Offi ce of Inspector General

Semiannual Report to Congress

October 1, 2004 - March 31, 2005

Millennium Challenge Corporation

Reducing Poverty Through Growth
U.S. Agency for International Development

1300 Pennsylvania Avenue, N.W.

Washington, D.C. 20523

www.usaid.gov

The Office of Inspector General (OIG) maintains a Hotline to make it easy to report allegations 

of fraud, waste, abuse, mismanagement or misconduct in the programs and operations of the 

United States Agency for International Development (USAID), the Inter-American Foundation 

(IAF), the African Development Foundation (ADF), and the Millennium Challenge Corporation 

(MCC). USAID, IAF, ADF and MCC employees, contractors, and program participants or the 

general public may report allegations directly to the OIG. The Inspector General Act of 1978 and 

other laws protect persons making hotline complaints. Submit complaints by e-mail, telephone, 

or mail to:

Phone 1-202-712-1023

 1-800-230-6539

E-mail ig.hotline@usaid.gov

Mail USAID OIG HOTLINE

 P.O. Box 657

 Washington, DC 20044-0657

Individuals who contact the Hotline are not required to identify themselves. However, the OIG 

encourages those who report allegations to identify themselves so they can be contacted if additional 

questions arise as OIG evaluates their allegations. Pursuant to the Inspector General Act of 1978, the 

Inspector General will not disclose the identity of an individual who provides information unless that 

individual consents or unless the Inspector General determines that such disclosure is unavoidable 

during the course of an investigation. You may request confidentiality when using the telephone or mail. 

E-mail complaints can not be kept confidential because electronic e-mail systems are not secure.

Inspector General

HOTLINE
U.S. Agency for International Development

1300 Pennsylvania Avenue, N.W.

Washington, D.C. 20523

www.usaid.gov

Offi ce of Inspector General

 for the

Millennium Challenge Corporation

 April 29, 2005

The Honorable Condoleezza Rice 

 Chair, Board of Directors 

The Honorable Paul V. Applegarth, 

 Chief Executive Offi cer 

Millennium Challenge Corporation 

P.O. Box 12825 

Arlington, VA 22219-2825

Dear Madam Secretary and Mr. Applegarth:

 I am pleased to present to you and the Congress of the United States our second 

independent report on the accomplishments of the Offi ce of Inspector General for the six-month 

period ended March 31, 2005. This report is issued in compliance with the Inspector General Act 

of 1978, as amended.

 During this period, we continued our policy of proactive involvement with the Corporation 

in order to fulfi ll our responsibilities under the Consolidated Appropriations Act of 2004 (Public 

Law 108-199), which designated the USAID Inspector General as the Inspector General for the 

Millennium Challenge Corporation. 

 We issued an audit report on the Corporation’s fi scal year 2004 fi nancial statements, 

which included the auditor’s opinion that the statements fairly presented the Corporation’s 

fi nancial position in all material respects. We also issued three other reports addressing the 

Corporation’s ethics training and fi nancial disclosure reporting; internal control structure; and 

progress in achieving its planned organizational structure and beginning its assistance programs. 

 I appreciate the courtesy and assistance extended to my staff during our work with your 

organization. The OIG remains committed to helping the Millennium Challenge Corporation 

achieve ultimate effi ciency and effectiveness in its operations.

 Sincerely,

 Bruce N. Crandlemire, CPA 

 Acting Inspector General

Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

Acronyms

ADF African Development Foundation

AIG/MCC Assistant Inspector General/Millennium Challenge Corporation

CEO Chief Executive Offi cer

Corporation Millennium Challenge Corporation

DOI Department of Interior

FISMA Federal Information Security Management Act

GAO Government Accountability Offi ce

IAF Inter-American Foundation

IG Act Inspector General Act of 1978

MCA Millennium Challenge Account

MCC Millennium Challenge Corporation

NBC National Business Center

OIG Offi ce of Inspector General

OMB Offi ce of Management and Budget

USAID United States Agency for International Development

Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

i

Table of Contents

Reporting Requirements ................................................................................................................................ ii

Executive Summary .........................................................................................................................................1

Overview......... ...................................................................................................................................................2

 Mission ...................................................................................................................................................2

 Organization .........................................................................................................................................2

MCC Gets Unqualifi ed Opinion on Its First Financial Statement Audit ..............................................4

Laying the Groundwork for Fraud Prevention and Safeguarding

 the Resources of the Millennium Challenge Corporation .........................................................5

Four Strategic Objectives to Address MCC Challenges .......................................................................10

Appendices ..................................................................................................................................................20
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

ii

Reporting Requirements

The Inspector General Act of 1978, as amended, requires each Inspector General to submit semiannual 

reports to the Congress summarizing the activities of the office during the preceding six-month period. The 

required reporting areas, as prescribed under Section 5(a) of the Act, include the following:

Reporting Requirement Location

Significant Problems, Abuses and Deficiencies Nothing to 

Report

Recommendations for Corrective Actions Page 12

Summary of Each Significant Report Page 12

List of Audit Reports Issued Appendix A

Page 20

Summary of Each Audit Report over Six Months Old for Which No Management 

Decision Has Been Made

Nothing to 

Report

Significant Prior Recommendations on Which Corrective Action Has Not Been 

Completed 

 Appendix A

Page 20

Statistical Table of Reports with Questioned and Unsupported Costs Nothing to 

Report

Statistical Table of Reports with Recommendations That Funds Be Put to Better Use Nothing to 

Report

Summary of Instances in Which Information or Assistance was Refused Appendix B

Page 21

Decisions and Reasons for Significant Revised Management Decisions Appendix B

Page 21

Significant Management Decisions with Which the Inspector General Disagrees Appendix B

Page 21

Remediation Plan Information (Required under the Federal Financial Management 

Improvement Act of 1996)

Appendix B

Page 21

Matters Referred to Prosecutive Authorities and the Prosecutions and Convictions 

Which Resulted

Appendix C

Page 22
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

1

This semiannual report highlights signifi cant events 

regarding the Offi ce of Inspector General (OIG) 

and presents the results of the OIG’s activities and 

efforts with respect to the Millennium Challenge 

Corporation (MCC or Corporation) for the sixmonth period ended March 31, 2005. During this 

reporting period we continued our policy of early 

and proactive involvement with MCC, focusing on 

preventing fraud, safeguarding resources, and helping 

the Corporation succeed in its mission.

During this reporting period, the Offi ce of the 

Inspector General issued four reports with six 

recommendations that addressed the Corporation’s 

accounting and fi nancial reporting; its employee 

fi nancial disclosure reporting; its progress in establishing internal controls, and its progress in achieving 

its planned organizational structure and beginning 

its assistance programs. No investigations were 

initiated during this reporting period. Because of 

continued cooperation, the OIG and MCC management have reached “management decisions” or “fi nal 

action” on each of the recommendations issued.

One of the reports issued was MCC’s fi rst fi nancial statement audit. Effective January 23, 2004, 

the Consolidated Appropriations Act of 2004 

(Public Law 108-199) established the Millennium 

Challenge Corporation (MCC) and designated the 

USAID Inspector General as its Inspector General. 

