Peacekeeping: Assessment of U.S. Participation in the Multinational Force
and Observers (Chapter Report, 08/15/95, GAO/NSIAD-95-113).

Pursuant to a congressional request, GAO reviewed U.S participation in
the Multinational Force and Observers (MFO), focusing on: (1) U.S.
contributions to MFO and measures taken to reduce MFO costs; (2) the
operational impacts of U.S. participation in MFO; (3) the Department of
State's oversight of U.S. participation in MFO; and (4) views of MFO
performance and lessons learned.

GAO found that: (1) the United States provides one-third of MFO
operating expenses and the largest military contingent; (2) while U.S.
annual assessments of MFO operating costs have steadily declined since
1989, the Department of Defense's (DOD) costs have increased, mainly due
to salary increases; (3) Army operations have been impacted by the
cumulative effects of DOD contingency efforts, but opportunities may
exist to reduce the impact by reducing the number of logistical troops
and using reserve forces; (4) despite MFO operational success and its
ability to reduce certain costs, State needs to improve its oversight of
U.S. participation in MFO because of inadequate internal controls and
auditing procedures and the quality of its reporting to Congress; and
(5) State and international officials view MFO as an operationally
effective peacekeeping operation that has helped sustain peace between
Egypt and Israel since 1982, while DOD views MFO as a limited operation
that is not applicable to more hostile peacekeeping environments.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-95-113
     TITLE:  Peacekeeping: Assessment of U.S. Participation in the 
             Multinational Force and Observers
      DATE:  08/15/95
   SUBJECT:  Foreign military assistance
             Defense contingency planning
             International relations
             Logistics
             Defense cost control
             Internal controls
             Defense operations
             Military reserve personnel
             Reporting requirements
             International agreements
IDENTIFIER:  Israel
             Jordan
             Palestine
             Syria
             Lebanon
             United Nations
             Egypt
             Sinai Peninsula
             
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Cover
================================================================ COVER


Report to Congressional Requesters

August 1995

PEACEKEEPING - ASSESSMENT OF U.S. 
PARTICIPATION IN THE MULTINATIONAL
FORCE AND OBSERVERS

GAO/NSIAD-95-113

Peacekeeping


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  FX - force exchange
  GAO - U.S.  General Accounting Office
  MFO - Multinational Force and Observers

Letter
=============================================================== LETTER


B-260679

August 15, 1995

The Honorable Benjamin A.  Gilman
Chairman
The Honorable Lee H.  Hamilton
Ranking Minority Member
Committee on International Relations
House of Representatives

This report responds to the Committee's request that we review U.S. 
participation in the Multinational Force and Observers (MFO).  It
contains recommendations to the Secretary of State. 

As agreed with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days from its issue date.  At that time, we will send copies
to the Secretaries of State and Defense and the Director General of
the MFO.  Copies will also be made available to others upon request. 

I can be reached at (202) 512-4128 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix VI. 

Benjamin Nelson
Associate Director
International Affairs Issues


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

The recent signing of peace accords between Israel and the
Palestinian Liberation Organization, Israel and Jordan, and the
possibility of similar agreements between Israel and Syria and
Lebanon have heightened interest in the Multinational Force and
Observers (MFO), which has monitored the current Treaty of Peace
between Egypt and Israel since 1982. 

In light of these regional developments and the significant U.S. 
contribution to the MFO since its inception, the Chairman and Ranking
Minority Member, House Committee on International Relations, asked
GAO to examine a number of issues regarding the MFO operations and
effectiveness.  As agreed, this report provides information on (1)
U.S.  contributions to and the total cost of the MFO, including
measures taken to reduce costs; (2) the level of U.S.  participation
and its operational impacts; (3) State Department oversight of U.S. 
participation; and (4) State Department and other relevant parties'
views of MFO performance and lessons learned. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

On March 26, 1979, following years of violent confrontation, Israel
and Egypt signed the Treaty of Peace.  The Parties agreed to
terminate the existing state of war, including withdrawal of all
Israeli forces from the Sinai, establish normal and friendly
relations, and to demarcate the Sinai into militarily limited zones. 
While annex I, article VI of the treaty specifically proposes that
U.N.  forces and observers supervise these security arrangements, the
United States committed, during the Camp David Accords, to ensure the
establishment of an acceptable alternative multinational force if the
U.N.  process failed.  On May 18, 1981, the United Nations Security
Council indicated that it was unable to reach the necessary agreement
on the proposal to establish U.N.  forces and observers. 
Consequently, on August 3, 1981, a protocol to the treaty was signed
by the governments of Egypt and Israel establishing the MFO.  The
Protocol serves as the mandate and charter of the MFO. 

The United States, though not a party to either the treaty or the
Protocol, agreed during follow-on negotiations with Egypt and Israel
to (1) provide to the MFO military forces and a group of civilian
observers, (2) contribute 60 percent of the start-up costs of the MFO
in 1981 through 1982, and (3) pay one-third of the annual operating
costs thereafter.  This participation agreement is viewed by the U.S. 
State Department as a major instrument of U.S.  foreign policy. 
State oversees U.S.  interests in MFO operations, with responsibility
for policy, budget, and reporting annually to Congress on the cost of
U.S.  participation. 

The MFO operational responsibilities include manning observation
posts in the Sinai, conducting both ground and air surveillance, and
conducting naval patrols in the Strait of Tiran to monitor
implementation of the security arrangements established in the
treaty.  Currently, 11 countries deploy troops to the MFO, each with
its own participation agreement.  As of November 1994, the MFO
military force consisted of 1,987 multinational troops, of which 985
were U.S.  Army soldiers. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

The United States provides a significant portion of the MFO
resources, including one-third of its operating expenses, and the
largest military contingent.  While annual U.S.  assessments for MFO
operating costs have steadily declined since 1989, the cost to the
Department of Defense (DOD) to provide troops and specialized
training has increased primarily due to U.S.  military salary
increases.  According to DOD officials, the continuous deployment of
a regular Army contingent to the MFO alone is not significant but,
when combined with contingencies such as the recent one in Somalia,
impacts Army operations.  Army and MFO officials told GAO that
opportunities may exist to reduce the impact of the MFO on the U.S. 
Army by reducing the number of logistical troops and using reserve
forces. 

U.S.  and international officials view MFO as an operationally
effective peacekeeping organization.  According to State, DOD, MFO,
Egyptian, and Israeli officials, the MFO has helped sustain peace
between Egypt and Israel since 1982.  Factors cited as contributing
to the MFO operational success include (1) the presence of a
definitive peace agreement between former warring parties, (2)
significant U.S.  support, (3) a clear and realistic mandate, (4) a
benign operating environment, (5) an active liaison system between
parties, and (6) MFO management decisions that have improved
operational efficiency and reduced cost.  DOD officials view the MFO
as a limited operation that is not applicable to more hostile
peacekeeping environments. 

Despite the MFO operational success and its ability to reduce certain
costs, greater State oversight over U.S.  participation may be needed
because of the MFO operating environment and the absence of assurance
regarding the adequacy of internal controls.  Unlike other
international organizations, the MFO does not have a formal board of
directors or an independent audit committee to oversee its
operations.  Moreover, we observed that some MFO policies have been
changed to accommodate the personal needs of MFO officials and that
financial transactions involving the MFO and an MFO retail store it
established may not have received the necessary review.  State was
not aware of the specifics surrounding these matters, both of which
had an impact on the cost of MFO operations and amount of the U.S. 
contribution. 

State can also improve the quality of its reporting to Congress. 
Some annual reports to Congress have not contained full or accurate
information on the cost of U.S.  participation. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      TOTAL COST OF MFO AND THE
      U.S.  CONTRIBUTION
-------------------------------------------------------- Chapter 0:4.1

The operating budget of the MFO for fiscal year 1993 totaled $56.1
million.  This does not include in-kind contributions and
nonreimbursable costs borne by participating and donor nations, which
are difficult to quantify.  The total cost of U.S.  participation in
the MFO for fiscal year 1993 was $64.4 million, which included (1)
the annual assessment of $17.8 million (one-third of MFO operating
costs), (2) $45.8 million for U.S.  troops provided to the MFO, and
(3) other DOD costs of $0.8 million. 

The United States provides about 50 percent of the MFO military
contingent, including a logistics support battalion composed of
logistics, medical, and aviation support, and an infantry battalion. 
The MFO also has access to the U.S.  Army supply system and excess
defense articles such as medical equipment and has made some limited
use of these resources. 


      IMPACT OF MFO COMMITMENT ON
      OTHER ARMY OPERATIONS
-------------------------------------------------------- Chapter 0:4.2

While one U.S.  infantry battalion is on duty with the MFO, another
infantry battalion is removed from routine training and readiness
status in order to train for, process, and deploy to the Sinai. 
According to DOD, this commitment of two battalions, when combined
with other Army global commitments and recent Army downsizing,
contributes to a cumulative negative impact on Army operations.  To
help alleviate this impact, the Army deployed a mixed active-duty,
National Guard, and Reserve infantry battalion to the Sinai in
January 1995 to replace the regular Army rotation.  This deployment
will be used as a test case to determine the feasibility of using
National Guard and Reserve soldiers in future MFO rotations.  In
addition, MFO recent transfer of U.S.  logistical functions to a
private contractor may provide additional opportunities to reduce the
number of U.S.  Army troops. 


      THE MFO IS VIEWED AS
      EFFECTIVE
-------------------------------------------------------- Chapter 0:4.3

The MFO is widely viewed as an effective organization in helping to
maintain peace between Egypt and Israel.  Since 1982, not a single
shot has been fired in hostility in the Sinai.  While not a deterrent
force, Egyptian and Israeli officials view the presence of the
international organization as a confidence builder.  The MFO has
helped improve communication between the nations and monitors
compliance with treaty provisions.  State officials view the MFO as
an effective instrument of U.S.  foreign policy. 


      THE MFO MODEL MAY NOT APPLY
      TO OTHER PEACEKEEPING
      SCENARIOS
-------------------------------------------------------- Chapter 0:4.4

While considered operationally effective, the MFO model may not apply
to more hostile environments.  Since inception, the MFO has operated
in a peaceful environment free from military hostility or challenge. 
Both Egypt and Israel are committed to peace, and the land area in
which MFO operates is large and sparsely populated.  According to DOD
officials, military or terrorist threats to MFO ground forces in the
Sinai are minimal.  These officials believe that the MFO model may
not be applicable to an environment that is urban or densely
populated with potentially hostile parties or terrorism. 


