Performance and 

Accountability Report 

Fiscal Year 2007 
This page is intentionally left blank. 
MESSAGE FROM THE CHIEF EXECUTIVE OFFICER

In submitting the 2007 Performance and Accountability 

Report for the Millennium Challenge Corporation, we 

mark the maturing of the program and a new emphasis on 

implementation moving forward. Our efforts in 2007 

reflect well on the resources that Congress has provided 

us. By the end of fiscal year 2007, we signed 14 

Compacts and have approved 17 Threshold programs. 

We opened fiscal year 2008 with the signing of our 15th

Compact with Mongolia, and look forward to signing our 

Compact with Tanzania. Well over a majority of MCC 

eligible and threshold countries are either in 

implementation or initiating the last steps necessary to 

begin implementation of their programs. 

As this report reflects, MCC is now fully engaged in every area of the developing 

world and in wide spectrum of development projects. In Asia, we are supporting 

programs to reduce corruption in the Philippines and Indonesia. In Central America, 

we are engaging in infrastructure projects, land reform, and agricultural development. 

In Africa, where we have signed compacts with eight countries, we have launched 

land reform, initiated port projects and enhanced new opportunities for agriculture 

development. Finally, we are well along the way with critical infrastructure projects 

in Armenia and Georgia. All these projects benefit the very poorest of citizens and 

target key constraints to economic development. 

More, of course, needs to be done. Our efforts looking forward are increasingly 

focused on shifting from compact development to compact implementation. This is a 

significant turning point for MCC. Though we continue to believe that our partner 

countries are best able to identify barriers to their economic development, propose 

programs, and implement them, MCC’s role in supporting country implementation is 

paramount. In supporting our partner countries, we work to leave behind a 

sustainable contribution that enhances each country’s inherent capacity to develop on 

its own. Indeed, enhancing country capacity is a distinctive element of the MCC 

model. Consequently, we will continue to empower our partners to implement their 

programs and support them at key junctures with resources and lessons learned from

other programs to ensure successful outcomes. These outcomes will become more 

and more apparent in fiscal year 2008 when several programs will be far enough 

along to begin assessing and reporting on performance. 
MESSAGE FROM THE CHIEF EXECUTIVE OFFICER

This approach has already yielded results. In 2007, MCC continued to build significant 

in-country capacity by bringing key individuals from partner countries to Washington 

for training in procurement, fiscal accountability, monitoring and evaluation, and 

environmental and social assessments. Moreover, we have reduced the complexity of 

our compact documents and have transferred more responsibility to our Resident 

Country Directors to give those in the field the latitude to make decisions that will 

deliver results quickly. Further, the lag time between compact signing and program

implementation has been significantly reduced. 

Because another distinctive feature of MCC is to promote policy reform, I would be 

remiss if I did not mention the “MCC effect.” By providing assistance to countries that 

practice good policies, MCC continues to be a catalyst for reform. Countries, in turn, 

are initiating reforms, not just to qualify for MCC’s assistance but also because it is the 

right thing to do. For example, we are proud of the resolution that Congress passed 

recognizing Lesotho’s enactment of the Law to Improve Women’s Rights and 

acknowledging MCC’s role in that reform. Other countries, that are not yet eligible for 

our assistance, continue to use the prospect of an MCC compact as an incentive to push 

further reforms. 

I am pleased to report that MCC has been a good steward of resources and has received 

an unqualified opinion on its financial records from an independent auditor. Moreover, 

I can certify with reasonable assurance that MCC’s systems of accounting and internal 

controls are in compliance with the provisions of Section 2 (internal and administrative 

controls) and Section 4 (financial systems) of the Federal Managers’ Financial 

Integrity Act. I have also concluded that the systems of accounting and internal controls 

provide reasonable assurance of MCC compliance with the internal control objectives

stipulated by the Office of Management and Budget in Circular A-123, Management’s 

Responsibility for Internal Control. Finally, I have determined that MCC is currently in 

substantial compliance with pertinent requirements of the Federal Financial 

Management Improvement Act. 

We look forward to the challenges of the year ahead and to reporting more results in a 

number of our programs next year. 

 John J. Danilovich 

 Chief Executive Officer 
MESSAGE FROM THE CHIEF FINANCIAL OFFICER

The 2007 Performance and Accountability Report of the 

Millennium Challenge Corporation (MCC) reflects our 

commitment to the highest standards of federal management 

as embodied in the President’s Management Agenda. Since 

inception, the MCC has received an unqualified or “clean” 

audit opinion from the Office of the Inspector General (OIG) 

on its financial statements. 

The current year has been one of growth and maturity in all 

areas of the MCC, and the Department of Administration 

and Finance is no exception. Building upon the solid 

groundwork laid in the prior year, we have accomplished a 

number of significant goals in the current year: 

` We developed an Enterprise Architecture model that provides a framework to 

align MCC’s future business vision with technology planning and 

procurement efforts. 

` We are committed to the implementation of a fully integrated financial system

compliant with the requirements of the Federal Financial Management 

Improvement Act (FFMIA). In 2007 we completed an assessment of our 

financial systems environment and developed options for moving to a fully 

integrated system within the next two years. 

` To address cash management concerns raised by the OIG and improve 

timeliness of reporting from our partner countries, we piloted a Common 

Payment System (CPS) in Mali. The CPS centralizes the payment of compact 

expenses with MCC’s financial services provider and eliminates the need to 

“advance” funds to partner countries. The CPS will be deployed in all new and 

existing compact countries over the next twelve to eighteen months. 

` We are developing a Business Intelligence and Data Storage (BIDS) tool that 

will automate reporting from our partner countries, provide a workflow 

component for the efficient approval and storage of documents, and merge 

performance and financial data to support managerial cost accounting, 

budget/performance integration, and reporting to internal and external 

stakeholders. 
MESSAGE FROM THE CHIEF FINANCIAL OFFICER

` Recognizing that the future success of MCC is dependent on maintaining a small 

highly skilled work force, we have significantly improved our diversity profile, 

conducted an employee engagement survey, and installed a new system to 

manage MCC’s staffing and personnel management needs. The Office of 

Personnel Management in conjunction with a study conducted by the American 

University recognized MCC as one of the best small agencies to work in the 

Federal government. 

We have worked aggressively to resolve outstanding OIG issues from our FY 2005 

financial audit, and I am pleased to report that the number of audit findings decreased 

from nine in FY 2006 to four in the current year. We have accepted responsibility to 

resolve these findings and plans are already underway to address them in the upcoming 

year. We have also worked to resolve other audit issues dealing with management

accountability. For example, a recent follow-up audit by the OIG of our Contracts and 

Grants Management Division resulted in no new findings, and an acknowledgement that

previous recommendations had been resolved. This is a significant achievement in an 

area vital to the success of the MCC model. 

As the MCC focuses its efforts on compact implementation, it is our goal to continue to 

provide the financial, contracting, personnel, and technology support to ensure our 

future success. This focus will provide the necessary tools to demonstrate 

accountability, results, and effective utilization of our resources. 

Michael W.S. Ryan 

 Vice President 

 Administration and Finance 
MILLENNIUM CHALLENGE CORPORATION

TABLE OF CONTENTS

1. Management Discussion and Analysis.........................................................................................1

Our Mission and History .................................................................................................................1

Millennium Challenge Corporation’s Organization ........................................................................4

Fiscal Year 2007 Highlights— October 1, 2006 to September 30, 2007 ........................................5

MCC Performance Results for FY 2007........................................................................................18

Financial Performance and Analysis .............................................................................................25

2. Performance Report ....................................................................................................................41

Performance Indicator Framework ................................................................................................43

MCC Performance in FY 2007......................................................................................................46

Strategic Goal #1 ...........................................................................................................................46

Strategic Goal #2 ...........................................................................................................................55

Strategic Goal #3 ...........................................................................................................................78

Strategic Goal #4 ...........................................................................................................................80

3. Financial Section..........................................................................................................................83

Balance Sheets............................................................................................................................... 84

Statements of Budgetary Resources ..............................................................................................85

Statements of Net Costs.................................................................................................................86

Statements of Changes in Net Position..........................................................................................87

Notes to Financial Statements (As of September 30, 2007)..........................................................88

4. Audit of the Millennium Challenge Corporation’s Financial Statements, Internal Controls, 

and Compliance for the Period Ending September 30, 2007 and 2006 Report No. M-000-08-

001-C .............................................................................................................................................99

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MILLENNIUM CHALLENGE CORPORATION

LIST O F EXHIBITS

Exhibit 1-1: Compact and Threshold Countries.................................................................................2

Exhibit 1-2: MCC Principles.................................................................................................................5

Exhibit 1-3: Number of Compacts, Total Value of Compacts, and Average Compact Size by 

Fiscal Year (all figures in $ millions)............................................................................................8

Exhibit 1-4: Compacts in Signing Order .............................................................................................8

Exhibit 1-5: Threshold Programs in Signing Order ...........................................................................9

Exhibit 1-6: Compact Programs and Tangible Results....................................................................12

Exhibit 1-7: Division of Finance and National Business Center ......................................................27

Exhibit 1-8: Annual Funding by Fiscal Year (in thousands) ...........................................................30

Exhibit 1-9: Obligations by Fund Category (in thousands) .............................................................31

Exhibit 1-10: Compact Obligations (in thousands)...........................................................................32

Exhibit 2-1: MCC’s Corporate Performance Plan ...........................................................................42

Exhibit 2-2: Strategic Goal #1 Results Summary..............................................................................47

Exhibit 2-3: Strategic Goal #1 Detailed Results................................................................................47

Exhibit 2-4: Conditions Precedents Met ............................................................................................54

Exhibit 2-5: Strategic Goal #2 Results Summary..............................................................................59

Exhibit 2-6: Strategic Goal #2 (a) Detailed Results...........................................................................60

Exhibit 2-7: Strategic Goal #2 (b) Threshold Program Detailed Results........................................71

Exhibit 2-8: Strategic Goal #3 Results Summary..............................................................................78

Exhibit 2-9: Strategic Goal #3 Detailed Results................................................................................79

Exhibit 2-10: Strategic Goal #4 Results Summary............................................................................80

Exhibit 2-11: Strategic Goal #4 Detailed Results..............................................................................81

Exhibit 3-1: Fund Balance with Treasury as of September 30 (in thousands)...............................93

Exhibit 3-2: Operating Leases (in dollars).........................................................................................94

Exhibit 3-3: Intra-Governmental Costs and Exchange Revenue (in thousands) ...........................94

Exhibit 3-4: Material Differences Between the SBR and the President’s Budget (in millions) ....95

Exhibit 3-5: Undelivered Orders—Compact and 609(g) Funds (in dollars) ..................................96

Exhibit 3-6: Reconciliation of Net Cost of Operations to Budget (in dollars) ................................97

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1. MANAGEMENT DISCUSSION AND ANALYSIS

OUR MISSION AND HISTORY

The Millennium Challenge Corporation’s (MCC) mission is to reduce poverty by supporting 

sustainable, transformative economic growth in developing countries that create and maintain 

sound policy environments. 

