_

Millennium Challenge Corporation __________________________________________________________ __________________________________________________

Reducing Poverty Through Growth 

OFFICE OF 

INSPECTOR GENERAL

SEMIANNUAL REPORT TO CONGRESS

APRIL 1, 2004 - SEPTEMBER 30, 2004
INSPECTOR GENERAL 

HOTLINE

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 email, 

telephone, or mail to: 

Phone 1-202-712-1023

 1-800-230-6539 

Email 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. Email complaints can 

not be kept confidential because electronic mail systems are not secure. 
OIG Highlights

MILLENNIUM CHALLENGE CORPORATION

On January 23, 2004, Public Law 108-199 (The Consolidated Appropriations Act of 2004) was enacted, 

establishing the Millennium Challenge Corporation (MCC) and designating the USAID Inspector 

General as its Inspector General. 

Considering the MCC’s unique structure and operation and the substantial levels of development 

assistance it will administer, the OIG has established a separate Assistant Inspector General, the 

Assistant Inspector General for the Millennium Challenge Corporation (AIG/MCC), to coordinate the 

oversight of all OIG MCC activities. While the AIG/MCC has established performance and financial 

audit divisions, it will coordinate with the Assistant Inspector General for Investigations for investigative 

support and with the Assistant Inspector General for Audit for supplementary audit support. 

Photograph of AIG/MCC Henry Barrett (left), appointed by former Inspector General Everett Mosley to coordinate the 

oversight of all OIG MCC activities. 
20523 

October 29, 2004 

The Honorable Colin L. Powell, Chairman 

Millennium Challenge Corporation 

22219-2825 

Dear Sirs: 

month period ended September 30, 2004. This report is issued in compliance with the 

During this period, and since the Corporation‘s inception in January 2004, we have 

Act of 2004 (Public Law 108-199), which designated the USAID Inspector General to serve 

as the Inspector General for the Millennium Challenge Corporation. 

your organization. The OIG is committed to helping the Millennium Challenge Corporation 

Acting Inspector General 

1300 PENNSYLVANIA AVENUE, N.W. 

WASHINGTON, D.C. 

OFFICE OF INSPECTOR GENERAL 

The Honorable Paul V. Applegarth, CEO 

P. O. Box 12825 

Arlington, VA

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

independent report on the accomplishments of the Office of Inspector General for the sixInspector General Act of 1978, as amended. 

taken several steps to carry out our responsibilities under the Consolidated Appropriations 

Those steps include establishing a separate Assistant Inspector General within the 

USAID Office of Inspector General to coordinate oversight of the Corporation’s activities; 

meeting with you and Corporation officers to establish a policy of early involvement and 

maximum communication; presenting a briefing to MCC staff on fraud awareness; issuing 

a review report on the Corporation’s status in establishing its organizational structure and 

beginning its assistance programs, and an audit report on the Corporation’s information 

security management; and initiating the development of a long-range audit strategy. 

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

achieve ultimate efficiency and effectiveness in its operations.

 Sincerely, 

James R. Ebbitt 

Millennium Challenge Corporation 

Reducing Poverty Through Growth 
Semiannual Report to the Congress

Acronyms

ADF African Development Foundation 

AIG/MCC Assistant Inspector General/Millennium Challenge Corporation 

CEO Chief Executive Officer 

Corporation Millennium Challenge Corporation 

DOI Department of Interior 

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 

OIG Office of Inspector General 

OMB Office of Management and Budget 

SAI Supreme Audit Institution 

USAID United States Agency for International Development 

April 1, 2004 — September 30, 2004
i 

Semiannual Report to the Congress

Table of Contents

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

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

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

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

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

USAID Inspector General Assumes IG Responsibility for the 

Newly Created Millennium Challenge Corporation ....................................................................... 4

Helping the Millennium Challenge Corporation Get Started

and Become Successful ............................................................................................................... 4

Supporting Key Millennium Challenge Corporation Programs

 and Management Functions ......................................................................................................... 6

Appendices ........................................................................................................................................ 13