      LESSONS LEARNED FROM MFO
      OPERATIONS
-------------------------------------------------------- Chapter 0:4.5

There are several lessons that can be learned from the MFO structure
and operation.  In terms of commitment and oversight, U.S. 
participation in the MFO is open-ended, without a formal requirement
for periodic reassessments, and there is no formal executive board to
oversee its operations.  Positive lessons learned from the MFO are
that it:  (1) began with a detailed Protocol that was supported by
both parties, (2) makes the Parties to the peace treaty contribute to
the operation, (3) incorporated standardized and interoperable field
equipment, and (4) has an active liaison system with the Parties. 


      STATE OVERSIGHT AND
      REPORTING SHOULD BE IMPROVED
-------------------------------------------------------- Chapter 0:4.6

The MFO operates in a unique environment.  Once the budget is
endorsed by the signatories, the Director General of the MFO has
great latitude over the expenditure of funds as well as the processes
used to account for them.  He also has broad discretion in selecting
the external financial auditor and designating the scope of activity
to be examined.  Further, he can change MFO operating policies and
procedures without review, consent, or approval from other parties. 
This level of authority is unique among international organizations. 
Other international organizations GAO examined have an independent
governing body above the chief executive to oversee and approve
operations and finances and responsibility for the annual financial
audit is typically vested with an independent entity. 

State has taken a hands-off approach to overseeing U.S. 
participation in the MFO, with reliance on informal discussions with
MFO management, the financial report of MFO external auditor, and
annual trilateral meeting.  State officials were not knowledgeable of
some important changes to MFO policies and procedures that affected
the cost of operations, including some related to executive pay and
benefits. 

For example, GAO noted that MFO policies and procedures for
designating dependents of MFO officials were changed in 1992 and 1994
to broaden the MFOs definition of a dependent to include persons
other than spouses, unmarried children, or dependent parents.  While
other members of the MFO may benefit from these changes, the MFO
General Counsel told GAO and congressional staff in February 1995
that the changes were made to reflect the personal circumstances of
the Director General, who was already receiving MFO-provided
dependent benefits (housing, education assistance, health care, etc.)
for individuals who were not his spouse or unmarried dependent child. 
State Department officials said that they were aware that of the
Director General's personal circumstances and that some accommodation
would be necessary in order for him to accept the initial appointment
in 1988; however, they were not aware of the specific changes made to
MFO policies to satisfy this accommodation or the associated costs. 

In addition, State was not aware of certain transactions between the
MFO and the Force Exchange (FX),\1 which was established with a loan
from the MFO operating fund, one-third of which is derived from U.S. 
contributions.  The FX had sales of $5 million and a profit of about
$553,000 in 1993.  GAO noted that in 1985 the MFO had written off
$530,000 of the loan to the FX while the exchange did not write down
the value of its obligation to the MFO.  While this does not violate
generally acceptable accounting principles, GAO's inquiry prompted a
change in MFO financial statements and a reduction of $177,000 in the
U.S.  assessment for fiscal year 1994.  If State had been receiving
and examining the audited financial statement of both the FX and the
MFO, they could have noted the improved financial condition of the FX
account and could have taken appropriate action so that the United
States could have realized the reduction earlier.  State officials
said that they did not believe it was necessary to request the audit
report of the FX because it is a separate, self-sustaining entity,
funded from sales to MFO soldiers. 

Additionally, State does not know if the MFO has adequate internal
controls to deter the misuse of U.S.  contributions.  State officials
told GAO that management of the U.S.  contribution is based on a
relationship of mutual trust with MFO management and the reports of
MFO external auditor.  However, generally accepted auditing standards
for financial statement audits do not require an opinion on MFO
internal controls and the external auditor's report has not included
one.  Consequently, GAO believes that State should request that the
MFO have its external auditor conduct an evaluation of the MFO
management and internal accounting controls beyond what is generally
required to complete the annual financial statement audit, and
provide a copy of the resulting report to State. 

Finally, State's annual report to Congress has been incomplete or
inaccurate on several occasions.  For example, the fiscal year 1992
report excluded about $12 million in DOD expenses and to date has not
included the cost of the U.S.  annual assessment.  This is due in
part to inaccurate data submitted to State by DOD on troop costs. 


--------------------
\1 The FX is a revenue generating retail store. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5

GAO recommends that the Secretary of State ensure adequate oversight
of the MFO by (1) examining the annual MFO-published financial
statements for items that may impact U.S.  contributions, (2)
requesting and reviewing all reports issued by MFO external auditors,
and (3) requesting the MFO have its external auditor include an
evaluation of the MFO management and internal accounting controls
beyond what is required to complete the annual financial statement
audit and provide a copy of the resulting report to State.  GAO also
recommends that the Secretary of State include the U.S.  annual
assessment cost contribution of one-third of the MFO operating costs
in its annual report to Congress on MFO. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

In commenting on a draft of this report, State disagreed with GAO's
conclusion that greater State oversight of U.S.  contributions to the
MFO is needed.  State asserts that it has been U.S.  policy to grant
the MFO considerable latitude in the way it manages its operations. 
Consequently, State's oversight of U.S.  contributions is
accomplished by frequent informal discussions and infrequent formal
meetings, such as the annual Trilateral meeting.  In addition, State
asserts its review of the MFO external audit, published financial
report, and annual budget submission provides an adequate oversight
and reassessment mechanism.  Nonetheless, State agreed to implement
most of GAO's recommendations to improve oversight. 

GAO continues to believe that the review of the external auditor's
report, published financial reports, and annual budget submissions
does not provide adequate oversight of U.S.  contributions to the
MFO.  Under the MFO management and operating structure, once the
budget is endorsed by the signatories, the Director General has
substantial latitude over the expenditure of funds as well as the
processes used to account for them.  As pointed out in this report,
this arrangement is unique to the MFO.  In all other international
organizations GAO observed, there is an executive oversight board
that is independent of those charged with day-to-day operations.  The
actions that State has already taken in response to GAO's review
should improve its oversight capability; however, additional steps
need to be taken.  State objected to an annual audit of MFO internal
controls, and GAO changed the report to clarify the recommendation
for periodic audits. 

The MFO provided general comments, citing its operational and
financial successes since inception and its continued efforts to
reduce costs.  The MFO also noted that some incorrect material is
included in the report, but did not provide any details.  GAO
previously met with MFO officials on a draft of this report's
contents and made changes to the draft where appropriate. 

DOD agreed with all of the report findings relevant to DOD and has
taken actions that should satisfy the recommendation GAO made to them
in a draft of this report. 


INTRODUCTION
============================================================ Chapter 1

In September 1978, the governments of Egypt and Israel signed the
Camp David Accords, which, on March 26, 1979, culminated in the
Treaty of Peace, signed by the leaders of Egypt and Israel and
witnessed by the President of the United States.  While annex I,
article VI of the treaty specifically proposes that U.N.  forces and
observers supervise these security arrangements, the United States
committed in a formal exchange of letters with the presidents of
Egypt and Israel to ensure the establishment of an acceptable
alternative multinational force if the U.N.  process failed.  Efforts
were made during the following 2 years to secure a U.N.  force and
observers as contemplated by the Treaty of Peace.  However, on May
18, 1981, the President of the United Nations Security Council
announced the proposal to establish U.N.  forces and observers in the
Sinai had been rejected.  Consequently, on August 3, 1981, a Protocol
to the treaty was signed by the governments of Egypt and Israel and
witnessed by the United States, establishing the Multinational Force
and Observers (MFO). 

The MFO is an independent, international peacekeeping organization,
established outside the U.N.  framework, to monitor Israeli and
Egyptian compliance with Treaty of Peace provisions.  Since 1982, the
MFO has acted as an observer, reporter, and monitor of security
provisions, as well as an active liaison between Israel and Egypt. 
The MFO was jointly conceived by Israel and Egypt, with a firm U.S. 
diplomatic, military, and financial commitment. 


   THE MFO ORGANIZATION AND
   MANDATE
---------------------------------------------------------- Chapter 1:1

The Protocol, when combined with annex I of the Treaty of Peace,
serves as the mandate and charter of the MFO.  It sets forth the
organization, functions, privileges, and immunities of the MFO and
its members.  The Protocol specifically substituted the MFO for the
U.N.  force and observers stipulated in the treaty, making the MFO
responsible for monitoring compliance with, and reporting of any
violations of, the military limitations specified in the treaty. 
Annex I to the Treaty of Peace establishes three security zones (A,
B, and C) within the Sinai and one in Israel (zone D) along the
international border and specifies military personnel and equipment
limitations of each.  Figure 1.1 illustrates the zones. 

Planning and preparation for MFO deployment occurred from August 1981
until its deployment in March 1982 with significant U.S. 
involvement.  During this period, (1) the MFO was headquartered in
Northern Virginia, (2) the U.S.  Army Corps of Engineers accomplished
all new construction in the Sinai at the site of a vacated Israeli
air base in the Northern Sinai and at a totally undeveloped area in
the Southern Sinai, and (3) the United States assisted in obtaining
MFO participants from other governments.  Although deployed in March
1982, the MFO formally assumed its functions on April 25, 1982, in
conjunction with the day of final Israeli withdrawal from the Sinai. 
Since inception of the MFO, the U.S.  government has provided
diplomatic, military and financial support.  The scope of these
contributions are discussed in chapters 2 and 3. 


   OPERATIONAL MISSION OF THE MFO
---------------------------------------------------------- Chapter 1:2

Under the Protocol, the mission of the MFO is to undertake the
functions and responsibilities stipulated in the treaty for the U.N. 
forces and observers.  Specifically, these functions are: 

  Operation of checkpoints, reconnaissance patrols, and observation
     posts along the international boundary and line B, and within
     zone C. 

  Periodic verification of the implementation of the provisions of
     the Treaty of Peace, to be carried out not less than twice a
     month unless otherwise agreed by the Parties. 

  Additional verification within 48 hours after receipt of a request
     from either party. 

  Ensuring the freedom of navigation through the Strait of Tiran. 

   Figure 1.1:  Map of the Sinai

   (See figure in printed
   edition.)

   Source:  The MFO Headquarters,
   Rome.

   (See figure in printed
   edition.)

In addition to military forces at checkpoints in the Sinai, the MFO
has a Coastal Patrol Unit and civilian observers who conduct both
ground and air surveillance. 


   MANAGEMENT AND COMPOSITION OF
   THE MFO
---------------------------------------------------------- Chapter 1:3

The annex to the Treaty's Protocol prescribes specific guidelines and
responsibilities for the MFO organization, management, and operation. 
The Director General of the MFO is responsible for overall management
and control and has staff at four locations:  (1) MFO Headquarters in
Rome, Italy; (2) Force Headquarters and operations in the Sinai; (3)
offices representing the Director General in Cairo; and (4) Tel Aviv. 
Figure 1.2 shows the organizational structure of the MFO. 