MCC is a United States Government corporation designed to work with some of the poorest 

countries in the world. Established in January 2004, MCC is based on the principle that aid is 

most effective when it reinforces good governance, economic freedom, and investments in 

people. MCC’s mission is to reduce global poverty through the promotion of sustainable 

economic growth. Led by a Chief Executive Officer (CEO) and overseen by a Board of Directors, 

MCC is responsible for the stewardship of the Millennium Challenge Account (MCA), which 

receives funds each year appropriated by Congress. 

MCC selects countries that are eligible for a compact, a multi-year agreement between MCC and 

an eligible country to fund specific programs targeted at reducing poverty and stimulating 

economic growth. To become eligible to receive a compact, MCC evaluates a country’s 

performance on 17 independent and transparent policy indicators in three categories: ruling justly, 

investing in people, and economic freedom. Countries that have demonstrated significant 

improvement in policy indicators but do not yet qualify for a compact grant may be eligible for 

Threshold program assistance. Threshold programs are smaller grants designed to help improve 

performance on specific indicators. 

MCC has signed compacts with 14 countries. In addition, 14 countries receive Threshold program 

assistance. The countries currently receiving MCC assistance and those that are eligible for 

assistance are detailed in Exhibit 1-1. 
ILLENNIUM CHALLENGE CORPORATION

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Exhibit 1-1: Compact and Threshold Countries 

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MILLENNIUM CHALLENGE CORPORATION

MCC’s Fundamental Principles 

MCC awards grants—not loans—to partner countries through an innovative and competitive 

process built upon three fundamental principles that are essential for the effective and efficient 

use of development assistance—good policy performance, country ownership, and tangible 

results. 

1. Good Policy Performance: Selection Process. MCC works with countries that rule justly, 

invest in their people, and promote economic freedom. MCC assesses a government’s 

performance in these three areas by using objective, transparent, and third-party indicators 

taken from non-U.S. Government sources. MCC uses these indicators to create a scorecard 

measuring a country’s policy performance among its own peer group in the same per capita 

income range. MCC’s Board of Directors then uses these scorecards to determine and select 

annually which countries are eligible to receive aid based on policy performance.

2. Country Ownership: Compact Development Process. Once countries qualify and are 

selected for MCC assistance on the basis of their policy performance, they are invited to 

develop a proposal for funding—what MCC calls a compact. Eligible countries must first 

identify their main constraints to poverty reduction and economic growth. Eligible countries 

are expected to design and submit their proposals for funding that address their own priorities 

and constraints. Countries develop their proposals in consultation with their own society,

building country ownership that increases the likelihood of success and sustainability. MCC 

evaluates and conducts due diligence on each proposal to determine whether it will lead to 

poverty reduction and growth. If a country’s proposal is approved for funding, MCC and the 

country sign a compact. This mutual agreement outlines responsibilities for both MCC and 

the partner country and stipulates performance benchmarks to ensure accountability and 

outcomes. 

3. Tangible Results: Implementation Process. Once MCC’s Board approves a compact 

proposal, MCC holds its partner countries responsible for the aid they receive. That is why

MCC’s assistance goes to those countries that develop programs with clear objectives, 

benchmarks to measure progress, procedures to ensure sound financial management, and a 

plan to monitor outcomes and evaluate impacts. Ultimately, MCC expects its assistance to 

generate tangible results in the lives of the poor. To ensure transparency and accountability, 

MCC’s assistance is disbursed only as performance benchmarks are achieved. 

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MILLENNIUM CHALLENGE CORPORATION

MILLENNIUM CHALLENGE CORPORATION’S ORGANIZATION

Structure and Staffing 

MCC’s model for providing development assistance to partner countries puts the responsibility 

for program development and implementation on the partner country. MCC maintains a very

small staff in its Washington, D.C. headquarters when compared with other international 

development institutions. MCC’s staff is composed of regional and sector experts that assist 

partner countries through the compact development and implementation process. During the 

intense period of compact development and implementation start-up, MCC contracts with 

additional outside experts for limited engagements. MCC also uses contractors for oversight, 

supervision, monitoring, and evaluation assistance. 

In FY 2007, MCC concluded an aggressive hiring process to fill remaining slots under the 

authorized level of 300 full-time employees at the Washington, D.C. headquarters. This process 

was completed in mid-2007. MCC has been successful in attracting top candidates from the 

public and private sectors and has maintained an organizational structure with a high percentage 

of senior staff and a low percentage of administrative support personnel. This is consistent with 

MCC’s original design and vision. 

In keeping with its model of high standards of accountability, but also requiring countries to take 

ownership of their own development, MCC’s practice is to have a small staff, usually three to five 

people, in each compact country. MCC set up new offices in six countries in FY 2007 for a total 

of 14 overseas offices, one in each country with which MCC has a compact. These offices will 

play a pivotal role in MCC’s increased emphasis on implementation oversight because of their 

proximity to the MCA entities responsible for implementation. 

Governance 

MCC is governed by a Board of Directors composed of the Secretary of State, Secretary of the 

Treasury, U.S. Trade Representative, Administrator of the United States Agency for International 

Development (USAID), and MCC’s CEO. In addition, the Board has four public members 

appointed by the President with the advice and consent of the U.S. Senate. The Secretary of State 

is the Chair of the Board and the Secretary of the Treasury is the Vice Chair. A CEO, appointed 

by the President and confirmed by the Senate, manages MCC. 

While MCC is not a Chief Financial Officers (CFO) Act agency, it has decided to adhere to the 

requirements and principles applicable to such agencies by preparing an annual Performance and 

Accountability Report (PAR) in accordance with Office of Management and Budget (OMB) 

requirements and guidance. 

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MILLENNIUM CHALLENGE CORPORATION

FISCAL YEAR 2007 HIGHLIGHTS— 

OCTOBER 1, 2006 TO SEPTEMBER 30, 2007 

In Fiscal Year (FY) 2007, MCC achieved results in each of the three core principles that MCC’s 

model is built upon: (1) policy performance, (2) country ownership, and (3) tangible results. 

Exhibit 1-2 illustrates how these three elements are related. 

Exhibit 1-2: MCC Principles 

Country Ownership:

Compact Development 

Process

Good Policy Performance:

Country Selection Process

Tangible 

Results:

Implementation

Process

Country Ownership:

Compact Development 

Process

Good Policy Performance:

Country Selection Process

Tangible 

Results:

Implementation

Process Beginning to see results

14 Compacts signed

MCC Effect

Results

The foundation of MCC’s engagement with partner countries is the principle that policies matter. 

History has demonstrated that countries with strong policies in the areas of ruling justly, investing 

in people, and economic freedom have lower rates of poverty and higher rates of economic 

growth. In FY 2007, MCC continued to see countries improving their policy environment to 

become eligible or remain eligible for MCC funding. This positive incentive that is created by the 

prospect of MCC funding is referred to as the “MCC effect.” 

Building on the foundation of a sound policy environment, MCC is seeing real results in country 

ownership as countries take ownership of their own development and play the lead role in the 

process of developing and implementing their compacts. This ownership is crucial to ensuring 

that development results are sustainable and truly transformational. 

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By the end of FY 2007, MCC had selected 25 countries as eligible for assistance because of their 

policy performance. MCC successfully signed compacts with 14 of these countries, and MCC 

expects to sign compacts with up to four additional countries in FY 2008. As a result, MCC is 

beginning to see the impact of the third principle, tangible results—an area that will be a key 

focus for FY 2008 and beyond. 

Principle 1—Good Policy Performance: Key Results from FY 2007 

While delivering country-specific results through compacts and Threshold programs, MCC’s 

approach offers positive incentives for creating the conditions that make development sustainable 

and transformative. This is core to MCC’s early successes and demonstrates how MCC is 

changing the conversation about how development takes place. 

Changing Lives Through Policy Reforms 

MCC motivates reforms. 

By insisting on sound political, economic, and social policies, MCC motivates the hard work of 

policy changes in countries that want to either maintain their eligibility with MCC or qualify for 

it. As a result, countries are making improvements in governance, increasing investments in 

health and education, and creating pro-business conditions. Even before a dollar of MCC 

assistance is invested, countries are investing in their own development to qualify for MCC 

funding, a phenomenon we call the “MCC effect.” For example: 

` According to the World Bank’s Doing Business project, 24 countries specifically cited MCC 

as the primary motivation for their efforts to improve their business climate. 

` Inter-ministerial committees and presidential commissions have been set up in at least a 

dozen countries to devise reform strategies that address MCC’s selection criteria. 

` Guatemala is interested in becoming eligible and has taken significant steps to improve its 

policy performance on MCC’s indicators. Tough anti-corruption reform measures include 

prosecuting high-ranking officials on charges of corruption, creating a financial crimes unit, 

hiring a foreign accounting firm to audit spending by the legislature, initiating online 

disclosure of government procurements, and implementing a performance-based budgeting 

process. 

` Liberian President Ellen Johnson-Sirleaf has expressed great interest in adopting the reforms 

necessary to be selected to participate in MCC. Her administration is addressing corruption in 

the Finance Ministry, requiring senior government appointees to declare their financial assets, 

canceling all timber export contracts, and reviewing port handling concessions. 

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MILLENNIUM CHALLENGE CORPORATION

These countries are representative of many others that, although not yet eligible for MCC 

assistance, are undertaking policy reforms and improving their practices and procedures with the 

expectation of qualifying for MCC assistance. 

Transforming Lives by Rejecting Corruption 

MCC promotes a culture of transparency. 

