Annual Plan

2007

UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT

OFFICE OF INSPECTOR GENERAL

FOR THE

MILLENNIUM CHALLENGE CORPORATION
Mission

The mission of Office of Inspector General (OIG) is to contribute to and support integrity, 

efficiency, and effectiveness in all activities of the organizations for which it has oversight 

responsibilities.

Values

In accomplishing our mission, OIG is committed to the following:

• Integrity

• Excellence

• Teamwork

Strategic Goals

• Promote sound accounting and reporting on financial activities and information 

security.

• Promote economy, efficiency, and effectiveness, and assess program results.

• Preserve and protect program and employee integrity.
OIG for MCC Fiscal Year 2007 Annual Plan 

MESSAGE FROMTHE

INSPECTOR GENERAL

This plan describes the activities 

that the United States Agency 

for International Development 

(USAID), Office of Inspector 

General (OIG), will undertake 

in support of the Millennium 

Challenge Corporation (MCC) in 

fiscal year (FY) 2007. 

OIG established this plan in support 

of its three strategic goals. Each 

audit and action planned is briefly 

described under the strategic goal it 

supports. The decision to perform 

the specific work of this plan 

was made by considering the risk 

associated with MCC’s programs and 

assessing potential vulnerabilities in 

internal controls.

During FY 2007, OIG will continue 

its review of MCC’s most complex 

and vulnerable programs as more 

Compacts are signed and the 

Millennium Challenge Account 

(MCA) countries begin to implement 

their programs.

OIG will continue to work toward 

providing meaningful and actionable 

recommendations that will improve 

the effectiveness and accountability 

of MCC’s programs. We will do this 

by working closely with the MCC 

and the MCAs to understand their 

programs’ designs and objectives 

prior to implementation, and by 

conducting our audits and investigations using the highest professional 

standards.

The results of this plan will be 

reported in future Semiannual 

Reports to the Congress.

Donald A. Gambatesa

Inspector General

OIG for MCC Fiscal Year 2007 Annual Plan 

United States Agency for International Development

Office of Inspector General

for the

Millennium Challenge Corporation

Annual Plan

Fiscal Year 2007

OIG for MCC Fiscal Year 2007 Annual Plan 

Message from the Inspector General

Inspector General Authority, Responsibility and Challenges . . . . . . . . . . . . . . . . . . . . . 1

OIG Planned Activities for Fiscal Year 2007

Strategic Goal 1: Promote sound accounting and reporting on financial

activities and information security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Strategic Goal 2: Promote economy, efficiency, and effectiveness and assess

program results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Strategic Goal 3: Preserve and protect program and employee integrity . . . . . . . 5

CONTENTS

OIG for MCC Fiscal Year 2007 Annual Plan 

1

Public Law 108-199 created MCC as 

a United States Government-owned 

corporation responsible for the 

stewardship of the Millennium 

Challenge Account (MCA) to 

promote, support, and ensure 

accountability for the innovative 

foreign aid strategies it administers, 

and established the USAID 

Inspector General as the Inspector 

General for MCC. MCC focuses 

specifically on promoting sustainable economic growth that reduces 

poverty through investments in 

areas such as agriculture, education, 

private-sector development, and 

capacity building. 

Working closely with MCC, 

countries that receive assistance 

are responsible for identifying 

the greatest barriers to their own 

development, ensuring civil society 

participation, and developing an 

MCA program. MCA participation 

requires a strong commitment 

from the host government. Each 

MCA country will enter into a 

public compact with MCC that 

includes a multiyear plan for 

achieving development objectives 

and identifies the responsibilities 

of each partner in achieving those 

objectives. This strategy of relying 

on the host country for design and 

implementation of the program is 

very different from the traditional 

foreign assistance model of the 

donor designing and implementing 

the program.

MCC anticipates a considerable 

increase in program and financial 

activity as the first group of signed 

Compacts is implemented. By the 

end of FY 2007, MCC plans to 

have Compacts with more than 

20 countries with a total value of 

approximately $6 billion.

 MCC’s innovative approach is 

not without risk. Much of MCC’s 

work is in countries that have 

limited experience in being solely 

responsible for implementing major 

infrastructure projects, and although 

the countries that sign Compacts 

with MCC must demonstrate a 

culture of anticorruption, there are 

still risks associated with programs 

of this magnitude. This combination of factors creates challenges 

for OIG and MCC, and this plan 

is intended to address the risks 

inherent in MCC’s new programs 

and operations.

INSPECTOR GENERAL 

AUTHORITY, RESPONSIBILITY 

AND CHALLENGES
OIG for MCC Fiscal Year 2007 Annual Plan 

2

Audit of MCC’s FY 2006 

Financial Statements

In accordance with the Government 

Corporation Control Act, 31 U.S.C. 