   Figure 1.2:  Organizational
   Structure of the MFO

   (See figure in printed
   edition.)

   Source:  The MFO Headquarters,
   Rome.

   (See figure in printed
   edition.)

The MFO headquarters staff in Rome, at the time of our review, was
composed of 15 international personnel, the majority being from the
United States, and 16 Italian nationals.  The Director General,
always a U.S.  national, serves a 4-year term, which may be renewed
or terminated by the Parties to the treaty.  The Director General and
his staff oversee all MFO operations, including legal and financial
matters, contracts, procurement, facilities management, personnel and
recruitment, morale and welfare programs, troop rotation
arrangements, and program evaluation.  Additionally, they handle all
diplomatic matters between the MFO, Egypt, and Israel, as well as the
governments of the countries that provide troops and financial
contributions to the MFO.  The Protocol also gives the Director
General, his deputy, the force commander, and their spouses and minor
children the privileges and immunities accorded to diplomatic convoys
in accordance with international law. 

The functions of the force in the Sinai are controlled from the Force
Commander's Headquarters at the northern base at el Gorah by the
force commander, appointed by the Director General with the approval
of the Parties.  The force commander is of general officer rank,
serves a 3-year term, and cannot be from the United States. 

Sinai activities fall into four main operational areas: 

  the operation of troops in the field and ships at sea to provide a
     constant presence;

  reconnaissance and verification of zones A, B, C, and D by the
     Civilian Observer Unit;

  liaison between the MFO and the two host nations; and

  logistical support required to sustain the force. 

The MFO in the Sinai is composed of military and civilian
contingents, each performing specific operational functions.  The
United States, Colombia, and Fiji provide infantry battalions that
perform observation missions in zone C from 31 remote observations
posts and checkpoints.  In addition, the United States, Canada,
France, the Netherlands, New Zealand, Uruguay, Italy, Norway, and
Australia provide support units such as engineers and headquarters
staff personnel to the MFO.  The size of the military force at the
time of our review was about 1,987.  The United States provides the
largest contingent to the MFO, about 985 troops (50 percent of the
force), including a logistics support battalion that shares
logistical support tasks with MFO support contractor in the Sinai,
with other contingents, and with the MFO offices in Cairo and Tel
Aviv.  The MFO offices in Cairo and Tel Aviv serve as the MFO
diplomatic representative to the receiving state and manage
procurement and financial functions. 

A civilian observer unit of 15 U.S.  nationals performs observation
and verification missions in zones A, B, C, and D.  The MFO also
includes 30 other civilians, and approximately 127 international hire
civilian contractor personnel stationed in the Sinai performing a
variety of support functions, including laundry and food preparation. 
The MFO support contractor also utilizes approximately 520 Egyptian
nationals. 

Table 1.1 shows the role and responsibilities of each participating
nation as well as the number of personnel allotted. 



                          Table 1.1
           
           Military and Civilian Composition of MFO
                     Units, November 1994

Nation                    MFO unit                    Number
------------------------  ------------------------  --------
Australia                 Force commander's staff         26
Canada                    Headquarters company            28
                           staff
Colombia                  Infantry battalion             358
Fiji                      Infantry battalion             339
France                    Fixed-wing aviation unit        17
Italy                     Coastal patrol unit             83
Netherlands               Military signal unit            59
                           Military police unit
New Zealand               Training and support            24
                           unit
Norway                    Force commander's staff          4
United States             Infantry battalion             985
                           Logistics support unit
                           including medical unit
                           Helicopter support Unit
Uruguay                   Transport unit                  64
                           Engineer unit
============================================================
Total military                                         1,987
United States             Civilian observers              15
------------------------------------------------------------

   MFO LOGISTICS OPERATIONS
---------------------------------------------------------- Chapter 1:4

The MFO logistics operations are directed by the Director General
through the director of logistics, facilities, and contracts, and are
carried out in the field by the force in the Sinai and the offices in
Cairo and Tel Aviv.  Headquarters logistics responsibilities involve
implementing the Director General's logistics policies regarding
procurement, maintenance, engineering and facilities, transportation,
contracting, stock control, and property accountability and disposal. 
At the force level, the chief of support, a U.S.  Army colonel, is
responsible for all support activities, including supply,
transportation, food services, contracting, maintenance, and
engineering.  Field offices in Cairo and Tel Aviv procure supplies
from commercial vendors primarily located in these countries. 

Logistical functions within the force as of November 1994 are
predominantly performed by the 428 troops of the U.S.  1st Support
Battalion.  These operations are discussed in chapter 2 of this
report.  In addition to the United States, France, Uruguay, New
Zealand, Canada, and the Netherlands also provide MFO with logistics
support.  Specifically, France provides MFO with a fixed-wing
aviation unit consisting of 1 DHC-6 Twin Otter and 17 aircrew,
support, and maintenance personnel.  The Uruguayan and New Zealand
contingents provide MFO with drivers and engineers.  Canada provides
air traffic control support, and the Netherlands provides signal
communications specialists. 

The MFO also uses support contractors to perform many logistics
functions, including administrative and clerical support; maintenance
of facilities; vehicles, grounds, and electronic equipment; fire
prevention; food services; personal services (barber and
tailor/laundry); and receipt, distribution, and storage of certain
classes of supplies. 


   MANAGEMENT OF U.S. 
   PARTICIPATION IN THE MFO
---------------------------------------------------------- Chapter 1:5

U.S.  military and financial participation in the MFO is managed by
the State Department's Bureau of Near Eastern Affairs, with the
Department of Defense (DOD) input regarding military matters.  The
Bureau, established by a State Department notice dated March 5, 1982,
serves as the single focal point for the U.S.  government regarding
liaison and coordination of all aspects of U.S.  participation in the
MFO.  This includes the responsibility for overseeing U.S.  interests
in MFO operations such as the budgeting of U.S.  funding to the MFO,
assessing whether the U.S.  contributions and other resources
provided to the MFO are being properly used, and annually reporting
U.S.  costs incurred and military participation to Congress. 

The Army serves as the DOD's executive agent for matters pertaining
to U.S.  military participation in and support of the MFO.  The MFO
mission is assigned to the Commander, XVIIIth Airborne Corps, U.S. 
Forces Command. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:6

We initiated this study in response to a request from the Chairman
and Ranking Member of the House Committee on International Relations
to examine U.S.  participation in the MFO.  Our specific objectives
were to describe and assess (1) the level of U.S.  participation,
training, and operational impacts; (2) the actual cost of MFO
operations, the U.S.  contribution, and any cost-saving
opportunities; (3) State oversight of the U.S.  contribution; and (4)
views of the State Department and other relevant parties on the MFO
performance and lessons learned. 

For objectives 1, 2, and 4, we performed our work at the MFO
Headquarters in Rome, Force Headquarters in the northern and southern
Sinai, remote observation posts throughout the Sinai, and MFO offices
in Cairo and Tel Aviv.  At the MFO Headquarters, we met with the
Director General and officials from the following offices:  (a)
comptroller; (b) policy, planning, and operations; (c) logistic,
facilities, and contracts; and (d) political affairs and general
counsel. 

In the Sinai, we visited the MFO North Camp, where we interviewed the
force commander, senior U.S.  military officials at the Force
Headquarters, civilian observers, U.S.  infantry battalion and 1st
Support Battalion personnel, and support contractors performing
logistical functions.  The Director General directed that all
documents we reviewed and/or requested be individually reviewed and
cleared by the general counsel prior to release.  Aside from this
administrative formality, the MFO assisted us with accommodations in
the field and generally cooperated with this review. 

To gain Israeli and Egyptian government perspectives on MFO
effectiveness as a peacekeeping operation, we met with Egyptian and
Israeli officials from the Headquarters of the Egyptian Liaison
Agency With International Organizations and the Israeli Defense Force
Liaison Unit. 

For objectives 2, 3, and 4, we interviewed officials and reviewed
documents from the DOD and Department of State.  We performed our
work at the State Department Bureau of Near East and South Asian
Affairs; the Office of the Under Secretary of Defense (Policy); the
Army Operations, Readiness and Mobilization Directorate Operations
and Contingency Plans Division; Politico-Military Affairs Division;
DOD Joint Chiefs of Staff Strategic Planning Directorate (J5);
Department of the Army Budget; Headquarters, XVIIIth Airborne Corps,
Fort Bragg; and the Headquarters Forces Command Operations and Budget
office, Fort McPherson, Georgia. 

We performed our review from February 1994 to February 1995 in
accordance with generally accepted government auditing standards.  We
obtained agency comments from State, DOD, and the MFO. 


U.S.  MILITARY AND CIVILIAN
PARTICIPATION IN THE MFO
============================================================ Chapter 2

Since inception of the MFO, the United States has always provided
significant military and civilian support.  The United States
provides the largest military contingent, constituting 49.6 percent
of the total force at the time of our review.  U.S.  forces perform
infantry battalion functions, provide a large proportion of MFO
logistical and medical support, and serve on the headquarters staff
in the Sinai.  In addition, the United States gives the MFO direct
use of the U.S.  Army's logistics system, including access to excess
defense articles.  According to MFO and U.S.  Army officials,
opportunities may exist to reduce the number of U.S.  Army logistical
personnel. 

U.S.  troops assigned to the MFO must receive predeployment training,
training while deployed, and training upon completion of their MFO
tour.  According to Army officials, the MFO commitment contributes to
the strain on Army resources.  To help alleviate the strain, starting
in January 1995, the Army pilot tested a mixed infantry battalion
comprising active duty, National Guard, and Reserve forces. 


   U.S.  MILITARY PARTICIPATION
---------------------------------------------------------- Chapter 2:1

U.S.  military forces deployed to the MFO include an infantry
battalion, a logistics support battalion, and Force Headquarters
staff personnel.  An infantry battalion tailored to the MFO mission
is drawn from active units of the XVIIIth Airborne Corps every 6
months.  The overall strength of U.S.  armed forces participating in
the MFO as of November 1994 was 985, which is below the 1,200 member
maximum limit authorized by Congress.  Appendix IV shows U.S.  and
other participant force strength in the MFO since inception. 