April 1, 2004 — September 30, 2004 
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 Inspector General 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 9 

Summary of Each Significant Report Page 7 - 9 

List of Audit Reports Issued Appendix A 

Page 14 

Matters Referred to Prosecutive Authorities and the Prosecutions and Convictions Which Appendix B 

Resulted Page 15 

April 1, 2004 — September 30, 2004
1 

Semiannual Report to the Congress

Executive Summary

This semiannual report presents the results of the 

Office of Inspector General’s (OIG) activities and 

efforts with respect to the Millennium Challenge 

Corporation (MCC or Corporation) for the six-month 

period ended September 30, 2004.1 

During this semiannual reporting period, the Office 

of the Inspector General issued two reports with 

one recommendation. No investigations were initiated. Because of continued cooperation, the OIG 

and MCC management have reached a “management decision” on the one recommendation issued 

this period. 

This report highlights three major areas of OIG 

involvement this reporting period. First, the enactment of Public Law 108-199 (The Consolidated 

Appropriations Act of 2004) on January 23, 2004, 

established the Millennium Challenge Corporation, 

to administer the Millennium Challenge Account.2 

The Act named the Inspector General (IG) of 

USAID as the IG for the new Corporation. Shortly 

after passage of the Act, the IG held meetings with 

the MCC Board Chairman and executives and 

named an Assistant Inspector General to oversee 

the auditing and investigative activities of the 

MCC. 

1 Although the official reporting period is the six-month period of 

April 1, 2004 to September 30, 2004, the OIG activities discussed 

herein cover the period from January 23, 2004, the date MCC was 

established by the Consolidated Appropriations Act of 2004. 

2

 The Millennium Challenge Account (MCA) is the funding mechanism 

to provide assistance to countries that enter into a Millennium 

Challenge Compact with the United States pursuant to Part D, Title 

VI of the Consolidated Appropriations Act of 2004—the Millennium 

Challenge Act of 2003. 

The second area of emphasis is our early involvement in MCC activities to ensure effective oversight. This section articulates our approach and 

outlines our efforts in understanding the MCC and 

our extensive coordination efforts. These coordination efforts involve the Office of Management and 

Budget, and the Government Accountability Office. 

Finally, we undertook several significant initiatives 

to support key MCC program and management 

functions. These support areas included corporate management and the control of corruption in 

the international environment. Within this area we 

highlight the two reports issued during this period, 

our efforts in arranging for the statutory financial 

statement audit, and our support of the MCC’s 

initial assessment efforts in eligible countries. 

April 1, 2004 — September 30, 2004
2 

Semiannual Report to the Congress

Overview Organization

In addition to the MCC, the USAID Office 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 disburse and 

manage U.S. international development assistance. 

Mission 

The Inspector General Act of 1978 (IG Act), as 

amended, establishes 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, 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. 

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 Budapest, 

Hungary; Cairo, Egypt; Dakar, Senegal; Manila, 

Philippines; Pretoria, South Africa; San Salvador, 

El Salvador; and, since July 2003, Baghdad, Iraq. 

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. 

The position of Assistant Inspector General for the 

Millennium Challenge Corporation (AIG/MCC) was 

established on February 18, 2004. The Assistant 

Inspector General oversees a Deputy Assistant Inspector 

General, who in turn is responsible for a Financial 

Audits Division and a Performance Audits Division. As 

the Corporation continues to develop and expand its 

programs, the AIG/MCC plans to draw on support from 

the OIG’s overseas and Washington offices as necessary in order to accomplish our oversight responsibilities. For example, the two reports issued this reporting 

period included support from the OIG’s Washington 

audit offices, and the MCC’s initial assessment work 

in Honduras included support from the OIG’s San 

Salvador office. Finally, our fraud awareness briefing to 

the MCC personnel included presenters from our OIG 

Investigations unit. 

Snapshot of AIG/MCC staff. 