One year later, on January 27, 2005, the Assistant 

Inspector General for MCC (AIG/MCC) issued 

the fi rst-ever fi nancial statement audit report 

for the MCC. That report noted that the MCC 

fi nancial statements presented fairly, in all material 

respects, the fi nancial position of the Corporation 

at September 30, 2004, and cash fl ow for the nine 

months ended September 30, 2004, in conformity 

with accounting principles generally accepted in the 

United States. That represents a major milestone 

for the MCC, and we applaud its management and 

staff for their efforts. (See page 4)

In November 2004 the AIG/MCC published its 

fi rst Annual Audit Plan detailing the audit and 

investigative activities planned for fi scal year 2005. 

The fi nal product was a collaborative effort with 

MCC senior management, who helped identify 

areas that would benefi t from audit scrutiny, and 

who provided valuable input on the timing of our 

interventions. The plan addresses four strategic 

goals: keeping the Corporation and Congress 

informed; ensuring sound accounting and reporting; 

preventing fraud and safeguarding resources; and 

helping the Corporation become an effi cient and 

successful organization.

On March 14, 2005 the Millennium Challenge 

Corporation’s Board of Directors approved the 

Corporation’s fi rst Compact - a four-year $110 

million Compact with the Republic of Madagascar. 

The Corporation and the Government of Madagascar 

plan to sign the Compact in April 2005.

Executive Summary
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

2

Overview

In addition to the MCC, the USAID Offi ce of 

Inspector General (OIG) is responsible for providing 

audit and investigative services to the United States 

Agency for International Development (USAID), 

the African Development Foundation (ADF), and 

the Inter-American Foundation (IAF). Each of these 

agencies disburses and manages U.S. international 

development assistance.

Mission

The Inspector General Act of 1978 (IG Act), 

as amended, established OIGs as independent 

and objective units created to (1) conduct and 

supervise audits and investigations relating to the 

programs and operations of their respective establishments; (2) provide leadership and coordination 

and recommend policies for activities designed 

to promote economy, effi ciency, and effectiveness and prevent and detect fraud and abuse in 

the establishment’s programs; and (3) provide a 

means for keeping the head of the establishment 

and the Congress fully and currently informed 

about problems and defi ciencies relating to the 

administration of the establishment’s programs 

and operations and the necessity for and progress 

of corrective action.

Organization

The OIG is organized into four areas of responsibility, with Assistant Inspectors General for each 

area: Investigations, Audit, MCC and Management. 

There are seven overseas fi eld offi ces, each 

headed by a Regional Inspector General, located 

in Baghdad, Iraq; Budapest, Hungary; Cairo, Egypt; 

Dakar, Senegal; Manila, Philippines; Pretoria, South 

Africa; and San Salvador, El Salvador. These regional 

offi ces maintain close working relationships with 

the USAID missions in their regions and their presence in the fi eld enables auditors and investigators 

to carry out the OIG’s responsibilities effi ciently.

OIG activities for the MCC are lead by an Assistant 

Inspector General (AIG/MCC). The AIG/MCC 

oversees a Deputy Assistant Inspector General, who 

is responsible for a Financial Audits Division and a 

Performance Audits Division. As the Corporation 

develops and expands its programs, the AIG/MCC 

will continue to draw on support from external 

audit fi rms when appropriate and the OIG’s overseas and Washington offi ces as necessary in order 

to accomplish our oversight responsibilities. For 

example, the reports issued this reporting period 

on MCC’s compliance with ethics training and 

fi nancial disclosure reporting and MCC’s internal 

control structure were accomplished with support 

from the OIG’s Washington audit offi ces. The audit 

of MCC’s fi scal year 2004 fi nancial statements was 

done by an independent CPA fi rm under a contract 

overseen by AIG/MCC’s Financial Audits Division. 

Finally, our fraud-awareness briefi ng to the MCC 

personnel included presenters from our OIG 

Investigations unit.
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

3

Regional Inspector General Offices

Budapest 

Hungary

Cairo

Egypt

Dakar 

Senegal

San 

Salvador

El Salvador

Manila 

Philippines

Pretoria

South Africa

Baghdad 

Iraq

Inspector General

Deputy Inspector General

Counsel to 

the Inspector 

General Special Assistant

Assistant Inspector 

General -- Audit

Assistant Inspector 

General -- Investigations

Deputy AIG/I Deputy AIG/A Deputy AIG/A

Financial 

Audits Division

Information 

Technology & 

Special Audits 

Division

Headquarters 

Liaison & 

Coordination 

Division

Performance 

Audits Division

AFR/ANE 

Division

Headquarters 

Liaison & 

Coordination 

Division

LAC/E&E 

Division

Assistant Inspector 

General -- Management

Deputy AIG/M

Personnel 

Services 

Division

Budget & 

Acquisition 

Division

Assistant Inspector 

General -- MCC

Deputy AIG/MCC

Financial 

Audits Division

Performance 

Audits Division

Applications 

& Business 

Solutions 

Division

Network & 

Computer 

Operations 

Division

USAID Offi ce of Inspector General
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

4

1

 NBC is an administrative and computer information service provider for the 

Department of Interior and other federal agencies.

MCC Gets Unqualifi ed 

Opinion on Its First 

Financial Statement 

Audit

In January 2005 AIG/MCC completed an audit of 

the Millennium Challenge Corporation’s fi scal year 

2004 Financial Statements. The Corporation was 

established on January 23, 2004, and this was the 

fi rst audit of its fi nancial statements. AIG/MCC 

contracted with a Certifi ed Public Accounting 

fi rm to perform the audit work, which was done 

at MCC’s headquarters in Arlington, Virginia, and 

at the Corporation’s fi nancial services provider, 

the National Business Center (NBC), 1 in Denver, 

Colorado. 

The Certifi ed Public Accounting fi rm that did the 

audit concluded that the Corporation’s fi nancial statements “...present fairly, in all material 

respects, the fi nancial position of the Corporation 

at September 30, 2004, and cash fl ow for the nine 

months ended September 30, 2004, in conformity 

with accounting principles generally accepted in 

the United States of America.”

The MCC does not have its own fi nancial system, 

but rather contracts with the Department of 

Interior’s National Business Center to provide 

accounting and electronic information services. 

The auditor reported that the NBC had not 

conducted an internal control review of its Federal 

Financials System (a new Oracle system), nor had 

MCC requested NBC to do such a review. OMB 

Circular A-127, Financial Management Systems, 

requires that an agency conduct an internal control 

review of all Federal fi nancial systems in accordance 

with the Federal Managers’ Financial Integrity Act 

(FMFIA) of 1982. The FMFIA requires, in essence, 

that each executive agency shall, on the basis of an 

evaluation, prepare a statement that the agency’s 

system of internal accounting and administrative 

controls provides reasonable assurances that (1) 

obligations and costs are in compliance with applicable law; (2) funds, property, and other assets are 

safeguarded against waste, loss, unauthorized use, 

or misappropriation; and (3) revenues and expenditures applicable to agency operations are properly 

recorded and accounted for to permit the preparation of accounts and reliable fi nancial and statistical 

reports and to maintain accountability over the 

assets.