The infantry battalion deployed to the MFO totals approximately 529
persons and is stationed at South Camp at Sharm el-Sheikh.  This
battalion operates observation posts and checkpoints and conducts
patrols in the southern sector of the Sinai, which runs along the
Gulf of Aqaba, from Sharm el-Sheikh to Taba.  In addition, a
logistics support battalion of 428 people based at both North and
South Camps provides staff for (1) two dispensaries; (2) an explosive
ordnance disposal detachment; (3) a transportation element that
handles long-distance ground transportation; (4) a small maintenance
detachment for U.S.-made radios and weapons; (5) a supply and service
unit that deals with the requisition, receipt, storage, and
distribution of all classes of supply; (6) an aviation unit,
including 10 helicopters, crews, and maintenance personnel; and (7)
an Army post office detachment.  Figure 2.1 shows the percentage of
logistical troops by MFO participating nation.  Additionally, 28
officers and enlisted men are assigned to various positions on the
force commander's staff at el-Gorah. 

   Figure 2.1:  Percentage of
   Logistical Troops by Country

   (See figure in printed
   edition.)


   MFO HAS DIRECT ACCESS TO THE
   U.S.  MILITARY SUPPLY SYSTEM
---------------------------------------------------------- Chapter 2:2

In 1982, at MFO request, the Army authorized the MFO to purchase
supplies and equipment from DOD's supply system.\1 The MFO has used
this authorization since 1982 to procure significant portions of its
supplies, ranging from 80 percent of its supplies in 1982 to 20
percent in 1993. 

The MFO also has access to excess defense articles, defined as
property items no longer needed by the particular service and not
originally procured in anticipation of military assistance or sales. 
The MFO authorization is identical to that of any U.S.  Army unit,
and as with other Army units, receives a higher priority than other
U.S.  services requesting excess Army articles. 

In fiscal years 1993 and 1994, the MFO acquired excess articles that
became available during the closing of U.S.  Army installations in
Europe.  The MFO paid the shipping costs and received such items as
generators, binoculars, tables, refrigerators, and medical equipment
ranging from heart monitors, centrifuges, and ultrasonic cleaners to
treadmills.  The transfer of this equipment benefited the MFO in a
number of ways.  For example, according to MFO and Army officials,
the MFO medical facility was substantially upgraded as a result of
excess Army articles, and some medical problems that once required
emergency medical evacuation to Israel can now be performed in-house. 


--------------------
\1 In addition to the MFO, the United Nations was granted access to
the DOD supply system for its peacekeeping operations in Somalia and
Cambodia. 


   WHEN COMBINED WITH OTHER
   DEMANDS, THE MFO COMMITMENT
   CONTRIBUTES TO A STRAIN ON ARMY
   RESOURCES
---------------------------------------------------------- Chapter 2:3

According to DOD officials, the continuous subtraction of the
equivalent of two light infantry battalions, and associated
administrative headquarters support to the MFO, when combined with
other global commitments, contributes to straining Army infantry and
support resources--particularly as the Army downsizes.  However, they
did not provide specific details on the operational impact. 

In January 1995, the Joint Chiefs of Staff conducted a study to
assess options and strategies regarding U.S.  military participation
in the MFO.  The study concluded, among other things, that there is
no military requirement for the deployment of elite or even active
U.S.  forces to the MFO.  The study further concluded that the costs
to the Army of participating in the MFO are: 

  a reduction of one infantry brigade equivalent from the
     combat-ready force structure caused by the continuous commitment
     of three active/reserve infantry battalions for MFO unique
     training, deployment, and post-MFO requalification;

  a loss of support personnel in specific skill fields deployed for 1
     year to the 1st Support Battalion; and

  a negative impact on personnel readiness of other units caused by
     the ripple effect of the special personnel requirements of the
     MFO. 


   PREDEPLOYMENT AND IN-SINAI
   TRAINING
---------------------------------------------------------- Chapter 2:4

Predeployment training focuses on the MFO mission and is provided in
the United States.  It includes individual, collective, and
specialized tasks tailored to support the mission.  Individual
training tasks include peacekeeping skills and procedures; MFO rules
of engagement, observation and reporting procedures; desert
operations and survival, aircraft, vehicle, and uniform recognition;
and Arabic customs and language.  Collective training includes
vehicle patrolling, outpost operations, and squad-level operations. 
Specialty training includes food handling and cooking, generator
operation, and remote field sanitation operations.  Light infantry
units assigned to the MFO receive a minimum of 3 months of
predeployment training.  Support troops receive a 1-week
predeployment orientation at Fort Bragg. 

Shortly after arriving in the Sinai, all troops receive orientation
training to complement predeployment training and to ensure units are
prepared to undertake their missions.  It includes follow-on training
to previous instruction that can be conducted under actual
environmental conditions as well as new subjects that were not
suitable for inclusion in predeployment training.  Troops assigned to
infantry or logistics support battalions receive orientation training
that includes standards of conduct, minefield procedures, and
preventive medicine.  Specialized training in communications, desert
driving, and special equipment usage is also provided where
applicable.  According to MFO officials, orientation training lasts
about 1 week. 

Each contingent also conducts continuation or in-Sinai training in
appropriate mission related subjects, such as peacekeeping skills and
procedures, weapons qualification, and night vision techniques. 
According to MFO officials, the frequency and type of in-Sinai
training is based on the respective unit commander's assessment of
need or as directed by the force commander. 


   POST-DEPLOYMENT TRAINING AND
   U.S.  ARMY IMPACTS
---------------------------------------------------------- Chapter 2:5

According to DOD officials, the MFO commitment necessitates post-
deployment training for Army units deployed.  U.S.  forces returning
from MFO duty must receive post-deployment training in required
individual and collective skills before returning to their normal
military functions.  According to Army officials, required skills of
many returning units are degraded during their MFO experience. 

According to DOD officials, peace operations require a significant
change in orientation for military personnel.  While most facets of
normal military operations apply to peace operations, peace
operations require an adjustment of attitude and approach.  According
to DOD officials, commanders at the home station must allocate
sufficient resources and time for training in order to regain
collective and individual standards required for the unit's primary
war fighting mission.  This post-deployment training, redevelops
skills and abilities that may have been affected by the nature of MFO
peace operations.  For example, while performing the MFO mission,
U.S.  units are prohibited from (1) all parachute jumping and
training involving parachute drops of equipment; (2) detonating
explosives, mines, and grenades for training; and (3) conducting live
firing by elements larger than a platoon size. 

The extent of post-deployment training required is determined by the
U.S.  home station commander.  According to DOD officials, individual
post-deployment training generally takes about a month and collective
training about 3 months. 


   THE U.S.  ARMY HAS DEPLOYED
   NATIONAL GUARD AND RESERVE
   VOLUNTEERS TO ALLEVIATE IMPACTS
---------------------------------------------------------- Chapter 2:6

In October 1993, the Army Chief of Staff approved a pilot program to
organize, train, and deploy a composite light infantry battalion of
Army National Guard and Reserve volunteer soldiers and regular Army
soldiers to the MFO.  The program, officially designated "MFO Sinai
Initiative," was designed to determine the extent to which reservists
can be used to enhance the Army's ability to perform peacekeeping
missions as a way to relieve the strain on active forces.  The
composite force deployed to the MFO in January 1995 following
individual and collective training at Fort Bragg, North Carolina, in
November 1994.  The U.S.  Army plans to rotate composite battalions
in the future depending on the success of the pilot initiative, the
availability of volunteers, and other factors.  According to DOD, the
cost of implementing the pilot initiative is about $15 million.  This
amount is in addition to other DOD costs to support the MFO. 

While the Sinai initiative marks the first time reservists will be
used to support active troops in the MFO operation, it does not mark
the first time they have been used for peacetime operations.  For
example, reservists have supported active forces in operations
involving disaster relief and humanitarian assistance.  In the Sinai
initiative, the National Guard and Reserve, whose participation is
strictly voluntary, will constitute 80 percent of the force; active
service soldiers, in positions of leadership, will constitute the
remaining 20 percent. 


   POTENTIAL OPPORTUNITIES TO
   LESSEN IMPACT ON U.S.  ARMY
---------------------------------------------------------- Chapter 2:7

Despite the recent transfer by MFO of some U.S.  logistical functions
to its existing support contractor, U.S.  logistical troop levels
have not been correspondingly reduced.  In August 1994, MFO began
transferring some U.S.  logistical supply functions, such as the
storing of commercial vehicle parts and construction materials, to a
contractor.  According to MFO management, the U.S.  soldiers
responsible for this function will be replaced by contractor
employees who are more experienced in managing an inventory system of
commercial items.  These same MFO officials indicated that these U.S. 
logistical troops continue to be needed for emergencies, contingency
operations, and other logistics support functions such as moving
materials, closing warehouses, and counting stocks.  In addition,
according to U.S.  Army documentation, since transportation support
is conducted with commercial vehicles and augmented by drivers from
New Zealand and Uruguay, an opportunity exists to transfer
responsibility for transportation support to the contractor and/or
other participating states. 

In June 1995, after the completion of our fieldwork, State officials
told us that MFO had eliminated six 1st Support Battalion positions
and was considering replacing U.S.  truck drivers with Egyptian
contractors.  However, they agreed with DOD officials that changes in
U.S.  force levels were subject to political constraints. 


   U.S.  CIVILIAN PARTICIPATION IN
   THE MFO CIVILIAN OBSERVER UNIT
---------------------------------------------------------- Chapter 2:8

U.S.  participation in the Civilian Observer Unit was established by
a letter from the Secretary of State to the Foreign Ministers of
Egypt and Israel that accompanied the signing of the Protocol to the
treaty on August 3, 1981.  The letter offered an observer unit
composed of American citizens to verify party compliance with Treaty
of Peace provisions.  Presently, the unit contains 15 U.S. 
nationals, approximately half being on transfer from the U.S. 
government and under contract to the MFO, the other contracted
directly by the MFO.  Quite separate from the observation carried out
in zone C by the three infantry battalions of the force, only the
Civilian Observer Unit performs regular observation and verification
missions throughout all four zones of the treaty area in Egypt and
Israel. 

Verification missions last from 2 to 4 days and employ MFO
helicopters and vehicles to move the teams of observers throughout
the four zones.  During these missions, observers are accompanied by
Israeli or Egyptian liaison officers, depending on which country the
zone resides.  During the course of a complete cycle of missions, the
observers cover all the Egyptian and Israeli installations within the
four zones to verify treaty limitations on personnel, armaments, and
military infrastructure.  Verification missions occur at least twice
a month.  Observers must also be prepared to undertake additional
verifications within 48 hours of a request from either the Israeli or
Egyptian government. 

According to MFO officials, violations of the provisions of the
treaty are rare.  They are typically the result of technical errors
by individuals regarding military restrictions and have been easily
rectified by the Parties.  According to the Director General's 1994
Trilateral Report, in fiscal year 1993, there were three deviations
from the terms of the treaty.  The details of violations are reported
only to the Parties.  Thus, we could not verify the violations or
their rectification. 