April 1, 2004 — September 30, 2004
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

General -- Investigations 

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

Financial 

Audits Division 

Information 

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 

Budapest 

Hungary 

Cairo 

Egypt 

Dakar 

Senegal 

San 

Salvador 

El Salvador 

Manila 

Philippines 

Pretoria 

South Africa 

Applications 

& Business 

Solutions 

Division 

Network & 

Computer 

Operations 

Division 

Baghdad 

Iraq 

General -- Audit 

Technology & 

Regional Inspector General Offices 

April 1, 2004 — September 30, 2004 
4 

Semiannual Report to the Congress

USAID Inspector 

General Assumes 

IG Responsibility for 

the Newly Created 

Millennium Challenge 

Corporation 

On January 23, 2004, with the enactment of Public Law 

108-199 (The Consolidated Appropriations Act of 2004), 

the Millennium Challenge Corporation was established. 

The Act provides about $1 billion in initial funding for 

fi scal year 2004. The President has pledged to increase 

funding to $5 billion a year starting in fiscal year 2006. 

The Act also designates the Inspector General of USAID 

to serve as the Inspector General for the Corporation and 

states that the Inspector General may conduct reviews, 

investigations and inspections of all aspects of MCC’s 

operations and activities. In addition, the legislation 

states that in carrying out this responsibility, the Inspector 

General shall report to and be under the general supervision of the Corporation’s Board of Directors. 

The MCC is an independent government corporation 

designed to make maximum use of flexible authorities 

to optimize efficiency in contracting, program implementation and personnel. Managed by a Chief Executive 

Officer (CEO) appointed by the President and confi rmed 

by the Senate, the MCC is overseen by a Board of 

Directors composed of the Secretary of State, the 

Secretary of Treasury, the U.S. Trade Representative, 

the Administrator of USAID, the CEO of the Corporation, 

and four members to be appointed by the President with 

the advice and consent of the Senate. Two of these four 

members were appointed on July 13, 2004. The Secretary 

of State serves as the Chairman of the Board. 

The Board held its first meeting on February 2, 2004, 

at which time it approved the Corporation’s bylaws. On 

May 5, 2004, the Senate confirmed the Corporation’s 

CEO, and on May 6, 2004, the Board of Directors 

selected 16 countries eligible to submit proposals for 

MCC assistance under fiscal year 2004 funding. 

Shortly after the MCC was established, the OIG met 

with the Board Chairman and interim Chief Executive 

Officer to introduce senior OIG staff responsible for 

providing IG oversight of the MCC, to discuss the OIG 

philosophy of working with management on a proactive 

basis, and to establish a general working relationship. 

Further, the OIG met on a number of occasions with the 

Corporation’s senior managers to learn more about the 

Corporation’s start-up activities and preliminary financial 

and operational plans, and to discuss requirements for 

statutory audits of the Corporation’s fi nancial statements 

and information systems security program. 

Finally, as the MCC more fully develops its program 

and operating concepts and procedures, the OIG will 

develop an audit strategy that will include the annual 

financial statement audit, oversight of contracted financial audits of implementing entities, information system 

security reviews, compliance with provisions of the Act, 

and reviews of program activities.3 

Helping the Millennium 

Challenge Corporation 

Get Started and Become 

Successful 

The role of the Office of the Inspector General includes 

reviewing the Corporation’s programs and operations 

through audits, investigations, inspections and other 

initiatives to promote economy and efficiency, and to 

prevent and detect fraud, waste and abuse. Our primary 

goal is to help the Corporation become a viable and 

successful organization by encouraging constructive, 

systemic changes that will lead to improvements within 

the Corporation’s programs and operations. To meet 

this goal, the AIG/MCC team will focus on determining 

whether the MCC: 

• adequately measures performance and results; 

• achieves the desired results at the lowest reasonable cost; and 

• maintains a high level of organizational and 

employee integrity.

3 Our planned audit strategy assumes that the country compacts 

will contain appropriate audit language relevant to the compact 

implementing agencies. 

April 1, 2004 — September 30, 2004
5 

Semiannual Report to the Congress

Early OIG Involvement 

Ensures Good Oversight 

The OIG has taken the approach that early involvement 

in MCC activities will help ensure good oversight. 