The fact that an internal control review had not 

been done was considered a reportable condition 

by the auditor because it could adversely affect 

the Corporation’s ability to record, process, 

summarize, and report fi nancial data consistent 

with the assertions by management in the fi nancial 

statements. Therefore, we recommended that the 

Corporation direct the National Business Center 

to conduct an internal control review of its Oracle 

Federal Financials System. The MCC agreed with 

this recommendation and, based on discussions 

with NBC, the review is expected to be completed 

in fi scal year 2005.
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

5

Background

The Millennium Challenge Corporation is an 

Independent Government Corporation established 

by Congress in January 2004. As such it is subject 

to the regulations of the Government Corporation 

Control Act which provides it some fl exibility 

compared to Federal agencies, however, MCC is 

subject to many similar laws and regulations as 

Federal agencies. MCC is still in the process of 

identifying which laws and regulations it is subject 

to.

Since the Corporation has been established for just 

over one year, its expenditures have been primarily 

for administrative items. Although the Corporation 

has signed no country Compacts nor incurred 

any program expenses as of March 31, 2005, it 

has approved a Compact which is expected to be 

signed in April 2005, and it is conducting reviews 

and due diligence activities in several countries 

in anticipation that Compacts will be signed with 

those countries. By the end of calendar 2005, MCC 

plans to become fully staffed, moving from about 

110 to 200 full-time staff. This number includes 

country resident representatives, who will provide 

an on-the-ground presence to oversee activities in 

Compact countries.

Building Safeguards for 

Fraud Prevention and 

Protecting Millennium 

Challenge Corporation 

Resources

The overriding goal of the OIG is to help the 

Corporation become a viable, secure, and successful 

organization by conducting systemic reviews and, 

where warranted, recommending changes that will 

lead to improvements within the Corporation’s 

programs and operations. Our activities are predesigned to prevent and detect fraud, waste and 

abuse; safeguard MCC resources; and ensure the 

economy, effi ciency and effectiveness of MCC’s 

administrative and program operations. We build 

safeguards for fraud prevention and resource 

protection through our early collaborative and 

proactive involvement with MCC management 

concerning the nature, timing and depth of our audit 

and investigative programs. Resource protection 

is further enhanced through close and frequent 

interaction with other Federal Government 

organizations, to coordinate oversight efforts and 

establish reporting requirements. Some Federal 

Government organizations will provide support to 

or implement certain MCC programs. For example, 

the U.S. Agency for International Development will 

administer the MCC Threshold program.2

 As of 

March 31, 2005, $40 million has been allocated for 

that program.

2

 The Threshold program is a program to assist countries that are not quite eligible 

to apply for MCC assistance to become eligible.

Laying the Groundwork for Fraud Prevention 

and Safeguarding the Resources of the

Millennium Challenge Corporation
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

6

During this six-month period we focused our efforts 

on preventing misuse of MCC resources by directing 

our proactive and early involvement to the greatest 

vulnerabilities of MCC program and administrative 

activities. The OIG has taken the approach that early 

involvement in MCC activities will help ensure good 

oversight. As the Corporation develops its program 

and operating concepts and procedures, we work 

closely with its executives and managers in order 

to enhance our knowledge of the Corporation’s 

programs, activities, and vulnerabilities including 

its administrative and accounting processes. In a 

proactive and collaborative manner, we seek to 

establish a framework for providing early feedback 

to ensure that MCC administrative functions 

and programs are based on a solid foundation of 

effective controls.

As the Corporation moves forward with its country 

Compact program, it will be operating in an overseas 

environment that is complex with differences in 

language, laws and accountability standards and it 

will face the issue of potential corruption. With 

this in mind, the OIG presented a fraud-awareness 

briefi ng to Corporation staff to enhance their 

understanding of fraud indicators and the potential 

for fraud occurring in the Corporation’s program 

and administrative activities.

Program Activities

The Millennium Challenge Corporation is a new 

organization which has not yet reached its optimum 

stage of organizational development and which will 

be implementing development Compact programs 

based on an innovative development assistance 

model that has not previously been tested. These 

programs will be implemented in countries where 

varying degrees of corruption are prevalent and 

standards of accountability vary. Furthermore, 

the Compact programs will be overseen by an 

MCC staff with varying levels of government and 

private sector experience, which could add to the 

programs’ potential vulnerabilities.

Although the Corporation has not signed any 

Compacts nor implemented any assistance 

programs as of March 31, 2005, it is carrying out 

due diligence and country review activities in 

several countries. The OIG has been involved in that 

process by reviewing MCC’s initial draft Compact 

with an emphasis on making sure that the Compact 

contains, among other things: 

• Appropriate audit clauses to ensure that 

OIG can exercise its audit oversight 

responsibilities and provide MCC with 

reasonable assurances of its programs’ 

integrity.

• Adequate descriptions of how funds will 

fl ow from MCC to the implementing 

organizations and where accountability will 

be vested.

• Adequate descriptions of what entities will 

be responsible for audits. For example, 

audits may be conducted by audit fi rms 

contracted by the fund recipient or by audit 

fi rms contracted by MCC or the OIG.

• Adequate descriptions of what audit 

standards will be followed, such as host 

country standards or international 

standards.

For some Compacts or Compact activities, it 

may be appropriate to have concurrent rather 

than annual or periodic audits done in order to 

have better assurance of the program’s integrity. 

The need for more frequent or concurrent 

audits/reviews will depend on the program and 

accountability risks identifi ed during MCC’s due 

diligence activities of proposed country programs, 

the related accountability models that will be used 

and the proposed implementation staff. Regardless 

of the frequency of audits the OIG will develop the 

appropriate level of oversight. To encourage further 

management safeguards to address perceived 

vulnerabilities, we have:

• Invited MCC to provide extensive input into 

our audit planning process to ensure that 
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

7

our audit and investigative activities address 

relevant areas of risk and vulnerability.

• Reviewed the MCC’s plans for implementing 

its country assistance programs and planned 

controls over its ongoing monitoring, 

evaluation and performance reporting on 

country programs.

• Developed and provided the MCC with 

a matrix for use in tracking all audit 

recommendations.

Administrative Activities

The Corporation is a new organization; it is 

experiencing inherent conditions that render it 

vulnerable to possible misuse of its resources. 

For example, it is still developing and refi ning 

its administrative procedures and determining 

exactly which laws and Federal regulations to 

which it is subject. Organization-wide internal 

control procedures have not been established and 

documented, nor has an assessment been done of 

the Corporation’s internal control system.