COST OF THE MFO AND THE U.S. 
CONTRIBUTION
============================================================ Chapter 3

In fiscal year 1993, the operating budget of the MFO totaled $56.1
million, excluding in-kind contributions and nonreimbursable costs
borne by participating and donor nations.  The operating budget is
funded primarily by assessed contributions from the United States,
Egypt, and Israel, with each country being assessed one-third of the
cost, after small contributions from Germany and Japan.  The 11
participating nations provide the military personnel and equipment
and supplies.  Since MFO inception in 1982, the United States has
provided the largest percentage of MFO funding and resources.  In
fiscal year 1993, the incremental cost of U.S.  participation was
$18.6 millon, while the total cost was $64.4 million.  This includes
the annual assessment cost of $17.8 million and DOD costs of $46.6
million for troops. 

As a result of troop, personnel, and other cost reductions, the
operating costs of the MFO have steadily declined since 1989, which
has decreased the U.S.  assessment cost accordingly.  However, the
total cost of the U.S.  participation in the MFO has increased during
recent years due to the higher military salaries paid to U.S. 
soldiers and reimbursement costs for food and base support. 


   COST OF THE MFO
---------------------------------------------------------- Chapter 3:1

The total cost of the MFO consists of its annual budgeted operating
costs, in-kind contributions, and nonreimbursable costs borne by the
participating and donor nations.  The operating costs include
expenses such as personnel, supplies and materials, contractual
services, troop rotations, and equipment acquisition.  In addition,
there are in-kind contributions and nonreimbursable costs borne by
the developed participating nations, particularly the United States,
France, and Italy.  These include capital equipment and excess
property donations, and the salaries of the troops provided by these
countries.  Also, the MFO is reimbursed by participating developed
nations for providing food, lodging, and base support to the troops
of these nations while they are on duty at the MFO.  For the United
States, this is done through a credit to the account of the MFO for
the amount of expense (offset cost) that the United States would have
incurred for lodging and base support had its troops remained at
home.  According to MFO officials, the MFO does not have sufficient
information to determine the total amount of unbudgeted contributions
provided by the participating nations.  The MFO provides
transportation, food, lodging, base support, and a modified U.N. 
rate for troops of developing countries participating in the MFO. 

The operating budgets of the MFO for fiscal years 1989 through 1993
and their funding sources are shown in table 3.1. 



                          Table 3.1
           
            Operating Expense Budget of the MFO by
            Funding Source (Fiscal Years 1989-93)

                    (Dollars in millions)

                          FY      FY      FY      FY      FY
Funding source          1989    1990    1991    1992    1993
--------------------  ------  ------  ------  ------  ------
United States          $24.4   $24.4   $19.5   $18.2   $17.8
Egypt                   24.4    24.4    19.5    18.2    17.8
Israel                  24.4    24.4    19.5    18.2    17.8
Japan\a                  1.0     1.5     1.5     1.4     1.0
Germany                    0       0       0     0.6     0.6
Interest income          0.3     0.6     0.7     1.1     1.1
============================================================
Total                  $74.2   $75.3   $60.7   $57.7   $56.1
------------------------------------------------------------
\a The contributions from Japan are applied exclusively to pay for
the cost of food and personnel salaries. 

The total annual operating expense of the MFO since its inception in
fiscal year 1982 is shown in figure 3.1.  A detailed discussion on
the contribution of troops, equipment and logistical support provided
by the participating nations is discussed in chapter 2. 

Cost of MFO to the United States

The funding and resources the United States provides to the MFO
includes (1) the annual assessment contribution of one-third of the
MFO operation costs and (2) about 50 percent of the MFO military
contingent.  The MFO also receives U.S.  Army excess defense articles
as discussed in chapter 2. 

The cost of providing U.S.  troops to the MFO is paid out of the DOD
regular operating budget.  In contrast, the one-third U.S. 
assessment is paid directly from appropriated funds to the State
Department for peacekeeping operations. 

Table 3.2 shows the costs of the U.S.  participation in the MFO by
category for fiscal years 1989 through 1993. 



                          Table 3.2
           
            Costs of U.S Participation in the MFO

                    (Dollars in millions)

                          FY      FY      FY      FY      FY
Description             1989    1990    1991    1992    1993
--------------------  ------  ------  ------  ------  ------
DOD costs:
------------------------------------------------------------
Salary cost of         $31.0   $31.0   $32.1   $34.6   $36.1
 troops
Predeployment            0.6     1.0     0.7     0.8     0.5
 training
Unreimbursed travel      0.2     0.2     0.1     0.2     0.3
MFO food, lodging,       3.5     3.6     4.0     6.0     6.9
 and base support
Troop transportation     3.0     3.6     4.0     3.7     2.8
 and allowances, per
 diem, etc.
============================================================
Total DOD costs        $38.3   $39.4   $40.9   $45.3   $46.6

Plus:
------------------------------------------------------------
U.S. assessment         24.4    24.4    19.5    18.2    17.8
============================================================
Total costs of U.S.    $62.7   $63.8   $60.4   $63.5   $64.4
 participation

Deduct:
------------------------------------------------------------

DOD costs reimbursed by the MFO:
------------------------------------------------------------
Troop transportation     3.0     3.6     4.0     3.7     2.8
 and allowances, per
 diem, etc.

Costs DOD would have incurred had troops remained in the
United States:
------------------------------------------------------------
Salary cost of          31.0    31.0    32.1    34.6    36.1
 troops
MFO food, lodging        3.5     3.6     4.0     6.0     6.9
 and base support
Total deductions        37.5    38.2    40.1    44.3    45.8
============================================================
Total U.S.             $25.2   $25.6   $20.3   $19.2   $18.6
 incremental costs
------------------------------------------------------------
Table 3.2 illustrates that while the actual cost of the U.S. 
participation in the MFO for fiscal year 1993 was $64.4 million, the
incremental or additional cost to the United States for its
participation was $18.6 million.  The $45.8 million difference
represents DOD costs that were either reimbursed by the MFO ($2.8
million) or costs that DOD would have incurred had its troops
remained in the United States ($36.1 million salary costs and $6.9
million offset costs for MFO food and base support provided to U.S. 
troops).  Of the $18.6 million incremental costs, $17.8 million is
for the U.S.  annual assessment and the remaining $0.8 million is the
DOD incremental cost for predeployment training and unreimbursed
travel.  Table 3.2 does not include the costs of excess defense
articles and capital equipment donated by the United States to the
MFO.  The cost of these activities is not tracked by DOD. 


      MFO OPERATING COSTS DECREASE
      BUT ACTUAL COST OF U.S. 
      PARTICIPATION INCREASES
-------------------------------------------------------- Chapter 3:1.1

The MFO has progressively reduced its operating cost since fiscal
year 1982.  Figure 3.1 illustrates the decreases in the operating
budget.  MFO stated that it is implementing measures to further
reduce these costs, to maintain current budgetary levels despite
inflation costing about $1 million per year.  While the decrease in
MFO operating costs has resulted in corresponding reductions in the
U.S.  incremental costs, the total cost of the U.S.  participation
has gradually increased since 1989.  This is because although U.S. 
troop levels have decreased, their salaries and the offset costs have
increased. 

Also shown in figure 3.1, the operating budget of the MFO has
progressively decreased from $103 million in fiscal year 1983, the
year after its inception, to $56.1 million in fiscal year 1993. 

   Figure 3.1:  MFO Budget, Fiscal
   Years 1982-1993

   (See figure in printed
   edition.)

MFO fiscal year 1982 budget was about $225 million, primarily for
start-up costs that included construction of bases and facilities. 
Cost reductions of $28.8 million between fiscal years 1983 and 1989
were primarily due to the completion of start-up activities and the
stabilization of operations.  Since fiscal year 1989, cost reductions
of $18.1 million have primarily resulted from significant reductions
in military and civilian personnel strength and through a host of
cost-reduction initiatives by MFO management including reductions in
force vehicles, resale of used vehicles, and tighter inventory
controls. 

The MFO total military strength was substantially reduced by 586
troops between 1988 and 1993 to 2,063 troops.  However, many of these
reductions came from contingents of developing nations, such as Fiji
and Colombia, which maximized MFO cost reductions because the MFO
pays transportation, maintenance costs, and a modified U.N.  rate for
these troops.  In addition, MFO civilian personnel, excluding support
contractor personnel, were reduced from 63 in fiscal year 1987 to 49
in fiscal 1993, which resulted in further cost reductions. 

The primary reasons for the increased actual cost of U.S. 
participation in the MFO are increases in both military pay and the
offset costs credited by DOD to the MFO for providing food, lodging,
and base support to U.S.  troops.  While the U.S.  authorized troop
strength at the MFO decreased from 1,045 in fiscal year 1990 to 984
in fiscal year 1993, military pay raises increased the salary cost of
these troops from about $31 million in fiscal year 1990 to $36.1
million for fiscal year 1993, and U.S.  offset costs almost doubled
from $3.6 million to $6.9 million, primarily because of changes in
the Army's procedure for calculating these costs.  According to Army
officials, this procedure incorrectly included in the offset the
costs of certain services not provided to U.S.  troops by the MFO. 
Prompted, in part, by our review of the offset issue, DOD and MFO
were able to agree on a methodology to compute offset costs for
fiscal year 1994 and future years. 


VIEWS ON MFO OPERATIONAL
PERFORMANCE AND LESSONS LEARNED
============================================================ Chapter 4

The MFO is widely viewed by United States and international officials
as effectively performing its duties in a cost-efficient manner. 
This view is primarily held because of the sustained peace between
Egypt and Israel, which has provided a supportive environment for the
mission's success and for active cost containment measures. 
According to State, MFO, Egyptian, and Israeli officials, the MFO has
helped sustain peace between Egypt and Israel by serving as liaison
and monitor of the treaty provisions.  According to many officials
interviewed, the MFO operational success can be attributed to several
factors, including inherited advantageous conditions resulting from
the way the MFO was established, the Israeli/Egyptian commitment to
peace, significant U.S.  military and financial support, and
financial co-responsibility placed on the Parties.  As a result of
the favorable circumstances surrounding the establishment of the MFO,
particularly when compared to other peacekeeping operations, some
officials believed that the MFO model may not be readily applicable
to more challenging peacekeeping scenarios.  However, the factors
contributing to the MFO operational success may serve as lessons
learned for future peacekeeping operations. 