` MCC is the only donor that currently ties eligibility for assistance to performance on a 

transparent and public Control of Corruption indicator. Passing this corruption indicator is the 

only hard hurdle to qualify for MCC funding. This creates a powerful incentive for countries 

to adopt tough anti-corruption laws, strengthen oversight institutions, open up the public 

policymaking process to greater scrutiny, and increase corruption-related investigations and 

prosecutions. 

` Georgia—as just one example—adopted dramatic anti-corruption reforms leading to a 

significant improvement in its control of corruption indicator from the 36th percentile in 2004 

to the 78th in 2005. The percentage of firms in Georgia reporting that bribes are necessary to 

get things done plummeted from 37 percent to 7 percent. Georgia has arrested scores of 

public officials, made legislative changes that facilitate the prosecution of corruption cases, 

fired 15,000 members of the police force, and increased the salaries of 10,000 public servants 

to counter the lure of petty corruption. The World Bank’s 2006 and 2007 Doing Business 

reports identified Georgia as one of the world’s most aggressive reformers. 

Principle 2—Country Ownership/Compact Development: Key Results from 

FY 2007 

Building on the first principle that policies matter and the key results that are taking place in the 

area of policy reform, MCC is demonstrating results in the second principle, country ownership. 

Eligible countries are designing and submitting their proposals for funding that address their own 

priorities and constraints. Countries develop their proposals in consultation with their own 

society, building country ownership that increases the likelihood of success and sustainability.

As of the end of FY 2007, MCC signed 14 compacts, totaling nearly $4.55 billion. Five of these, 

representing more than $2.5 billion, were signed in FY 2007. The compacts signed in FY 2007 

were consistent with the President’s stated request that compacts be larger in size and 

transformative (see Exhibit 1-3). During FY 2007, MCC worked with a number of other countries 

to help them develop their compacts, and MCC expects to sign compacts with up to four 

additional countries in FY 2008. MCC has also signed Threshold agreements with 14 countries, 

totaling approximately $316 million. Seven of MCC’s 14 Threshold agreements were signed in 

FY 2007. 

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MILLENNIUM CHALLENGE CORPORATION

Exhibit 1-3: Number of Compacts, Total Value of Compacts, and Average Compact Size 

by Fiscal Year (all figures in $ millions) 

Year of Compact Signing 

FY 2005 FY 2006 FY 2007 

Number of Compacts Signed 5 4 5

Total Value of Compacts $905.2 $1,155.6 $2,482.8

Average Compact Size $181.0 $288.9 $496.6

$0.00

$500.00

$1,000.00

$1,500.00

$2,000.00

$2,500.00

FY 2005 FY 2006 FY 2007

Total Value of Compacts Average Compact Size

A compact is a multi-year agreement between MCC and an eligible country to fund specific 

programs aimed at reducing poverty and stimulating economic growth. It is a mutual promise 

between the U.S. Government and a partner country, each with specific responsibilities to fulfill. 

The compact enters into force after initial set-up and when project implementation begins. 

Exhibit 1-4 lists the dates that compacts were signed and entered into force. 

Exhibit 1-4: Compacts in Signing Order 

Compact With 

Award

(in millions) Signed On Entry Into Force On 

Madagascar $109.8 April 18, 2005 July 27, 2005

Honduras $215.0 June 13, 2005 September 29, 2005 

Cape Verde $110.0 July 4, 2005 October 17, 2005 

Nicaragua $175.0 July 14, 2005 May 26, 2006

Georgia $295.3 September 12, 2005 April 7, 2006

Benin $307.3 February 22, 2006 October 6, 2006 

Vanuatu $65.7 March 2, 2006 April 28, 2006 

Armenia $235.7 March 27, 2006 September 29, 2006 

Ghana $547.0 August 1, 2006 February 16, 2007 

Mali $460.8 November 13, 2006 September 17, 2007 

El Salvador $461.0 November 29, 2006 September 20, 2007 

Mozambique $506.9 July 13, 2007 Pending 

Lesotho $362.6 July 23, 2007 Pending 

Morocco $697.5 August 31, 2007 Pending 

Total $4,549.6 

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A Threshold program is designed to assist countries that are on the threshold of eligibility,

meaning they have not yet qualified for compact funding but demonstrate significant commitment 

to improving their performance on the eligibility criteria for full compact funding. MCC’s 

authorizing legislation allows using up to 10 percent of MCC funding for the Threshold program. 

Exhibit 1-5 lists Threshold programs that are currently underway as of the end of FY 2007. 

Exhibit 1-5: Threshold Programs in Signing Order 

Threshold Program With 

Award

(in millions) Signed On 

Burkina Faso $12.9 July 22, 2005

Malawi $20.9 September 23, 2005 

Albania $13.9 April 3, 2006

Tanzania $11.2 May 3, 2006 

Paraguay $34.6 May 8, 2006 

Zambia $22.7 May 22, 2006

The Philippines $20.7 July 26, 2006

Jordan $25.0 October 17, 2006 

Indonesia $55.0 November 17, 2006 

Ukraine $45.0 December 4, 2006

Moldova $24.7 December 15, 2006 

Kenya $12.7 March 23, 2007 

Uganda $10.4 March 29, 2007 

Guyana $6.7 August 23, 2007 

Total $316.4 

Transforming Lives Through Capacity Building 

MCC helps countries build institutional capacity. 

` By insisting that partner countries design and implement their own development plans, MCC 

is strengthening institutions and encouraging critical thinking about what policies are 

necessary to ensure sustainability. Country ownership reinforces the good policies MCC 

demands. 

` In Ghana, one of the major obstacles to successful development has been the lack of 

adequately trained procurement specialists. The ability to procure goods and services in a 

transparent and competitive manner ensures the best use of public funds. MCC is funding a 

procurement capacity-building initiative within the Ghanaian government designed to 

strengthen the effectiveness of various procurement entities to help Ghana help itself 

overcome this barrier to its own development. Ghana also has said that it will use the 

consultative and rigorous MCC process that led to its compact to evaluate non-MCC funded 

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activities within the country. Moreover, to share experiences and lessons learned in 

developing and implementing compacts, Ghana hosted fellow African country MCA officials 

at a conference. 

` Mozambique is applying the skills and expertise of the core team that worked on drafting its 

compact to other government processes unrelated to MCC. 

` In Georgia, extensive collaborative efforts are strengthening the Georgia Department of 

Statistics to ensure that MCA-Georgia, which is responsible for compact implementation, 

monitoring, and evaluation, has the best possible data to evaluate its program and to generate 

stronger impact evaluation and data gathering capacity within the Georgian government 

overall. Asking countries, such as Georgia, to develop their own compacts, including the 

monitoring and evaluation plans, enhances their abilities and skills to evaluate other 

programs, including those of their own governments. MCC partner countries are responsible 

for establishing baselines and demonstrating and measuring results to focus on outcomes and 

impacts rather than projects. 

Country ownership encourages civil participation and accountability. 

` In Nicaragua, extensive public participation in designing and implementing the MCA 

program has generated unwavering support from local officials, civil society groups, and 

program beneficiaries. This support serves to sustain the program during elections and 

political transitions, allowing it to progress uninterrupted. 

` Benin held a nationwide consultative workshop to select communes to participate in the 

Rural Landholding Plans activity. The list of selected communes was made public on MCABenin’s website. 

` In Honduras, 200 municipalities attended workshops to identify roads to be improved under 

the Farm-to-Market Roads activity, resulting in applications for improvements to 6,645 

kilometers of road. Civil engineers are now using publicly available criteria to conduct field 

assessments of the applications to make selections. 

` In Armenia, the MCA Stakeholders’ Committee, representing the water users’ associations, 

farmers, non-governmental organizations (NGOs), and the beneficiary community, has taken 

an active role in organizing public outreach events and in engaging with MCA-Armenia. 

Country ownership helps sustain high environmental and social impact standards. 

` Cape Verde’s compact supports the protection of the environment and citizens’ rights. MCA 

has carried out environment-related public awareness sessions, environmental impact 

assessments, an environmental and social monitoring plan, community-based watershed 

management plans, and resettlement action plans. 

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` The Georgia compact raised the bar on environmental protection by applying unprecedented 

environmental standards to gas pipeline repairs. Georgian corporations supervised project 

construction in accordance with international environmental standards for the first time. 

Principle 3—Tangible Results/Implementation: Key Results from FY 2007 

The purpose of MCC’s emphasis on the policy environment and country ownership, Principles 

1 and 2, is ultimately to pave the way for success in achieving Principle 3, to yield tangible results 

in the lives of poor people. MCC holds its partner countries responsible for the aid they receive. 

All MCC compacts include specific monitoring and evaluation plans that lay out benchmarks that 

evaluate whether the program is on track to reach the outcomes for which it was intended. 

FY 2007 represented a year of transition for MCC as the Corporation moved from a focus on 

incentivizing policy reforms and working with countries to design and complete compact 

programs, to helping partner countries in the implementation of those programs. 

Initial performance results reported by countries in compact implementation demonstrate that 

MCC is making substantial progress, particularly in the agriculture and land sectors. Key results 

as of September 1, 2007, include: 

` In Madagascar, a total of more than 876,000 documents have been inventoried to enable 

better land use. Six Agricultural Business Centers are now operational in five zones, with 

more than 3,950 visitors to date and 45 field agents providing services to small and mediumsize enterprises. The agricultural project is providing technical training and small business 

skills to more than 6,400 farmer beneficiaries in five zones. 

` In Armenia, 2,453 participants have been trained in on-farm water management to ultimately

increase agricultural production, of which 571—almost 23 percent—are female farmers. 

` In Georgia, the Agribusiness Development Project has awarded grants worth $1.1 million to 

34 new or expanding agribusinesses. These grants will support agribusiness development 

projects by improving technologies and facilitating market access. They will employ about

400 people and do business with 22,000 customers and suppliers. Phase I repairs of the 

North-South Gas Pipeline have been completed. 

` In Nicaragua, out of 43,000 property titles to be delivered, 26 beneficiaries have received 

titles and 500 more beneficiaries are in the process of receiving titles. 

Exhibit 1-6 describes each compact program and current implementation results. The results 

indicate that MCC is reaching key process milestones on these projects such that longer term

objectives can be achieved. 