The Corporation’s expenditures as of March 31, 

2005, have been primarily for salaries, travel, offi ce 

rent, information technology, accounting services, 

and other administrative services. MCC has 

outsourced its payroll management, accounting, 

fi nancial statement preparation and its human 

resources management to the Department 

of Interior’s National Business Center (NBC) 

through interagency agreements. By contracting 

its administrative services to a third party, the 

Corporation does not have direct day-to-day control 

over its information processing. For example, the 

report on internal controls accompanying the 

fi nancial statement audit of the Corporation’s 

fi scal year 2004 fi nancial statements noted that the 

Corporation’s service provider, NBC, had not had 

an internal control review done on a new Oracle 

Federal Financials System that was being used to 

provide MCC’s fi nancial information. As a result, 

neither NBC nor MCC, have a comprehensive 

understanding of the system’s internal controls and 

the risk involved in processing system transactions.

To help the MCC build safeguards over its 

administrative activities and to address the lack of 

a fully documented and monitored internal control 

structure, the OIG has performed the following 

audit and review activities during this reporting 

period: 

• Initiated our second review of the 

Corporation’s information security program 

as required by the Federal Information 

Security Management Act (page 11).

• Contracted with a Certifi ed Public 

Accounting fi rm to conduct an audit of 

MCC’s fi scal year 2004 fi nancial statements, 

which included the auditor’s report on MCC 

internal controls, with a recommendation 

that MCC require that the NBC have an 

internal control review done on its Oracle 

Federal Financials System, a recommendation 

that MCC agreed to implement (page 12).

• Performed an audit of the Corporation’s 

efforts to establish its internal control 

structure (page 13). 

• Reviewed the Corporation’s progress in 

developing its organizational structure 

and implementing its country assistance 

programs (page 14).

• Audited the Corporation’s efforts to 

implement its employee integrity program 

as required by the Offi ce of Government 

Ethics (page 16).

• Provided feedback on the completeness 

and adequacy of disclosures in MCC 

required annual reporting to the Offi ce of 

Management and Budget.
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

8

Coordination with Other 

Government Units

The MCC was given broad fl exibility to 

accomplish its mandate and establish itself as a 

model organization that is transparent, embraces 

accountability and is results-oriented. Support of 

this unique development concept requires that we 

establish clear expectations and avoid duplication 

of effort with other government units that have 

oversight responsibilities. Specifi cally, the Inspector 

General Act of 1978, as amended, requires that “In 

carrying out responsibilities established under this 

Act, each Inspector General shall give particular 

regard to the activities of the Comptroller General 

of the United States with a view toward avoiding 

duplication and ensuring effective coordination and 

cooperation.” We have established an extensive 

coordination schedule with the Government 

Accountability Offi ce (GAO) to include regular 

meetings at the management level and quarterly 

meetings at the executive level. Moreover, the GAO 

participates in our annual planning conference as a 

part of our coordination efforts. 

Our coordination with the Offi ce of Management 

and Budget (OMB) revolves around obtaining a 

clear understanding of the fi nancial and program 

management regulations applicable to the MCC 

in keeping with its broad program fl exibilities and 

where there are areas that require debate, initiating 

early dialogue to ensure compliance with important 

reporting time lines. 

The Government Accountability 

Offi ce

The GAO, as the Congressional oversight agency, 

has the authority and responsibility to review 

Federal programs and to respond to special 

requests of the Congress. In May 2004, at the 

request of the Chairman of the Senate Foreign 

Relations Committee, GAO initiated a review of 

the Corporation to determine:

1. How MCC is being managed in terms of 

its governance structure, human capital, 

accountability mechanisms, and fi nancial 

management;

2. How MCC selects eligible countries and 

negotiates Compacts;

3. How assistance under the Compacts will be 

monitored and evaluated; and

4. To what extent MCA funding and program 

activities will be coordinated with other U.S. 

Government agencies and other donors.

As we plan and initiate our audit work at MCC, 

we coordinate with GAO on an ongoing basis 

to ensure there is no duplication of effort while 

making sure that all relevant areas relating to MCC 

are covered. For example, we discuss such areas as 

access to MCC information, work plans to ensure 

that there is no duplication of effort and that all 

relevant areas are covered, MCC management 

issues, and the progress and results of our ongoing 

oversight work.

As a result of these activities we are able to 

establish a reasonable degree of assurance that the 

Corporation’s risks and vulnerabilities are being 

addressed and reported to the Corporation and 

to the Congress.

The Offi ce of Management and 

Budget

OMB’s predominant mission is to assist the 

President in overseeing the preparation of 

the Federal budget and to supervise the 

administration of Executive Branch agencies. 

OMB evaluates the effectiveness of agency 

programs, policies, and procedures, and ensures 

that agency reports and rules are consistent with 

Administration policies. OMB also oversees and 

coordinates the Administration’s procurement, 

fi nancial management, information, and regulatory 

policies.
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

9

To keep abreast of current OMB guidelines and 

expectations as they relate to MCC operations 

and to our audit work, the OIG has established 

an extensive working relationship with OMB. For 

instance, our meetings and communications with 

OMB offi cials during the past six months resulted 

in the following:

• Reaching a consensus with the Corporation 

to accelerate the preparation and audit of 

the Corporation’s fi scal year 2004 fi nancial 

statements from 180 days, as permitted 

under the Government Corporation 

Control Act, to 90 days after its fi scal year 

end. We will continue our efforts to help 

the MCC meet the Federal Government 

norm under the Government Management 

Reform Act (GMRA) of having audited 

fi nancial statements by 45 days after its fi scal 

year end.

• Through dialogue with the Corporation and 

OMB, we have reached an understanding of 

MCC’s reporting expectations under the 

Government Performance and Results Act.

• Through dialogue and coordination with 

OMB, we have reached an understanding 

of MCC’s report content and reporting 

timeline under the Federal Managers’ 

Financial Integrity Act.

These and other coordination and interaction 

activities with OMB help provide reasonable 

assurances that the Corporation is in compliance 

with applicable OMB requirements.

Other Federal Agencies

Several Federal agencies will be responsible for 

administering MCC funds. For example USAID is 

providing technical assistance to MCC threshold 

countries to help them become eligible for MCC 

Compacts. USAID has been provided $40 million of 

MCC funds for this activity, and we have taken steps 

to ensure that those funds will be audited as the 

threshold activities move forward. Other Federal 

agencies that will be disbursing MCC funds include 

the Army Corps of Engineers, the Department of 

Agriculture, and the Treasury Department. We have 

notifi ed the Inspectors General of these agencies 

of the existence of these agreements and we will 

be coordinating the oversight of agreement funds 

with them.
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

10

Introduction

Management challenges are risks and vulnerabilities that need to be addressed by management. 

Having been established just over one year ago, the 

Millennium Challenge Corporation faces the normal 

challenges of any new organization: developing 

fi nancial systems, hiring staff, determining applicable 

laws and regulations, developing internal controls, 

and developing an effective program management 

and oversight methodology. In the near future the 

Corporation will also face the challenges of implementing new and innovative programs in complex 

overseas environments, with differences in language, 

laws and accountability standards as well as varying 

degrees of corruption in many of the countries 

where it will likely implement programs.