   THE MFO IS VIEWED AS
   EFFECTIVELY PERFORMING ITS
   MISSION
---------------------------------------------------------- Chapter 4:1

State, DOD, Israeli, and Egyptian officials all view the MFO as
effectively performing its mission of monitoring, liaison, and
reporting treaty provisions and violations.  State Department
officials view the MFO as an instrument of U.S.  foreign policy in
the Middle East that should remain until sustained regional peace is
achieved.  According to State officials, the MFO is an operationally
and cost-effective peacekeeping operation that has helped bridge
confidence and communication between Egypt and Israel.  U.S.  Army
officials, while viewing the MFO as operationally effective, have
concerns about the level of U.S.  participation, the operational
impacts to the Army, and the lack of an end date.  These officials
view the MFO as an indefinite Army commitment. 

According to Egyptian liaison officials, the MFO has helped build
confidence between the Israelis and Egyptians by supervising
adherence to the treaty.  The liaison system promotes mutual dialogue
and has assisted in solving some challenges of both parties.  These
Egyptian officials, although agreeing with their governments support
of the MFO, expressed concerns about the open ended term of the MFO
and questioned whether the MFO could be reduced to an observer only
force.  Egyptian officials were pleased with the reductions in costs
but would like to see additional cuts. 

According to Israeli officials, the MFO has been successful in
supervising the conditions of the treaty and in building the
confidence of the Parties.  It is their view that the MFO works
because it has effectively supplemented Israel's and Egypt's
strategic interests by securing the provisions of the treaty and
providing a large U.S.  military role.  Officials viewed the United
States as essential to the MFO success and emphasized that any
significant reductions in U.S.  forces could send a signal of
lessened U.S.  commitment during current and future regional peace
initiatives. 


   WHILE EFFECTIVE, THE MFO MODEL
   MAY NOT APPLY TO MORE
   CHALLENGING PEACEKEEPING
   SCENARIOS
---------------------------------------------------------- Chapter 4:2

According to DOD officials, the MFO began under almost optimum
conditions and was provided opportunities for success that are not
typical of most peacekeeping operations.  Consequently, these
officials believe that the MFO model would not apply to more
challenging and hostile peacekeeping scenarios. 

The MFO was preceded by a panoply of cease fire and withdrawal
agreements, negotiations, and U.N.  peacekeeping forces between
October 1973 and March 1979.  These activities effectively
transformed the Sinai Peninsula from a violent battlefield to a
tranquil state prior to the deployment of the MFO.  Thus, the MFO
inherited a peaceful operating environment.  In addition, the MFO
began with (1) a firm commitment to peace between the Parties, as
indicated by a formal treaty of peace and a thorough Protocol; (2) an
established geographic buffer zone in which to operate; (3)
substantial U.S.  government military and financial commitments; (4)
a barren, scarcely populated operating environment; and (5) a largely
U.S.  Army managed logistics system. 

According to DOD officials, these conditions created an almost
clinical environment for MFO operations.  For example, the MFO buffer
zone, zone C, is free from the hostilities of many peacekeeping
operations.  The operating area is large, stretching over 10,000
square miles, but is largely unpopulated.  Consequently, according to
DOD, any military or terrorist threat to MFO ground forces in the
Sinai is minimal.  These officials believe that this MFO model may
not directly apply to an environment that is urban or densely
populated with potentially hostile parties over which a central
government would have little control and where urban guerilla warfare
is a possibility.  In addition, officials emphasized that the MFO
always had a U.S.  managed and designed logistics system with a
direct link to the U.S.  Army. 

The MFO compares best with a traditional U.N.  Chapter VI
peacekeeping operation responsible for observing and reporting as
opposed to a peace enforcement Chapter VII operation.  This is
primarily because the MFO mandate is to supervise the security
arrangements of the Treaty of Peace by observing and reporting
violations and demanding rectification.  The MFO was not intended to
serve as a fighting force or to repel national or factional armies. 
According to DOD officials, the MFO strength lies not in its military
capability, but in the commitment of Israel and Egypt to peace, and
the political support of the participating states. 


   LESSONS LEARNED FROM MFO
   OPERATIONS
---------------------------------------------------------- Chapter 4:3

According to U.S.  and international officials, while the MFO has
been successful, there are several lessons that can be learned from
its structure and operation.  In terms of U.S.  commitment and
oversight, the MFO arrangement has an open-ended U.S.  participation
agreement, without a formal requirement for periodic U.S. 
reassessments, and has no formal executive board to oversee its
operations. 

The positive lessons from the MFO are that it:  (1) began with a
detailed charter or mandate fully supported by all parties, (2) makes
parties of the peace treaty financially accountable, (3) incorporated
standardized and interoperable field equipment, and (4) has an active
liaison system with the Parties. 

U.S.  participation in the MFO does not have an end date or
incremental drawdown provision.  According to DOD and Army officials,
U.S.  arrangements in any similar future peacekeeping operation
should include provisions for drawdown and eventual termination. 
Other participating developed nations have periodic renewal
provisions in their participation agreements.  Consequently, these
nations formally renegotiate their participation with the MFO at
specified intervals.  In contrast, the United States does not have
any renewal provision in its participation agreement, thus periodic
reassessment is not formally accomplished.  According to U.S.  Army
officials, there should be formal periodic reassessments of the level
of U.S.  military participation in the MFO, particularly in light of
other global demands.  According to these officials, over a decade of
Israeli-Egyptian peace warrants such reassessment, particularly in
light of growing military requirements elsewhere, and reduced budgets
and resources. 

In addition, the MFO does not have any formal executive oversight
such as a board of directors or an independent audit entity as
discussed in
chapter 5 of this report.  While the broad management discretion
granted to the Director General by the Protocol has benefits such as
cost cutting flexibility, a more formal oversight mechanism could
strengthen financial accountability and deter misuse of expenditures. 
Thus, we believe that any future operation should include a formal
mechanism for adequate oversight of the U.S.  contribution. 

On the other hand, a positive lesson can be learned from the way the
MFO charter is constructed.  The MFO charter, unlike many
peacekeeping operations, provides details regarding the
responsibilities, organization, operations, military command
structure, financing, and administration of the MFO.  According to
MFO officials, there are few aspects of the MFO peacekeeping tasks
that require further expansion or interpretation by the military
staff of the MFO.  According to DOD and State officials, few
peacekeeping missions have ever deployed with such a complete working
document as the MFO charter.  In contrast, DOD officials note U.N. 
mandates are often ambiguous and ill-defined, thereby complicating
peacekeeping operations.  These officials cite favorable political
circumstances and the existence of an agreement between the Parties
as largely determining the specificity and realism of the mandate and
ultimately the success or failure of the operation.  These officials
also stated that where the United Nations has been given similar
favorable circumstances for mandates and terms of reference deriving
from a disengagement agreement between motivated adversaries, results
have been favorable. 

Another potential lesson learned is MFO financing method.  According
to MFO officials, unlike other peacekeeping operations, the Parties
to the MFO share in direct funding, thus each has a vested interest
in cost containment.  The financial arrangements also make the MFO
directly accountable to the fund's contributors, resulting in a
contractor-client relationship.  According to MFO, State, and DOD
officials, this arrangement is advantageous because it actively
engages former adversaries in the financial planning of the
peacekeeping operation. 

As for the contributions of the participating states, arrangements
for external funding sources should be maximized while international
interest is high.  This could work to reduce the financial burden of
the one-third assessment on the United States.  According to MFO
officials, the MFO waited several years before trying to recruit
external donors, with only modest results. 

In addition, since its inception, the MFO has used a system of
commercial procurement, contracting, and equipment standardization. 
MFO procurement emphasizes the use of local markets to increase
competition and reduce costs.  The MFO derives additional revenue
from sales of used vehicle and excess scrap. 

Equipment standardization is also emphasized.  According to MFO
officials, the principle underlying MFO logistics was that to promote
fairness and efficiency, each military unit, regardless of its
resources, would receive the same type of equipment.  In contrast,
many U.N.  peacekeeping operations maintain a variety of equipment
and maintenance standards in different contingents.  The
sophisticated equipment in the observation posts, the vehicles, and
the communications and mission-related equipment are all standardized
and are the property of the MFO.  According to MFO, this has been
accomplished by procuring certain models of equipment from specific
manufacturers, such as General Motors for commercial vehicles and
Motorola for radio communication equipment.  Standardization presents
several logistical advantages:  (1) maintenance is easier, (2)
incoming battalions do not have to bring their own sophisticated
equipment and vehicles with them and all their diverse maintenance
problems, and (3) it reinforces the integrated appearance of the
force.  In addition, interoperability of communication and
electronics systems is achieved. 

The MFO liaison system also serves as a model for developing peaceful
relations and cooperation.  According to MFO officials, the liaison
system fosters contact and permits parties to address and resolve
issues at graduated levels, serving as an instrument to adapt treaty
conditions to changing realities on the ground. 


STATE OVERSIGHT AND REPORTING
COULD BE IMPROVED
============================================================ Chapter 5

The State Department has responsibility for overseeing U.S. 
participation in the MFO and is required to annually report to
Congress on MFO activities, including the cost to the United States. 
DOD provides State data on the total cost of deploying and
maintaining U.S.  troops at the MFO.  We believe that State could
improve its oversight as well as the quality of the annual reports it
sends to Congress.  These reports have contained inaccuracies and did
not show the total U.S.  cost of participation in the MFO, due in
part to inaccurate data submitted by DOD on troop costs. 


   INADEQUATE STATE OVERSIGHT OF
   U.S.  CONTRIBUTIONS
---------------------------------------------------------- Chapter 5:1

State has taken a hands-off approach to MFO and does not adequately
assess whether U.S.  contributions to the MFO are spent efficiently
and properly.  For example, State was not knowledgeable of important
changes in MFO policies and procedures that had an impact on U.S. 
costs.  In addition, State does not (1) know if the MFO has adequate
internal management and accounting controls in place to deter the
misuse of U.S.  contributions, (2) obtain and review all audit
reports issued by the MFO external auditor, or (3) analyze MFO
financial statements to detect items that may impact the U.S. 
contribution. 

Effective State oversight is needed because (1) MFO Director General
has broad management authority, (2) MFO does not have a formal board
of directors or governing body that provides executive oversight for
the accountability of the expenditure of funds, and (3) MFO does not
have an independent audit committee to oversee external audits. 