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MILLENNIUM CHALLENGE CORPORATION

Exhibit 1-6: Compact Programs and Tangible Results 

Country Program Description Implementation Results 

Africa

Benin Compact is for 5 years and $307 million, 

and intends to: 

à Increase investment and private sector

activity. 

à Increase access to land through more 

secure and useful land tenure. 

à Expand access to financial services 

through grants given to micro, small, and

medium-size enterprises. 

à Provide access to justice by bringing 

courts closer to rural populations. 

à Improve access to markets by 

eliminating physical and procedural 

constraints currently hindering the flow 

of goods through the Port of Cotonou. 

à Rural land titling program is expected to 

formalize land registries in the form of 

“Plans Fonciers Ruraux” in 300 villages 

across Benin. 

à An engineering solution to the 

sedimentation of the entrance channel to

the Port of Cotonou has been identified; it 

provides an opportunity for collaboration 

with a coastal erosion protection program

to be funded by others. 

à Studies of the demand for financial 

services and of technological alternatives 

for the provision of financial services have 

been completed and form the basis for a

competitive grant facility to begin in 2008.

Cape Verde Compact is for 5 years and $110 million, 

and intends to: 

à Help achieve the national development 

goal of converting the economy from aid 

dependency to sustainable, private 

sector-led growth. 

à Increase rural incomes of the poor by 

increasing agricultural productivity, 

integrating internal markets, reducing 

transportation costs, and developing the

private sector through greater private 

sector investment and financial sector 

reform. 

à Construction has begun on the first of five 

roads and four bridges on the islands of 

Santiago and Santo Antao. 

à Compact supports the protection of the 

environment and citizens’ rights. 

à MCA has carried out environment-related

public awareness sessions, 

environmental impact assessments, an 

environmental and social monitoring plan, 

community-based watershed 

management plans, and resettlement 

action plans. 

Ghana Compact is for 5 years and $547 million, 

and intends to: 

à Reduce poverty by raising farmer 

incomes through private sector-led

agribusiness development. 

à Increase the production and productivity 

of high-value cash and food staple crops

in some of Ghana’s poorest regions. 

à Enhance competitiveness of Ghana’s 

agricultural products in regional and 

international markets. 

à Compact entered into force on February 

16, 2007, and MCC made an initial 

disbursement on March 7, 2007. 

à MCC has disbursed more than $11 

million toward program administration and 

activities as of September 1, 2007. 

à The Millennium Development Authority 

(MiDA), the entity responsible for the 

compact’s implementation, has signed 

Implementing Entity Agreements with the 

Bank of Ghana; the Public Procurement 

Authority; the Ministry of Food and 

Agriculture; and the Institute of Statistical, 

Social, and Economic Research. 

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MILLENNIUM CHALLENGE CORPORATION

Country Program Description Implementation Results 

Lesotho Compact is for 5 years and $363 million, 

and intends to: 

à Have a positive economic impact on 

Lesotho’s entire population.

à Increase water supplies for industrial 

and domestic use. 

à Strengthen the country’s health care 

infrastructure.

à Remove barriers to foreign and local 

private sector investment. 

à Lesotho’s compact was signed on July 

23, 2007, and has not yet entered into 

force.1

Madagascar Compact is for 4 years and $110 million, 

and intends to: 

à Help the island nation move from 

subsistence to a market-driven 

economy, particularly in agricultural 

production. 

à Raise incomes in rural areas by enabling

better land use, expansion of the 

financial sector, and increased 

investment in farms and other rural 

businesses. 

à Nineteen local land offices are in 

operation and have issued approximately 

729 land certificates. 

à All existing land documents in 29 landadministration services—a total of more 

than 876,000 documents—have been 

inventoried. 

à Sites for two of six branches of the 

National Savings Bank to improve access 

to finance in rural areas have been 

identified, and building designs are being 

completed. 

à Institutional support fund for microfinance 

institutions is operational and has 

received seven proposals for a total of $1 

million. 

à Six Agricultural Business Centers are 

operational in five zones, with more than 

3,950 visitors and 45 field agents 

providing services to small and mediumsized enterprises. 

à The agricultural project is providing 

technical training and small business 

skills to more than 6,400 farmer 

beneficiaries in five zones. More than 340 

business plans have been developed by

newly established cooperatives, 

associations, and small enterprises. 

à Land certificate acquisitions have resulted 

in the mobilization of $485,000 in credit 

from microfinance institutions to 2,200 

MCA-Madagascar clients. 

 1

 After a compact is signed the compact enters into force and compact implementation begins. 

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MILLENNIUM CHALLENGE CORPORATION

Country Program Description Implementation Results 

Mali Compact is for 5 years and $461 million, 

and intends to: 

à Increase the productivity of the 

agriculture sector and regional 

enterprises. 

à Serve as a catalyst for sustainable 

economic growth and poverty reduction 

through key infrastructure investments 

that capitalize on two of Mali’s major 

assets, the Bamako-Sénou International 

Airport and the Niger River for irrigated 

agriculture. 

à Fiscal and procurement agents have 

mobilized; the bank agreement has been 

executed; the compact has been ratified;

and feasibility and design work has begun 

for major infrastructure, all before entryinto-force on September 17, 2007. 

à The MCA-Mali unit has been transferred 

from the Prime Minister’s office to the 

Presidency. This reflects the close 

integration of the MCC program with the

President’s 5-year socio-economic

development plan. 

à The recruitment process for nine key 

MCA-Mali positions is in the contract 

negotiations phase. 

Morocco Compact is for 5 years and $698 million, 

and intends to: 

à Increase productivity and improve 

employment in high-potential sectors, 

including investments in fruit tree 

productivity, small-scale fisheries, and 

artisan crafts. 

à Support small business creation and 

growth through investments in financial 

services and support. 

à Compact was signed on August 31, 2007, 

and has not yet entered into force. 

Mozambique Compact is for 5 years and $507 million, 

and intends to: 

à Increase the productive capacity of the 

population in selected districts with the 

intended impact of reducing the poverty 

rate, increasing household income and 

employment, and reducing chronic 

malnutrition. 

à Improve water systems, sanitation, 

access to markets, land tenure services, 

and agriculture in the targeted districts. 

à Compact ratified on August 7, 2007, by 

the Council of Ministers, which also 

approved the creation of MCAMozambique to manage implementation. 

à The Ministry of Public Works, Ministry of

Agriculture, and Ministry of Finance 

continue to prepare and plan for the 

implementation of their respective 

projects and activities. 

à The Council of Ministers approved the 

Water Sector Policy, which is essential to 

the compact’s success.

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Country Program Description Implementation Results 

Eurasia 

Armenia Compact is for 5 years and $236 million, 

and intends to: 

à Increase economic performance in the 

agricultural sector. 

à Upgrade 943 kilometers of roads. 

à Increase the productivity of 250,000 

farmer households through improved 

water supply, higher yields, higher value

crops, and a more competitive 

agricultural sector. 

à Armenia exercised a groundbreaking 

approach to evaluating the impact of onfarm water management training that 

various villages and communities are to 

receive. 

à 2,453 participants have been trained in 

on-farm water management to ultimately 

increase agricultural production, of which 

571—almost 23 percent—are female

farmers.

à The design phase for initial rural road and 

irrigation infrastructure is nearing 

completion, and construction is 

anticipated to begin by the end of 2007. 

Georgia Compact is for 5 years and $295 million, 

and intends to: 

à Help Georgians reduce poverty by 

renovating key regional infrastructure 

and improving the development of 

regional enterprises. 

à Improve rural transportation, providing 

agricultural suppliers with the 

opportunity to connect more easily with 

consumers, and to increase regional 

trade. 

à Enhance productivity in farms, 

agribusinesses, and other enterprises

that will increase jobs and rural income.

à The Agribusiness Development Project 

has awarded grants worth $1.1 million to 

34 new or expanding agribusinesses. 

These grants will support agribusiness 

development projects by improving 

technologies and facilitating market 

access. They will employ about 400 

people and do business with 22,000 

customers and suppliers. 

à Phase I repairs on the North-South Gas 

Pipeline have been completed. These 

repairs protect the pipeline from 

corrosion, landslide, and floodwaters. 

à The Georgia Regional Development Fund

made its first investment totaling 

$1.7 million. 

Vanuatu Compact is for 5 years and $66 million, 

and intends to: 

à Improve the country’s poor

transportation infrastructure. 

à Support 11 infrastructure projects 

including roads, wharfs, an airstrip, and

warehouses. 

à Reduce transportation costs and 

improve the reliability of access to 

transportation services in order to 

benefit poor, rural agricultural producers 

and providers of tourist-related goods 

and services. 

à The National Budget contains a 

substantial increase of $4.5 million for the 

Public Works Department’s budget for 

road maintenance. The funds are being

used for community maintenance 

contracts and small civil works.

à The invitation to bid on the design and 

construction of the compact’s transport 

infrastructure projects has been issued 

and construction should commence in the 

first quarter of 2008. 

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Country Program Description Implementation Results 

Latin America 

El Salvador Compact is for 5 years and $461 million, 

and intends to: 

à Improve the lives of Salvadorans 

through strategic investments in 

education, public services, agricultural 

production, rural business development, 

and transportation infrastructure. 

à Physically unify El Salvador’s Northern 

Zone with the rest of the country, 

thereby enabling new economic 

opportunities for rural households, and 

decreasing transportation costs and 

travel times to markets for more than 

850,000 beneficiaries. 

à FOMILENIO, the entity implementing the

compact, has become fully staffed and is

operating at full capacity. 

à The Board of Directors has been 

confirmed and met nearly a dozen times. 

à Program implementation plans are well 

advanced, including key feasibility studies 

and environmental/social impact studies, 

which will speed program execution. 

à FOMILENIO signed banking agreements 

to manage program funds, signed a 

$2.5 million service contract to support 

the productive development program, and 

published a number of requests for 

proposals for program activities. 

Honduras Compact is for 5 years and $215 million, 

and intends to: 

à Reduce poverty by (a) increasing the 

productivity and business skills of 

farmers and their employees who 

operate small and medium-sized farms 

and (b) reducing transportation costs 

between targeted production centers 

and national, regional, and global 

markets. 

à More than 800 program farmers are 

receiving technical assistance for crop 

production and product 

commercialization. A total of 8,225 are on 

track to be trained by the end of the 

program. 

