilities for security
cooperation programs;
* developing and implementing security cooperation plan for Egypt and
other countries in the Middle East area of responsibility;
* commenting on major Egyptian equipment requests; and:
* coordinating with the Secretary of Defense, Joint Chiefs of Staff,
military departments, and U.S. embassy officials in Cairo.
Department or organization: DOD;
Department or organization: DSCA;
Roles and responsibilities: Administers and supervises FMF planning and
programs, develops FMF guidance, and approves requests for the
financing of individual projects and contracts.
Department or organization: DOD;
Department or organization: OMC;
Roles and responsibilities: Plans and manages in-country aspects of the
FMF program to Egypt and reports directly to CENTCOM and to the U.S.
ambassador to Egypt. OMC assists in:
* managing foreign military sales (FMS) case management;
* training and other support for specific FMS cases;
* monitoring end- use of equipment and training;
* advising on disposal and transfer of weapons and equipment; and:
* evaluating Egyptian strategic and operational capabilities and
requirements.
Department or organization: DOD;
Department or organization: MILDEPS and other agencies;
Roles and responsibilities: Responsible for:
* preparing, executing, and managing individual FMF-funded cases;
* developing letters of offer and acceptance;
* soliciting bids and negotiating and awarding contracts; and:
* overseeing delivery of defense articles and services.
Department or organization: DOD;
Department or organization: DFAS;
Roles and responsibilities: Ensures sufficient funds are available in
Egypt's FMF account and provides spending authority approvals to the
U.S. military departments to pay for goods and services on Egypt's
behalf.
Department or organization: Egyptian Ministry of Defense;
Department or organization: EAA;
Roles and responsibilities: Egyptian entity that manages the FMF
program.
Department or organization: Egyptian Procurement Office; [Empty]; Roles
and responsibilities: Directorate of the EAA responsible for reviewing
and approving procurement of military goods and services through the
FMF program.
Legend:
CENTCOM - U.S. Central Command:
DFAS - Defense Finance and Accounting Service:
DOD - Department of Defense:
DSCA - Defense Security Cooperation Agency:
EAA - Egyptian Armament Authority:
EPO - Egyptian Procurement Office:
MILDEPS and other agencies - Military Departments (Army, Navy, Air
Force, and Marines), Defense Logistics Agency, National Security
Agency:
OMC - Office of Military Cooperation (Cairo, Egypt):
OSD - Office of the Secretary of Defense:
POL-MIL - Bureau of Political-Military Affairs State - U.S. Department
of State:
Source: GAO analysis of agency data.
[End of table]
[End of section]
Appendix IV: Example of an Evaluation Framework:
The logic model we provide below is a foundation and first step for
organizing the elements of a program. It is a tool that may help
program managers identify the necessary elements for an evaluation--but
it is not a complete evaluation itself. This model can also be used to
communicate how program funds are used to achieve program goals. Figure
5 depicts how FMF dollars (inputs), training and procurement
(activities), and the resulting equipped and trained military (outputs)
can be linked to enhanced modernization and interoperability
(outcomes). We are not prescribing this or any other specific model,
and the figure below provides a high-level example in aggregate that is
meant to be illustrative and does not define all of the exact inputs,
activities, and outputs of the FMF program for Egypt. A program
evaluation would typically include a breakdown of these aggregated
elements in further detail and would include definitions of standards,
benchmarks, and targets for each program goal.
Figure 6: Using a Logic Model to Link Inputs, Activities, and Outputs
to Outcomes:
[See PDF for image]
Source: GAO.
[A] DOD will need to define standards and desired levels for these
terms.
[End of figure]
[End of section]
Appendix V: Comments from the Department of State:
United States Department of State:
Assistant Secretary and Chief Financial Officer:
Washington, D.C. 20520:
Ms. Jacquelyn Williams-Bridgers:
Managing Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, N. W.
Washington, D.C. 20548-0001:
Dear Ms. Williams-Bridgers:
We appreciate the opportunity to review your draft report, "Security
Assistance: State and DoD Need to Assess How the Foreign Military
Financing Program for Egypt Achieves U.S. Foreign Policy and Security
Goals," GAO Job Code 320342.
The enclosed Department of State comments are provided for
incorporation with this letter as an appendix to the final report.
If you have any questions concerning this response, please contact Amy
Coletta, Program Analyst, Bureau of Political and Military Affairs, at
(202) 736-4266.