      STATE UNAWARE OF MFO
      POLICIES AND PROCEDURES THAT
      IMPACT U.S.  COSTS
-------------------------------------------------------- Chapter 5:1.1

During our review, we observed that State officials were not
knowledgeable of details related to salary, benefits, and other
matters involving the MFO, which have had an effect on the cost of
operation.  For example, until we began our inquiry, State was
unaware of many details relating to the Director General's salary and
benefits or other MFO expenditures made on his behalf.  We also noted
that MFO policies and procedures for designating dependents of MFO
officials were changed by the MFO two times in 1992 and 1994.  They
were changed in 1992 to broaden the definition of dependent to
include persons other than spouses, unmarried children, or dependent
parents as dependents.  In 1994, following the conclusion of our
fieldwork, the policies and procedures were revised by the MFO to
expand the definition of an authorized dependent.  Specifically, the
new regulation states that a person is an authorized dependent if
he/she has been so designated by the MFO staff member and so approved
by the Director General.  While other members of the MFO may benefit
from these changes, the MFO general counsel told us and congressional
staff in February 1995 that the changes were made to accommodate the
personal circumstances of the Director General, who was already
receiving dependent benefits for individuals who were not his spouse
or unmarried dependent children.  In an August 10, 1994, letter to
State, the Director General explained that housing used by the former
Director General, who was a bachelor, was not suitable for his
household and went on to explain the security and furnishing upgrades
and improvements to his MFO-provided residence that were necessary to
accommodate his household.  He also stated that the MFO pays his
dependents' elementary and high school fees and annual dependent
education travel, a benefit that is available to all members of the
MFO international staff. 

In response to our inquiry, State Department officials said that they
were aware that the Director General had a nontraditional family and
that some accommodation would be necessary in order for him to accept
the initial appointment in 1988.  However, they stated that they were
not aware of the specific changes made to MFO policies to satisfy
this accommodation, which had an affect on benefits and privileges. 
In view of the fact that the Director General has such broad latitude
to modify regulations and procedures without external approval, we
believe it is important for State to be aware of all policy changes
that may affect costs. 

The Protocol to the treaty establishing the MFO does not provide for
a governing body for executive oversight of the MFO, or an
independent audit entity.  It gives the MFO Director General broad
management authority, with a requirement to report developments
relating to the functioning of the MFO to the Parties.  According to
MFO officials, the annual Trilateral meeting fulfills the purpose of
a "board of directors" because the Director General makes a detailed
statement covering MFO operations, administration for the prior
fiscal year, and issues and funding requirements for the new fiscal
year, and invites practical suggestions from representatives from the
funds contributing countries participating in the meeting.  In
addition, annual budgets are submitted to financial contributors for
approval.  According to MFO officials, the U.S.  government, as a
participant, is on the "board of directors" of the MFO.  State
officials agree that the statements at the Trilateral meeting,
informal discussions, and site visits throughout the year constitute
adequate oversight. 

However, we believe that the Director General's statements at the
Trilateral meeting and informal discussions throughout the year do
not constitute a sufficient oversight mechanism to prevent the
potential misuse of U.S.  contributions.  In contrast, other
international organizations have an independent governing body above
the chief executive to oversee and approve operations and finances. 
For example, both the North Atlantic Treaty Organization (NATO) and
the Organization for Economic Co-Operation and Development have
councils to perform oversight of their operations and serve as the
highest decision-making bodies. 

The MFO also does not have an independent audit entity between the
Director General and the external auditor to oversee the audit and
report to management on its performance and results and the
disposition of any recommendations resulting from the audit.  The MFO
Director General selects, directs, and receives the report of the
external auditor, Price Waterhouse.  In contrast, other international
organizations we examined such as NATO, the Organization of American
States, and the European Union, all have independent external audit
committees that perform or oversee external audits and are
independent of the governing body or chief executive. 

The lack of a fully engaged "board of directors" or audit committee
results in the Director General essentially having carte blanche
authority to run the organization.  We believe that in the absence of
a formal executive governing body, improved State oversight of U.S. 
contributions is essential. 


      STATE LACKS ASSURANCE THAT
      MFO HAS ADEQUATE INTERNAL
      CONTROLS
-------------------------------------------------------- Chapter 5:1.2

State relies on the audit report of the MFO external auditor, Price
Waterhouse, for assurance that the MFO has adequate internal
controls.  This report, along with a separate management letter, is
prepared in accordance with generally accepted auditing standards and
expresses the auditor's opinion on whether the financial statements
are free of material misstatement.  However, generally accepted
auditing standards do not require the report to include an opinion on
the adequacy of the MFO internal controls.  Accordingly, while the
audit report provides assurance that the data in the MFO financial
statements are free of material misstatement, it does not provide
State assurance that the MFO has adequate internal accounting
controls in place to deter the improper use of U.S.  contributions. 

We found that State did not request, obtain, or review the annual
management letter provided by the external auditor to the MFO
management.  We obtained copies of the management letter for fiscal
years 1990, 1991, and 1993\2 and noted that although they do not
express an opinion on the MFO internal controls, they do discuss
internal control matters and problems noted during the audit,
recommendations for corrective action, and responses by the MFO
management.  Although this letter would not provide State with a
basis for determining whether the MFO internal controls were
adequate, it does provide information on internal control problems
found during the external audit and corrective actions taken by the
MFO management. 

In order to determine whether the MFO internal controls are adequate,
State could ask the MFO to engage its external auditor to perform a
separate audit and issue an opinion on its internal controls.  Since
the United States is a primary contributor, State should then request
that the MFO provide State with a copy of this report as the
representative of the U.S.  government. 

State Department officials believe they are fulfilling their
oversight responsibilities by relying on the audit report, the MFO
published financial statements, and the integrity of the MFO
management, which is heavily staffed by former State Department
employees.  They did not want to micromanage the MFO.  However, they
agreed that periodic separate reviews of the MFO internal controls by
the external auditor and reviews of the external auditor's management
letters to the MFO would provide further assurance that the MFO had
adequate internal controls in place and would strengthen State's
oversight over U.S.  contributions. 


--------------------
\2 A management letter was not prepared by the external auditor for
fiscal year 1992. 


      NEED FOR STATE TO EVALUATE
      MFO PUBLISHED FINANCIAL
      STATEMENTS AND FX ACCOUNT
      AUDIT REPORT
-------------------------------------------------------- Chapter 5:1.3

During our review, we noted two items relating to U.S.  contributions
that prompted changes to the MFO financial statements and a reduction
in the U.S.  assessment for fiscal year 1994.  These items could have
been detected several years ago by State if it had regularly reviewed
the MFO published financial statements and the FX account audit
reports. 

In one instance, we noted that for fiscal year 1993 and prior years,
the MFO financial statements did not disclose the amounts of DOD
reimbursement to the MFO for providing food, lodging, and base
support to U.S.  troops on duty at the MFO ($6.9 million for fiscal
year 1993).  This reimbursement amount is not shown as revenue in the
income statement, but is applied as a net against the expense of
personnel in the MFO income statement with no explanatory footnote. 
After we informed MFO officials that this did not provide full
disclosure of the U.S.  contribution, they included an explanation in
the MFO financial statements for fiscal year 1994. 

We also found that State was unaware of the total amount of loans
made by the MFO from its operating budget to its FX account and how
much of these loans remained outstanding.  The FX is a
self-sustaining consumer goods store that serves the MFO military and
civilian personnel stationed in the Sinai.  The MFO external auditor
performs a separate audit on the FX account annually; however, State
had not requested, obtained, or reviewed the reports resulting from
these audits. 

Several weeks after our inquiry, an MFO official told us that the
outstanding loan amount shown on the MFO financial statements did not
agree with the outstanding amount shown on the FX financial
statements.  He stated that the FX financial statements showed that
the FX owes a loan balance of $1.53 million to the MFO, while the MFO
financial statements showed the loan owed to them was $1 million--or
$530,000 less.  The official noted that the reason for the
differences was that the MFO had written off $530,000 of the FX loan
on the books several years ago because they had determined this
amount to be uncollectible, which is in accord with generally
accepted accounting principles.  State was unaware of this
transaction, although the MFO had reported the loan write-off in its
financial statements for fiscal year 1985, the year that it occurred. 
Prompted by our inquiry and the improved financial condition of the
FX since the loan write-offs, the MFO reinstated the loan write-off
on its fiscal year 1994 financial statements, and the resulting
$530,000 of income will be credited to the three contributing
countries, reducing the U.S.  assessment for fiscal year 1995 by
$177,000. 

State officials noted that in the past they did not believe it was
necessary to request the audit reports of the FX account because it
is a separate, self-sustaining account, funded from sales to the MFO
soldiers.  However, we believe that the United States has an interest
in this account because the FX was established through loans from the
MFO operating funds, one-third of which is paid by the United States. 
Also, U.S.  military personnel make up about half of the soldiers who
use the FX, which has total annual sales of about $5 million and
annual income of about $553,000.  MFO officials stated that the FX
profits are used to fund morale support activities for the MFO
military personnel.  If State had been receiving and examining the
audited financial statement of both the FX and the MFO, it could have
noted the improved financial condition of the FX account and could
have taken appropriate action so that the United States could have
realized the reduction earlier.  State officials stated that in the
future they would request and review the external auditors report of
the FX account in order to strengthen the performance of their
oversight responsibilities. 


   STATE AND DOD REPORTING OF THE
   COST OF THE MFO TO CONGRESS CAN
   BE IMPROVED
---------------------------------------------------------- Chapter 5:2

The legislation authorizing U.S.  participation in the MFO requires
that the President submit an annual report to Congress on the
activities of the MFO that describes all costs borne by the U.S. 
government in its relationship with the MFO whether the United States
was reimbursed for these costs or not.  This report is prepared by
the State Department with input from the Department of the Army,
which is the DOD executive agent for matters pertaining to the MFO. 

We found that none of the previous reports included the annual
assessment paid from the State's budget to the MFO ($18.3 million for
fiscal year 1993) as its share of the total operating costs of the
MFO.  This is covered separately in State's congressional
presentation and other budget presentations to Congress.  State
maintained that it does not include the annual assessment in the
annual report because it would make the report too lengthy.  However,
State could include the amount of the assessment in the report and
refer the reader to the congressional presentation for details on how
this amount was computed.  This would enable Congress to have access
to the full cost of the MFO to the United States in one document. 
Subsequent to the completion of our fieldwork, State officials agreed
that the annual assessment amount should be included in the MFO
report to Congress and included it in the 1994 report. 