To clearly understand these challenges and to 

select the appropriate OIG response to them, we 

undertake an extensive annual planning process, 

obtaining views and concerns on issues affecting the 

Corporation as well as soliciting feedback on the 

usefulness of our work. Participants in this planning 

process include congressional staff, representatives 

of OMB and GAO, and senior management of the 

MCC. In his presentation at our planning conference, the Corporation’s CEO lauded the cooperation between the OIG and the MCC and indicated 

that the OIG plays a particularly useful role in 

supporting the Corporation’s overall development. 

Other MCC senior management identifi ed potential areas that would benefi t from audit oversight 

and the need to be fl exible in timing our work to 

correspond with the likely pace of funds disbursements.

Photograph of James Ebbitt, Former Acting Inspector General; Paul Applegarth, CEO, Millennium Challenge Corporation; and Henry 

Barrett, Assistant Inspector General/MCC at the OIG Annual Planning Conference.

Four Strategic Objectives to Address MCC 

Challenges
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

11

The OIG has four strategic goals consistent with 

the IG Act of 1978, as amended under which we 

conduct audits and reviews to help the Corporation 

address and overcome its management challenges.

Keeping the Head of the 

Corporation and Congress 

Fully Informed on the Status of 

the MCC’s Administration and 

Operations and the Need for 

Corrective Action

This strategic goal is designed to make sure 

that potential management challenges, and 

progress thereon are addressed early and openly, 

by communicating on an ongoing basis with 

Corporation management and the Congress to 

keep them abreast of OIG activities relevant to 

MCC. Specifi cally, the OIG will:

• Prepare and submit semiannual reports to 

Congress as required. The IG Act requires 

that the OIG provide Congress with written 

reports of its activities and accomplishments 

every six months. The reports include our 

audit and investigative highlights as well as 

summaries of signifi cant audits conducted 

during the reporting period. This is our 

second Semiannual Report to Congress and 

covers the period ending March 31, 2005.

• Present timely briefi ngs to the Board, Chief 

Executive Offi cer and key MCC offi cials on 

critical problem areas identifi ed by OIG 

audits and investigations. We have not met 

with the Board of Directors this reporting 

period. We have regular scheduled meetings 

with the Chief Executive Offi cer (CEO) 

and frequent interactions with MCC senior 

management. In our meetings with the CEO, 

we discussed signifi cant audits as well as the 

status of the Corporation’s management 

controls, and program oversight and 

monitoring efforts. We will seek a meeting 

with the Board of Directors and we will 

continue to brief the CEO and senior MCC 

staff to bring matters of importance to the 

attention of MCC management in a time 

frame that will enable those managers to 

take effective remedial action. 

• Continue to present timely briefi ngs to 

key congressional staff on the status of 

signifi cant OIG audit and investigative 

activities, problems and issues identifi ed 

by these efforts, and the necessity for 

and progress of corrective actions being 

taken by MCC. We have made one formal 

briefi ng to congressional staffers on how 

the OIG has organized itself to carry out 

our IG Act responsibilities at the MCC, 

as well as discussions on MCC efforts to 

staff-up its operations, establish effective 

internal controls and the MCC compact 

development process.

• Conduct audits and distribute audit reports 

to MCC management and congressional 

staff in a timely manner. All non classifi ed 

audit and review reports are transmitted 

to appropriate congressional committees. 

These reports are also made compliant 

with the Americans with Disabilities Act and 

posted to the OIG website at www.usaid.

gov/oig.

Promoting Sound Accounting 

and Reporting On Financial 

Activities and Information 

Security

This strategic goal addresses the Corporation’s 

challenges of developing effective fi nancial 

management systems and the related internal 

controls. These systems should be designed to 

ensure that MCC prepares, records and reports 

reliable fi nancial data relating to its administrative 

and program operations. The OIG initiated two 

audits this period to address these two challenges. 

One was an audit of the MCC’s compliance with 

the Federal Information Security Management Act 

of 2002 (FISMA) and the other was the Financial 

Statement audit.
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

12

The FISMA audit began in February of 2005 and 

was underway at the end of this reporting period. 

It is the second audit of the Corporation’s compliance with the provisions of FISMA. The fi rst 

audit, reported on in September, 2004, noted that, 

although the Corporation reported on its information security program in accordance with FISMA, it 

had not documented its information systems security program. That report contained one recommendation for the Corporation to document an 

information systems security program in accordance with FISMA. MCC Management accepted 

the recommendation. However, the current audit 

now underway, found that as of March 31, 2005, the 

Corporation had still not documented its information system as recommended in the prior audit 

report (Appendix A, page 20).

Audit of Millennium Challenge 

Corporation’s Consolidated 

Financial Statements, Internal 

Controls, and Compliance for 

the Nine Month Period Ending 

September 30, 2004

An audit of MCC’s consolidated fi nancial 

statements, internal controls, and compliance 

for the nine-month period ending September 30, 

2004, was performed, under OIG oversight, by 

a non-federal audit fi rm. The fi rm provided an 

unqualifi ed opinion on the fi nancial statements. 

This represents an important accomplishment 

for the Millennium Challenge Corporation, as this 

was the fi rst audit of fi nancial statements prepared 

by the Millennium Challenge Corporation. In its 

report, the audit fi rm identifi ed one reportable 

condition in internal controls resulting in one 

instance of noncompliance related to the review 

of its fi nancial and accounting system.

The MCC does not have its own fi nancial system 

and contracts with the Department of Interior’s 

National Business Center (NBC) to provide 

accounting and fi nancial management services, 

including usage of its Oracle Federal Financials 

System application. However, the NBC had not 

conducted an internal control review, such as a 

Statement of Auditing Standards (SAS) 70 review, of 

this system, nor had MCC requested that NBC do 

such a review.

OMB Circular A-127, Financial Management 

Systems, requires that an agency conduct an 

internal control review of all federal fi nancial 

systems in accordance with the Federal Managers’ 

Financial Integrity Act (FMFIA) of 1982.

The independent auditor concluded that because an 

internal control review of the Oracle Federal Financials 

System application was not done, the Corporation’s 

fi nancial management system was not in substantial 

compliance with FFMIA3

 and OMB Circular A-127 

and that this condition could adversely affect the 

Corporation’s ability to record, process, summarize, 

and report fi nancial data consistent with the assertions by management in the fi nancial statements.

The OIG recommended that the Corporation 

direct the National Business Center to conduct 

an internal control review of its Oracle Federal 

Financials System. MCC management agreed with 

this recommendation and, based on discussions with 

NBC, a system review is expected to be completed 

in fi scal year 2005.

(Report No. M-000-05-001-C)

Promoting Economy, 

Effi ciency, and Effectiveness, 

and Assessing Program 

Results

This strategic goal addresses the Corporation’s 

challenges related to human resources, determining 

the applicability of laws and regulations, and developing an effective management oversight methodology. We have undertaken the following audits to 

3

 FFMIA, the Federal Financial Management Improvement Act of 1996 requires 

that the fi nancial system comply with OMB Circular A-127.
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

13

better understand management’s response to 

these challenges and to provide management with 

recommendations to address the vulnerabilities 

associated with them.