Sincerely,
Signed By:
Bradford R. Higgins:
cc: GAO - Muriel Forster:
PM - Michael Coulter:
State/OIG - Mark Duda:
Department of State Comments on GAO Draft Report:
Security Assistance: State and DoD Need to Assess How the Foreign
Military Financing Program for Egypt Achieves U.S. Foreign Policy and
Security Goals:
(GAO-06-437 GAO Code 320342):
The State Department appreciates the opportunity to review and comment
on the draft Report "Security Assistance: State and DoD Need to Assess
How the Foreign Military Financing Program for Egypt Achieves U.S.
Foreign Policy and Security Goals." The Foreign Military Financing
(FMF) program for Egypt is a key foreign assistance program. The
Department is committed to executing the program in an efficient manner
that complies with the law and enhances U.S. national security and
foreign policy goals.
As the report indicates, the FMF program for Egypt is a critical tool
in maintaining regional stability and supporting Egypt, an important
partner in the Middle East. The Department confirms the accuracy of the
GAO's description of the types and amounts of FMF assistance provided
to Egypt.
With regard to the assessment of the financial arrangements used to
provide FMF assistance to Egypt, the Department would like to note that
the large reserves of unspent balances accumulated in the Egyptian FMF
program by 1998 were not a result of the cash-flow financing process.
As the report itself notes, countries not accorded access to cash flow
financing have also accumulated reserves, in their case often in
anticipation of large purchases. As far as Egypt in concerned, FMF is
reserved in the year in which it will be used for a payment. Currently,
the accumulated balances have been reduced to almost zero. The
Department recommends correcting this inaccuracy and hopes the final
report will note that the accumulated balances have been nearly
eliminated.
Recommendation #1 - Assessment of the impact of potential shifts in
future appropriations on the Egypt FMF program:
The Department agrees that any shift in future appropriations of the
Egypt FMF program will have a significant impact on Egypt and our
bilateral relationship - financially, militarily, and strategically.
For this reason, the Department has consistently advocated full
appropriation of the FMF request for Egypt in annual appropriations'
acts. We note in this context that the Department is currently
compiling the report recommended in the conference report attached to
the FY 2006 Foreign Operations, Export Financing, and Related Programs
Appropriation, (P.L. 109-102) (FOAA), to address the question of the
balance between economic and military assistance for Egypt. We expect
that report will reflect the continuing importance of maintaining the
current balance.
The Department would like to emphasize that steps to mitigate the risk
noted in the GAO report relating to out-year purchases are already are
in place. Sufficient termination liability reserves are maintained to
pay costs associated with terminating contracts, should Egypt's FMF
level be decreased in the future.
Recommendation #2 - Periodic program-level evaluations of the FMF
program to Egypt:
With regard to the recommendation for periodic program-level
evaluations of the FMF program to Egypt based on benchmarks for certain
defined goals, such as modernization or interoperability, the
Department notes, as does the report, the difficulty of using
quantifiable benchmarks to evaluate the success or effectiveness of the
FMF program in light of its broader strategic aspects.
Trying to define and measure interoperability is a case in point.
Interoperability definitions will vary by "operation," for
example.Moreover, any definition would need to take into consideration
a range of associated factors, including the experience of the
participation, the scale of the operation, and the political dynamics
that may affect the Government of Egypt's willingness and ability to
interoperate effectively. Defining a desired level of interoperability
would be speculative and may suggest goals that are not attainable
politically or financially.
Regarding modernization, the Department will work with our colleagues
at the Department of Defense to examine ways "modernization" can be
better measured, including looking at factors suggested in the report,
such as readiness and capabilities.Indeed, it may be more useful and
meaningful to focus on specific capabilities we would like the Egyptian
military to develop using FMF grant funds rather than try to measure
broad concepts like modernization or interoperability.For example,
certain capabilities are required prior to participation in such
peacekeeping operations as Sudan, East Timor, Bosnia and Somalia, in
which Egypt has participated. By measuring the capabilities of Egyptian
forces participating in specific operations (vice measuring the level
of interoperability which would theoretically allow Egypt to
participate in an operation), it may be possible to isolate some of the
more strategic and political aspects.
While quantitative measurements are important to consider, the
qualitative benefits of the FMF program are perhaps more critical.