Section 9101, MCC is required 

to have its consolidated financial 

statements audited by OIG or an 

independent external auditor. OIG 

will contract with an independent 

external auditor to audit MCC’s FY 

2006 financial statements. The audit 

objectives are to determine whether 

MCC’s principal financial statements 

are presented fairly in all material 

respects and whether they conform 

to generally accepted accounting 

principles. The external auditors 

will perform tests of MCC’s internal 

controls structure and compliance 

with laws and regulations that 

could have a material effect on the 

principal financial statements. OIG 

will supervise the audit work, brief 

MCC on the audit findings and 

provide recommendations to MCC 

for correcting identified weaknesses.

Audit of MCC’s Compliance 

with the Provision of the 

Federal Information Security 

Management Act for FY 2007

The Federal Information Security 

Management Act of 2002 (FISMA), 

Public Law 107-347, requires each 

agency to develop, document, 

and implement an agency-wide 

information security program. 

This annually mandated audit will 

determine whether MCC’s information system security program meets 

FISMA requirements for program 

management and information 

security controls. It will enhance the 

protection of data files, computer 

equipment, and resources from 

unauthorized activity.

Assess Capabilities and 

Approve Local Accounting 

Firms for Auditing MCC 

Compacts

OIG will assess the capabilities of 

local audit firms in the countries 

where MCC has signed assistance 

Compacts. Assessments will address 

the capability of local firms and the 

need for alternative auditing from 

U.S.-based accounting firms or the 

Defense Contract Audit Agency.

Two Follow-up Audits of 

Recommendations from Two 

Previous Audits 

In accordance with OMB Circular 

A-50, these audits will assess 

whether management’s response 

to audit recommendations was 

effective in correcting identified 

problems to ensure that audit 

recommendations lead to results.

Three Limited-Scope Surveys/ 

Risk Assessments of the 

Financial Accountability 

Arrangements for Compact 

Implementation 

As part of its FY 2007 audit 

plan, OIG plans to continue 

its reviews of the financial 

implementation arrangements for 

new Compacts. OIG will perform 

these risk assessments to identify 

vulnerabilities in high-risk areas that 

may have an adverse effect upon the 

recipient’s financial operations. 

These surveys are expected to 

provide greater assurance that the 

funds provided to the recipients 

will be effectively controlled 

and managed. OIG will make 

recommendations for enhancing 

the existing financial management 

practices as necessary.

Audit of MCC’s Controls Over 

Its Contract for Information 

Technology Services 

Information technology (IT) 

operations and related services are 

supplied through contract support 

to MCC. MCC requires technologies that continually update systems, 

improve mission performance, 

and provide business solutions in 

the most economical and efficient 

manner.

This audit will determine whether 

MCC implemented necessary 

controls to monitor its contractor’s 

performance against the required 

service and security levels and 

engineering upgrades. The audit 

will also determine whether (1) 

performance measures were 

incorporated into the statement of 

work for each type of service to be 

provided; (2) the service level was 

completely and clearly defined in the 

statement of work; (3) performancebased incentives were included in 

the terms of the agreement; (4) 

the statement of work required the 

contractor to provide engineering 

upgrades; and (5) corresponding 

incentives were included in the 

contract. The results of the audit 

will be used to satisfy FISMA 2002 

requirements.

Strategic Goal 1: Promote 

sound accounting and 

reporting on financial 

activities and information 

security.
OIG for MCC Fiscal Year 2007 Annual Plan 

3

Strategic Goal 2: 

Promote economy, 

efficiency, and 

effectiveness, and assess 

program results.

Audit of MCC’s Management 

of Cash 

MCC approves the disbursement of 

cash to the Management Challenge 

Account (MCA) Accountable Entity 

in the host country on the basis 

of its cash needs for the following 

quarter. Cash transfers are made 

monthly. (OMB has not defined 

specific timeframes for immediate 

cash needs, but various federal 

agencies generally provide advances 

to nongovernmental entities to 

cover cash needs for up to 30 days.) 

Funds paid to a grantee are expected 

to be applied promptly to the grant 

purpose in accordance with OMB 

guidance.

The objective of this audit is to 

determine if MCC’s current cash 

management policies are adequate 

and meet the immediate cash 

needs of the MCA Accountable 

Entity in a reasonable and efficient 

fashion. The anticipated result of 

this audit is MCC’s establishment 

of cash management policies that 

provide for cash transfers that meet 

the immediate cash needs of the 

MCA host countries and comply 

with guidance issued by the U.S. 

Department of the Treasury to the 

extent applicable.

Oversight of Contracted 

Financial Audits of MCC’s 

Program-Implementing 

Entities 

Under the terms of MCC’s Compact 

agreements during initial Compact 

implementation, semi-annual audits 

are required of MCA Accountable 

Entities. These audits are required 

to be conducted in accordance 

with U.S. Government Auditing 

Standards, and MCA Accountable 

Entities will engage non-federal 

auditors to perform these audits. 

OIG’s oversight will ensure that the 

independence of the non-federal 

auditors has not been compromised 

in appearance or in fact; nonfederal 

auditors have adequately assessed 

expenditures adequately to ensure 

that they are allowable; nonfederal 

auditors have assessed the adequacy 

of the MCA Audited Entity’s 

internal controls in relation to the 

audited awards; and nonfederal 

auditors are familiar with the 

compliance auditing requirements 

of MCC Compact agreements and 

have adequately assessed compliance 

with the agreement terms.

OIG will review the qualifications 

and capacity of audit firms 

interested in performing financial 

audits of MCA Accountable 

Entities; review key contracting 

documents used in contracting audit 

firms; and perform quality control 

reviews of the audit work papers 

of contracted auditors for selected 

financial audits.

Audit of MCC’s Management 

of Its Travel Activities 

MCC must have adequate controls 

for properly managing travel 

activities in accordance with federal 

travel regulations and requirements. 

MCC recently developed its travel 

policy. This audit will evaluate the 

overall internal control environment of MCC’s travel program. 

OIG’s review of the policies and 

procedures and a sample of MCC 

travel activities may be able to 

provide MCC reasonable assurance 

that its policies, procedures, and 

travel activities are consistent 

with federal government travel 

regulations.

Audit of MCC’s Plans for 

Monitoring Country Programs

Monitoring provides information 

to determine whether the inputs 

to a project is well defined and 

utilized; identifies project problems 

and solutions; and ensures that the 

project plan is followed in a timely 

manner.

MCC includes a plan for monitoring and evaluating results in 

each Compact and conducts 

progress reviews. OIG also will 

review MCC’s monitoring plans 

to determine if the plans appear 

complete and adequate. OIG will 

also review project work plans, 

schedules and progress reports.
OIG for MCC Fiscal Year 2007 Annual Plan 

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This audit will determine if MCC’s 

progress oversight, monitoring and 

evaluation program is effective. The 

audit will evaluate the system that 

MCC uses to monitor the results 

of the MCA Accountable Entity’s 

activities, identify any apparent 

weaknesses, and recommend actions 

for better managing programs.

Risk Assessment of Compact 

Program Implementation in 

Vanuatu and Nicaragua 

Vanuatu and Nicaragua are two of 

the original 16 countries that MCC 

considered eligible to submit a 

proposal for a Compact project.

In 2006, a 5-year $65.69 million 

Compact was signed with 

Vanuatu. The Compact addresses 

Vanuatu’s costly and unreliable 

transportation infrastructure, a 

major impediment to economic 

growth. MCC signed a 5-year $175 

million Compact with Nicaragua in 

2005. The Compact funds projects 

for reducing transportation costs 

and improving access to markets 

for rural communities; increasing 

wages and profits from farming and 

related enterprises in the region; and 

increasing investment by strengthening property rights.

To provide MCC with assurance that 

funding is effectively managed by 

MCA-Vanuatu and MCANicaragua, OIG will review the 

planning for and implementation 

of major programs and project 

activities under the Compacts. 

These assessments will identify 

significant areas of administrative 

and operational risk and actions 

taken to mitigate risk. Recommendations, if any, will focus on 

financial management practices and 

management controls of MCAVanuata and MCA-Nicaragua.

Audits of the Quality of Data 

Reported by MCC for Its 

Programs in Georgia and Cape 

Verde 

In 2005, MCC signed a $295.3 

million Compact with the 

Government of Georgia and a $110 

million Compact with the Republic 

of Cape Verde.

Section 609(b)(1)(c) of Millennium 

Challenge Act of 2003 requires 

the parties of the Compacts to 

regularly assess progress toward 

the Compacts’ goals and objectives. 

Accordingly, the monitoring and 

evaluation plans of MCA-Georgia 

and MCA-Cape Verde contain 

requirements for data-quality 

reviews and collection and reporting 

of data for use by MCC to evaluate 

the progress and potential success 

of the Compacts’ activity and the 

program.

The objective of these audits will 

be to determine if program data 

reported by MCA-Georgia and 

MCA-Cape Verde are complete, 

and accurate and whether MCC’s 

means of verifying the data are 

adequate. Testing the quality of 

program data provided by MCAGeorgia and MCA-Cape Verde will 

allow weaknesses in data-gathering 

systems and data-verification 

processes to be detected. By 

identifying problems with data 

quality and recommending methods 

for improving the quality and 

timeliness of data, OIG will assist 

MCA-Georgia, MCA-Cape Verde 

and MCC management to obtain 

and provide more accurate and 

more timely data. As a result, MCA 

Accountable Entities and MCC 

will be better able to identify and 

resolve problems with higher quality 

program data.

Audit of Millennium 

Challenge Corporation’s 

Monitoring of the Country’s 

Procurement Process 

The contracting/procurement area 

is highly susceptible to fraud, waste, 

and abuse. MCC is a relatively new 

organization that has not fully tested 

the application of its modified 

procurement guidelines by MCA 

Accountable Entities. In addition, 

it is funding the implementation 

of Compact programs by MCA 

Accountable Entities in countries 

that have varying degrees of 

accountability standards. MCC’s 

monitoring process must be 

effective in ensuring that MCA 

Accountable Entities are complying 

with procurement requirements.

This audit will evaluate MCC’s 

monitoring process and make 

recommendations for correcting 

identified contracting/procurement 

monitoring problems and for 

addressing contracting/procurement 

deficiencies.

Audit of MCC’s Management 

of Its Conditions Precedent in 

Its Compact Agreements 

This audit will determine if MCC 

ensured that all required conditions 

were met before Compacts went 

into effect or disbursements were 

made to Compact countries. It 

also will address the thoroughness 

of MCC’s review of required 

documents to ensure that the 

Compact countries met all the 

conditions.
OIG for MCC Fiscal Year 2007 Annual Plan 

5

The anticipated result of the audit 

is that MCC will set guidelines 

for better assessing countries’ 

compliance with requirements 

before disbursing funds. It also 

may enable MCC to better identify 

the limitations of some developing 

countries that prevent completion 

of all necessary requirements. 

Recommendations will focus 

on policies that ensure that all 

conditions are met before funds are 

disbursed.

Investigate Allegations of 

Fraud, Waste, and Abuse in 

Programs and Operations

OIG will investigate all allegations 

of fraud, waste, and abuse received 

from MCC personnel, audit staff, 

contractors, grantees, the Hotline, 

and other sources. OIG will refer 

actions to MCC for administrative 

action, as appropriate. OIG will 

refer investigative findings to the 

U.S. Department of Justice for 

criminal and/or civil action, as 

warranted.

OIG will continue to prioritize 

program integrity cases involving 

major fraud in MCC programs and 

operations. Major fraud investigations are considered to be those 

involving large dollar losses.

OIG will track and report the 

number of allegations investigated, 

the number of cases referred for 

action, and the number of criminal, 

civil, and administrative actions 

resulting from investigations.

Prevent Fraud, Waste and 

Abuse in Programs and 

Operations

OIG will promote awareness of 

fraud by conducting fraud awareness 

training for MCC employees, 

contractors, grantees, and others to 

alert them to fraudulent schemes 

and practices. OIG will develop 

and distribute fraud awareness 

literature, audiovisual aids and other 

material to MCC and its partners. 

OIG also will advise upon and 

support antifraud strategies through 

briefings, meetings, conferences and 

other forums. OIG will promote 

its Hotline as an effective tool for 

reporting fraud, waste, and abuse.

Preserve and Protect 

Employee Integrity By 

Conducting and Concluding 

Investigations of Employee 

Integrity Efficiently and 

Expeditiously

OIG will investigate all allegations 

of personnel misconduct received 

from MCC personnel, contractors, 

grantees, the Hotline, and other 

sources. Evidence of wrongdoing 

by any employee will be reported 

to the U.S. Attorney’s Office for 

criminal/civil prosecution and/or to 

MCC for administrative action.

OIG will track and report the 

number of allegations investigated, 

the number of cases referred for 

action, and the number of criminal, 

civil, and administrative actions 

resulting from investigations.

Strategic Goal 3: Preserve 

and protect program and 

employee integrity.

Inspector General

OIG’s Hotline makes it easy to report allegations of 

fraud, waste, abuse, mismanagement, or misconduct in 

programs and operations of USAID, IAF, ADF, and MCC. 

Employees, contractors, program participants, and the 

general public may report allegations directly 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

U.S. Agency for International Development

1300 Pennsylvania Avenue, N.W.

Washington, D.C. 20523

www.usaid.gov

HOTLINE
The OIG Annual Plan for MCC is available on the Internet at 

www.usaid.gov/oig/public/mcc/mcc_ann_report.htm

U.S. Agency for International Development 

Offi ce of Inspector General 

for the

Millennium Challenge Corporation

1300 Pennsylvania Avenue, N.W. 

Room 6.6D 

Washington, DC 20523

www.usaid.gov/oig