Audit of the Millennium 

Challenge Corporation’s Efforts 

to Establish its Internal Control 

Structure

The Offi ce of Inspector General for the Millennium 

Challenge Corporation conducted an audit of 

MCC’s efforts to establish its internal control 

structure in order to determine if the Corporation 

implemented a system of internal controls consistent 

with the requirements of the Federal Managers’ 

Financial Integrity Act and Offi ce of Management 

and Budget guidance. The audit found that MCC 

had not implemented a system of internal controls 

consistent with the requirements of the guidance.

Internal controls are a major part of managing 

an organization and comprise the plans, policies, 

and procedures used to meet the organization’s 

mission, goals and objectives. Internal controls 

include the plan of organization and methods and 

procedures adopted by management to ensure 

that its goals are met. They are used to provide 

reasonable assurance that (1) programs achieve 

their intended results, (2) resources are used 

consistent with the organization’s mission, (3) 

programs and resources are protected from waste, 

fraud, and mismanagement, (4) laws and regulations 

are followed, and (5) reliable and timely information 

is obtained, maintained, reported and used for 

decision-making and controlling program costs.

The importance of internal controls is addressed, 

both explicitly and implicitly, in various laws, 

regulations and Federal guidance. The Federal 

Managers’ Financial Integrity Act (FMFIA) of 1982 

requires the heads of executive agencies to annually 

evaluate the adequacy of the agency’s internal 

accounting and administrative controls and report 

whether the controls meet Federal standards. The 

FMFIA requirements are extended to government 

corporations such as the MCC by the Government 

Corporation Control Act which requires the head 

of the management of a corporation to include a 

statement on internal accounting and administrative 

systems, consistent with FMFIA requirements, in 

the corporation’s annual management report to 

Congress.4

 The Offi ce of Management and Budget 

(OMB) provides guidance and reporting requirements 

for annual internal control evaluations.5

 Lastly, the 

U.S. Comptroller General has established standards 

for internal control in the Federal Government.6

Within these mandates, Government organizations 

are expected to establish, assess, correct and report 

on the adequacy of their internal controls.

Although MCC had established a number of 

individual internal control procedures covering its 

administrative operations, it did not document its 

system of internal controls covering all aspects of 

its program and operations nor did it establish a 

defi ned timeframe for doing so. Also, MCC had not 

conducted an assessment of the adequacy of its 

internal control system at its fi scal year end.

The audit report contained two recommendations 

which required the Corporation to (1) formalize and 

document its administrative and program internal 

control system and establish a defi ned timeline 

for completing this activity, and (2) conduct an 

evaluation of its internal control system consistent 

with the FMFIA and OMB implementing guidance. 

Management agreed and both recommendations 

have a management decision to implement them.

(Report No. M-000-05-002-P)

4

 The Government Corporation Control Act requires corporations to submit an annual 

management report to the Congress not later than 180 days after the end of the 

government corporation’s fi scal year.

5

 Offi ce of Management and Budget, Circular A-123, Management Accountability 

and Control (Revised June 21, 1995).

6

 U.S. General Accounting Offi ce, Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3.1 (November 1999). The General Accounting 

Offi ce (GAO) changed its name to the Government Accountability Offi ce in 2004. 

The U.S. Comptroller General is the head of the GAO.
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

14

Review of the Millennium 

Challenge Corporation’s 

Progress in Achieving Its 

Planned Organizational 

Structure and Beginning Its 

Assistance Programs as of 

February 28, 2005

The Offi ce of Inspector General for the Millennium 

Challenge Corporation conducted a second review 

of the Corporation during February-March 2005. 

The purpose of the review was to evaluate the 

progress MCC has made in achieving its planned 

organizational structure, developing its compact 

preparation and negotiation process, and complying 

with the Millennium Challenge Act of 2003 and 

other applicable laws and regulations. The review 

found that MCC had made signifi cant progress in 

each of these areas.

MCC had established an organizational structure 

consisting of the Chief Executive Offi cer and eight 

Vice Presidencies. By December 2005, it planned to 

reach a full staffi ng level of 200 U.S. staff positions. 

As of February 28, 2005, MCC had fi lled 110 of 

the planned staff positions through a combination 

of U.S. direct hires, personal service contractors, 

specialized contractors and detailees. MCC also 

planned to send country resident representatives 

overseas, assisted by an unspecifi ed number of 

local personal service contractors, to provide an 

on-the-ground presence to oversee the activities 

in the compact countries. To enhance its technical expertise in selected areas, MCC entered 

into interagency agreements with other U.S. 

Government agencies and may enter into more as 

the need arises.

Regarding its compact development process, 

MCC’s Board selected 16 countries as eligible to 

submit assistance proposals under fi scal year 2004 

funding and 16 countries under fi scal year 2005 

funding (including 15 of the fi scal year 2004 countries with one additional country). MCC records 

indicate that by the end of February 2005, 15 of 

the 16 countries eligible for fi scal year 2004 funding 

had submitted at least an initial draft proposal and 

most of these countries have submitted more 

refi ned draft proposals with assistance from MCC. 

Although MCC had not signed a compact with any 

of its eligible countries as of the end of February 

2005, MCC offi cials indicated that they had made 

considerable progress toward fi nalizing as many as 

fi ve compacts in the next few months and expected 

the fi rst compact would be signed with Madagascar 

in April 20057

 with planned initial disbursements 

to be made within two months of compact signing. 

Equally important, MCC had established a foundation 

for the future by substantially creating the procedures and documents it will use in developing and 

negotiating compacts with its eligible countries and 

adjustments and changes can be expected as MCC 

gains more experience and a track record with the 

implementation of its fi rst country programs. MCC 

has invested extensive time and resources in developing its “due diligence” process—the appraisal 

process where MCC supports the development of 

a country’s proposal and identifi es potential fi scal 

and procurement agents and issues of concern to 

be addressed before signing a compact to ensure 

sound investment of U.S. funding.

In addition to progress in developing and negotiating 

compacts with eligible countries, MCC has moved 

forward in establishing its Threshold Program to 

assist selected countries that are committed to 

undertaking necessary reforms to improve policy 

performance so that they might eventually qualify 

for assistance as an eligible country. The Act allows 

up to ten percent of available funding to be used 

for this program and the MCC Board selected 7 

countries in fi scal year 2004 and 12 countries in 

fi scal year 2005 (which included 6 countries from 

fi scal year 2004) to participate in the program. In 

October 2004, MCC signed a memorandum of 

agreement with the U.S. Agency for International 

Development (USAID) to allocate up to $40 million 

7

 Subsequent to our review cutoff date, March 14, 2005, MCC’s Board of 

Directors approved MCC’s fi rst Millennium Challenge compact with the country 

of Madagascar.
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

15

for USAID to administer the program. MCC and 

USAID personnel have worked closely in explaining 

and promoting the program with offi cials of the 

selected countries. As of February 28, 2005, MCC 

had received concept papers from each of the 

seven fi scal year 2004 Threshold Program countries. Subsequent to our review, MCC’s investment 

committee approved four of the concept papers 

allowing those countries to proceed toward 

preparing program plans for possible MCC approval 

and funding before the end of fi scal year 2005.