Ultimately, the program has a number of regional and national security-
related goals, many of which cannot be reduced to a simple qualitative
measurement as a definition of "success". The Department notes that, at
combatant command's theater security cooperation conferences, State and
DoD policy makers specifically focus on the way FMF is used to achieve
U.S. national security goals. This is just one way that the U.S.
Government strives to ensure that Egypt's FMF program is integrated
with and makes a contribution towards achieving broader goals.
The draft report recommends using OMB's Performance Assessment Rating
Tool (PART) in order to conduct such an evaluation. The NEA bureau,
which includes Egypt's FMF program, is scheduled in fact for a PART
review in August 2006.
[End of section]
Appendix VI: Comments from the Department of Defense:
Defense Security Cooperation Agency:
Washington, DC 20301-2800:
In rely refer to: I-0603157-MSA:
Mr. Joseph A. Christoff:
Director:
International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, N.W.:
Washington, D.C. 20548:
Dear Mr. Christoff:
Attached is the Department of Defense (DoD) response to the GAO Draft
Report, GAO 06-437, "Security Assistance: State and DOD Need to Assess
How the Foreign Military Financing Program for Egypt Achieves U.S.
Foreign Policy and Security Goals, February 24, 2006 (GAO Code 320342)."
Representatives from the Defense Security Cooperation Agency (DSCA) and
GAO met March 21, 2006, to review technical changes identified by DSCA,
which the GAO agreed to incorporate in its draft report. The attachment
provides a response to the recommendations, which DSCA concurs with
comment.
My POC for this action is Bill Ellis, 703-604-6627.
Sincerely,
Signed By:
Jeffrey B. Kohler:
Lieutenant General:
USAF Director:
Attachment, as stated:
GAO Draft Report Dated February 24, 2006 GAO-06-437 (GAO CODES 320342):
"Security Assistance: State And Dod Need To Assess How The Foreign
Military Financing Program For Egypt Achieves U.S. Foreign Policy And
Security Goals"
Department Of Defense Comments To The Gao Recommendation:
Recommendation 1: The GAO recommended that the Secretary of Defense
conduct an assessment of the impact of potential shifts in future
appropriations on the Egypt foreign military financing program,
including identifying risks, planning a course of action for mitigating
those risks, and developing mechanisms to anticipate, identify, and
react to change. (p. 21 /GAO Draft Report):
DOD Response: Concur. We agree that a shift in future appropriation of
the Egyptian FMF program would have significant impacts some of which
can be quantified and some of which perhaps cannot. DOD consistently
advocates full appropriation of the $1.313 annual FMF request for
Egypt. The FMF budget request is prepared by the Department of State,
and submitted to the President by the Secretary of State. Therefore,
the recommendation should be to the Secretary of State, with assistance
by the Secretary of Defense.
Recommendation 2: The GAO recommended that the Secretary of Defense
conduct periodic program-level evaluations of the foreign military
financing program to Egypt by defining the specific objectives for each
goal, including defining current and desired levels of modernization
and interoperability, and identifying appropriate indicators that would
demonstrate progress toward achieving those objectives. (p. 21/GAO
Draft Report):
DOD Response: Concur with comment. Under the Arms Export Control Act,
the Secretary of State is responsible for the continuous supervision
and general direction of sales, financing and exports (22 U.S.C. §
2752). Thus, the recommendation should be to the Secretary of State,
with the assistance of the Secretary of Defense. The DOD, specifically
Defense Security Cooperation Agency implements policies through the
security assistance program for Egypt.
[End of section]
Appendix VII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Mr. Joseph A. Christoff, Director, (202) 512-8979:
Staff Acknowledgments:
Ms. Muriel Forster, Assistant Director. In addition, Nanette J. Barton,
Stephanie Robinson, Ann M. Ulrich, Lynn Cothern, Martin De Alteriis,
Grace Lui, and Christine Bonham made significant contributions to this
report.
(320342):
FOOTNOTES
[1] Undisbursed balances, as defined by DSCA, are funds that are
apportioned, obligated to the FMF program for Egypt, and committed
against LOAs that have not yet been paid to a contractor or U.S.
government activity for defense articles and services being provided to
Egypt.
[2] In this context, Letters of Offer and Acceptance (LOAs) are
agreements signed between foreign governments and the United States
governing the terms and conditions of the procurement of U.S. defense
articles and services.