à A total of 325 program farmers have 

developed business plans following their 

participation in a business-planning 

workshop. 

à More than 1,200 kilometers of rural roads 

have been traveled in the process of 

evaluating their overall condition, location, 

and compliance with defined qualifying 

criteria in addition to collecting 

information required to estimate the 

economic rate of return. 

à 18 proposals for funding under the 

Agriculture Public Goods Grant Facility 

were received and are in the process of 

being evaluated. 

à MCA-Honduras contracted with a local 

firm to develop and implement 

resettlement action plans for those people 

affected by road improvements. Firm has

completed surveys for approximately 850 

people and will begin the process of 

clearing the right of way and acquiring 

land in October 2007. 

à Designs for the northern half of the CA-5 

Highway improvement have been 

finalized and the selection of construction

firms has begun. Construction is 

expected to begin in March 2008. 

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Country Program Description Implementation Results 

Nicaragua Compact is for 5 years and $175 million, 

and intends to: 

à Support those living in the Leon and 

Chinandega region by significantly 

increasing incomes of rural farmers and 

entrepreneurs. 

à Reduce transportation costs, improve 

access to markets, strengthen property 

rights, increase investment, and raise 

incomes for farms and rural businesses. 

à Early titling efforts are underway, and 26

beneficiaries have received titles and 500 

more beneficiaries are in the process of 

receiving titles out of 43,000 to be 

delivered. 

à Approximately 1,070 bean, cassava, and 

sesame producers have received

technical assistance to market their 

products. 

à 374 rural and urban small and mediumsized enterprises benefited from business 

development services. 

à Some 476 business plans for forestry 

producers are being implemented. 

à In total, 4,568 men and women have 

benefited from the rural business 

development project. 

à 425 new jobs have been created through 

new businesses attracted through 

investment promotion activities. 

à MCA-Nicaragua is cooperating with local

communities on two management plans 

for environmentally sensitive areas. 

à MCA-Nicaragua has assisted local 

municipal governments in elaborating 

environmental policies and regulation 

through technical assistance.

à MCA-Nicaragua has developed and 

implemented a gender policy that secures 

equal access for women to the program’s 

benefits. 

à MCA-Nicaragua has developed technical 

capacity that has resulted in signing 299

contracts worth $21.7 million through an 

open and transparent procurement 

process.

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MILLENNIUM CHALLENGE CORPORATION

MCC PERFORMANCE RESULTS FOR FY 2007 

How MCC Measures Performance 

In November 2005, the MCC Board approved MCC’s Strategic Plan covering FY 2006 to 

FY 2011. The Strategic Plan has four goals: 

1. Achieve sustainable, transformative development. 

2. Support development of a sound policy environment for economic growth and poverty

reduction in the developing world. 

3. Advance international development assistance practice by continually improving MCC’s 

operational effectiveness. 

4. Build MCC’s capabilities to achieve its primary strategic goals. 

Each strategic goal has specific performance objectives that are laid out in MCC’s FY 2007 

Annual Performance Plan. In setting performance targets, MCC considers three issues: (1) which 

indicators should include targets, (2) how numerical values should be set, and (3) how frequently

performance against targets should be assessed. It is MCC’s policy that the performance 

indicators selected for targeting are important, measurable, and to the extent possible subject to 

MCC’s control. Compact-specific target values are established according to what would be 

required to achieve the economic returns or benefits envisaged at the time the project was 

presented for approval by the MCC Board of Directors. Therefore, the target values are closely 

linked to the original justification of the projects. 

MCC has also identified a number of goals that, although not directly attributable to MCC 

interventions, do provide important information on the progress of partner countries that are 

relevant to MCC’s programs. MCC considers these to be “supplemental indicators.” These 

indicators are tracked by MCC but not treated as formal indicators. 

Most of the performance data reported in the PAR comes from external sources, including other 

donor agencies, or from independent evaluations contracted for by the candidate countries during 

the compact implementation process. Where data is not available for select indicators, MCC often 

conducts surveys by an independent third party to assess its performance. For performance results 

that are based on data that MCC collects from MCAs, MCC takes steps to ensure that information 

is accurate. 

A summary of MCC’s performance in FY 2007 toward achieving these strategic goals is 

presented in the tables below. As shown, MCC has met five out of seven performance objectives 

for which data is currently available, excluding supplemental indicators. The following section 

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includes a summary of results, a discussion of the strategies and resources MCC used to achieve 

performance goals, and steps MCC has taken to ensure the reliability of performance data. For 

detailed information on indicators, targets, and current and historical performance results, please 

see Section 2. 

Strategic Goal #1: Achieve Sustainable, Transformative Development 

Performance Objective Indicator Target Rating 

Generate economic growth and 

reduce poverty in compact regions 

Compact-specific economic growth 

and poverty reduction 

Data available at the end 

of each compact (first 

results will be in 2009) 

Achieve sustainable projects in 

compact countries 

Sustainability NA2

Countries improve their capacity to 

meet basic human needs 

United Nations (UN) Human 

Development Index (HDI) 

Supplemental indicator 

Improve GDP growth GDP per capita growth rate Supplemental indicator 

Decrease the percentage of the 

population living on less than $1 or $2

per day 

Percentage of population living 

below $1 and $2 per day 

Supplemental indicator 

Compact-eligible and threshold 

countries receive higher average 

country credit rating 

Institutional investor country credit 

rating 

Supplemental indicator 

Improve annual percentage of 

compact targets met on time 

Compact-specific annual 

performance targets 

Final data available in 

December 2007 

Increase the Conditions Precedent3

met on time 

Compact-specific Conditions 

Precedent 

Target met 

Strategic Goal #1 Results 

The first strategic goal encompasses MCC’s core mission. MCC has one objective that is not a 

supplemental indicator and for which data is currently available, increase conditions precedents 

met on time. As shown above, MCC has met that performance objective. Successful performance 

on this goal demonstrates that compact countries are taking necessary actions to ensure proper 

implementation of their compacts. Additional results will be reported as data becomes available. 

Strategic Goal #1 Strategies and Resources

The key change in MCC’s approach for FY 2007 was an increased focus on compact 

implementation. Specific efforts for increasing efficiency in compact development and 

implementation included: 

 2

 This indicator is still in the process of being defined and therefore baseline and performance result data is not available to

report. This is consistent with MCC’s description of this objective in the FY 2007 Annual Performance Plan. 3

 Conditions Precedent are actions that a compact country needs to take before MCC will release a disbursement of funds. 

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` Restructuring several parts of the organization to streamline the proposal evaluation and 

compact development process 

` Working with the Federal Executive Institute to improve the efficacy and productivity of 

teams working on compacts 

` Providing clear guidance to countries immediately after their eligibility selection to enable 

them to move swiftly toward the development of their compact proposals 

` Offering “MCC University” to representatives from newly selected and currently compacteligible countries to address questions about how to develop and implement a successful 

compact proposal 

` Reducing the time between compact signing, entry into force, and first disbursement through 

“bridge” funding (609(g)) that allowed partner countries to begin working on implementation 

requirements 

` Putting into place fiscal and procurement agents earlier in the process to reduce delays in 

initial compact disbursement 

` Shifting responsibility, decision-making, and authority for implementation from MCC 

headquarters to resident country directors in compact countries 

` Installing a common payment system designed to create efficiencies and minimize idle cash 

balances in countries entering implementation 

Strategic Goal #2 (a): Support Development of a Sound Policy Environment for Economic 

Growth and Poverty Reduction in the Developing World 

Performance Objective Supplemental Indicator

Political Rights 

Civil Liberties 

Control of Corruption 

Government Effectiveness 

Rule of Law 

Improve policy performance in ruling justly 

Voice and Accountability 

Health Expenditure 

Immunization Rates

Improve policy performance in investing in people 

Girls’ Primary Education Completion Rate 

Fiscal Policy 

Cost of Starting a Business 

Time of Starting a Business 

Improve policy performance in economic freedom 

Regulatory Quality 

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MILLENNIUM CHALLENGE CORPORATION

Strategic Goal #2 (b): Threshold Program 

Summary Results 

Total Indicators Performance Summary 

Number of Objectives 88 Number of Targets Met 42 

Number of Indicators 88 Number of Targets Not Met 12 

Number with Data Lags 34 

Strategic Goal #2 Results 

While the performance objectives for Strategic Goal #2 are considered supplemental and do not 

have formal targets or a performance rating, MCC expects the performance on these indicators to 

improve more significantly for threshold and compact eligible countries than for the remaining 

candidate countries. 

Results for the Threshold program, which supports Strategic Goal #2, are detailed in the 

Performance Section of the PAR. Each country established a separate set of performance 

objectives based on its program. The Threshold program met 42 out of 54 performance targets for 

which data was available. 

Strategic Goal #2 Strategies and Resources

MCC facilitated policy reform by two primary means: the “MCC effect” and the Threshold 

program. The “MCC effect” uses the possibility of large-scale assistance to encourage countries 

to adopt the reforms needed to become eligible for an MCC compact. The Threshold program

assists countries in becoming eligible for compact assistance by improving their performance in

the three policy areas. Countries are selected by the MCC Board to participate in the Threshold 

program based on their demonstrated commitment to improving policy performance on MCA 

selection criteria areas. 

In FY 2007, MCC signed seven Threshold agreements, with Jordan, Indonesia, Ukraine, 

Moldova, Kenya, Uganda, and Guyana. Beginning with Threshold programs approved in FY 

2007, MCC has incorporated more vigorous monitoring and evaluation activities and all FY 2007 

programs include independent program evaluations. Whether country specific, activity specific, 

or multi-faceted, these evaluations will provide MCC—and the development community more 

generally—lessons learned and information on the impact of Threshold program activities. 

Threshold Program/USAID Results for FY 2007 

MCC’s Threshold program supports Strategic Goal #2, Support Development of a Sound Policy 

Environment for Economic Growth and Poverty Reduction in the Developing World. USAID 

administers all of the existing Threshold programs on behalf of MCC, providing the benefit of 

USAID’s technical expertise, development experience, field presence, and administrative 

infrastructure. 

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MCC’s approach to the Threshold program necessarily varies from that used with compacts. 

Activities include technical assistance, strategic planning, legislative development, and control of 

corruption. MCC’s strategy is to: 

` Use a short timeframe. Unlike many other policy reform programs, the Threshold program

lasts only for a short timeframe (generally 2 years). This has been shown to be a motivation 

for the countries to act quickly and smartly, taking advantage of MCC resources to accelerate 

their reforms.

` Create a pipeline for compacts. The Threshold program provides a critical pipeline of 

countries for MCC’s compact program, establishing the countries’ relationship with MCC 

and enhancing MCC’s understanding of the specific countries and their challenges. Five 

threshold countries have already been selected for compact eligibility, giving MCC and the 

countries an opportunity to work in partnership on policy reforms and establishing an 

institutional relationship prior to engaging on much larger compact programs. 

As a result of the Threshold program’s focus, it has a separate set of performance measures in

addition to the objectives set under Strategic Goal #2 in MCC’s FY 2007–2008 Performance 

Plan. Each country has a different set of objectives based on its particular program. Details of 

these performance goals and results can be found in Section 2 of this report. 

Strategic Goal #3: Advance International Development Assistance Practice by Continually

Improving MCC’s Operational Effectiveness 

Performance Objective Indicator Target Rating 

Enhance MCA Model recognition 

and support within the International 

Development Community 

Leadership in Development Practice Baseline to be 

set in 2008 

Enhance MCC Country Partnership Assessment of MCC Country Partnership Data available in 

December 2007 

Strategic Goal #3 Results 

Results for performance objectives under Strategic Goal #3 will be reported as data becomes 

available. Baseline data for the Assessment of MCC Country Partnership measure will be based 

on a survey conducted during FY 2007. Results of this survey will be available in early December 

2007. MCC plans to conduct a survey for the Leadership in Development Practice measure 

during FY 2008 to establish the baseline for that indicator. 

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Strategic Goal #3 Strategies and Resources

MCC’s outreach efforts garnered constructive feedback and support from domestic and 

international constituencies for MCC’s approach and support for adequate resources for MCC to 

achieve its goals. 

` MCC continuously refines its operating model: Beginning in FY 2007, MCC set out to

complete larger, more transformative compacts. MCC has been successful in this effort. 

` MCC communicates its lessons learned: MCC employs a variety of tools and techniques in 

our outreach activities, including public speaking engagements, outreach events, the MCC 

website, and working relationships in donor and recipient countries. MCC also collaborates 

with other development practitioners to share lessons learned and to determine which 

practices are most effective. MCC maintains transparency in its operations and disseminates 

information on its practices and operations in order to facilitate feedback that will strengthen 

its model. 

Strategic Goal #4: Build MCC’s Capabilities to Achieve Its Primary Strategic Goals 

Performance Objective Indicator Target Rating 

Efficiency and Resource Productivity 

Measure 1 

Minimize the administrative cost of Target met 

developing and implementing MCC 

compacts compared to the total value of 

compacts

Efficiency and Resource Productivity 

Measure 2 

Below target 

Address and close Inspector General 

recommendations within agreed-upon 

timeframes

Compliance Below target

Achieve high level of staff effectiveness 

and satisfaction 

Staffing Survey Baseline set in

2007 

Strategic Goal #4 Results 

The indicators under Strategic Goal #4 help MCC measure its efficiency and effectiveness. 

Efficiency is defined as the ratio of an effective outcome or output to the total input resources; 

effectiveness is having an intended or expected effect and can be combined with cost information 

to show cost-effectiveness. MCC has two indicators that measure efficiency—one expresses 

efficiency as a function of compact funds committed and the other as a function of compact funds 

disbursed. MCC met one of the two efficiency goals during FY 2007. 

MCC is committed to making the most effective and efficient use of its resources to achieve its 

primary goal of poverty reduction through economic growth. Now that MCC has moved out of its 

start-up phase and its programs on the ground are beginning to achieve results, MCC’s efficiency

will improve as additional compact funds are disbursed. 

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Strategic Goal #4 Strategies and Resources

In FY 2007, MCC undertook a multi-pronged approach to improve its capacity to implement its 

key programs while simultaneously improving the internal control environment so that MCC 

fully complies with federal rules and regulations. Highlights of MCC’s FY 2007 efforts include: 

` Development of a highly effective and diverse workforce. Three hundred direct hire 

employees can support a program of the size and complexity of MCC only if they have the 

highest qualifications and skills, and MCC continues its efforts to recruit a highly qualified 

and diverse workforce while developing a new and comprehensive training program. 

` Pay for performance. MCC fully implemented its delegated personnel authority in March 

2007. It continues to implement its pay-for-performance system. 

` Competitive sourcing of integrated support services. MCC took maximum advantage of 

the President’s initiative to competitively source administrative support services. 

` Compliance with federal requirements. MCC is committed to full compliance with all U.S. 

Government requirements and has continued efforts to achieve unqualified audits and meet 

other key financial management and internal control requirements, such as those contained in 

OMB Circular A-123, Management’s Responsibility for Internal Control. 

Plans to Improve Performance 

Under the Threshold program, which supports Strategic Goal #2, 42 of 54 performance targets for 

which data was available were met. In FY 2007, MCC instituted a new performance measurement 

and monitoring method with USAID for the implementation of the Threshold program. This 

effort is still relatively new, and MCC is continuing to work with USAID to standardize 

performance objectives, monitoring, and reporting. MCC expects that the improved goal setting 

process and monitoring of progress will be reflected in improved performance in future years. 

MCC performed below target in one of the two efficiency indicators under Strategic Goal #4. 

MCC is committed to minimizing administrative costs, and its first objective under Strategic 

Goal #4 is to minimize the administrative cost of developing and implementing MCC compacts 

compared to the total value of compacts. The second efficiency measure, which compares 

administrative costs to funds distributed to MCAs, reflects a slower rate of disbursements than 

originally planned. MCC has a fiduciary responsibility to American taxpayers to make 

disbursements only when partner countries are ready to use the investments to deliver results in 

the lives of the poor, but MCC is addressing the need for faster disbursements by shifting MCC’s 

focus to compact implementation. The strategies noted under Strategic Goal #1 are expected to

help MCC increase disbursements and, as a result, improve performance on the second efficiency

objective in coming years. In addition, MCC produced significant guidance documents in several 

areas, such as interim financial accountability plans, best practices in resettlement, codification of 

monitoring and impact evaluation practices, and multiple procurement topics, that will help 

prepare MCAs to receive disbursements. 

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In FY 2007, MCC started to apply management cost accounting principles to its country-specific 

compacts and Threshold programs on a pilot basis. It will be implemented comprehensively in 

FY 2008. This will allow MCC to report on a consistent and objective basis on the efficiency and 

effectiveness of its programs. The cost accounting initiative will enable MCC in FY 2008 to link 

the strategic goals and performance objectives to specific cost categories and thereby measure the 

efficiency and effectiveness of programs.

Another indicator under Goal 4 for which MCC performed below target was the compliance 

indicator for MCC’s objective to address and close USAID Office of Inspector General (OIG) 

recommendations within agreed-upon timeframes. MCC has already taken action to ensure 

performance on the compliance indicator. MCC completed several OIG recommendations on 

time but failed to formally notify the OIG, resulting in recommendations remaining open. Had 

MCC provided the formal notification, the recommendations would have closed before their due 

dates and MCC would have achieved its performance target of 75 percent. MCC has dedicated a 

resource to track OIG recommendations and due dates. 

Use of Non-Parties 

MCC’s FY 2007 PAR has been developed by the Department of Administration and Finance 

(A&F) with MCC-wide input and the coordination assistance of a consulting company.

FINANCIAL PERFORMANCE AND ANALYSIS

MCC’s financial management operations are managed and controlled by the Division of Finance, 

within A&F and under the leadership of MCC’s Vice President of Administration and Finance. 

The Division is responsible for implementing financial management policies, controls, and 

systems and for providing comprehensive financial management for MCC. In addition, the 

Division is responsible for managing MCC’s internal control implementation and assessment 

efforts. At the beginning of FY 2007, the Division included eight full-time equivalents (FTEs) 

and was composed of three functional teams: (1) Accounting and Financial Operations, (2) 

Budget Formulation and Execution, and (3) Travel Management and Logistics. In FY 2007, the 

Travel Management and Logistics branch was moved to the Division of Administrative Services, 

within A&F, and a new branch, Financial Reports and Analysis, was created. The new Financial 

Reports and Analysis branch was created to respond to increased requests for financial reporting 

by external constituencies including OMB, the Congress, auditors, think-tanks, and other 

constituencies, as well as to create reports for internal management purposes to inform business 

decisions, improve corporate performance, and optimize and streamline resource allocation. In 

keeping with MCC’s results-focused operational model, this branch and function will play a 

central role in MCC’s future efforts to focus on compact implementation oversight. 

` 25 _
MILLENNIUM

` 26 _

 CHALLENGE CORPORATION

The majority of MCC’s financial management services and all its financial management systems, 

including the core financial system and program feeder systems, are provided by the Department 

of Interior’s National Business Center (NBC), one of the Federal Government’s financial 

management “Centers of Excellence” under OMB’s financial management line of business. 

Exhibit 1-7 illustrates the Division of Finance and NBC’s organizational structure. 

In FY 2007, the Division of Finance completed its staffing plan, and it has the resources in place 

to ensure sound financial management for core operations as well as the ability to focus on 

strategic initiatives to improve MCC’s financial operations. The Division of Finance undertook 

several initiatives to enhance financial management and internal controls during the year that will 

yield long-term benefits for MCC including the following: 

` Undertook a focused effort, with the assistance of a reputable international professional 

services firm, to develop and implement a comprehensive financial management policies and 

procedures manual for the use and guidance of all MCC employees. The inaugural edition of 

the manual was completed in March 2007 and revised in August 2007. 

` Continued to improve compliance with OMB Circular A-123 by (1) developing and adopting 

a methodology for selecting and testing internal controls in MCA countries and (2) 

conducting a comprehensive review of NBC internal control documentation and agreeing to 

participate in NBC conducted internal controls testing on MCC transactions in the 

forthcoming fiscal year. 

` Completed its first Program Assessment Rating Tool (PART) assessment. PART is used by 

the OMB to analyze the effectiveness and efficiencies of agencies across government. MCC 

was rated “Adequate,” having just begun showing concrete results and improved efficiencies 

and comparing favorably to other programs with similar purposes and goals. 

` Improved control of cash balances residing in off-shore permitted bank accounts by 

minimizing exposure risk through the successful development of a pilot payment initiative 

referred to as the Common Payment System (CPS). The CPS leverages two existing U.S. 

Department of the Treasury payment systems—the International Treasury Service and the 

Secure Payment System—to facilitate foreign and domestic payments on behalf of the 

accountable entities in our partner countries. In addition to limiting exposure risk, the CPS 

allows for the simplification of local bank agreements and enhances management reporting. 

MCC will begin implementation of the CPS in new MCC compact countries and will develop 

a timeline for implementation in existing compact countries. 
MILLENN

Program Analyst

Financial

Reports and 

Analysis

Program Analyst 

Financial 

Reports and 

Analysis

Vice President for

Administration and Finance

Chief Financial Officer

Vice President for 

Administration and Finance

Chief Financial Officer

Deputy

Vice President

Deputy

Vice President

Deput Deputyy CFO CFO

General

Accounting

Supervisor

General

Accounting

Supervisor

Billings and 

Collections

Supervisor

Billings and 

Collections

Supervisor

Lead

Accountant

Lead

Accountant

General Accounting

Branch Chief

General Accounting

Branch Chief

Policy and Procedure 

Agreements/

SLA POC

Policy and Procedure

Agreements/

SLA POC

Vendor

Payments

Supervisor

Vendor

Payments

Supervisor

PCS

Supervis

PCS

Supervis

Accounting 

Operations

Division Chief

Accounting

Operations

Division Chief

National Business C

Assistant CFO

Financial Operations

Assistant CFO

Financial Operations

Senior Accountant

Financial Analyses 

and Policy 

(Domestic)

Senior Accountant

Financial Analyses

and Policy

(Domestic)

Senior Accountant

Financial Analyses

and Policy

(Country Programs)

Senior Accountant

Financial Analyses

and Policy

(Country Programs)

Bud Budge ge t Officer t Officer

Senior Budget

Officer

Senior Budget

Officer

Exhibit 1-7: Division of Finance and National Business Center 
MILLENNIUM CHALLENGE CORPORATION

` Developed managerial cost accounting functional requirements to be used in implementing a 

system acquisition strategy focused on acquiring an integrated system capable of generating 

budget, performance, and other data-driven management information tools for management 

decision-making. The initiative also led to the development of MCC’s cost accounting 

methodology for (1) accumulating and reporting cost information, (2) establishing 

responsibility segments to match costs with outputs, (3) determining the full costs of good 

and services, (4) recognizing inter-entity costs, and (5) using appropriate costing 

methodologies to accumulate and assign costs to outputs. 

During FY 2007, MCC’s financial operations continued to intensify with the signing of five 

compacts with eligible countries.4

 MCC’s cumulative level of compact commitments increased

significantly during the year and will continue to trend upward as MCC formally enters into 

additional compacts with eligible countries in future years. The following sections present the 

overall perspectives and highlights of MCC’s financial performance through the end of FY 2007. 

Financial Statements Highlights 

For FY 2007, MCC received an unqualified (“clean”) opinion from its independent auditors on its 

annual financial statements. While the MCC’s auditors rendered an unqualified opinion on the 

financial statements, they also reported two material weaknesses and two material noncompliance findings necessitating resolution (see the auditor’s report at the end of this document). 

While MCC is not a CFO Act agency, MCC adheres to the requirements and principles imposed 

upon such agencies by the CFO Act, the Government Management Reform Act of 1994, and 

other pertinent laws and regulations. As such, MCC prepares annual financial statements for audit 

and presentation to OMB and other stakeholders. MCC’s comparative financial statements 

present MCC’s financial position and its changes during the reporting period, its cost of 

operations, and its budgetary resources and their status for the fiscal years ending September 30, 

2007 and September 30, 2006. 

Balance Sheets 

The balance sheets present amounts of future economic benefits owned or managed by MCC 

(assets), amounts owed by MCC (liabilities), and amounts that constitute the difference (net 

position). 

 4 MCC entered into compacts with the following countries during FY 2007: Mali, El Salvador, Mozambique, Lesotho, and 

Morocco. 

` 28 _
MILLENNIUM CHALLENGE CORPORATION

Assets and Unexpended Appropriations 

As of September 30, 2007, MCC reported total assets of almost $5.6 billion, an increase of 

$1.5 billion from September 30, 2007. This increase is primarily the result of funds appropriated 

by Congress that had not been expended as of the end of the year. At fiscal year-end, MCC held 

$5.5 billion in unexpended appropriations, $0.7 billion of which represent the balance of 

unobligated funds not available. 

MCC’s Fund Balance with Treasury constitutes the vast majority (99.3 percent) of total assets. 

Because MCC neither owns any of its facilities or other real property nor has any capital leases 

for office space or its information technology (IT) equipment, MCC has very few capital assets in 

relation to total assets. The increased capitalization thresholds are $200,000 for IT equipment and 

$50,000 for other fixed assets. As of September 30, 2007, MCC reported fixed assets of $7.1 

million, composed solely of leasehold improvements. The leasehold improvements are for 

enhancements made to leased office space. 

Liabilities and Net Position 

As of September 30, 2007, MCC had approximately $44.6 million in liabilities, which were 

amounts owed to its vendors, contractors, trading partners, and employees. MCC’s ratio of assets 

to liabilities as of September 30, 2007, was 124 to 1.

MCC’s overall net position as of September 30, 2007, was $5.54 billion. During FY 2007,

MCC’s net position increased by $1.46 billion, or 26 percent from September 30, 2006. During 

this period, MCC received $1.752 billion in appropriated funds and expended approximately 

$279 million. The available appropriations that are reflected in MCC’s positive net position 

represent the resources necessary to fund future compacts and are indicative of a lag between

appropriation, commitment, and expenditure of compact funds. As of the end of FY 2007, MCC 

signed compacts with 14 countries and was working with 11 other countries to complete 

compacts. 

Statements of Net Cost 

The Statements of Net Cost (SNC) are designed to show separately the components of the net 

cost of MCC’s operations for the period.

Program Costs 

During FY 2007, MCC incurred $287.6 million in net program costs. As of the end of FY 2007, 

MCC had cumulatively disbursed $32 million in advances to MCA-accountable entities and other 

Federal Government agencies. 

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MILLENNIUM CHALLENGE CORPORATION

Statements of Changes in Net Position 

The Statements of Changes in Net Position (SCNP) report the change in net position during the 

reporting period. Net position is affected by changes to its two components: Cumulative Results 

of Operations and Unexpended Appropriations. Cumulative Results of Operations amounted to 

$4.7 million as of September 30, 2006, and $7.4 million as of September 30, 2007. This balance 

is the cumulative difference, for all previous fiscal years through 2007, between funds available 

to MCC from all financing sources and the net costs of MCC. 

Statements of Budgetary Resources 

The Statements of Budgetary Resources (SBR) and related disclosures provide information about 

how budgetary resources were made available and their status at the end of the period. The 

Resources section of the statements present the total budgetary resources available to MCC. The 

Status of Resources section of the statements displays information about the status of budgetary

resources at the end of the period. The total amount displayed for the status of budgetary

resources equals the total budgetary resources available to MCC as of the reporting date. For 

FY 2007, MCC had total budgetary resources of $4.4 billion, including $3.8 billion carried 

forward at the beginning of FY 2007 from prior years. MCC incurred obligations of $2.2 billion 

for the year, an almost 100 percent increase from the $1.1 billion of obligations incurred during 

2006. 

The following section provides additional details pertaining to MCC’s use of the funds 

appropriated to it by Congress. 

Status and Use of Funds 

MCC’s programs and activities are funded by Congress 

through annual no-year appropriations. Since its 

establishment, MCC has received total funding of almost 

$6 billion, including $1.752 billion in FY 2007 (see 

Exhibit 1-8). 

As of September 30, 2007, $1.5 billion of MCC’s 

realized resources represented the balance of apportioned 

funds available for obligation. While MCC receives noyear funding, OMB apportions, per congressional limits, 

the amount of funds that MCC may obligate for administrative purposes. Administrative costs 

include personnel salaries and benefits, leases, rentals, travel, and other miscellaneous expenses. 

For FY 2007, OMB apportioned $86.2 million for MCC to use for administrative purposes. OMB 

authorized MCC to use $11.2 million from FY 2005 and FY 2006 appropriations. During 

FY 2007, MCC obligated approximately $81 million in administrative funds, or 94 percent of the 

total amount apportioned by OMB. 

Exhibit 1-8: Annual Funding by

Fiscal Year (in thousands) 

Fiscal 

Year 

Annual Funding 

(in thousands) 

2004 $ 994,000 

2005 1,488,100 

2006 1,752,300 

2007 1,752,300

Total $5,986,700 

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MILLENNIUM CHALLENGE CORPORATION

As noted in Exhibit 1-9, administrative funds represent a small proportion of the total funds 

provided by Congress, while in FY 2007 about 96 percent of MCC’s obligations were for 

program operations. Should MCC not obligate the total amount of administrative funds 

apportioned by OMB during the budget year, the excess (unobligated) amount is no longer 

available for administrative purposes but “rolls over” and is subsequently available for program

purposes. 

Exhibit 1-9: Obligations by Fund Category (in thousands) 

Funds Category

FY 2007 Obligations 

(in thousands) 

Lifetime Obligations

(in thousands) 

Administrative $ 81,448 $ 197,099 

Compacts (including CIF/Grants) 1,850,021 3,055,331

609(g) 14,544 49,160 

Due Diligence 43,321 84,765 

Threshold 182,160 234,953 

Audit 2,549 7,026 

Total $ 2,174,045 $ 3,628,334 

MCC classifies appropriations in six fund categories: 

` Administrative. Funds appropriated by Congress and apportioned by OMB for the purpose 

of operating expenses.

` Compact. Funds approved by Congress, apportioned by OMB, and obligated by MCC to 

cover compacts between MCC and partner countries. 

− Compact Implementation Fund (CIF). Funds approved by Congress and apportioned 

by OMB. CIF funds represent a portion of the funds agreed to in a compact and are made 

available at the time of compact signing for the purposes of speeding implementation 

between compact signing and entry into force. MCC uses authority provided in Section 

609(g) of its authorizing legislation to provide these funds to a partner country.