MCC continued its progress in complying with the 

provisions in the Act and continued to assess the 

applicability of other Federal laws and regulations 

to its operations. For example, as required by the 

Act, MCC’s Board selected countries eligible to 

submit compact proposals under fi scal year 2005 

funding and it selected countries eligible to submit 

proposals under MCC’s Threshold Program for 

fi scal years 2004 and 2005. Additionally, MCC made 

proper notifi cations to Congress on the selection 

of the eligible countries and on MCC’s intent to 

enter into compact negotiations with a number of 

those countries. MCC also notifi ed Congress of 

its intent to allocate fi scal year 2004 funds to three 

U.S. Government agencies for assistance in carrying 

out its program, and it published information in the 

Federal Register as required.

However, while MCC offi cials reported that 

the MCC has followed the Federal Acquisition 

Regulation (FAR) since its inception, MCC recently 

issued an internal memorandum stating that 

language in the Act constitutes “character and 

necessity”8

 language which exempts MCC from 

the general statutory and regulatory provisions 

governing Federal procurement when developing its 

own procurement policies and procedures. OIG’s 

interpretation of the Government Accountability 

Offi ce’s Principles of Federal Appropriation Law 

cited in MCC’s opinion is that “character and 

necessity” language is intended to apply to laws 

of a fi scal nature and not to procurement laws 

and regulations. GAO’s guidance specifi cally states 

that Federal procurement laws and regulations are 

expressly applicable to wholly-owned government 

corporations. Accordingly, the report contained 

a recommendation that MCC request the advice 

of appropriate authorities on whether the Act’s 

language exempts MCC from general statutory and 

regulatory provisions governing Federal procurement.

MCC indicated that it will take the recommendation 

under advisement and further stated that it intends 

to continue following the requirements of the FAR. 

Given that MCC intends to continue following the 

FAR and the fact that this review report puts MCC 

on notice of the OIG’s position that “character 

and necessity” language would not give authority 

to deviate from general procurement statues or 

the FAR, we consider MCC’s comments to be 

generally responsive to the recommendation and 

consider that fi nal action has been taken on the 

recommendation.

(Audit Report No. M-000-05-001-S)

Preserve and Protect the 

Millennium Challenge 

Corporation’s Program and 

Employee Integrity

This strategic goal is designed to foster the integrity 

of program and operational activities. Although not 

a management challenge, our focus on the prevention of fraud and protection of resources are to 

ensure MCC’s employees and programs are of the 

highest integrity and to enhance the awareness of 

MCC staff to potential indicators of fraud. Our 

work during this period consisted of one audit and 

a fraud-awareness briefi ng. 8

 “Character and necessity” language refers to a provision in government 

corporation’s authorizing legislation that is interpreted by GAO as providing the 

government corporation fi scal autonomy. Fiscal autonomy allows government 

corporations to use its funds for expenses otherwise unallowable by Federal 

agencies.
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

16

Audit of Millennium Challenge 

Corporation’s Compliance with 

the Requirements for Annual 

Ethics Training and Financial 

Disclosure Reports for Selected 

Employees

The Inspector General for MCC conducted this 

audit as a part of its fi scal year 2005 audit plan 

to determine whether the Corporation complied 

with Federal requirements for fi nancial disclosure 

reporting and annual ethics training for selected 

employees.

The Offi ce of Government Ethics (OGE) provides 

overall policy direction to Federal agencies 

regarding their ethics programs. That policy 

requires that each agency develop an annual ethics 

training program for its employees. The training 

program must include, at least, an initial agency 

ethics orientation for all employees and annual 

ethics training for covered employees. The head 

of each agency has primary responsibility for the 

day-to-day administration of the ethics program 

for the employees who carry out the substantive 

programs of that agency. The head of each agency 

selects an individual employee to serve as the 

agency’s Designated Agency Ethics Offi cial (DAEO). 

MCC’s DAEO is the Assistant General Counsel for 

Administration, who is assisted by staff in the Offi ce 

of General Counsel. Ethics activities managed by 

MCC’s ethics staff and reviewed in this audit were 

(1) collection of public fi nancial disclosure reports, 

(2) collection of confi dential fi nancial disclosure 

reports and (3) annual ethics training.

The audit found that MCC complied with federal 

regulations for annual ethics training but did not 

collect public fi nancial disclosure reports for four of 

its employees within specifi ed timeframes including 

allowable extensions and did not collect or waive 

the required late fi ling fee. Three employees 

were new entrants and fi led their public fi nancial 

disclosure reports more than 150 days after being 

employed with MCC. The fourth employee was an 

incumbent fi ler hired from another agency in late 

May 2004 and did not fi le until 201 days after being 

employed with MCC.

The audit report recommended that the 

Millennium Challenge Corporation (1) collect the 

required late-fi ling fee from the three new entrant 

employees who fi led their public fi nancial disclosure 

reports after the required deadline and (2) modify 

its fi nancial disclosure reporting procedures to 

specifi cally address how it will obtain reports for 

its incumbent public fi lers.

Two other areas noted during the audit were that 

the Corporation did not have procedures for (1) 

documenting reviews of the fi nancial disclosure 

reports of MCC government board members 

who fi le disclosure reports with their respective 

organizations and (2) identifying how it will handle 

the fi nancial disclosure reporting requirements 

of employees detailed from other government 

agencies.

MCC took appropriate actions concerning the two 

recommendations. For the fi rst recommendation, 

it waived the late fi ling fees for the cases cited 

and modifi ed its written procedures which will 

reduce the number of public fi lers in the future. 

For the second recommendation, MCC revised its 

procedures to address how it will obtain reports 

for its incumbent public fi lers. As a result, fi nal 

action has been taken on both recommendations 

upon report issuance.

(Audit Report No. M-000-05-001-P)

Investigations: Prevention and 

Fraud Awareness

OIG investigative priorities are twofold: fi rst, to 

preserve and protect program and employee 

integrity within the Millennium Challenge 

Corporation; and second, to prevent fraud, waste, 

and abuse within MCC programs and operations. 

During the current reporting period, the OIG has 

placed emphasis on preventive strategies as part 
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005

17

of our oversight responsibilities. Use of proactive 

preventive strategies has proven to be very effective 

in combating fraud, waste and abuse.

Accordingly, the OIG has employed a number of 

strategies. For example, fraud-awareness training 

is given to employees, contractors, grantees and 

others. This training alerts participants to fraudulent 

practices and schemes and advises them on how to 

report fraud if it is encountered. When requested 

the training is tailored for presentation for specifi c 

groups, such as contracting offi cers or Cognizant 

Technical Offi cers. Most important, investigations 

resulting in criminal and/or civil prosecution are 

publicized on the Agency’s website and other 

publications calling attention to prosecutive action 

taken against individuals or organizations convicted 

of fraud. The publication of prosecutive actions 

serves as a deterrent to fraud, waste and abuse.