[3] 22 U.S.C. § 2762 provides authority to the President to enter into
a contract for the procurement of defense articles and services for
sale to any foreign country or international organization in advance of
or in excess of an appropriation as long as the foreign country
provides assurances to pay the full amount of the contract and any
costs or damages due to cancellation.
[4] Pub. L. No. 103-62, 107 Stat. 285 (1993).
[5] GPRA instituted a governmentwide requirement for agencies to, among
other things, report on their results in achieving their agency and
program goals. According to OMB, the PART initiative builds on GPRA by
providing more credible outcome-based performance information to foster
debate among decision makers. To date, OMB has not conducted a review
of the FMF program in the Middle East region. State officials expect a
PART review of security assistance to the Middle East and North African
countries in August 2006.
[6] FMF is authorized under Sections 23 and 24 of the Arms Export
Control Act.
[7] According to DSCA, the five major U.S. security assistance programs
are: direct commercial contracts, peacekeeping operations, foreign
military sales, foreign military financing, and international military
education and training. DSCA has also identified excess defense
articles, draw-downs, and other programs as security assistance.
[8] Other State and DOD classified or sensitive planning documents
describe the global, regional and country-level goals and objectives
for security cooperation and assistance programs.
[9] A unified combatant command has operational control of U.S. combat
forces from two or more military departments and is normally organized
on a geographic basis.
[10] H.R. 4818, 108TH Cong. (2004).
[11] H.R. 2601, 109tTHCong. (2005).
[12] H.R. Rep. No. 109-265, at 88 (2005).
[13] Pub. L. No. 103-62, 107 Stat. 285 (1993).
[14] GAO, Program Evaluation: Strategies for Assessing How Information
Dissemination Contributes to Agency Goals, GAO-02-923 (Washington,
D.C.: Sept. 2002); and Federal Motor Carrier Safety Administration:
Education and Outreach Programs Target Safety and Consumer Issues, but
Gaps in Planning and Evaluation Remain, GAO-06-103 (Washington, D.C.:
Dec. 2005).
[15] In this context, letters of offer and acceptance (LOA) are
agreements signed between foreign governments and the United States
governing the terms and conditions of the procurement of U.S. defense
articles and services.
[16] According to DSCA officials, this balance is committed to specific
LOAs.
[17] According to DSCA, an estimated $130 million of the undisbursed
balances will be held in reserve to cover unexpected costs.
[18] DOD officials stated that contracts signed by DSCA on Egypt's
behalf for the FMF program include termination liability fees that they
hold in reserve if Egypt needs to terminate a contract for any reason.
[19] Internal control standards also include: (1) control environment,
(2) control activities, (3) information and communication, and (4)
monitoring. See GAO, Standards for Internal Control in the Federal
Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1999); and
Internal Control Management and Evaluation Tool, GAO-01-1008G
(Washington, D.C.: Aug. 2001).
[20] U.S. Central Command's region--or theater--includes Egypt and 27
countries in the Horn of Africa, South Asia, and the Middle East.
[21] GAO, Program Evaluation: Strategies for Assessing How Information
Dissemination Contributes to Agency Goals, GAO-02-923 (Washington,
D.C.: Sept. 2002); and GAO, Performance Budgeting: Opportunities and
Challenges, GAO-02-1106T (Washington, D.C.: Sept. 19, 2002).
[22] Department of Defense, Dictionary of Military and Associated
Terms, April 12, 2001, amended August 31, 2005.
[23] Chairman of the Joint Chiefs of Staff Instruction, CJCSI 2700.01B,
January 12, 2006.
GAO's Mission:
The Government Accountability Office, the investigative arm of
Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability
of the federal government for the American people. GAO examines the use
of public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO's commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains
abstracts and full-text files of current reports and testimony and an
expanding archive of older products. The Web site features a search
engine to help you locate documents using key words and phrases. You
can print these documents in their entirety, including charts and other
graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its
Web site daily. The list contains links to the full-text document
files. To have GAO e-mail this list to you every afternoon, go to
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order
GAO Products" heading.
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office
441 G Street NW, Room LM
Washington, D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm
E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director,
NelliganJ@gao.gov
(202) 512-4800
U.S. Government Accountability Office,
441 G Street NW, Room 7149
Washington, D.C. 20548:
