OFFICE OF INSPECTOR GENERAL

FOR THE

MILLENNIUM CHALLENGE CORPORATION

SEMIANNUAL REPORT

TO THE CONGRESS

April 1, 2005 - September 30, 2005
HOTLINE 

Inspector General 

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 cannot be kept confidential because electronic e-mail systems are not secure. 

U.S. Agency for International Development 

1300 Pennsylvania Avenue, N.W. 

Washington, D.C. 20523 

www.usaid.gov 
October 28, 2005 

).

Inspector General as the Inspector General for the MCC. For example, in May 2005, 

on our role with the Corporation. 

During this reporting period, we visited two countries that had recently signed Compacts 

to assess plans and capabilities for accountability and audit oversight. And we issued three audit 

and coordination with other donors. 

The OIG remains committed to helping the Millennium Challenge 

Acting Deputy Inspector General 

20523 

Office of Inspector General

 for the 

Millennium Challenge Corporation 

The Honorable Condoleezza Rice

 Secretary of State & Chair, Board of Directors 

Mr. Charles O. Sethness

 Acting Chief Executive Offi cer 

Millennium Challenge Corporation 

875 Fifteenth Street, NW 

Washington, DC 20005 

Dear Madam Secretary and Mr. Sethness: 

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

independent report on the accomplishments of the Office of the Inspector General (OIG) in 

reviewing the activities of the Millennium Challenge Corporation (MCC This report is for 

the six-month period ending September 30, 2005, and is issued in compliance with the 

Inspector General Act of 1978, as amended. 

We continued our proactive involvement with the Corporation and the Board of 

Directors in order to fulfill our responsibilities under the Consolidated Appropriations Act of 

2004 (Public Law 108-199), which designated the U.S. Agency for International Development 

Madam Secretary, the former Acting Inspector General and staff from this office briefed you 

OIG staff attended the Board meeting in May 2005, and 

later briefed Board members on our audit plans and budget request for fiscal year 2006. 

reports including recommendations to improve information security, procurement management, 

I appreciate the courtesy and assistance extended to OIG staff during our work 

with your organization. 

Corporation achieve ultimate efficiency and effectiveness in its operations.

 Sincerely, 

Paula F. Hayes 

U.S. Agency for International Development 

1300 Pennsylvania Avenue, N.W. 

Washington, D.C. 

www.usaid.gov 

Semiannual Report to the Congress

Acronyms 

ADF African Development Foundation 

AIG/MCC Assistant Inspector General/Millennium Challenge Corporation 

CEO Chief Executive Officer 

CSC Le Conseil Superieur de la Comptabilite (Madagascar Accounting Standards Body) 

DOI Department of Interior 

FAR Federal Acquisition Regulations 

FISMA Federal Information Security Management Act 

GAO Government Accountability Office 

IAF Inter-American Foundation 

IG Act Inspector General Act of 1978 

MCA Millennium Challenge Account 

MCC Millennium Challenge Corporation 

NBC National Business Center 

OECFM L’Ordre des Experts Comtables et Financiers de Madagascar 

(Madagascar Professional Association of Accountants) 

OIG Office of Inspector General 

OMB Office of Management and Budget 

SAI Supreme Audit Institution 

USAID United States Agency for International Development 

April 1, 2005 — September 30, 2005 

i 

Semiannual Report to the Congress

Table of Contents

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

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

Overview of IG Organization........................................................................................................................ 2

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

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

The Millennium Challenge Corporation - Highlights............................................................................... 4

The Millennium Challenge Corporation ........................................................................................ 4

Progress Since September 2004 ...................................................................................................... 4

MCC Signs Compacts with Five Countries ................................................................................... 4

Applicability of Procurement Regulations to Millennium Challenge Corporation ............................ 6

Safeguarding MCC Resources and Improving Prospects for Successful

Program Implementation ................................................................................................................................7

Background ........................................................................................................................................... 7

Building a Foundation for Accountability ....................................................................................... 7

Sound Accountability and Oversight of Compacts ...................................................................... 8

Ensuring Sound Oversight and Accountability through Coordination with

Other Government Entities ............................................................................................................13

Strategic Objectives to Address Management Challenges ....................................................................15

Introduction ........................................................................................................................................15

Keeping Congress and the Head of the Organization Fully Informed on the

Status of the MCC’s Administration and Operations and the Need for

Promoting Sound Accounting and Reporting On Financial Activities and

Preserving and Protecting the Millennium Challenge Corporation’s Program

Corrective Action ..............................................................................................................................15

Information Security .........................................................................................................................16

Promoting Economy, Efficiency and Effectiveness, and Assessing Program Results ............17

and Employee Integrity .....................................................................................................................18

Appendices.......................................................................................................................................................21

April 1, 2005 — September 30, 2005 
ii 

Semiannual Report to the Congress

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 Page 6 

Recommendations for Corrective Actions Page 16 

Summary of Each Significant Report Page 16 

List of Audit Reports Issued Appendix A 

Page 22 

Summary of Each Audit Report over Six Months Old for Which No Management Nothing to 

Decision Has Been Made Report 

Significant Prior Recommendations on Which Corrective Action Has Not Been Appendix A 

Completed Page 22 

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 23 

Decisions and Reasons for Significant Revised Management Decisions Appendix B 

Page 23 

Significant Management Decisions with Which the Inspector General Disagrees Appendix B 

Page 23 

Remediation Plan Information (Required under the Federal Financial Management Appendix B 

Improvement Act of 1996) Page 23 

Matters Referred to Prosecutive Authorities and the Prosecutions and Convictions Nothing to 

Which Resulted Report 

April 1, 2005 — September 30, 2005
1 

Semiannual Report to the Congress

Executive Summary

This semiannual report highlights significant 

events regarding the Office of Inspector 

General (OIG) and presents the results of the 

OIG’s activities and efforts with respect to the 

Millennium Challenge Corporation (MCC) for 

the six-month period ended September 30, 2005. 