In addition, the OIG has developed several 

publications and promotional materials. The 

newest publication, “What an Investigation Means 

to You,” outlines the types of activities that the OIG 

investigates, the purpose of its investigations, the 

investigative process and the employee’s role in that 

process. Another publication, “What to Report,” 

provides specifi c guidelines for making complaints 

to the OIG Hotline. The “Fraud Indicators” 

publication encourages the reader to explore 

various techniques to identify indications of fraud. 

Furthermore, OIG Hotline posters, fl yers, and cards 

available in different languages have been distributed 

to the OIG’s overseas offi ces. In an effort to expand 

our outreach efforts, these materials were produced 

in English, Spanish, French and Arabic. On March 

16, 2005, the OIG represented by staff from the 

Assistant Inspector General for Investigations and 

the Assistant Inspector General for the Millennium 

Challenge Corporation, presented a briefi ng on 

fraud awareness to approximately 16 members of 

the Corporation.

 MCC was advised of the mission of the Assistant 

Inspector General for Investigations (Investigations), 

which focuses on the preservation and protection 

of program and employee integrity relative to 

the activities of USAID, the MCC, the African 

Development Foundation, and the Inter-American 

Foundation. It is the responsibility of Investigations 

to (1) investigate allegations of fraud, waste and 

abuse in programs and operations, giving priority 

to cases involving major fraud; (2) prevent fraud, 

waste and abuse in programs; and (3) preserve 

and protect employee integrity by conducting and 

concluding investigations of employee integrity 

effi ciently and expeditiously. Investigations employs 

both proactive and reactive strategies to carry out 

its mission.

Photograph of the second fraud awareness briefi ng presented to MCC staff.

A

P

P

E

N

D

I

C

E

S

19
Semiannual Report to the Congress

October 1, 2004 — March 31, 2005 Appendix A

20

REPORTS ISSUED

October 1, 2004 through March 31, 2005

Report Number

Date of 

Report Report Title

Amount of Findings

($000)

Type of 

Findings

M-000-05-001-C 01/27/2005 Audit of the Millennium Challenge Corporation’s Consolidated Financial 

Statements, Internal Controls, and Compliance for the Nine month Period 

Ending September 30, 2004

M-000-05-001-P 03/31/2005 Audit of Millennium Challenge Corporation’s Compliance with Federal 

Requirements for Annual Ethics Training and Financial Disclosure Reports 

for Selected Employees 

M-000-05-002-P 03/31/2005 Audit of the Millennium Challenge Corporation’s Efforts to Establish Its 

Internal Control Structure

M-000-05-001-S 03/31/2005 Review of Millennium Challenge Corporation’s Progress in Achieving Its 

Planned Organizational Structure and Beginning Its Assistance Programs As 

of February 28, 2005

SIGNIFICANT AUDIT RECOMMENDATIONS 

DESCRIBED IN PREVIOUS SEMIANNUAL REPORT 

WITHOUT FINAL ACTION

As of March 31, 2005

Report Number Subject of Report Issue Date Rec.

No.

Management 

Decision Date

Final 

Action 

Target Date 

M-000-04-001-P Documenting an agency-wide 

information system security program 

in accordance with the requirements 

of the Federal Information Security 

Management Act of 2002

09/30/2004 1 09/30/2004
Semiannual Report to the Congress

21

Appendix B October 1, 2004 — March 31, 2005

Reporting Requirements

Summary of Instances in Which 

Information or Assistance Was 

Refused

The Inspector General Act of 1978 (Public Law 95-

452), as amended, requires the identifi cation of any 

reports made to the head of the agency describing 

where information or assistance was refused or not 

provided. During this reporting period, there were 

no reports to the Millennium Challenge Corporation 

describing instances where information or assistance 

was unreasonably refused or not provided.

Decisions and Reasons for Significant 

Revised Management Decisions

The Inspector General Act requires that each 

Inspector General’s Semiannual Report to the U.S. 

Congress include a description and explanation of 

significant revisions of management decisions. During 

this reporting period, there were no significant 

revisions of management decisions.

Significant Management Decisions 

with Which the Inspector General 

Disagrees

The Inspector General Act requires that each 

Inspector General’s Semiannual Report to the 

U.S. Congress include information concerning any 

significant management decisions with which the 

OIG is in disagreement. During this reporting period, 

there were no management decisions with which the 

OIG disagreed.

Remediation Plan

The Inspector General Act requires an update on 

issues outstanding under a remediation plan required 

by the Federal Financial Management Improvement 

Act of 1996 (FFMIA). FFMIA requires agencies 

to substantially comply with (1) Federal financial 

management system requirements, (2) Federal 

Accounting Standards, and (3) the U.S. Standard 

General Ledger at the transaction level. According 

to OMB Circular No. A-11, an agency that is not 

substantially compliant with FFMIA must prepare a 

remediation plan. The purpose of the remediation 

plan is to identify fiscal year activities planned and 

underway that will allow an agency to achieve 

substantial compliance with FFMIA.

During our fiscal year 2004 financial statement 

audit, the Millennium Challenge Corporation’s 

(Corporation) first financial statement audit, it 

was determined that the Corporation’s financial 

management system was not in substantial 

compliance with the Federal financial management 

system requirements under the Federal Financial 

Management Improvement Act (FFMIA) of 1996 

and OMB Circular A-127, Financial Management 

Systems.

The Federal Financial Management Improvement 

Act financial system requirements state that a 

system should comply with OMB Circular A-127, 

Financial Management Systems. The Circular 

requires an agency to conduct an internal control 

review of all federal financial systems in accordance 

with FMFIA. 

The Corporation does not have its own financial 

system. The Corporation contracted with the 

Department of Interior, National Business Center 

(NBC) to provide accounting and IT services 

including usage of its Oracle Federal Financials 

System application. However, the NBC did not 

conduct an internal control review, such as a 

Statement of Auditing Standards (SAS) 70 review, 

of the Oracle Federal Financials System nor had 

MCC requested NBC to do such a review.

By not completing an internal control review of 

the financial system, management does not have 

a comprehensive understanding of the system’s 

internal controls and the risk involved in conducting 

system transactions. Per the Corporation, they 

are the first organization to use the system. It is 

a new system for NBC.

MCC’s management has agreed to request the 

National Business Center (NBC) to conduct an 

internal control review of the Oracle Financial 

System called for by OMB Circular A-127 during 

fiscal year 2005.
Semiannual Report to the Congress Semiannual Report to the Congress

October 1, 2004 — March 31, 2005 Appendix C

22

OIG STATISTICAL SUMMARY

As of March 31, 2005

INVESTIGATIVE ACTIONS

NOTHING TO REPORT



Millennium Challenge Corporation

Offi ce of Inspector General 

1300 Pennsylvania Avenue, NW 

Room 6.06D 

Washington, DC 20523 

The Semiannual Report to the Congress

is available on the Internet at 

www.usaid.gov/oig/public/semiann/mcc1.htm