OFFICE OF INSPECTOR GENERAL

FOR THE MILLENNIUM CHALLENGE CORPORATION

SEMIANNUAL REPORT TO THE CONGRESS

October 1, 2005 - March 31, 2006

NICARAGUA ARMENIA

GEORGIA MADAGASCAR CAPE VERDE

VANUATU HONDURAS BENIN
Inspector General

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

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:

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

During the current reporting period, OIG received 3,826 hotline contacts. Of these, 53 were referred for 

possible case openings, 205 were referred to USAID, seven were referred to other federal agencies, four 

were referred to other law enforcement agencies, and five were found to be unsubstantiated. The remaining contacts were solicitations for money advertisements, or requests for general information or other 

non-OIG-related matters.

U.S. Agency for International Development

1300 Pennsylvania Avenue, N.W.

Washington, D.C. 20523

www.usaid.gov

HOTLINE
MESSAGE FROM THE

INSPECTOR GENERAL

This Semiannual Report to the 

Congress (SARC) highlights 

the work of the United States 

Agency for International 

Development, Office of 

Inspector General (USAID/

OIG) for the Millennium 

Challenge Corporation (MCC) 

during the October 2005 to 

March 2006 timeframe.

Included are the results of four 

audit reports and notes that 

MCC reached final action on a 

number of audit recommendations during this reporting 

period. By doing so, MCC has 

demonstrated its continuing 

commitment to accountability. 

It is also worth noting that 

MCC Audit Committee had 

its first meeting with OIG in 

February 2006.

In response to findings in our 

audit of MCC’s fiscal year 

2005 financial statements, we 

will continue to work with 

MCC management on internal 

controls. By doing so, we 

will help MCC strengthen its 

internal controls process and 

avoid potential issues in future 

financial statement audits.

OIG is prepared to meet the 

Corporation’s expanding audit 

needs by focusing on program 

risk as disbursements increase 

across a range of programs. 

OIG is committed to fair and 

transparent oversight and the 

OIG staff and I look forward to 

working with you on the challenges ahead of us.

Donald A. Gambatesa

Inspector General

/s/
Acronyms and Abbreviations

ADF African Development Foundation

AIG/MCC Assistant Inspector General/Millennium Challenge Corporation

BIANCO Bureau of Independent Anti-Corruption 

CEO Chief Executive Officer

Corporation Millennium Challenge Corporation

FAP Fiscal Accountability Plan 

FAR Federal Acquisition Regulations 

FISMA Federal Information Security Management Act of 2002

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 Institutions

USAID United States Agency for International Development
SEMIANNUAL REPORT TO THE CONGRESS i

Table of Contents

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

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

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

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

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

Organizational Chart .......................................................................................................................... 3 

Highlights ................................................................................................................................................... 4

The Corporation ................................................................................................................................. 4 

MCC Achievements This Six-Month Period ................................................................................. 4

Section 609(g) Funding ...................................................................................................................... 5

Promoting Effective Use of MCC Resources and Improving Prospects for

Successful Program Implementation ......................................................................................................... 6

Background ........................................................................................................................................ 6

Strengthening Accountability Through Oversight Visits to Compact Countries ................6

Strengthening Accountability Through Coordination with Other Government

Entities ................................................................................................................................................ 9

Coordination With Other Federal Agencies on Accountability for MCC

Appropriations .................................................................................................................................. 9

Strategic Objectives to Address Management Challenges ................................................................ 10

Introduction ......................................................................................................................................10

Keep the Chief Executive Officer of the Corporation and Congress Fully

Informed on the Status of MCC’s Administration and Operations and the

Need for Corrective Action ........................................................................................................10

Promote Sound Accounting and Reporting on Financial Activities

and Information Security ..............................................................................................................11

Promote Economy, Efficiency and Effectiveness, and Assessing Program

Results ..............................................................................................................................................13

Preserve and Protect the Millennium Challenge Corporation’s Program

and Employee Integrity .................................................................................................................15

Appendices .................................................................................................................................................18 
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 Nothing to Report 

Recommendations for Corrective Actions Nothing to Report

Summary of Each Significant Report Pages 11 - 14

List of Audit Reports Issued Appendix A

Page 18

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

Management Decision Has Been Made Nothing to Report

Significant Prior Recommendations on Which Corrective Action Has 

Not Been Completed 

Appendix B

Page 19

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 C

Page 20

Decisions and Reasons for Significant Revised Management Decisions Appendix C

Page 20

Significant Management Decisions with Which the Inspector General 

Disagrees

Appendix C

Page 20

Remediation Plan Information (Required under the Federal Financial 

Management Improvement Act of 1996)

Appendix C

Page 20

Matters Referred to Prosecutive Authorities and the Prosecutions and 

Convictions Which Resulted

Appendix D

Page 21
SEMIANNUAL REPORT TO THE CONGRESS 1

EXECUTIVE SUMMARY

This semiannual report highlights significant events regarding 

the Office of Inspector General 

(OIG) and presents the results 

of OIG’s activities pertaining 

to the Millennium Challenge 

Corporation (MCC or 

Corporation) for the six-month 

period ended March 31, 2006. 

During the reporting period, 

OIG continued to focus on 

MCC’s Compact accountability 

and effective use of resources, 

and on helping the Corporation 

succeed in its mission.

In February the Inspector 

General and OIG staff attended 

the first meeting of the 

Corporation’s newly appointed 

Audit Committee. During this 

meeting, attendees discussed 

the status of OIG audits, audit 

recommendations, and planned 

future audit activities. 

On March 30, 2006, OIG 

staff presented a briefing to 

representatives from countries eligible for future MCC 

Compacts. At this briefing, 

OIG explained its role and 

responsibility for audits and 

investigations, including visiting 

country implementing agencies, approving audit firms, and 

overseeing audits related to the 

Compacts.