This approach to our responsibilities has proven to be 

successful with our other clients in Latin America and 

Eastern Europe. Shortly after the establishment of the 

MCC in January 2004, we met with the Board chairman 

where we introduced our senior management and 

discussed our operational preferences as being proactive 

and working with management to resolve issues early 

before they become challenges. Subsequently, we 

provided the Board chairman and the CEO with our fiscal 

year 2004 and 2005 audit plan and budgets, and we 

continue to encourage MCC’s input to our audit plan. 

As the MCC develops its program and operating 

concepts and procedures, we continue to work closely 

with the Corporation’s executives and managers in order 

to enhance our knowledge of the MCC’s programs and 

activities (including its administrative and accounting 

processes), establish a framework for providing early 

feedback, and refine our audit plans. 

In March 2004, the Corporation entered into Interagency 

Agreements with the Department of Interior’s National 

Business Center (NBC) in Denver, Colorado for payroll 

management, accounting and financial statement 

preparation, and human resources management. The 

National Business Center is an organization within 

the Department of Interior that provides administrative 

services to the Department of Interior, as well as to 

other Federal agencies. The MCC plans to locate its 

accounting records primarily at the NBC and to interface 

with the NBC’s systems electronically for disbursement 

authentication, as well as to receive financial reports and 

information, thereby establishing a paperless financial 

and administrative system in its headquarters. 

In June 2004, the AIG/MCC and Deputy AIG/MCC 

accompanied the Corporation’s Vice President for 

Administration and Finance, Controller, Contracting 

Officer and Director of Human Resources on a cognizance 

visit to the NBC. We made the visit in order to review 

April 1, 2004 — September 30, 2004
6 

Semiannual Report to the Congress

the services that NBC will be providing, understand 

how these services will be provided, and establish a 

relationship with MCC and NBC staff in anticipation of 

future audit work. 

Coordination with Other 

Government Units 

In March 2002, President Bush called for a new compact 

for global development, defined by new accountability 

for both rich and poor nations alike, and proposed the 

establishment of the Millennium Challenge Account 

(MCA) to implement the compact. Greater contributions 

from developed nations must be linked to greater 

responsibility from developing nations. Because sound 

policies are an essential condition of development, the 

President announced that the MCA will be devoted 

to projects in nations that govern justly, invest in their 

people and encourage economic freedom. 

The MCC was established to administer the MCA and 

was given broad flexibility to accomplish its mandate 

and seek to 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. We have 

initiated extensive coordination efforts with the Offi ce of 

Management and Budget (OMB) and the Government 

Accountability Office (GAO). 

The Office of Management and 

Budget 

To keep abreast of current OMB guidelines and expectations as they relate to MCC operations and to our audit 

work, the OIG maintains a working relationship with 

OMB. On April 26, 2004, at the request of the Inspector 

General, MCC and OIG staff met with OMB officials to 

obtain OMB’s expectations of the Millennium Challenge 

Corporation regarding preparing and submitting financial 

statements. That meeting and subsequent OIG-MCC 

communications with OMB resulted in establishing an 

accelerated time frame for obtaining an audit of the 

Corporation’s financial statements. Similar coordination 

efforts with OMB helped establish content and reporting 

requirements for the audit of the Corporation’s informations system security program. 

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, responding to a request by the Chairman of 

the Senate Foreign Relations Committee, the GAO initiated a review of the Millennium Challenge Corporation 

to find out (1) how the MCC is being managed, (2) 

how the MCC selects eligible countries and negotiates 

compacts, (3) how MCC assistance will be monitored 

and evaluated and (4) to what extent MCC funding will 

be coordinated with other donors. 

In May 2004, the GAO held an entrance conference 

with USAID staff, including individuals from USAID’s 

MCC Coordination Unit. AIG/MCC staff participated in 

that meeting to gain an understanding of GAO’s review 

objectives to better coordinate our future audit and 

review activities and avoid potential duplication of effort. 

Subsequently, the AIG/MCC initiated a review of the 

MCC to determine its progress in achieving its planned 

organizational structure and beginning its assistance 

program. AIG/MCC staff met with the GAO review team 

in July and August 2004 to coordinate review activities 

and to discuss sharing of information. 

Supporting Key 

Millennium Challenge 

Corporation Programs 

and Management 

Functions 

Supporting Good Corporate 

Management 

Recognizing the importance of sound financial management and accountability for resources, the AIG/MCC 

met with the Corporation early to plan statutory audits 

of its financial statements and information security 

program. Additionally, during this six-month reporting 

period, the AIG/MCC completed a review of MCC’s progress in establishing itself and beginning its assistance 

programs. The AIG/MCC also completed the statutory 

audit of MCC’s information security program and developed plans for the audit of the Corporation’s fi scal year 

2004 financial statements. 

April 1, 2004 — September 30, 2004
7 

Semiannual Report to the Congress

Review of the Millennium Challenge

Corporation’s Progress in Achieving 

Its Planned Organizational Structure

and Beginning Its Assistance 

Programs as of August 31, 2004 

The Office of Inspector General for the Millennium 

Challenge Corporation conducted a review of the 

Millennium Challenge Corporation (MCC) during August 

of 2004. The purpose of the review was to evaluate the 

progress MCC has made in achieving its planned organizational structure, developing its compact development 

process, and complying with the Millennium Challenge 

Act of 2003 and other applicable laws and regulations. 

The review found that MCC had made significant progress in achieving its planned organizational structure, 

developing its compact development process, making 

progress towards complying with the Millennium 

Challenge Act of 2003 (Act)4 and assessing the applicability that other laws and regulations may have on its 

operations. 

In achieving its planned organizational structure, MCC 

had established an organizational structure consisting of 

the Chief Executive Officer and eight Vice Presidencies. 

By December 2005, it planned to reach a full staffing 

level of 222 U.S. staff positions. As of August 31, 2004, 

MCC had already filled 57 of the planned staff positions by means of a combination of U.S. direct hires, 

personal service contractors, specialized contractors 

and detailees. MCC also planned for 20 of the U.S. staff 

positions to be located overseas, assisted by an unspecified number of Foreign Service National (FSN) personal 

service contractors, to provide an on-the-ground presence to oversee the activities in the compact countries. 

With only 222 plus employees MCC is aware of the 

challenge it faces in overseeing an assistance program 

expected to reach $5 billion a year. It intends to contract 

for whatever support its core staff may need to maintain 

a proper level of oversight. 

Regarding its compact development process, MCC’s 

Board selected 16 countries as eligible to submit assistance proposals under fiscal year 2004 funding. MCC 

posted guidance to its website to assist the countries in 

developing country proposals, made initial visits to the 

countries to invite the countries to submit proposals and 

explain MCC’s guidelines and focus, and has generally 

stayed abreast of the countries’ proposal development 

efforts through various communication channels as well 

as through follow-up visits. By the end of August 2004, 

MCC had received initial program proposals from three 

countries and concept papers from six additional countries. It expected to receive either proposals or concept 

papers from four additional countries by October 2004 

and had not determined when the three remaining countries would send in their proposals. One of the issues 

that MCC is well aware of and will need to deal with 

going forward is its funds allocation process. MCC’s 

fiscal year 2004 appropriation is about $1 billion and 

early indications are that program proposals will come in 

for much more than that amount. 

Regarding MCC’s compliance with the Act and other 

applicable laws and regulations, MCC had taken the 

following actions among others to comply: established 

itself and a Board of Directors; identified candidate 

countries for fiscal years 2004 and 2005; selected eligible 

countries for fiscal year 2004; made proper notifications 

to Congress on its selections of candidate and eligible 

countries; met and consulted with appropriate congressional committees on the extent to which candidate 

countries met the eligibility criteria; held public meetings 

and has a plan to establish a program of up to $40 million 

for threshold countries.5 The only matter we considered 

to be a possible exception in looking at MCC’s compliance with the Act was that the pay rate for the services of 

the Board’s public members did not include Washington 

D.C.-based locality pay. MCC agreed to review this 

matter and determine the applicability of Washington, 

D.C.-based locality pay to its Board members. 

MCC also identified some other laws that it considered 

being partially or wholly exempt from because of being 

formed as a government corporation by Congress. The 

OIG and MCC are continuing to review these other laws 

to determine their applicability to MCC. 

4

 The Millennium Challenge Act of 2003 is Part D, Title VI of Public 

Law 108-199—The Consolidated Appropriations Act of 2004. 

5 Threshold countries are ones that just missed being determined 

eligible to receive MCA assistance but demonstrate a commitment to 

improving policy reform. 

April 1, 2004 — September 30, 2004
8 

Semiannual Report to the Congress

Lastly, the MCC is currently following Federal regulations 

for procurement, travel, and personnel-related matters 

but plans to write its own policies and procedures for 

these areas to reflect the flexibility that it has under the 

Act. The review noted two instances involving payments 

of special benefits for which MCC did not maintain documentation to support the rationale for the payments and 

the amounts. This was brought to the attention of MCC 

officials, and they acknowledged that documentation 

should have been maintained to support the payments. 

Our review was not an audit, and the report did not 

contain any recommendations. 

(Report No. M-000-04-001-S) 

Audit of MCC’s Fiscal Year 2004 

Financial Statements 

The Millennium Challenge Corporation was designed 

to make maximum use of flexible authorities to optimize 

efficiencies in contracting, program implementation and 

personnel. The Government Corporation Control Act 

establishes the reporting requirements for wholly owned 

government corporations such as MCC. 

The Government Corporation Control Act requires the 

head of a government corporation to submit an annual 

management report to the Congress no later than 180 

days after the end of the government corporation’s fiscal 

year. A government corporation’s management report 

includes a set of audited financial statements and a 

statement on internal accounting and administrative 

control systems consistent with the requirements for 

government agency statements on internal accounting 

and administrative control systems under the Federal 

Managers’ Financial Integrity Act. The Government 

Corporation Control Act requires that the financial 

statements be audited by the Inspector General of 

the corporation or an independent external auditor, as 

determined by the Inspector General. 

The set of audited financial statements required of the 

MCC by the Government Corporation Control Act is 

different from those required of the government agencies 

by the Office of Management and Budget (OMB) guidance, 

“Form and Content for Agency Financial Statements.” 

The MCC is required to prepare and submit a set of four 

principal financial statements: (1) Statement of Financial 

Position, (2) Statement of Operations, (3) Statement of 

Cash Flows, and (4) Statement of Budgetary Resources. 

Government agencies are required to prepare and submit 

a set of six principal statements: (1) Balance Sheet, (2) 

Statement of Net Cost, (3) Statement of Changes in 

Net Position, (4) Statement of Budgetary Resources, 

(5) Statement of Financing, and (6) Statement of 

Custodial Activity, when applicable. OMB’s guidance for 

government agencies also requires them to prepare and 

submit a set of audited financial statements to Congress 

no later than 45 days after the end of the government 

agency’s fiscal year. 

Given these differences in reporting requirements 

between government corporations versus government 

agencies, we have assisted the Corporation with 

determining the accounting standards it must follow and 

the financial statements it must submit. Additionally, 

given OMB’s desire to have all government entities report 

their financial statements on the same schedule, we 

have coordinated with MCC and the OMB to establish an 

accelerated reporting date for those financial statements. 

We have issued a solicitation for proposals to contract 

with an independent external audit firm to audit the 

Corporation’s fiscal year 2004 financial statements as 

required by the Government Corporation Control Act. 

Audit Of 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), Public Law 107 347, requires agencies 

to report annually on their information system security 

program to the Office of Management and Budget, 

Congressional committees, and the Government 

Accountability Office. The objective of this audit was 

to determine if the Millennium Challenge Corporation 

reported on its information security program in 

accordance with the requirements of the Office of 

Management and Budget’s fiscal year 2004 reporting 

instructions for FISMA. 

The Federal Information Security Management Act of 

2002 states that: 

Each agency shall develop, document, and 

implement an agency-wide information security 

program...to provide information security for 

the information and information systems that 

support the operations and assets of the agency, 

including those provided or managed by another 

agency, contractor, or other source.... 

April 1, 2004 — September 30, 2004
9 

Semiannual Report to the Congress

The MCC reported on its information security program 

in accordance with the Federal Information Security 

Management Act. However, the Corporation had not yet 

documented an information security program. Such a 

program would have included, among others, periodic 

risk assessments, policies and procedures to reduce 

risk, plans for providing information security and security 

awareness training, procedures for reporting incidents, 

and continuity of operations plan. Corporation officials 

explained that as a newly created organization, the 

Corporation had focused on establishing operations and 

that activities to define policies and procedures are still 

in process. 

The report contained one recommendation for the 

Corporation to develop an information systems 

security program in accordance with FISMA. 

Management accepted the recommendation and has 

reported it to the Office of Management and Budget in 

MCC’s fourth quarter Plan of Actions and Milestones. 

(Report No. M-000-04-001-P) 

Supporting Control of 

Corruption and Accountability 

The OIG is committed to detecting and preventing fraud 

and misuse of government resources worldwide and to 

preserving and protecting MCC programs and employee 

integrity. To realize that commitment, the OIG has 

initiated activities to (1) enhance the awareness of 

MCC staff to potential fraud and (2) involve OIG in 

the process of achieving effective accountability over 

MCC resources. 

MCC Participates in Annual 

Conference of International 

Consortium on Government 

Financial Management (ICGFM) 

In April 2004, OIG staff attended the ICGFM annual 

conference in Miami, Florida. The ICGFM is an 

organization dedicated to working globally with 

governments, organizations, and individuals to improve 

financial management by providing opportunities for 

professional development and information exchange. 

Representatives from approximately 30 countries 

participated in this year’s conference. Speakers included 

the USAID Deputy Administrator and MCC’s Managing 

Director for Fiscal Accountability. 

USAID’s Deputy Administrator addressed the challenges 

to development USAID faces as a result of corruption 

and what can be done about them. He discussed the 

Foreign Corrupt Practices Act and how it marked a 

fundamental change in thinking about corruption, which 

used to be a taboo subject but is now on the agenda 

of national, regional, and multinational policymaking 

bodies. The Deputy Administrator then talked about the 

establishment of the Millennium Challenge Corporation 

and how a country’s position on corruption will be viewed 

as a major factor in determining eligibility for MCC 

funding. 

MCC’s Managing Director for Fiscal Accountability then 

gave a presentation on “Lessons in Development” and 

four lessons he had learned in working with a developing 

country emerging from difficult times; specifically: 

1. How, given the right incentives, that government reformed previously deficient financial 

management processes.

2. How governments respond better to reform 

and change when such reforms and changes 

are based on a country’s analysis of its peer 

countries and its own internal needs rather 

than being imposed by external sources.

3. How donors’ contributions and assistance to 

counterpart developing countries can be mutually supportive when provided in partnership 

with their counterpart.

4. The importance of policy and the fact that 

a country’s technical expertise, financial 

resources, and good intentions will only have 

a positive impact on peoples’ lives if there are 

public policies in place that promote growth 

and provide opportunity to its citizens.

MCC’s Managing Director emphasized how the 

Corporation embraces these four lessons. He discussed 

how the Corporation is built around the principles of 

incentives, country-driven development programs, 

working as a partner, being accountable for results, and 

the concept that public growth and opportunity-oriented 

policies are important. 

April 1, 2004 — September 30, 2004
10 

Semiannual Report to the Congress

Fraud Awareness Briefing 

In July 2004, 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 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 efficiently and expeditiously. Investigations 

employs both proactive and reactive strategies to carry 

out its mission. 

Investigations’ presentation to MCC staff was to increase 

their awareness of the potential for fraudulent activities 

and to enhance their alertness for indications of potential 

fraud in the activities that MCC will be funding. MCC 

was presented with specific examples of fraudulent 

schemes uncovered during investigations involving 

USAID programs. Fraud indicators were described as 

clues or hints that a closer look should be made of an 

area or activity. 

The presentation also elaborated on the OIG’s work with 

Supreme Audit Institutions (SAIs) in foreign countries 

where USAID-funded activities are carried out. The SAIs 

are the principal government audit agencies in recipient 

countries and are often the only organizations that have 

a legal mandate to audit the accounts and operations of 

their governments. 

The OIG offered to conduct additional fraud awareness 

training sessions as needed to alert MCC employees, 

contractors, grantees and partners to fraudulent schemes 

and practices. In addition, the OIG Hotline was introduced as the tool for reporting fraud, waste, and abuse. 

The OIG also discussed the best use of its audit and 

investigative resources by deploying those resources 

to address the Corporation’s most significant issues, 

thereby adding value to the Corporation and at the same 

time keeping the Corporation’s stakeholders informed 

through the OIG reporting process. To decide on the best 

use of OIG resources, the OIG stated that it must keep 

abreast of the Corporation’s activities. One of the ways 

the OIG will do so will be to bring the Corporation into the 

OIG’s annual planning process to learn the Corporation’s 

concerns and priorities. 

Photograph on the OIG presenting its first fraud awareness briefing to staff of MCC. 

April 1, 2004 — September 30, 2004 
11 

Semiannual Report to the Congress

OIG’s Regional Inspector in 

Honduras Meets with MCC 

to Establish Relationship in

Anticipation of Future Audit 

Assistance 

As noted earlier, the AIG/MCC expects to draw on staff 

from the OIG’s Washington and overseas field offices 

to accomplish its audit and oversight responsibilities 

for the MCC. In late August to early September, the 

OIG’s Regional Inspector General in San Salvador 

traveled to Tegucigalpa, Honduras to meet with MCC 

senior Fiscal Accountability and Development Policy 

staff to accompany them on introductory meetings with 

senior officials from various Government of Honduras 

ministries, multilateral banks, and other institutions. The 

team visited the Ministry of Finance, Ministry of Public 

Works, Transport and Housing, Ministry of Agriculture, 

Ministry of Industry and Commerce, and the Honduran 

Social Investment Fund. The other organizations visited 

included the World Bank, the Central American Bank for 

Economic Integration, and the Inter-American Institute of 

Agricultural Cooperation. 

The purpose of the meetings was to provide general 

information about the OIG’s experience in auditing 

USAID funds in Honduras and the audit capability of 

Honduras’ Supreme Audit Institution (the Honduran 

Government audit agency) and local public accounting 

firms. Discussions with the various ministries and 

organizations focused, in general terms, on financial 

management issues such as the government’s 

implementation of its integrated financial management 

system and the physical flow of cash from the donor 

to the end-user. Also discussed was the organizations’ 

use of internal and external audits. This introductory 

trip also provided the opportunity for both MCC staff 

and the OIG to meet key people in the various 

organizations. 

April 1, 2004 — September 30, 2004
A 

P 

P 

E 

N 

D 

I 

C 

E 

S 

13 
14 

Semiannual Report to the Congress

REPORTS ISSUED

April 1, 2004 through September 30, 2004 

Report Number Date of 

Report Report Title 

Amount of 

Findings

($000s) 

Type of

Findings 

M-000-04-

001-S 09/30/04 

Review of the Millennium Challenge Corporation’s Progress in Achieving Its Planned 

Organizational Structure and Beginning Its Assistance Programs as of August 31, 

2004 

M-000-04-

001-P 09/30/04 Audit Of Millennium Challenge Corporation’s Compliance with the Provisions of the Federal Information Security Management Act of 2002 

April 1, 2004 — September 30, 2004 Appendix A
15 

Semiannual Report to the Congress

OIG STATISTICAL SUMMARY

As of September 30, 2004 

INVESTIGATIVE ACTIONS 

NOTHING TO REPORT 

Appendix B April 1, 2004 — September 30, 2004
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