During this reporting period, we continued our 

policy of early and proactive involvement with 

MCC, focusing on Compact accountability, safeguarding resources, and helping MCC succeed in 

its mission. 

In May 2005 we attended MCC Board meeting 

and met with the new Secretary of State and 

Chair of the Board to brief her on OIG policies and operating preferences and to learn her 

concerns and areas of interest regarding MCC. 

We also visited two countries with which MCC 

had recently signed Compacts to assess the 

implementing agencies’ accountability capabilities 

and local accounting firms’ auditing capabilities. 

To assist program managers in meeting audit 

responsibilities, we developed guidelines for 

auditing the Compact programs. 

During this reporting period, the Office of 

Inspector General issued two reports addressing 

MCC’s information and information system security, and its coordination with other donors. We 

also initiated audits of MCC’s employee benefits 

program; its contract management system; its 

progress in achieving its planned organizational 

structure and beginning its assistance programs, 

and its fiscal year 2005 financial statements. No 

investigations were initiated during this reporting 

period. The two reports contained nine recommendations to correct noted problems. Because 

of continued cooperation, the OIG and MCC 

management have reached “management decisions” on eight of the recommendations, and 

“final action” has been completed on the other. 

One of the reports issued was on our second 

audit of MCC’s compliance with provisions of the 

Federal Information Security Management Act 

of 2002. That audit concluded that, while MCC 

partially met the FISMA requirements by reporting 

on its information security program in fi scal year 

2004 and planning to do so in fiscal year 2005, 

it had not established and documented its information security program as required by FISMA. 

Consequently, MCC’s operations and assets are 

at risk of fraud, misuse, and disruption. The audit 

report included eight recommendations to assist 

MCC in strengthening its information security 

program. MCC Management agreed with the 

audit findings and agreed to implement all eight 

recommendations. As a result, a management 

decision has been reached on each of the eight 

recommendations. (See page 16) 

Another audit, currently in process, highlighted 

several contracting weaknesses, especially 

MCC’s need to define and adhere to the Federal 

Acquisitions Regulations (FAR) that govern its 

procurement operations. The FAR states that 

wholly owned Government Corporations are 

subject to its requirements. That audit report is 

expected to contain several recommendations, 

one of which will be that MCC acknowledge 

the applicability of Federal procurement laws 

and disseminate that acknowledgement to MCC 

staff. (See page 6) 

As of September 30, 2005, MCC had signed five 

Compacts with a value of $905 million. These 

Compacts are with Madagascar, Honduras, Cape 

Verde, Nicaragua, and Georgia. MCC plans to 

sign Compacts with four additional countries by 

the end of December 2005. 

To assist selected countries (Threshold 

Countries) to become eligible for Compact 

funding, MCC’s Board of Directors has approved 

$185 million for the United States Agency for 

International Development (USAID) to use in 

providing eligibility assistance, of which $80 

million has been allocated to USAID as of 

September 30, 2005. 

April 1, 2005 — September 30, 2005
2 

Semiannual Report to the Congress

Overview

In addition to MCC, the USAID Office of Inspector 

General (OIG) is responsible for providing audit 

and investigative services to the United States 

Agency for International Development, the African 

Development Foundation (ADF), and the InterAmerican 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 designed to promote 

economy, efficiency, 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 

deficiencies 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 field offices, each 

headed by a Regional Inspector General, located 

in Baghdad, Iraq; Cairo, Egypt; Dakar, Senegal; 

Frankfurt, Germany; Manila, Philippines; Pretoria, 

South Africa; and San Salvador, El Salvador. These 

regional offices maintain close working relationships with the USAID missions in their regions, 

and their presence in the field enables auditors 

and investigators to carry out the OIG’s responsibilities efficiently. 

OIG activities for MCC are led 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 Performance Audits Division. As MCC 

develops and expands its programs, the AIG/MCC 

will need to expand its staff to provide effective 

audit oversight of MCC’s worldwide programs. 

The AIG/MCC is actively recruiting additional 

audit staff and will continue to draw on support 

from external audit firms when appropriate and 

the OIG’s overseas and Washington offices as 

necessary in order to accomplish our oversight 

responsibilities. For example, the two audit reports 

issued this reporting period on MCC’s compliance 

with provisions of the Federal Information Security 

Management Act of 2002, and its coordination with 

other donors, were accomplished with support 

from the OIG’s Washington audit offices. Our 

audits of MCC’s employee benefits program and 

the fiscal year 2005 financial statements, currently 

underway, are being done by a contracted certified public accounting firm. Our fraud-awareness 

briefing to MCC personnel included presenters 

from our OIG Investigations unit. 

April 1, 2005 — September 30, 2005
3 

Semiannual Report to the Congress

USAID Office of Inspector General

Inspector General 

Deputy Inspector General 

Counsel to 

the Inspector 

General Special Assistant 

Assistant Inspector Assistant Inspector Assistant Inspector 

General -- Investigations General -- MCC General -- Management 

Assistant Inspector 

General -- Audit 

Deputy AIG/I Deputy AIG/MCC Deputy AIG/M Deputy AIG/A Deputy AIG/A 

Headquarters Human Liaison & Capital Headquarters Coordination Financial Division Financial Liaison &

Division Audits Division Audits Division Coordination 

Division 

Financial AFR/ANE Resources Information 

Division Performance Division Technology & Performance 

Audits Division Special Audits Audits Division 

Division 

Information LAC/E&E 

Division Technology

Division

Regional Inspector General Offices 

Cairo 

Egypt 

Dakar 

Senegal 

Frankfurt 

Germany 

San 

Salvador 

El Salvador 

Manila 

Philippines 

Pretoria 

South Africa 

Baghdad 

Iraq 

April 1, 2005 — September 30, 2005 
4 

Semiannual Report to the Congress

The Millennium Challenge Corporation - Highlights

The Millennium Challenge • signed five development assistance Compacts. 

Corporation MCC Signs Compacts with Five 

The Millennium Challenge Corporation was created Countries 

in January 2004 as an Independent Government 

Corporation to provide development assistance As of September 30, 2005, MCC has signed 

to reduce poverty in countries that meet MCC’s Compact agreements with: 

criteria of governing justly, investing in their people, 

and encouraging economic freedom. MCC is • Madagascar for $110 million to improve land 

located in Washington, D. C. with a staff of about titling, promote financial sector reform, and 

140 full-time employees. enhance investment opportunities in rural 

areas. The grant will support a program 

MCC contracts with the Department of Interior’s designed to raise incomes by bringing the 

National Business Center in Denver, Colorado for rural population from subsistence agriculture 

its accounting, payroll and other administrative to a market economy. 

services.1

 MCC also has agreements with the Army 

Corp of Engineers, the Department of Agriculture, • Cape Verde for $110 million to support 

and the Treasury Department for technical services the country’s goal of poverty reduction 

supporting Compact implementation. and economic growth. The Compact will 

help transform Cape Verde by making 

sizeable investments in water resources, Progress Since September 2004 agricultural productivity, major port and road 

MCC has made significant progress during the improvements, and initiatives to promote 

12-month period ended September 30, 2005. For the private sector, including improving the 

example, MCC: investment climate and making financial sector 

reforms. 

• has built a skeleton staff of less than 60 to its 

current level of over 140 employees; • Honduras for $215 million to reduce poverty 

and spur economic growth by increasing the 

• developed operating policies and procedures productivity of high-value crops and improving 

for its operations; transportation links between producers and 

markets. 

• moved into permanent headquarters 

facilities; • Nicaragua for $175 million to spur economic 

growth by funding projects aimed at reducing 

• developed a system for managing final actions transportation costs and improving access 

on OIG audit recommendations; to markets for rural communities, increasing 

wages and profits from farming and related 

• signed a USAID-MCC Threshold agreement enterprises in the region, and increasing 

with Burkina Faso to assist that country to investment by strengthening property rights. 

become eligible for a future Compact; and 

• Georgia for $295 million to reduce the poverty 

1 of some half million people by rehabilitating The National Business Center is an administrative and computer information 

service provider for the Department of Interior and other federal agencies. regional infrastructure, such as ensuring 

April 1, 2005 — September 30, 2005
5 

Semiannual Report to the Congress

reliable natural gas transmission and promoting 

private sector development. 

As of September 30, 2005, Madagascar and Honduras 

have met the conditions precedent to funding, and 

Madagascar has requested $2,500,924—the first 

request for Compact program funds—for project 

administrative costs. Also, MCC has signed grant 

agreements with the Governments of Senegal, Ghana 

and Mozambique to provide up to $6.5, $3.0 and 

$6.0 million, respectively, to assist these countries 

in developing Compacts. Senegal’s Compact 

proposal contemplates the development of a largescale industrial, commercial, and residential site to 

address one of Senegal’s greatest barriers to poverty 

reduction and economic growth—the lack of suitable 

space for commercial and industrial expansion on 

the Dakar Peninsula. Ghana is proposing to become 

a world-class exporter of high-value fruit and 

vegetables by creating a strong investment climate. 

Mozambique plans to improve water, sanitation and 

business development services. 

The Compact Countries 

Honduras Nicaragua Cape Verde Madagascar Georgia 

April 1, 2005 — September 30, 2005 
6 

Semiannual Report to the Congress

Applicability of Procurement Regulations to Millennium 

Challenge Corporation

Established in January 2004, the Millennium 

Challenge Corporation, until recently, was 

essentially in a start-up mode: hiring staff, 

securing a permanent office location, establishing 

its administrative procedures, selecting candidate 

countries for Compacts, and accomplishing other 

tasks related to establishing a new organization. 

During its first year of operations, MCC’s 

procurement function was primarily carried out 

by a series of temporary contractor employees 

under the direction of a contracting officer. 

However, by June 30, 2005, MCC had established 

an Acquisitions Office consisting of five full-time 

direct-hire contracting officers and specialists. 

MCC’s Acquisitions Office is responsible for 

the procurement of all supplies and services 

for the various program offices of MCC. From 

its inception until May 31, 2005, MCC made 

approximately 200 awards, including contracts, 

purchase orders, agreements with other Federal 

agencies, and blanket purchase orders. These 

awards were for purchases as small as a $30 

newspaper subscription but also included awards 

exceeding $1 million. 

Given the significant amount of contracting MCC 

has already done and is expected to do as it 

expands it operations, the AIG/MCC initiated an 

audit of MCC’s contracting practices to determine 

whether MCC had complied with applicable laws 

and regulations in awarding its contracts.2 

The most significant issue disclosed by the audit 

is the applicability of Federal procurement 

regulations—such as the Federal Acquisition 

Regulations (FAR) and Small Business Act—to 

MCC’s domestic procurements. MCC officials 

had initially stated that these regulations did 

2 Audit coverage did not extend to MCC’s compacts with foreign governments or 

to purchases made overseas. 

not apply to MCC because the Corporation’s 

enabling legislation (the Millennium Challenge Act 

of 2003) gave MCC flexibility in their applicability. 

Nevertheless, they have followed the FAR in the 

absence of any MCC procurement policies and 

procedures. The Office of Inspector General 

discussed the issue with officials in the Office of 

Federal Procurement Policy and Small Business 

Administration and found no support for MCC’s 

position. Nor did the OIG find support for 

this position in MCC’s enabling legislation. 

Furthermore, the Government Accountability 

Office’s Principles of Federal Appropriations 

Law states that the procurement laws and 

regulations do apply to wholly owned government 

corporations such as MCC. 

Subsequent to our audit field work, MCC officials 

determined that the FAR does apply to MCC, and 

MCC officials indicated they will disseminate clear 

guidance to its staff stating that the FAR does apply 

to MCC. 

April 1, 2005 — September 30, 2005
7 

Semiannual Report to the Congress

Safeguarding MCC Resources and Improving Prospects 

for Successful Program Implementation

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 flexibility compared to Federal 

agencies. However, MCC is subject to many 

similar laws and regulations as Federal agencies, 

including the requirements for accountability and 

sound management. MCC is still in the process 

of identifying which laws and regulations to which 

it is subject. 

As of September 30, 2005, MCC had signed 

five country Compacts with a total value of 

$905 million and has made program-related 

disbursements of $2.5 million under one of those 

Compacts. 

Building a Foundation for 

Accountability 

The overriding goal of the OIG is to help 

MCC become a viable, secure, and successful 

organization by conducting systemic reviews 

and, where warranted, recommending changes 

that will lead to improvements within MCC’s 

programs and operations. Our activities are 

designed to prevent and detect fraud, waste and 

abuse; safeguard MCC resources; and ensure the 

economy, efficiency and effectiveness of MCC’s 

administrative and program operations. 

We build safeguards for fraud prevention and 

resource protection through 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, 

USAID administers the MCC Threshold 

3 program. As of September 30, 2005, $80 

million has been allocated to USAID, and an 

additional $105 million has been approved for 

future allocation to implement the Threshold 

program. 

During this reporting period, we focused 

our efforts on ensuring effective use of MCC 

resources by directing our proactive and early 

involvement to the greatest vulnerabilities of 

MCC program and administrative activities. 

The OIG has taken and continues to take 

the approach that early involvement in MCC 

activities will help ensure good oversight. As 

MCC develops its program and operating 

concepts and procedures, we work closely 

with its executives and managers to enhance 

our knowledge of MCC’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 Compact programs are based on a solid 

foundation of effective controls. 

We also presented our third fraud-awareness 

briefing to Corporation staff to enhance their 

understanding of fraud indicators and the 

potential for fraud occurring in MCC’s program 

and administrative activities. 

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

to apply for MCC assistance to become eligible. 

April 1, 2005 — September 30, 2005
8 

Semiannual Report to the Congress

Sound Accountability and 

Oversight of Compacts 

The Millennium Challenge Corporation is still 

a relatively 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 been previously 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. 

Given the inherent vulnerabilities of MCC’s programs, 

the OIG has continued its proactive involvement to 

ensure that the programs are effectively managed 

and held to stringent accountability. During the 

past six-month period, we have expanded the 

process by reviewing and assessing the oversight 

capabilities of Compact-implementing entities and 

the auditing capabilities of potential auditing firms 

and government audit institutions in Madagascar 

and Honduras. 

Madagascar 

On April 18, 2005, the United States, through the 

Millennium Challenge Corporation, signed a fouryear Compact with the Government of the Republic 

of Madagascar worth close to $110 million. This 

first Millennium Challenge Compact is intended to 

reduce poverty and stimulate economic growth in 

Madagascar by focusing on three areas: property 

rights, the financial sector, and agricultural business 

investment. 

To ensure management accountability of the U.S. 

assistance to Madagascar, an OIG team consisting 

of staff from our Washington headquarters and 

our regional office in Dakar, Senegal made a field 

visit to Madagascar to qualify local accounting 

firms to audit MCC assistance and to gain an 

understanding of the Madagascar Compact 

implementation structure. 

To understand the professional and regulatory 

environment in which audits are conducted in 

Madagascar, the team met with the Madagascar 

accounting standards body (Le Conseil 

Superieur de la Comptabilite [CSC]), 

the Supreme Audit Institution (Chambre 

des Comptes de la Cour Supreme de 

Madagascar [SAI]), and the professional 

association of accountants (L’Ordre des 

Experts Comptables et Financiers de 

Madagascar [OECFM]). 

The CSC is a government body responsible for 

establishing the accounting standards for Madagascar. 

Our discussion included the standards-setting 

process, actual standards and related sanctions for 

non-compliance, and the OIG’s role in ensuring the 

accountability of MCC assistance to Madagascar. 

The SAI is headed by a President and is responsible 

for auditing all government and government 

corporations’ funds and activities. In addition to 

gaining an understanding of the SAIs organizational 

structure and audit process, we discussed the OIG’s 

need to ensure effective audit coverage of MCC 

activities and to assess the capabilities of firms 

conducting audits of MCC assistance. 

The OECFM provides oversight for the accounting 

and auditing profession, which includes determining 

certification and practice requirements, as well 

as requirements to maintain certification. We 

also discussed the OIG’s role in ensuring the 

accountability of MCC assistance to Madagascar. 

The team then provided training on the audit 

requirements to 20 representatives from the 

interested CPA firms and the accounting and 

auditing authoritative bodies. That presentation 

covered audit standards, the reporting process and 

IG quality control procedures over audits of MCC 

assistance. 

The team then visited the local offices of CPA firms 

interested in conducting audits of MCC assistance. 

April 1, 2005 — September 30, 2005
9 

Semiannual Report to the Congress

This process included a review of eight audit firms 

over a 5-day period, each visit lasting about three 

hours. Prior to each visit, audit firms had completed 

questionnaires providing information on, among 

other things, their affiliations with international audit 

firms. At the conclusion of the field visit on July 29, 

2005, the team had debated the scoring of each firm 

visited, documented the overall process so that it 

could be replicated in other MCC countries, and 

developed a CPA Firm Profile Matrix from which 

the OIG will make the final selection of approved 

firms. As a result of the meetings and evaluations of 

the audit firms, we believe five audit firms have the 

capabilities to perform audits of MCC funds. 

During the visit, we held discussions with the 

proposed MCA-Madagascar representatives to 

discuss program status and proposed accountability 

procedures to effectively account for program funds 

and other resources. We also conducted an auditrequirements presentation for the proposed MCA 

Madagascar staff, which included representatives of 

the proposed fiscal and procurement agent. 

AIG/MCC Briefs MCA Madagascar Staff on Program Oversight and Accountability 

Photograph of representatives from MCA Madagascar, OIG and the entity contracted as the Fiscal and Procurement Agent 

April 1, 2005 — September 30, 2005 
10 

Semiannual Report to the Congress

While in Madagascar, we also met with the American 

Ambassador and the USAID Mission Director to 

brief them on our oversight responsibilities for the 

MCC Madagascar program. Also, staff from the 

OIG’s Regional Inspector General’s offi ce in Dakar, 

Senegal provided valuable assistance during our 

review in Madagascar. 

Honduras 

On September 25, 2005, the United States, through 

the Millennium Challenge Corporation, signed a 

five-year Compact with the Government of the 

Republic of Honduras worth close to $215 million. 

This Millennium Challenge Compact is intended 

reduce poverty and spur economic growth by 

increasing productivity of high-value crops and 

improving transportation links between producers 

and markets. 

To ensure management accountability of the U.S. 

assistance to Honduras, an OIG team consisting 

of staff from our Washington headquarters and 

our regional office in San Salvador, El Salvador, 

made a field visit to Honduras to qualify local 

accounting firms to audit MCC assistance and to 

gain an understanding of the Honduras Compact 

implementation structure. 

To understand the professional and regulatory 

environment in which audits are conducted in 

Honduras, the team met with the “Junta Técnica” 

for the “Ley sobre Normas de Contabilidad y 

de Auditoría”, the Supreme Audit Institution 

“Tribunal Superior de Cuentas” [SAI]), and the 

Board of Directors for the professional association 

of accountants, the Colegio Hondureno de 

Profesionales Universitarios de Contadores 

Públicos. 

The “Junta Técnica” was established in February 

2005 as a technical and specialized entity to follow 

up and disseminate the International Financial 

Information Norms and the Audit International 

Norms. The “Junta Tecnica” is headed by the 

National Banking and Insurance Commission. 

Audit firms are required to be a member of 

the “Colegio Hondureno de Profesionales 

Universitarios de Contadores Públicos” to 

perform audits in Honduras. 

During our meeting with these entities we discussed: 

the requirements to become a Certified Public 

Accountant in Honduras, the standards-setting 

process, actual auditing standards and related 

sanctions for non-compliance, and the OIG’s role 

in ensuring the accountability of MCC assistance 

to Honduras. We were informed that in Honduras, 

a high school graduate is qualified to perform 

bookkeeping services in both the public and private 

sectors. Additionally, an individual that completes 

the accounting studies at the local university is 

considered a Certified Public Accountant. 

We were also informed that the SAI is headed 

by a President and is responsible for auditing 

all government and government corporations’ 

funds and activities. In addition to gaining an 

understanding of the SAI organizational structure 

and audit process, we discussed the OIG’s need to 

ensure effective audit coverage of MCC activities 

and to assess the capabilities of firms conducting 

audits of MCC assistance. 

The team then provided training on the audit 

requirements to 18 representatives from the 

interested CPA firms and the accounting and 

auditing authoritative bodies. That presentation 

covered audit standards, the reporting process and 

IG quality control procedures over audits of MCC 

assistance. 

April 1, 2005 — September 30, 2005
11 

Semiannual Report to the Congress

OIG Representatives Provide Training to 

Local Accounting Firms and SAI Staff in Honduras 

Photograph of representatives from local audit firms SAI and OIG Staff. 

The team then visited the local offices of CPA firms the team had evaluated the scoring of each firm 

interested in conducting audits of MCC assistance. visited, documented the overall process so that it 

This process included a review of eight audit firms could be replicated in other MCC countries, and 

and the SAI over a 5-day period, with each visits developed a CPA Firm Profile Matrix from which the 

lasting approximately two hours. Prior to each visit, OIG will make the final selection of approved audit 

audit fi rms had completed questionnaires providing firms. As a result of the meetings and evaluations 

information related to their firms including their of the audit firms, we believe five audit firms and 

affiliations with international audit firms. At the the SAI have the capabilities to perform audits of 

conclusion of the field visit on September 30, 2005, MCC funds. 

April 1, 2005 — September 30, 2005
12 

Semiannual Report to the Congress

AIG/MCC Meets with SAI Honduras Staff on Program Oversight and Accountability

Photograph of representatives from SAI Honduras, and OIG. 

During the visit, we held discussions with the 

proposed MCA-Honduras representatives to 

discuss program status and proposed accountability 

procedures to effectively account for program funds 

and other resources. We also conducted an auditrequirements presentation for the proposed MCA 

Honduras staff, which included representatives of 

the proposed fiscal and procurement agent. 

While in Honduras, we also met with the American 

Ambassador and the USAID Mission Director to 

brief them on our oversight responsibilities for the 

MCC Honduras program. 

April 1, 2005 — September 30, 2005
13 

Semiannual Report to the Congress

Ensuring Sound Oversight and 

Accountability through Coordination with Other Government 

Entities 

The MCC was given broad flexibility 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 with oversight responsibilities. Specifically, 

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 

process with the Government Accountability 

Office (GAO), which includes ongoing interaction 

with GAO staff involved in responding to 

Congressional requests for oversight of MCC’s 

operations. Moreover, as part of our coordination 

efforts, the GAO participates in our annual 

planning conference. 

Our coordination with the Office of Management 

and Budget (OMB) revolves around obtaining a 

clear understanding of the financial and program 

management regulations applicable to MCC 

in keeping with its broad program flexibilities. 

Where there are areas that require debate, we 

initiate early dialogue to ensure compliance with 

important reporting time lines. 

The Government Accountability 

Offi ce 

As the Congressional oversight agency, the GAO 

has the authority and responsibility to review 

Federal programs and to respond to special 

requests of the Congress. In September 2005, 

at the request of the Senate Foreign Relations 

Committee, GAO initiated a second monitoring 

and oversight review of MCC. 

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 and work plans 

to ensure that there is no duplication of effort 

and that all relevant areas are covered. We also 

discuss MCC management issues and the progress 

and results of our ongoing oversight work. 

In a September 2005 meeting, we shared our FY 

2006 audit plan with GAO representatives and 

discussed the areas where we plan to expend 

our resources. As a result of these activities, 

we are able to establish a reasonable degree of 

assurance that MCC’s risks and vulnerabilities are 

being addressed and reported to MCC and to the 

Congress. 

Office 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 they are consistent 

with Administration policies. OMB also oversees 

and coordinates the Administration’s procurement, 

financial management, information, and regulatory 

policies. 

The OIG has established a working relationship 

with OMB in order to keep abreast of current 

OMB guidelines and expectations as they relate 

to MCC operations and to our audit work. 

This coordination and interaction help provide 

reasonable assurances that MCC is in compliance 

with applicable OMB requirements. 

April 1, 2005 — September 30, 2005
14 

Semiannual Report to the Congress

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. MCC has allocated $80 million 

to USAID for this activity and has approved an 

additional $105 million. 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 

notified the Inspectors General of these agencies 

of the existence of these agreements and will be 

coordinating the oversight of agreement funds with 

them. 

April 1, 2005 — September 30, 2005
15 

Semiannual Report to the Congress

Strategic Objectives to Address Management Challenges

• Preserve and protect program and employee Introduction 

integrity. 

Management challenges are defined as risks and 

vulnerabilities that need to be addressed by 

management. Having been established for less than 

two years, the Millennium Challenge Corporation 

faces the normal challenges of any new organization: 

developing financial systems, hiring staff, determining 

applicable laws and regulations, developing internal 

controls, and developing an effective program 

management and oversight methodology. And 

within the past six months, MCC signed its fi rst fi ve 

Compacts and will soon face the daunting 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 

MCC as well as soliciting feedback on the usefulness 

of our work. Participants in this planning process 

include congressional staff, representatives of 

USAID, OMB and GAO, and senior managers of 

MCC. In July of 2005, we presented our tentative 

fiscal year 2006 audit plan to MCC managers and 

obtained their comments and feedback, which 

will be assessed and considered as we finalize our 

plans. 

In addition, the OIG has four strategic goals 

consistent with the IG Act of 1978, as amended, 

under which we will conduct audits and reviews to 

help MCC address and overcome its management 

challenges. These four strategic goals are to: 

• Keep Congress and MCC Management 

informed. 

• Promote sound accounting and reporting. 

• Promote economy, effi ciency and effectiveness. 

Activities undertaken to meet these goals included 

a meeting with the Board Chair; ongoing dialogue 

with the General Accountability Office; conducting 

a fraud-awareness briefing in September 2005; 

working with MCC’s Board of Directors to develop 

a charter for the Audit Committee; working with 

Corporation management to develop effective 

audit recommendation follow-up procedures; and 

issuing two audit reports with recommendations to 

improve MCC’s operations. 

Keeping Congress and the 

Head of MCC 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, the Board, and the 

Congress to keep them abreast of OIG activities 

relevant to MCC. Specifically, the OIG: 

• Prepares and submits 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 significant audits performed 

during the reporting period. This is our third 

Semiannual Report to Congress and covers the 

period ending September 30, 2005. 

April 1, 2005 — September 30, 2005
16 

Semiannual Report to the Congress

• Presents timely briefings to the Board, Chief 

Executive Officer (CEO) and key MCC officials 

on critical problem areas identified by OIG 

audits and investigations. For example, in May 

we met with the Board Chair to introduce 

OIG staff, brief her on OIG policies and 

operating preferences, and obtain her views 

and concerns vis-à-vis MCC and the OIG. We 

have regular frequent meetings with the CEO 

and continuing interactions with MCC senior 

management. In our meetings with the CEO, 

we discussed significant audits as well as the 

status of MCC’s management controls, and 

program oversight and monitoring efforts. 

• Continues to present timely briefings to key 

congressional staff on the status of significant 

OIG audit and investigative activities, problems 

and issues identified by these efforts, and the 

necessity for and progress of corrective actions 

being taken by MCC. 

• Conduct audits and distribute audit reports to 

MCC management and congressional staff in 

a timely manner. All nonclassified audit and 

review reports are transmitted to appropriate 

congressional committees. 

Promoting Sound Accounting and 

Reporting on Financial Activities 

and Information Security 

This strategic goal addresses MCC’s challenges of 

developing effective financial management systems 

and the related internal controls. These systems 

should be designed to ensure that MCC prepares, 

records and reports reliable financial data relating 

to its administrative and program operations. The 

OIG initiated three audits this period to address 

these challenges: an audit of the MCC’s compliance 

with the Federal Information Security Management 

Act of 2002 (FISMA), an agreed-upon procedures 

audit covering MCC’s employee benefits program, 

and a Financial Statement audit. 

Audit of the Millennium Challenge Corporation’s Compliance 

with the Provisions of the Federal Information Security Management Act of 2002 

The Federal Information Security Management Act 

of 2002 (FISMA) requires agencies to develop, document, and implement an agency-wide information 

security program to protect its information and 

information systems, including those provided or 

managed by another agency, contractor, or other 

source. 

This audit met the FISMA requirement for an 

annual evaluation of the Millennium Challenge 

Corporation’s information security program. Its 

objective was to determine if MCC’s information 

security program met the requirements of the 

FISMA. 

MCC partially met the FISMA requirements. It 

reported on its security program in fiscal year 2004 

and plans to do so in fiscal year 2005. However, it 

had not established and documented its information 

security program in eight key areas as required by 

FISMA. The information security program had not 

been documented because MCC had not applied 

the necessary resources to comply with the FISMA 

requirements. Consequently, MCC’s operations 

and assets are at risk of fraud, misuse, and disruption. 

The audit report includes eight recommendations 

to assist MCC in strengthening its information 

security program. MCC Management agreed with 

the audit fi ndings and agreed to implement all eight 

recommendations. As a result, a management decision has been reached on each of the eight recommendations. 

A prior audit report also contained a recommendation that MCC document an Agency-wide information system security program; MCC is still in 

April 1, 2005 — September 30, 2005
17 

Semiannual Report to the Congress

the process of completing final action on that recommendation. (Appendix A, page 22) 

(Report No. M-000-05-003-P) 

Audit of Millennium Challenge 

Corporation’s Consolidated Financial Statements, Internal Controls, and Compliance for the 

Fiscal Year 2005 

The OIG and the MCC are working collaboratively 

so that the OIG can issue the fiscal year 2005 audit 

report on MCC’s consolidated financial statements, 

internal controls, and compliance by November 15, 

2005. This schedule, which was agreed to by the 

MCC and the OIG, has been adopted one year 

ahead of the Office of Management and Budget’s 

(OMB) requirement for submitting audited financial 

statements within 45 days of the fiscal year-end. 

This audit was begun in July, under OIG oversight, 

by a non-Federal audit firm. The auditor will 

perform a full-scope financial statement audit of 

MCC’s FY 2005 financial statements in accordance 

with OMB Bulletin 01-02, Audit Requirements for 

Federal Financial Statements. 

The auditor will determine whether the principal 

financial statements present fairly, in all material 

respects, the financial position of MCC as of 

September 30, 2005, in conformity with generally 

accepted accounting principles. The auditor will 

also obtain an understanding of the design of 

internal controls, determine whether they have 

been placed in operation, and assess the level of 

control risk relevant to management’s assertion 

relative to the financial statement. 

For fiscal year 2004, the OIG issued its audit 

report in January 2005 on the first set of financial 

statements prepared by MCC for the nine month 

period ended in September 2004. This audit 

was performed by a non-Federal accounting fi rm 

with OIG oversight. In its report, the audit fi rm 

identified 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 has initiated corrective actions to 

remedy this reportable condition during fiscal year 

2005. 

Promoting Economy, Effi ciency, 

and Effectiveness, and Assessing 

Program Results 

This strategic goal addresses MCC’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 

better understand management’s response to 

these challenges and to provide management with 

recommendations to address the vulnerabilities 

associated with them. 

Survey of Millennium Challenge 

Corporation’s Coordination with 

Other Donors to Implement Its 

Assistance Program 

This survey, conducted to determine what progress 

MCC has made in complying with and reporting on 

coordination with other donors, found that MCC 

has made progress in complying with and reporting 

on Millennium Challenge Act of 2003 requirements 

for other donor coordination, but needs to do so 

in a more substantive and timely manner. Although 

MCC has taken steps to implement and report 

on coordination assistance, it has not formally 

established a policy, issued guidelines, or made 

reporting requirements known. 

Now that five compacts have been signed and more 

are imminent, MCC needs to move expeditiously in 

formalizing its draft policy and guidance concerning 

donor coordination requirements. This should help 

ensure continuity in how the transaction teams 

perform and report on their donor coordination 

efforts. MCC donor coordination efforts cross 

departmental areas within MCC. A single donor 

April 1, 2005 — September 30, 2005
18 

Semiannual Report to the Congress

coordination office that has direct control over 

MCC does not exist; therefore, an organizationwide policy and guidance concerning donor 

coordination is needed. 

We recommended that MCC formally establish an 

organization-wide policy and guidance concerning 

donor coordination to comply with the Millennium 

Challenge Act and that the policy and guidance 

be approved at a sufficient level within MCC for 

proper implementation. This guidance should 

include information on, among other things, (1) 

how donor coordination efforts by transaction 

teams will be monitored and evaluated, (2) roles 

and responsibilities of the transaction teams and 

other responsible program offices, and (3) formal 

plans to comply with Millennium Challenge Act 

reporting requirements for coordinating with the 

U.S. Agency for International Development, other 

United States foreign assistance programs, and 

other donors. Further, the Compact document 

should contain information on where donor 

coordination efforts can be found in the compact 

or supplemental attachments. 

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

Preserving and Protecting the 

Millennium Challenge Corporation’s Program and Employee 

Integrity 

This strategic goal is designed to foster the 

integrity of program and operational activities. 

Our focus on the prevention of fraud and 

protection of resources is 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. To achieve 

this goal, during this period we presented our 

third fraud-awareness briefing to MCC staff. 

Investigations: Prevention and 

Fraud Awareness 

OIG investigative priorities are twofold: first, 

to preserve and protect program and employee 

integrity within the Millennium Challenge 

Corporation; 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 

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 

such 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 specific groups, such 

as contracting officers or Cognizant Technical 

Officers. Most important, investigations 

resulting in criminal and/or civil prosecution are 

publicized on the Agency’s website and in 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 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 specific 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, flyers, and cards 

have been distributed to the OIG’s overseas offices 

and MCC headquarters. In an effort to expand our 

outreach efforts, these materials were produced in 

April 1, 2005 — September 30, 2005
19 

Semiannual Report to the Congress

English, Spanish, French and Arabic. On September 

14, 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 briefing on 

fraud awareness to approximately 40 members of 

MCC. 

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 

efficiently and expeditiously. Investigations employs 

both proactive and reactive strategies to carry out 

its mission. 

April 1, 2005 — September 30, 2005

A 

P 

P 

E 

N 

D 

I 

C 

E 

S 

21 
22 

Semiannual Report to the Congress

REPORTS ISSUED

April 1, 2005 through September 30, 2005 

Report Number 

Date of 

Report Report Title 

Amount of Findings

($000) 

Type of 

Findings 

M-000-05-003-P 06/20/2005 Audit of the Millennium Challenge Corporation’s Compliance with the 

Provisions of the Federal Information Security Management Act of 2002 

M-999-05-002-S 09/30/2005 Audit of Millennium Challenge Corporation’s Compliance Coordination with 

Other Donors to Implement Its Assistance Program 

SIGNIFICANT AUDIT RECOMMENDATIONS 

DESCRIBED IN PREVIOUS SEMIANNUAL REPORT 

WITHOUT FINAL ACTION

As of September 30, 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 

M-0000-05-001-C Require the Corporation’s service 

provider – National Business Center 

– to conduct an internal control review 

of its Oracle Financial System 

01/27/2005 1 01/27/2005 

M-000-05-002-P Formalize and document the 

Corporation’s administrative and 

program internal control system and 

establish a defined timetable for 

completing the process 

03/31/2005 1 03/31/2005 

M-000-05-002-P Conduct an evaluation of the 

Corporation’s internal control system 

consistent the FMFIA and OMB 

implementing guidance 

03/31/2005 1 03/31/2005 

April 1, 2005 — September 30, 2005 Appendix A
23 

Semiannual Report to the Congress

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 identification 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. 

In our previous Semiannual Report, issued as of 

March 31, 2005, we reported that during our fiscal 

year 2004 financial statement audit, we determined 

that MCC’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. 

FFMIA financial system requirements state that 

a system should comply with OMB Circular A127, Financial Management Systems. That Circular 

requires an agency to conduct an internal control 

review of all Federal financial systems in accordance 

with FMFIA. 

MCC does not have its own financial system. 

Instead, it has contracted with the Department 

of Interior’s National Business Center (NBC) 

to provide accounting and IT services, including 

usage of NBC’s 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 the Oracle 

Federal Financials System, nor had MCC requested 

NBC to conduct such a review. 

The result of omitting such a review was that 

management did not have a comprehensive 

understanding of the system’s internal controls and 

the risks involved in conducting system transactions. 

According to MCC, they are the first organization to 

use the system, which is a new system for NBC. 

MCC’s management agreed to request that during 

fiscal year 2005 the NBC conduct an internal control 

review of the Oracle Financial System called for by 

OMB Circular A-127. 

MCC did request that NBC conduct the required 

internal control review and it was completed in 

September 2005. Our audit of MCC’s fiscal year 

2005 financial statements, currently underway, will 

determine if the review effectively remedies the 

deficiency. 

Appendix B April 1, 2005 — September 30, 2005
Semiannual Report to the Congress

24 

Semiannual Report to the Congress

OIG STATISTICAL SUMMARY

As of September 30, 2005 

INVESTIGATIVE ACTIONS 

NOTHING TO REPORT

April 1, 2005 — September 30, 2005 Appendix C

Millennium Challenge Corporation

Office 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