During this reporting period, 

OIG teams visited two Compact 

countries—Madagascar and 

Cape Verde—and two prospective Compact countries—

Lesotho and Senegal. OIG made 

the visits to assess auditing 

capabilities of local accounting 

firms; select and approve firms 

for performing financial audits 

of MCC Compacts; assess 

general program implementation capabilities; and gain 

understanding of the planned 

program activities in those 

countries. One of those visits 

resulted in an audit report on 

financial risks and vulnerabilities 

in Madagascar. Also, to assist 

program managers in meeting 

audit responsibilities, OIG 

updated and issued OIG guidelines for auditing MCC Compact 

programs.

During this reporting period, 

OIG issued four reports 

concerning: 

• MCC’s contract management 

system,

• MCC’s employee benefits 

program, 

• MCC’s potential financial and 

program risk and vulnerabilities 

in Madagascar, and

• audit of MCC’s fiscal year 2005 

financial statements.

The four reports contained 16 

recommendations to correct 

accountability and administrative problems. OIG and MCC 

management have reached 

“management decisions” on all 

16 of the recommendations, and 

final action has been completed 

on 10 of the recommendations.

OIG also presented fraud 

awareness briefings to MCC 

staff in Washington, D.C., 

Madagascar and Cape Verde.

As of March 31, 2006, the 

Corporation had signed eight 

Compacts with a value of $1.5 

billion. These Compacts are 

with Armenia, Benin, Cape Verde, 

Georgia, Honduras, Madagascar, 

Nicaragua, and Vanuatu.

 To assist selected countries 

(Threshold Countries)1

 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. 

As of March 31, 2006, MCC 

has approved five countries for 

Threshold funding: Burkina 

Faso, Malawi, Albania, Paraguay 

and Tanzania.

 

1. The Threshold Program helps ineligible countries become eligible to apply for MCC assistance.
2 SEMIANNUAL REPORT TO THE CONGRESS

OVERVIEW

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), the Inter-American 

Foundation (IAF), and the 

Millennium Challenge Corporation. 

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 to (1) promote economy, 

efficiency and effectiveness in the 

administration of programs and (2) 

detect and prevent fraud and abuse 

in program operations. The IG Act 

requires Inspectors General to keep 

management and the Congress 

fully and currently informed about 

problems and deficiencies relating to 

the administration of programs and 

operations and the necessity for, and 

progress of, corrective action.

ORGANIZATION

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 Cairo, Egypt; San Salvador, 

El Salvador; Frankfurt, Germany; 

Baghdad, Iraq; Manila, Philippines; 

Dakar, Senegal; and Pretoria, South 

Africa. These regional offices 

maintain close working relationships 

with USAID and enable auditors 

and investigators to carry out OIG’s 

responsibilities efficiently.

OIG activities for MCC are 

managed by an Assistant Inspector 

General (AIG/MCC). This unit 

has two divisions, Financial Audits 

and Performance Audits. As the 

Corporation continues to develop 

and expand its programs, the unit 

is expanding its staff to provide 

effective audit oversight of the 

Corporation’s worldwide programs. 

As of March 31, 2006, the OIG 

unit for MCC consists of eight fulltime employees and one part-time 

employee, an increase of three since 

September 30, 2005. The unit will 

continue to draw support from 

OIG’s Washington and overseas 

offices, as well as external audit 

firms. For example, the required 

annual audit of MCC’s compliance 

with provisions of the Federal 

Information Security Management 

Act (FISMA) is accomplished with 

support from OIG’s Washington 

audit offices. Additionally, audits 

of the Corporation’s employee 

benefits program and the fiscal 

year 2005 financial statements 

were performed by a certified 

public accounting firm. The fraud 

awareness briefings to MCC 

personnel and host country entities 

included presenters from the OIG 

Investigations unit and Regional 

Inspector General offices.
SEMIANNUAL REPORT TO THE CONGRESS 3

USAID

OFFICE OF INSPECTOR GENERAL

Inspector General

Deputy Inspector General

Counsel to 

the Inspector 

General Chief of Staff

Assistant Inspector 

General -- Investigations

Deputy AIG/I

Headquarters 

Liaison & 

Coordination 

Division

AFR/ANE 

Division

LAC/E&E 

Division

Assistant Inspector 

General -- MCC

Deputy AIG/MCC

Financial 

Audits Division

Performance 

Audits Division

Assistant Inspector 

General -- Management

Deputy AIG/M

Human

Capital

Division

Financial

Resources

Division

Information

Technology

Division

Assistant Inspector 

General -- Audit

Deputy AIG/A

Financial 

Audits Division

Information 

Technology & 

Special Audits 

Division

Deputy AIG/A

Headquarters

Liaison & 

Coordination 

Division

Performance 

Audits Division

Regional Inspector General Offices

Cairo

Egypt

San 

Salvador

El Salvador

Frankfurt

Germany

Baghdad

Iraq

Manila 

Philippines

Dakar 

Senegal

Pretoria

South Africa
4 SEMIANNUAL REPORT TO THE CONGRESS

HIGHLIGHTS

Final action taken on 20 of the 28

outstanding OIG audit recommendations

THE CORPORATION

The Millennium Challenge 

Corporation was created in 

January 2004 as an Independent 

Government Corporation to 

provide development assistance to 

reduce poverty in countries that 

meet MCC’s criteria of governing 

justly, investing in their people, and 

encouraging economic freedom. 

The Corporation is located in 

Washington, D.C. with approximately 200 full-time employees. It 

plans to increase its staff to about 

300 employees during 2006. 

The Corporation contracts with 

the Department of Interior’s 

National Business Center in Denver,

Colorado for its accounting, payroll 

and other administrative services.2

 

The Corporation has agreements 

with the Army Corp of Engineers, 

Department of Agriculture, Treasury

Department, Department of 

Transportation, and the Bureau 

of Census for technical services 

supporting Compact implementation. MCC also has an agreement 

with USAID for managing inidividual

country Threshold programs.

MCC ACHIEVEMENTS 

THIS SIX-MONTH 

PERIOD

During the period October 1, 2005 

to March 31, 2006:

 

• Secretary Rice in her capacity 

as MCC Board Chair appointed 

an Audit Committee, made up 

of Board members, to assist 

in the general supervision and 

oversight of: MCC’s administrative and financial controls, the 

integrity of MCC’s financial 

statements and accounting 

methodology, and the performance of MCC audit functions 

carried out by the Inspector 

General for MCC;

• MCC developed a system for 

managing final actions on OIG 

audit recommendations;

• MCC took final action on 20 of 

the 28 outstanding OIG audit 

recommendations;

• The MCC Board approved 

Threshold agreements valued 

at approximately $95 million 

with Albania, ($13.9 million), 

Paraguay ($34.7 million), 

Burkina Faso ($12.9 million), 

and Malawi ($20.9 million), and 

Tanzania ($11.2 million). Those 

agreements will target activities 

designed to help those countries 

become eligible for a future 

Compact. 

• MCC signed three Compact 

agreements for a total of eight, 

as of March 31, 2006.

The three compact agreements 

signed from October 1, 2005 to 

March 31, 2006, include:

• Armenia for $235 million 

to reduce rural poverty by 

strengthening the performance 

of the agricultural sector. The 

program will seek to improve 

rural roads and irrigation 

infrastructure, provide technical 

assistance, and provide financial 

support to water supply entities, farmers, and commercial 

agribusinesses. The program 

is expected to directly impact 

approximately 750,000 people, 

or 75 percent of the rural population, increasing their annual 

income by an estimated $36 

million in 2010 and over $113 

million in 2015.

• Benin for $307 million to 

improve its physical and institutional infrastructure by focusing 

on access to land, financial 

services, justice, and markets. 

The program is expected 

to benefit up to five million 

Beninese and lift an estimated 

250,000 of its citizens out of 

poverty by the year 2015.

• Vanuatu for $66 million to 

improve Vanuatu’s transportation infrastructure, including 

roads, wharfs, an airstrip and 

warehouses. The project will 

also seek to improve Vanuatu’s 

Public Works Department. The 

program is expected to benefit 

more than 65,000 rural poor 

inhabitants.

 

2. The National Business Center is an administrative and computer information service provider for the Department of Interior and other Federal agencies.
SEMIANNUAL REPORT TO THE CONGRESS 5

SECTION 609(g) 

FUNDING

Section 609(g) of the Millennium 

Challenge Act gives MCC the 

authority to enter into contracts 

or grant agreements for any eligible 

country to assist in facilitating the 

development and implementation 

of a Compact between the United 

States and the eligible country. In 

so doing, MCC funds projects such 

as feasibility studies, and surveys in 

order to ensure the sustainability 

of the proposed project in the 

Compact. The general categories 

to which the 609(g) funding funds 

include: program development, 

project preparation, monitoring and 

evaluation, management support, and

bridge funding.

As of March 28, 2006, MCC has 

committed to provide $35.2 

million in 609(g) funding to 11 

eligible countries—Benin, Lesotho, 

Ghana, Mozambique, Nicaragua, 

Georgia, Senegal, Mali, Cape Verde, 

Madagascar, and Armenia—of 

which two received post-Compact 

funding, termed Bridge funding. 

MCC provides Bridge funding to 

countries after they have signed 

their compact and need money to 

set-up their offices. The amount of 

Bridge funding is subtracted from 

the total Compact amount that the 

country receives from MCC. In 

addition, although MCC has agreed 

to provide 609(g) funding to these 

countries, it has only disbursed 

the funding to few countries. 

Furthermore, MCC does not 

disburse the full amount at once, but

in portions, according to the work 

that is being conducted at a specified period of time.

Before MCC considers providing 

funding, the country team prepares 

a formal request for MCC 

Investment Committee (who 

approves or rejects proposals). 

After the Investment Committee 

makes its decision, it informs 

Congress through a Congressional 

Notification. From that point, MCC 

provides several key documents 

to the country, such as the grant 

and implementation agreements 

or memorandum of understanding. 

However, if the funding is for 

discrete purposes, MCC does not 

use these documents. Thereafter, 

MCC determines whether it or the 

recipient country should be the 

fiscal and procurement agent. 
6 SEMIANNUAL REPORT TO THE CONGRESS

PROMOTING EFFECTIVE USE OF 

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 other Federal 

agencies. However, MCC is subject 

to many of the laws and regulations 

that apply to most Federal agencies, 

including the requirements for 

accountability and sound management. MCC has identified the 

specific laws and regulations to 

which it is subject.

As the Corporation develops its 

program and operating concepts 

and procedures, OIG works closely 

with its executives and managers 

to enhance our knowledge of the 

Corporation’s programs, activities, and vulnerabilities, including 

its administrative and accounting 

processes. OIG has taken and 

continues to take the approach that 

early involvement in MCC activities 

will help ensure good management. 

We seek to establish a framework 

for providing early feedback to help 

MCC ensure that MCC administrative functions and Compact 

programs are based on a solid 

foundation of effective accountability.

STRENGTHENING 

ACCOUNTABILITY 

THROUGH OVERSIGHT 

VISITS TO COMPACT 

COUNTRIES

Our overriding goal is to support 

management in the delivery of its 

programs by helping management 

ensure that the Corporation operates efficiently, effectively and with 

integrity. Our activities are designed

to prevent and detect fraud, waste 

and abuse; ensure the effective use 

of MCC resources; and ensure the 

economy, efficiency and effectiveness of MCC’s administrative and 

program operations.

As of March 31, 2006, the 

Corporation had signed eight 

country Compacts with a total 

value of $1.5 billion and has made 

program-related disbursements of 

more than $13 million under three 

of those Compacts.

MCC is still a relatively new organization which has not yet reached 

its optimum stage of organizational 

development and which is implementing development Compact 

programs based on an innovative 

development assistance model that 

has not been fully tested. These 

programs are being implemented 

in countries where varying degrees 

of corruption are prevalent and 

standards of accountability vary. 

Given these inherent vulnerabilities 

of the Corporation’s programs, 

OIG has continued its collaborative 

approach with MCC to ensure the 

programs are effective. During 

the past six-month period, OIG 

assessed the oversight capabilities of 

Compact-implementing entities and 

the auditing capabilities of potential 

auditing firms and government audit 

institutions in Madagascar, Lesotho 

and Cape Verde.

OIG Visits Madagascar

In November 2005, OIG made an 

oversight visit to the Republic of 

Madagascar to assess progress in 

implementing the activities under 

Madagascar’s compact agreement 

with MCC. During that visit, OIG 

met with various individuals involved 

with developing the proposal and 

providing assistance in the compact 

activities. Several discussions were 

held with key staff of the newly 

created Millennium Challenge 

Account (MCA) Madagascar (the 

Compact implementing organization) to discuss policies and 

procedures and implementation 

activities. OIG also met with key 

staff of MCA/Madagascar’s fiscal and 

procurement agent to review the 

progress in building its organizational structure and developing policies and procedures to comply with 

MCC’s requirements, and to assess 

their understanding of their role, 

responsibilities and familiarity with 

MCC’s criteria. Also, OIG met with 
SEMIANNUAL REPORT TO THE CONGRESS 7

Photograph of one of the two USAID OIG briefings to MCA staff, SAI, 

Cape Verde Ministry of Finance personnel and local accounting firms. 

OIG presented information on fraud detection and prevention and 

audit guidelines that will be used to audit recipients of MCC funds.

USAID/Madagascar to discuss its 

involvement and coordination efforts 

with MCC and the assistance it is 

providing under the pre-Compact 

funding assistance.

In December 2005, OIG performed a 

risk assessment of MCA Madagascar, 

the implementing organization 

for MCC’s $110 million Compact 

program in Madagascar, to identify 

and evaluate vulnerabilities in highrisk areas. The risk assessment 

was performed during the MCA 

Madagascar initial implementation 

phase. OIG’s review disclosed that 

MCA Madagascar had high vulnerabilities in several critical areas that 

could adversely impact its financial 

operations.

The results of our Madagascar risk 

assessment are discussed in greater 

detail on page 12.

Concurrent with the risk assessment in Madagascar, OIG presented 

a fraud awareness briefing to 

the Bureau of Independent 

Anti-Corruption (BIANCO) of 

Madagascar and to the MCA 

Madagascar staff. BIANCO is an 

independent government organization created in 2003 to fight corruption.

The fraud awareness briefings 

focused on the role of OIG in helping

MCC management design and 

implement controls and processes 

to prevent fraudulent activities, and 

in investigating potentially fraudulent 

activities when they do occur. 

The briefing presented indicators 

of fraud as well as environments 

that promote fraud. The briefings 

explained that it is the USAID Office 

of Investigations’ (Investigations) 

responsibility to (1) investigate 

allegations of fraud, waste and abuse 

in programs and operations; (2) help 

MCC management prevent fraud, 

waste and abuse in programs; and 

(3) preserve and protect employee 

integrity by conducting investigations 

of employee integrity.

OIG Visits Cape Verde

OIG conducted a risk assessment 

of Millennium Challenge Account 

(MCA), Cape Verde, the implementing

organization for MCC’s $110 million 

Compact program in Cape Verde, 

to identity high-risk areas. The risk 

assessment was performed during 

the MCA Cape Verde implementation

phase. At the end of March 2006, 

OIG staff were in the process of 

completing their analysis. 

During a visit to Cape Verde, OIG 

staff presented briefings on fraud 

awareness and MCC audit guidelines. 

Attending these briefings were 

MCA/Cape Verde personnel, local 

accounting firms, and Ministry of 

Finance staff. The fraud awareness 

briefing focused on the role of the 

USAID OIG offices to prevent and 

investigate fraudulent activities. The 

briefing presented indicators of fraud 

as well as environments that promote 

fraud. OIG team provided training on 

the audit requirements for projects 

funded with MCC assistance. The 

presentation covered audit standards, 

the reporting process, and IG quality 

control procedures over audits of 

MCC assistance.

To ensure management accountability 

of the U.S. assistance to Cape Verde, 

OIG evaluated local accounting firms 

in Lisbon, Portugal and Cape Verde to 

audit MCC assistance. The team also 

met with the president of Tribunal de 
8 SEMIANNUAL REPORT TO THE CONGRESS

 

Photograph of village residents discussing local needs in anticipation of a 

future MCC Compact.

Photograph of voting system used by villagers to identify priorities for 

potential development assistance funding. Village representatives vote by 

placing stones in cans which represent different program options.

Contas de Cabo Verde, the Cape Verde 

Supreme Audit Institution, and his key 

staff to gain an understanding of the 

professional and regulatory environment in which audits are conducted in 

Cape Verde.

OIG Visits the Kingdom of Lesotho

In November 2005, OIG staff visited 

the Kingdom of Lesotho to review the 

management and implementation of the 

activities funded under the $1.39 million 

609(g)3

 grant designed to assist with the 

Compact development process. During 

the visit, OIG staff interviewed government officials to obtain the country’s 

perspective of working with MCC and 

the challenges it faced in developing a 

proposal meeting MCC’s criteria.

OIG staff also interviewed procurement evaluation committee members 

responsible for selecting consultants 

to conduct the 609(g)-funded studies 

to determine their understanding of 

the procurement guidelines and the 

policy and procedures for evaluations. Furthermore, OIG observed a 

consultative process held in a remote 

village in Lesotho. Several villages were 

represented at the meeting, which 

provided a platform for identifying 

community needs and making corresponding action plans. The meeting 

was led by the Director of Planning of 

the Ministry of Local Government. The 

MCA Coordinator and MCC’s Country 

Director addressed the gathering and 

talked about MCC’s goals and objectives 

and how MCC could assist them in 

meeting their needs.

 Some of the needs identified were (1) 

water in the villages, (2) bridges and 

roads, (3) proper sanitation facilities, 

and (3) getting products to markets. 

3. 609(g) is a provision in the Millennium Challenge Act whereby MCC may provide funds to an eligible country to facilitate the development and implementation of a 

Compact
SEMIANNUAL REPORT TO THE CONGRESS 9

Several of the villagers expressed 

their dissatisfaction about the long 

distances they had to walk to get to 

a river that was oftentimes very low 

or dried up. Other villagers wanted 

to know how soon solutions to the 

needs that they identified would be 

implemented. After the needs were 

identified, the villagers voted on them

and will submit action plans to the 

local district. Below is a picture of 

the voting process the villagers used. 

Each can represents an identified 

need, and the villagers vote by dropping stones in the cans representing 

that need.

STRENGTHENING 

ACCOUNTABILITY 

THROUGH 

COORDINATION WITH 

OTHER GOVERNMENT 

ENTITIES

The Congress gave MCC 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 that have 

oversight responsibilities. Specifically, 

the Inspector General Act of 1978, 

(Section 4.(c)) as amended, requires 

that “In carrying out the duties and 

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 insuring 

effective coordination and cooperation.”

The Government Accountability 

Office

OIG has 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. 

OIG’s coordination with GAO 

provides reasonable assurance that 

all relevant areas of MCC’s activities 

are receiving oversight while avoiding 

duplication of effort.

The Office of Management and 

Budget

OIG coordinates with the Office of 

Management and Budget (OMB) by 

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 interpretation, OIG 

initiates early dialogue with OMB and 

MCC management to help ensure 

compliance with important reporting 

time lines. Moreover, as part of OIG 

coordination efforts, OMB officials 

participated in our annual planning 

conference.

COORDINATION 

WITH OTHER FEDERAL 

AGENCIES ON 

ACCOUNTABILITY FOR 

MCC APPROPRIATIONS

MCC has entered into a number of 

interagency agreements with other 

Federal entities to help implement 

its programs. For funds transferred 

from MCC to USAID, the oversight 

responsibility remains with the 

Inspector General for USAID.

Other recipients of MCC funds 

include the Army Corps of Engineers, 

Department of Agriculture, 

Treasury Department, Department 

of Transportation, and Bureau of 

Census. OIG’s role will be to contact 

the Inspector General offices in those 

agencies to exchange information 

about the interagency agreements in 

an effort to advance accountability 

for MCC funds.

• Establish extensive coordination process with GAO

• Initiate early dialogue with OMB

• Exchange information with other OIG’s on interagency 

agreements
10 SEMIANNUAL REPORT TO THE CONGRESS

STRATEGIC OBJECTIVES TO ADDRESS 

MANAGEMENT CHALLENGES

The Corporation is dealing with the challenges 

of implementing new and innovative programs 

in complex overseas environments...

INTRODUCTION

Management challenges are defined 

as risks and vulnerabilities that need 

to be addressed by management. 

Having been established for just over 

two years, the Millennium Challenge 

Corporation faces the normal 

challenges of any new organization: 

developing financial systems, hiring 

staff, determining applicability of laws 

and regulations, developing internal 

controls, and developing an effective 

program management and oversight 

methodology. And having signed 

eight Compacts, the Corporation 

is dealing with the challenges of 

implementing new and innovative 

programs in complex overseas 

environments—with differences in 

language, laws and accountability 

standards as well as varying degrees 

of corruption in many of the countries where it will likely implement 

programs.

To clearly understand these challenges and to select the appropriate 

OIG response to them, OIG 

undertakes an extensive annual 

planning process, obtaining views 

and concerns on issues affecting the 

Corporation as well as soliciting 

feedback on the usefulness of our 

work. Participants in this planning 

process include representatives of 

USAID and Office of Management 

and Budget, and senior managers of 

MCC.

In addition, OIG has four goals 

consistent with the IG Act of 

1978, as amended, under which it 

conducts audits and reviews to help 

the Corporation address and overcome its management challenges. 

These four goals are to:

• Keep the Chief Executive 

Officer of the Corporation and 

Congress fully informed on the 

status of MCC’s administration 

and operations and the need for

corrective actions, 

• Promote sound accounting and 

reporting on financial activities 

and information security,

• Promote economy, efficiency 

and effectiveness and assess 

program results, and

• Preserve and protect MCC’s 

program and employee integrity.

Activities undertaken to meet these 

goals included ongoing dialogue 

with the General Accountability 

Office; conducting a fraud-awareness briefing in March 2006; 

meeting with the recently appointed

Audit Committee; working with 

Corporation management to 

develop effective audit recommendation follow-up procedures; 

and issuing four audit reports with 

recommendations to improve the 

Corporation’s operations.

KEEP THE CHIEF 

EXECUTIVE OFFICER 

OF THE CORPORATION 

AND CONGRESS FULLY 

INFORMED ON THE 

STATUS OF MCC’S 

ADMINISTRATION AND 

OPERATIONS AND THE 

NEED FOR CORRECTIVE 

ACTIONS 

This goal is designed to make 

sure that potential management 

challenges and progress thereon 

are addressed early and openly by 

communicating on an ongoing basis 

with Corporation management and 

the Congress. Specifically, OIG:

• Prepares and submits semiannual reports to Congress. 

The IG Act requires that OIG 

provide Congress with written 

reports of its activities and 

accomplishments every six 

months. The reports include 

OIG audit and investigative 

highlights as well as summaries 

of significant audits performed 
SEMIANNUAL REPORT TO THE CONGRESS 11

during the reporting period. 

This is the fourth Semiannual 

Report to Congress and covers 

the period ending March 31, 

2006.

• 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 February, OIG 

met with the Board’s Audit 

Committee to introduce OIG 

staff and brief the Committee 

members on the status of OIG 

audits, audit recommendations 

and other audit-related matters. 

OIG had frequent meetings with 

the CEO and continuing interactions with MCC senior management. In its meetings with the 

CEO, the OIG discussed significant audits and the status of 

the Corporation’s management 

controls, as well as program 

oversight and monitoring efforts.

• Conducts audits and distributes 

audit reports to MCC management and congressional staff in 

a timely manner. All non-classified reports are transmitted 

to appropriate congressional 

committees. These reports 

are in compliance with the 

Americans with Disabilities 

Act and are posted to the OIG 

website at www.usaid.gov/oig.

PROMOTE SOUND 

ACCOUNTING AND 

REPORTING ON 

FINANCIAL ACTIVITIES 

AND INFORMATION 

SECURITY

This goal addresses the 

Corporation’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 completed three 

audits this period to address these 

challenges: an audit of MCC’s Fiscal 

Year 2005 Financial Statements, 

an agreed-upon procedures audit 

covering MCC employee benefits 

program, and a Risk Assessment 

of MCC’s Compact program in 

Madagascar. Additionally, one risk 

assessment of MCC’s program in 

Cape Verde was underway at the 

end of March 2006.

Audit of the Millennium 

Challenge Corporation’s 

Financial Statements, Internal 

Controls, and Compliance for 

the Period Ending September 

30, 2005, and the Nine-Month 

Period Ending September 30, 

2004

In its audit of the Millennium 

Challenge Corporation’s financial 

statements for the period ending 

September 30, 2005, and the ninemonth period ended September 30, 

2004, the external auditors found 

that:

• The financial statements were 

fairly presented in conformity 

with U.S. generally accepted 

accounting principles

• There were four reportable 

conditions regarding the 

controls over financial reporting 

and its operations. One of the 

four reportable conditions is a 

material weakness

• There were three instances of 

noncompliance with laws and 

regulations related to the review 

of its financial and accounting 

system.

The material weakness and the 

reportable conditions identified 

in the internal controls relate to 

MCC’s need to develop written policies and procedures to streamline 

its financial operations. The absence 

of a complete set of effective 

written policies and procedures for 

these operations increased the risk 

of errors, improper recording, unauthorized transactions, omissions, 

potential funds control violations, 

and noncompliance with laws and 

regulations.

The external auditors reported the 

following internal control weaknesses or reportable conditions:

1. Policies and procedures were 

not always complete and consistent (material weakness)

2. Policies and procedures for 

managing travel and related 

disbursements do not permit 

the effective and efficient 

management of travel (reportable condition)
12 SEMIANNUAL REPORT TO THE CONGRESS

3. Policies and Procedures for 

disbursing advances to grantees 

do not accommodate effective cash management nor 

the appropriate recording of 

custodial interest receivable and 

payable (reportable condition 

and noncompliance)

4. Policies and Procedures for 

managing Its financial operations 

are inadequate (reportable 

condition)

OIG also reported the following 

instances of noncompliance with 

laws, regulations, contracts, and 

grant agreements, inclusive of those 

referred to in the Federal Financial 

Management Improvement Act 

of 1996 (FFMIA), and disclosed 

instances of noncompliance or other 

matters that are required to be 

reported herein under Government 

Auditing Standards, issued by the 

Comptroller General of the United 

States, and Office of Management 

and Budget (OMB) Bulletin No. 01-

02, Audit Requirements for Federal 

Financial Statements:

1. MCC did not fully comply with 

requirements mandated by the 

Federal Financial Management 

Improvement Act (FFMIA) and 

Government Performance 

Results Act (GPRA) (material 

noncompliance).

2. MCC did not fully comply with 

Federal Information Security 

Management Act FISMA (material noncompliance).

3. MCC policies for disbursing 

advances to grantees did not 

accommodate effective cash 

management nor the appropriate recording of custodial 

interest receivable and payable 

(reportable condition and 

noncompliance).

The report contained five recommendations for MCC to strengthen 

its policies and procedures to 

address the internal control 

weaknesses and the instances of 

noncompliance identified above. 

Management accepted the five 

recommendations and management 

decisions were reached on all five 

recommendations.

(Report No. M-000-06-001-C)

Audit of the Millennium 

Challenge Corporation’s 

Retirement, Health 

Benefits, and Life Insurance 

Withholdings/Contributions and

the Supplemental Semiannual 

Headcount Report Submitted 

to the Office of Personnel 

Management (OPM) for the 

Period Ended February 19, 

2005

The Office of Inspector General 

(OIG) contracted with an independent certified public accounting 

firm to perform Agreed-Upon 

Procedures for the Millennium 

Challenge Corporation’s (MCC) 

Retirement, Health Benefits, and 

Life Insurance Withholdings/

Contributions and the Supplemental 

Semiannual Headcount Report 

submitted by MCC to OPM for the 

period ended February 19, 2005. 

The contract required that the audit 

be performed in accordance with 

generally accepted auditing standards; generally accepted government auditing standards; and Office 

of Management and Budget OMB) 

Bulletin 01-02, Audit Requirements 

for Federal Financial Statements as 

amended by M-04-22 on July 27, 

2004.

In its report on the Agreed-Upon 

Procedures of MCC’s Retirement, 

Health Benefits, and Life Insurance 

Withholdings/Contributions and the 

Supplemental Semiannual Headcount 

Report submitted to OPM by MCC 

for the period ended February 19, 

2005, OIG found that the information appeared reasonable based on 

the sample selected and the AgreedUpon Procedures performed.

Based upon the sample reviewed 

by the auditors and the AgreedUpon Procedures performed, 

the Retirement, Health Benefits, 

and Life Insurance Withholdings/

Contributions as well as enrollment information submitted via 

the Semiannual Headcount Report 

appeared reasonable. Therefore, the 

audit report contains no findings or 

recommendations.

(Report No. M-000-06-002-F)

Risk Assessment of MCA 

Madagascar’s Financial 

Operations

OIG performed a risk assessment of MCA Madagascar from 

December 12 thru December 

16, 2005, to evaluate and identify 

vulnerabilities in high risk areas 

that may impact MCA Madagascar’s 

financial operations. The risk assessment was performed during MCA 

Madagascar initial implementation 

phase to detect vulnerabilities early 

that may prevent MCA Madagascar 

from establishing effective financial 

operations. Based on a preliminary 

assessment of MCA Madagascar’s 
SEMIANNUAL REPORT TO THE CONGRESS 13

High risk associated with MCA Madagascar’s

overall financial operations

operations, OIG determined that 

the most critical financial areas were 

procurement, cash management, 

and disbursements. OIG designed 

its risk assessment to identity and 

evaluate vulnerabilities in these 

areas. The review covered MCA 

Madagascar’s operations from 

inception through December 9, 

2005. The objective of this review 

was to determine whether MCA 

Madagascar had vulnerabilities that 

may adversely impact their financial 

operations. The OIG found that 

MCA Madagascar had high vulnerabilities in several critical areas that 

may adversely impact their financial 

operations.

Objective

Does MCA Madagascar have vulnerabilities that may adversely impact its

financial operations?

OIG found that MCA Madagascar 

did have high vulnerabilities in 

several critical areas that may 

adversely impact their financial 

operations. 

Weaknesses in the Millennium 

Challenge Corporation’s oversight of

MCA Madagascar’s initial implementation phase hindered implementation of effective financial policies and 

procedures. The Compact requires 

MCA Madagascar to implement a 

Fiscal Accountability Plan (FAP) to 

establish financial policies, procedures, controls and processes for 

performing financial operations.

Although not required by MCC 

until January 27, 2006, at the time 

of the audit field work MCA 

Madagascar had not implemented a 

comprehensive FAP. OIG determine

that the risk associated with MCA 

Madagascar’s overall financial operations was high because the delay 

in implementing a FAP may have 

hampered their ability to accurately 

account for and safeguard funds 

disbursed under the Compact agreement. OIG found that the absence o

a comprehensive FAP resulted in key

financial operations being performed

inconsistently and not in compliance with the Compact agreement. 

Specifically, 

• MCA Madagascar did not have 

a consistent process for making 

disbursements.

• MCA Madagascar’s accounting 

system did not record commitments or obligations. 

• MCA Madagascar did not 

have standard procedures for 

managing property purchased 

with MCA funds.

d

f

These concerns were discussed with 

MCA Madagascar and MCC management. They generally agreed with 

OIG results of the risk assessment 

and have begun to implement corrective actions.

(Report No. M-000-06-003-F)

PROMOTE ECONOMY, 

EFFICIENCY, AND 

EFFECTIVENESS, AND 

ASSESS PROGRAM 

RESULTS

This goal addresses the Corporation’s 

challenges related to human 

resources, determining the applicability of laws and regulations, and 

developing an effective management 

oversight methodology. OIG has 

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.

Audit of Millennium Challenge 

Corporation’s Contract Award 

Process

The Millennium Challenge 

Corporation was established in 

January 2004 to further global 

development by promoting economic 

growth, eliminating extreme poverty, 

and strengthening good governance, 

economic freedom, and investments 

in people. Since its inception, MCC 

has dedicated its resources to establishing its operations and developing 

the infrastructure it needs to conduct 

business. In its first year of operations, MCC’s procurement function 

was staffed primarily with a series 

of temporary contractor employees 
14 SEMIANNUAL REPORT TO THE CONGRESS

under the direction of a contracting 

officer. As of June 30, 2005, MCC’s 

Acquisitions Office included four fulltime direct-hire contracting officers 

and specialists, and one personal 

services contractor. In addition, until 

March 31, 2005, MCC had an agreement with the U.S. Department of 

Interior’s National Business Center 

to provide assistance with award 

solicitations and other procurement 

activities.

MCC’s Acquisitions Office has 

the responsibility for procuring 

all supplies and services for the 

various program offices of MCC. 

From MCC’s inception until May 

10, 2005, MCC made approximately 

200 awards, including contracts, 

purchase orders, agreements with 

other Federal agencies, and blanket 

purchase orders. Many of these 

awards were for smaller purchases 

such as a $30 newspaper subscription, but they also included awards 

exceeding $1 million.

OIG conducted this audit to 

determine if MCC complied with 

applicable laws and regulations in 

awarding its contracts.

The audit concluded that MCC has 

followed many of the requirements 

of procurement laws and regulations including parts or sections of 

the Federal Acquisition Regulation 

(FAR) and in its first 18 months of 

operation has established a fully 

functioning procurement activity 

that has made the numerous awards 

expected for a new Federal entity. 

Initially, MCC officials believed that 

Federal procurement requirements 

did not apply to MCC and specifically 

claimed an exemption from following 

FAR Sub-parts 4.6 and Part 19 that 

implement the Federal Procurement 

Data System contract action 

reporting requirement and the Small 

Business Act, respectively.

During OIG’s audit fieldwork, MCC 

officials stated that they had been 

following the FAR requirements 

regardless of their applicability. 

However, subsequent to the completion of audit fieldwork, MCC advised 

that there was misperception among 

some MCC staff that MCC was 

following the FAR voluntarily but 

was not legally required to do so. In 

response to our recommendation, 

MCC issued a memorandum to its 

staff emphasizing that the FAR applies 

to all MCC domestic procurement 

activities as a matter of law. Other 

problem areas, as well as areas for 

suggested improvement, involving the 

procurement function include:

• Justifications for several solesource procurements 

were inadequate, overstated, and 

insufficiently documented

• Non-procurement personnel 

either did not follow procurement regulations or their actions 

created the appearance of 

partiality 

• Policies and procedures regarding

the use of personal services 

contractors have not yet been 

established

• A non-citizen was allowed to 

work in MCC headquarters 

without MCC ensuring the individual was eligible to work in the 

U.S.

The audit report contains nine 

recommendations to address 

the problem areas and areas for 

suggested improvement. The 

recommendations for MCC include 

establishing a small business procurement preference program and annual 

procurement preference goals, 

establishing policies on preparing 

supporting documentation for sole 

source procurements, incorporating 

additional policies into training 

classes for non-procurement 

personnel, and establishing a policy 

on the use of personal services 

contractors. MCC has accepted and 

implemented corrective action on all 

of the recommendations.

(Report No. M-000-06-001-P)

Misperception among MCC staff results in

issuance of a memorandum emphasizing

applicability of FAR to all MCC domestic 

procurement activities.
SEMIANNUAL REPORT TO THE CONGRESS 15

PRESERVE AND PROTECT 

THE MILLENNIUM 

CHALLENGE 

CORPORATION’S 

PROGRAM AND 

EMPLOYEE INTEGRITY

This goal is designed to foster the 

integrity of program and operational 

activities. OIG’s 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, OIG presented its third fraud 

awareness briefing to MCC staff.

Investigations: Prevention and 

Fraud Awareness

On March 22, 2006, OIG presented 

a briefing on fraud awareness to 

an audience of approximately 40 

members of the Corporation. In 

addition, OIG presented fraud 

awareness briefings in Madagascar 

and Cape Verde. 
17

A

P

P

E

N

D

I

C

E

S

17
18 SEMIANNUAL REPORT TO THE CONGRESS Appendix A

REPORTS ISSUED

October 1, 2005 through March 31, 2006

Report

Number

Date of

Report Report Title

Amount of 

Findings

($000s)

Type of

Findings

M-000-06-001-P 10/11/2005 Audit of the Millennium Challenge Corporation’s Contract Award

Process

M-000-06-001-C 12/06/2005 Audit of Millennium Challenge Corporation’s Financial Statements,

Internal Controls, and Compliance for the Period Ending September 30,

2005, and the Nine Month Period Ending September 30, 2004

M-000-06-002-F 02/28/2006 Audit of the Millennium Challenge Corporation’s Retirement, Health

Benefits, and Life InsuranceWithholdings/Contributions and the

Supplemental Semiannual Headcount Report Submitted to the Office of

Personnel Management (OPM) for the Period Ended February 19, 2005

M-000-06-003-F 03/28/2006 Risk Assessment of MCA Madagascar’s Financial Operations
Appendix B SEMIANNUAL REPORT TO THE CONGRESS 19

SIGNIFICANT AUDIT RECOMMENDATIONS

DESCRIBED IN PREVIOUS SEMIANNUAL

REPORTS WITHOUT FINAL ACTION

As of March 31, 2006

Report

Number Subject of Report Issue Date Rec.No.

Management

Decision Date

Final 

Action 

Target

Date

M-000-05-002-P Formalize and document MCC’s

program internal control system

defined timetable for completing

administrative and

and establish a

the process

03/31/2005 1 03/31/2005

M-000-05-003-P Establish and document plans to ensure

operations for information systems

continuity of 06/20/2005 8 06/20/2005
20 SEMIANNUAL REPORT TO THE CONGRESS Appendix C

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 an 

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 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.

Our fiscal year 2004 financial 

statement audit, the Millennium 

Challenge Corporation’s first 

financial statement audit, noted that 

the Corporation’s financial management system was not in substantial 

compliance with the federal financial 

management system requirements 

under FFMIA and OMB Circular A127, Financial Management Systems.

FFMIA financial system requirements state that a system should 

comply with OMB Circular A-127, 

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, MCC 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 

is that management would not have 

a comprehensive understanding of 

the system’s internal controls and 

the risks involved in conducting 

system transactions. According to 

MCC, it was the first organization 

to use the system, which is a new 

system for NBC.

As recommended in OIG’s audit 

report of MCC’s fiscal year 2004 

financial statements, a SAS 70 

review was completed in September 

2005. The fiscal year 2005 audit 

noted that MCC was still not in 

full compliance with FFMIA. For 

example MCC’s procurement 

system had not been approved by 

the Federal government, and its 

E-Travel system was not integrated 

with the Oracle Federal Financial 

System.

MCC’s management agreed to 

address these issues under its remediation plan which will be reviewed 

in the next financial statement audit.
Appendix D SEMIANNUAL REPORT TO THE CONGRESS 21

OIG STATISTICAL SUMMARY

USAID

As of March 31, 2006

INVESTIGATIVE ACTIONS

NOTHING TO REPORT
The Semiannual Report to the Congress is available on the Internet at 

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

U.S. Agency for International Development 

Office of Inspector General 

1300 Pennsylvania Avenue, NW 

Room 6.06D 

Washington, DC 20523

www.usaid.gov/oig