Foreign Military Aid to Israel:

Diversion of U.S. Funds and Circumvention of U.S. Program Restrictions

T-OSI-94-9: Published: Oct 27, 1993. Publicly Released: Oct 27, 1993.

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GAO discussed the diversion of U.S. foreign military assistance funds and certain abuses of the assistance program, focusing on four transactions involving a Department of Defense (DOD) contractor and the Israeli government. GAO noted that: (1) in the first transaction, the DOD contractor and Israeli officials helped divert $12.5 million of U.S. foreign military assistance funds intended for the Israeli military through an overpricing scheme; (2) in the second transaction, the DOD contractor failed to keep accurate records and verify whether an Israeli contractor performed the work for which it was paid or that it used the funds in violation of Defense Security Assistance Agency (DSAA) guidelines; (3) in the third transaction, the DOD contractor and Israeli officials knowingly circumvented DSAA restrictions on using U.S. funding to finance engine upgrade work performed in Israel; (4) the DOD contractor failed to disclose the foreign content of the engine upgrade work to DSAA as required; (5) in the fourth transaction, an Israeli Air Force foreign military sale contract resulted in a $1 million cost increase; (6) Israel knew of problems in the U.S.-financed program as early as 1987, but did not establish new controls until 1990; and (7) DSAA has eliminated direct commercial contracts and directed that all new funds be allocated through U.S.-managed foreign military sales, but these types of sales also lack proper controls and oversight.

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