Also, we found that the annual report contained an inaccuracy in the
amounts shown for the salary costs of military personnel for 1 year. 
For fiscal year 1992, military salary costs reported were only $12.1
million, which was less than half of what was reported for fiscal
years 1991 and 1993.  Army officials have recomputed the salary costs
to correct the discrepancy. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 5:3

We recommend that the Secretary of State improve the oversight of the
MFO by (1) examining the MFO annual published financial statements
for discrepancies, (2) requesting and reviewing all reports issued by
the MFO external auditors, (3) request the MFO to have its external
auditor periodically perform a separate audit of the MFO management
and internal accounting controls and provide a copy of the resulting
report to State, and (4) include the U.S.  annual assessment cost
contribution of one-third of the MFO operating costs in its annual
report to Congress on the MFO. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 5:4

In commenting on a draft of this report State disagreed with our
conclusion that greater State oversight of U.S.  contributions to the
MFO is needed.  State asserts that it has been U.S.  policy to grant
the MFO considerable latitude in the way it manages its operations
and that this policy creates a limited framework for oversight. 
Consequently, State's oversight of U.S.  contributions is
accomplished by frequent informal discussions and infrequent formal
meetings, such as the annual Trilateral meeting.  In addition, State
asserts its review of the MFO external audit, published financial
report, and annual budget submission provides an adequate oversight
and reassessment mechanism.  Nonetheless, State agreed to implement
all but one of our recommendations to improve oversight.  State's
comments on the report and our response are in appendix V of this
report. 

We continue to believe that the reviews of the external auditor's
report, published financial reports, and annual budget submissions do
not provide adequate oversight of U.S.  contributions to the MFO. 
Under the MFO management and operating structure, once the budget is
endorsed by the signatories, the Director General has great latitude
over the expenditure of funds as well as the processes used to
account for them.  As pointed out in this report, this arrangement is
unique to the MFO.  In all other international organizations we
observed, there is an executive oversight board that is independent
of those charged with day-to-day operations.  The actions that State
has already taken in response to our review should improve its
oversight capability; however, additional steps need to be taken. 
State objected to an annual audit of the MFO internal controls, and
we changed the report to clarify the recommendation for periodic
audits. 

The MFO provided general comments, citing its operational and
financial successes since inception, and its continued efforts to
reduce costs.  We previously met with MFO officials on a draft of
this report contents and made changes to the draft where appropriate. 

DOD agreed with all of the report findings relevant to DOD and
reported that it has taken actions that address concerns we raised in
a draft of this report about the accuracy on cost data it was
providing to State regarding its participation in the MFO.  If fully
implemented, these actions should satisfy the intent of our
recommendation.  Therefore, we are no longer making a recommendation
to DOD. 




(See figure in printed edition.)Appendix I
THE EXCHANGE OF LETTERS BETWEEN
THE UNITED STATES, ISRAEL, AND
EGYPT
============================================================ Chapter 5



(See figure in printed edition.)



(See figure in printed edition.)


MULTINATIONAL FORCE AND OBSERVERS
CONTINGENT STRENGTH
========================================================== Appendix II

          1983  1984  1985  1986  1987  1988  1989  1990  1991  1992  1993  1994
--------  ----  ----  ----  ----  ----  ----  ----  ----  ----  ----  ----  ----
AUSTRALI   102   102   102                                              25    26
 A
CANADA                       100   134   135   133   130    25    25    28    28
COLOMBIA   502   502   502   500   498   499   402   401   379   379   379   358
FIJI       500   500   500   498   498   499   394   400   378   378   378   339
FRANCE      38    38    42    38    39    37    44    40    21    18    17    17
GREAT       37    37    37    38    38    38    37    36    35    34
 BRITAIN
ITALY       90    90    90    94   102    90    89    91    82    82    83    83
NETHERLA   107   107   107   107   111   116   117   117    85    84    84    59
 NDS
NORWAY       4     4     4     4     4     5     4     3     3     3     4     4
NEW         36    36    36    36    14    14    25    26    26    26    24    24
 ZEALAND
URUGUAY     76    76    76    75    75    76    76    76    64    64    62    64
UNITED    1,20  1,20  1,20  1,16  1,19  1,14  1,05  1,04   998   998   984   985
 STATES      0     0     0     1     2     5     3     5
================================================================================
TOTAL     2,69  2,69  2,69  2,65  2,70  2,65  2,37  2,36  2,09  2,09  2,06  1,98
             2     2     6     1     5     4     4     5     6     1     8     7
--------------------------------------------------------------------------------



(See figure in printed edition.)Appendix III
COMMENTS FROM THE DEPARTMENT OF
STATE
========================================================== Appendix II



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the State Department's letter
dated June 5, 1995. 


   GAO COMMENTS
-------------------------------------------------------- Appendix II:1

1.  Our report clearly recognized the Multinational Force and
Observers' (MFO) accomplishments.  Our concerns related to State's
oversight of the expenditure of U.S.  contributions.  Moreover,
State's comments are somewhat misleading and inconsistent with our
observations during this review.  The cost reduction and savings
figures are misleading because they start with a high base year that
includes all of the initial start-up costs and occurred over a
13-year period.  While the MFO has achieved annual cost savings, they
are not of the magnitude suggested in State's comments. 
Additionally, State did not explain its role in reducing the MFO
operating costs.  In fact, in other sections of its comments, State
attributes the MFO cost savings to the considerable latitude granted
to the MFO to manage its operations.  During the course of this
review, neither State nor MFO officials could provide us with
documentation evidencing any State inquiries or scrutiny regarding
the MFO financial operations. 

2.  Our request from the House Foreign Affairs Committee specifically
asked us to report on MFO lessons learned that could be applied to
future Middle East peacekeeping operations.  The factors cited in
State Department's comments, and others, were discussed in the
report. 

3.  See comments 1 and 5. 

4.  The "terms of reference" provided to us on April 5, 1995, was an
internal working paper that included tasks and responsibilities to be
accomplished by various staff in the Near East Affairs Bureau.  Some
of these tasks had been ongoing practices, while others were to be
implemented as a result of ourreview.  To date, these terms of
reference for State's oversight responsibilities have not been
codified into an operations or procedures manual. 

5.  While State asserts that it maintains frequent informal and
formal contact with the MFO, this contact has not resulted in close
scrutiny of the MFO's use of U.S.  contributions.  For example, as we
pointed out in our report, State was unaware of several the MFO
practices and revisions to regulations that had the effect of
increasing U.S.  costs.  These practices or revisions were not
discussed in any of the Trilateral meeting minutes, external audit
reports, or other forums relied upon by the State Department for
oversight such as informal discussions, and occasional visits to Rome
and the Sinai.  While State disagreed with our conclusion on the need
for oversight, they accepted our recommendations. 

6.  State asserts that it formally reassesses the level of financial
support to the MFO annually in preparing the budget request to
Congress for Promoting Peace.  However, in our view, this process
does not constitute a reassessment of U.S.  contributions to the MFO. 
First, the budget request cited only represents the U.S.  one-third
assessment and does not include U.S.  offset costs, excess defense
items, and other DOD costs.  Thus, State does not assess the complete
U.S.  financial support package to the MFO as State's comment
suggests.  Second, the MFO budget submission has broad categories of
expenditures and lacks sufficient detail for a formal assessment. 

7.  We disagree with State's characterization of the oversight issues
as minor.  Collectively, the four areas represent a significant
management weakness.  While State may examine the MFO's published
financial statements, the examination lacks the level of scrutiny
required for adequate oversight.  As cited in the report, during our
review, we found several items in the MFO's financial statements that
went undetected by the Near East Affairs Bureau for several years. 
In addition, State was unaware of the total amount of outstanding MFO
loans due to the United States which in addition to being
outstanding, were later written-off the MFO's financial records by
the MFO.  Only following our review and inquiry did MFO reinstate
these loans resulting in a $177,000 reduction in the U.S. 
assessment.  State was unaware that the Director General's contract
is approved and signed by his subordinate, and has resulted in unique
arrangements for the designation of dependents and extension of
benefits.  These unique arrangements all had the effect of increasing
U.S.  costs.  In addition, State oversight relies on the report of
the MFO external auditor, who is hired and directed by the Director
General and has not been asked to certify the MFO's internal
controls.  A periodic internal control review and careful State
evaluation of the MFO's financial reports would have revealed these
issues long before our review.  Our recommendations would improve
States' ability to ensure proper accountability of U.S.  resources. 

8.  The fact that the MFO has never received an audit opinion that
was qualified due to a perceived failure of internal controls does
not provide State assurance that the MFO's controls are adequate.  As
stated in our report, the purpose of the annual external audit is to
determine whether the financial statements are free from material
misstatement and not to issue an opinion on the adequacy of internal
controls.  We revised our recommendation in the report to cite that
State should request the MFO have its external auditors periodically
(not annually) perform a separate audit of the MFO's management and
internal accounting controls and provide a copy of the resulting
report to State.  These periodic audits would enhance State's
assurance that the MFO has adequate internal controls in place to
deter the misuse of funds. 




(See figure in printed edition.)Appendix IV
COMMENTS FROM THE MULTINATIONAL
FORCE AND OBSERVERS
========================================================== Appendix II



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the MFO's letter dated May 18,
1995. 


   GAO COMMENTS
-------------------------------------------------------- Appendix II:2

1.  We gave the MFO two opportunities to comment on the report during
the final stages of its drafting.  As the MFO comments indicate, many
of its suggestions to both iterations have been incorporated where
appropriate.  The MFO's comments also noted that some incorrect
material is included in the report; however, the MFO chose not to
provide us with specific examples of what they view as inaccurate. 
There remain disagreements between GAO and the MFO relating to the
significance and interpretation of various aspects of our review. 
For example whether, as the MFO asserts, the annual Trilateral
meeting, which is neither mandated in the Protocol that established
the MFO nor mentioned in subsequent side agreements to which the
United States is signature, constitutes formal executive oversight. 
We believe it does not, and note in the report the character of
executive oversight in other duly constituted international
organizations vital to U.S.  economic and national security
interests, such as the North Atlantic Council of North Atlantic
Treaty Organization which is mandated in the North Atlantic Treaty. 

2.  This information was not available at the time of our field work
and review; therefore, we could not analyze it for completeness and
accuracy.  However, we do not take issue with the general thrust of
the MFO comments on its accomplishments. 

3.  We acknowledge that the MFO has implemented a number of
management initiatives to reduce operating costs while effectively
performing its mission. 




(See figure in printed edition.)Appendix V
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
========================================================== Appendix II



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix VI


   NATIONAL SECURITY AND
   INTERNATIONAL AFFAIRS DIVISION,
   WASHINGTON D.C. 
-------------------------------------------------------- Appendix VI:1

LeRoy W.  Richardson, Assistant Director
Gregory S.  Nixon, Evaluator-in-Charge
Norman Thorpe, Senior Evaluator
Bill Stepp, Senior Evaluator


   NEW YORK REGIONAL OFFICE
-------------------------------------------------------- Appendix VI:2

Michael Gipson, Evaluator
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