5

 

− Grants. Funds apportioned by OMB for grants and cooperative agreements. 

` 609(g). Funds approved by Congress and apportioned by OMB to fund contracts or grants for

the purpose of facilitating the development and/or implementation of a compact between the 

MCC and a partner country. 

 5

 Section 609(g) of the Millennium Challenge Act of 2003 provides that the MCC CEO may enter into contracts or make grants

for any eligible country for the purpose of facilitating the development and implementation of the compact between the 

United States and the country. 

` 31 _
MILLENNIUM CHALLENGE CORPORATION

` Due Diligence. Funds apportioned by OMB and used by MCC to cover costs associated with 

assessing compact proposals developed by eligible countries and providing compact 

implementation oversight. 

` Threshold. Funds appropriated by Congress, apportioned by OMB, and used by MCC to 

assist countries in meeting selection criteria for MCA eligibility. (Such countries are 

considered “on the threshold” of qualifying for eligibility for an MCC compact.)

` Audit. Funds appropriated by Congress and apportioned by OMB for audits of MCC 

operations and programs. (The USAID OIG is responsible for MCC audits.)

During FY 2007, MCC incurred total obligations of approximately $2.2 billion for all program

fund categories. Total lifetime obligations incurred by MCC since inception are approximately

$3.6 billion. Exhibit 1-9 presents total FY 2007 and lifetime obligations by fund category. 

Exhibit 1-10 shows funds obligated for compacts by country as of the end of FY 2007. 

In addition to the program obligations in 

FY 2007, MCC recorded an estimated 

$1.47 billion in commitments (anticipated 

obligations) for signed compacts with Morocco 

($665 million), Lesotho ($349 million), and 

Mozambique ($456 million) that had not 

entered into force during FY 2007. 

Financial Management Systems,

Internal Controls, and Compliance with 

Laws and Regulations 

Exhibit 1-10: Compact Obligations

(in thousands) 

MCA/ 

Country 

Total Compact Obligations

(in thousands) 

Armenia $ 235,650 

Benin 307,298 

Cape Verde 110,079 

Georgia 294,693 

Ghana 547,009 

Honduras 215,000 

Lesotho 15,669 

Kenya 100

Morocco 32,400 

Madagascar 109,773

Mali 460,684 

Mozambique 25,346 

Nicaragua 175,000 

El Salvador 460,940 

Vanuatu 65,690 

Total $ 3,055,331 

Note: Compact obligations listed are inclusive of CIF 

and grant funds per Section 609(g) of the Millennium

Challenge Act of 2003. 

MCC uses NBC as a financial management 

shared services provider for financial and 

payroll systems. MCC is responsible for 

overseeing NBC and ensuring that financial 

systems and internal controls are in place to 

fulfill legislated and regulatory financial

management requirements. The following 

sections present information regarding MCC’s 

financial systems, controls, and compliance 

with key laws and regulations. 

` 32 _
MILLENNIUM CHALLENGE CORPORATION

Management Assurances

Federal Financial Management Improvement Act of 1996 

The Federal Financial Management Improvement Act (FFMIA) requires federal agencies to

implement and maintain financial management systems that are in substantial compliance with 

(1) federal financial management systems requirements, (2) federal accounting standards, and (3) 

the United States Standard General Ledger at the transaction level. Because MCC uses NBC for 

financial management and reporting services, MCC relies upon NBC’s evaluations of its financial 

management systems and its determinations of compliance with FFMIA. NBC issued a letter 

dated October 1, 2007, stating that its auditor, KPMG, found no weaknesses or significant 

deficiencies in evaluating NBC’s financial systems during the Statement of Auditing Standards 

No. 70 (SAS 70) review. 

Federal Managers’ Financial Integrity Act of 1982 

The Federal Managers’ Financial Integrity Act (FMFIA) of 1982 and the related revised OMB 

Circular No. A-123 requires agencies to issue an annual statement of assurance to the President 

and Congress on their internal controls. Internal controls are the organization, policies, and 

procedures used to reasonably ensure that (1) programs achieve their intended results; (2) 

resources are used consistent with agency mission; (3) programs and resources are protected from

waste, fraud, and mismanagement; (4) laws and regulations are followed; and (5) reliable and 

timely information is obtained, maintained, reported, and used for decision-making. MCC’s 

management is responsible for ensuring that proper internal controls over financial reporting and 

systems are in place and are functioning effectively.

In FY 2007, MCC assessed MCC’s internal controls to verify that MCC could provide a 

reasonable assurance that internal controls are in compliance with objectives established by OMB 

Circular A-123 and FMFIA. The components involved in the assessment and development of 

MCC’s internal control review include: 

` Scope and Materiality Report 

` Entity Level Control Report 

` A review of transaction-related controls at MCC’s service provider, NBC 

` Report on Internal Controls

These components constitute a comprehensive internal control review. Overall, the assessment 

found that MCC made significant progress on improving internal controls. Specifically, MCC has 

considerably strengthened its internal controls environment across the organization, in particular 

within A&F, by developing formal financial management policies and procedures. Moreover, the 

` 33 _
MILLENNIUM CHALLENGE CORPORATION

assessment found that MCC is currently working to establish a greater degree of oversight over 

its entity level controls. These activities include resolving information technology (IT) system 

issues, developing a plan to meet Federal Information Security Management Act (FISMA) 

compliance requirements, establishing an MCC-wide employee training program, and 

decentralizing budgets to MCC departments. 

Internal Controls over Financial Reporting 

In December 2004, OMB revised Circular A-123 to improve federal managers’ accountability 

and the effectiveness of federal programs by establishing, assessing, correcting, and reporting on 

internal control. Circular A-123, Appendix A, provides requirements and a methodology for 

agency management to assess, document, and report on internal control over financial reporting. 

The revised circular was effective for FY 2006 (and thereafter). 

MCC’s FY 2007 A-123 assessment documented MCC’s business processes and key controls for 

the following 11 key business processes:

` Contracts and Grants Management ` Human Capital Management 

` Compact Management ` Information and Technology

` Travel Management ` Personnel, Salary, and Benefits 

` Funds Management ` Interagency Agreements 

` Financial Reporting ` Property, Plant, and Equipment 

` Budget 

The assessment confirmed that MCC had made significant progress in addressing internal control 

weaknesses during FY 2007. In accordance with recommendations from the Audit of the 

Millennium Challenge Corporation’s Financial Statements, Internal Controls, and Compliance for 

the Period Ending September 30, 2006 and 2005, MCC developed and implemented a Financial 

Management Policies and Procedures Manual. MCC also made significant progress in developing 

asset records by taking an initial inventory and approving an asset management policy. The 

Division of Finance increased its involvement in reviewing financial reports from MCA and has 

ensured that disbursements are made monthly rather than quarterly. 

According to the Implementation Guide for OMB Circular A-123, agencies should confirm that 

their financial service providers implement adequate internal controls and can determine whether 

additional testing at the service provider is necessary. As part of conducting its FY 2007 OMB

A-123 review, MCC, in collaboration with a contractor, traveled to NBC’s Accounting

Operations Branch in Lakewood, Colorado. While at NBC, the contractor reviewed the business 

process documentation and key control test results for the processes NBC performs on behalf of 

MCC. 

` 34 _
MILLENNIUM CHALLENGE CORPORATION

In July 2007, NBC issued its SAS 70 reports for the Federal Personnel and Payroll System and 

the Oracle Federal Financial System and its assurance letter. The two reports and the assurance 

letter did not disclose any findings for the period of June 16, 2006 through June 15, 2007. The

letter states that the results of the testing conducted between October 1, 2006 and May 31, 2007

indicated that no material weaknesses or significant deficiencies were uncovered and that 

processes and controls in place during that time period were adequate and effective to safeguard

data from waste, fraud, abuse, and destruction. NBC sent an update to this letter in October 2007 

for the remaining period, June 15, 2007 to September 30, 2007. NBC reported that controls had 

not changed during that period and the assessment in the previous letter still applies. 

Controls over financial reporting for the MCA countries (countries for which formal compacts 

between MCC and the countries had been signed during FY 2006 and which had entered into 

force) were not included in the assessment because all the countries were in the early stages of 

compact implementation. However, MCC, with contractor assistance, reviewed all current 

compact countries for available policies, audit documentation, and relevant agreements. The 

review also explored the approach to overseas A-123 internal controls testing of key business 

processes, including determining how to decide which countries to assess in the future. 

On the basis of MCC’s assessment of its internal controls, NBC’s assurance statements, and other 

relevant information (such as the Government Accountability Office [GAO] and OIG audit 

reports), the CEO concluded with reasonable assurance that MCC’s internal controls are in 

compliance with the provisions of FMFIA, Section 2, and that MCC is in compliance with the 

internal control objectives stipulated by OMB in Circular A-123. 

Compliance with Laws and Regulations 

In addition to complying with FMFIA and OMB Circular A-123 requirements, MCC’s 

management is also responsible for ensuring MCC’s compliance with other relevant financial 

management laws and regulations. Principal among these are: 

` Prompt Payment Act 

` Debt Collection Improvement Act of 1996 (DCIA) 

` Improper Payments Information Act of 2002 

` Federal Information Security Management Act (FISMA) 

` 35 _
MILLENNIUM CHALLENGE CORPORATION

Prompt Payment Act 

The Prompt Payment Act (Public Law 100-496), as amended, requires federal agencies to pay 

vendors transacting business with them in a timely manner. With certain exceptions, the Act 

requires agencies to make payments within 30 days of the later of (1) receipt of properly prepared 

invoices or (2) the receipt of goods or services. For amounts owed and not paid within the 

specified payment period, agencies are required to pay interest on the amount owed at a rate 

established by the Department of the Treasury. 

An agency’s performance under the Act for any given period is most often measured by the 

percentage of payments made within the specified timeframes out of all payments subject to the 

Act’s provisions. In FY 2007, MCC’s “prompt payment” performance improved to 97.5 percent, 

a 1.9 percent increase over FY 2006’s 95.6 percent. During the year, MCC paid $6,960 in late 

interest to vendors, a 33 percent decrease from FY 2006’s $10,490. 

Also, during the year, NBC made 98.9 percent of MCC’s vendor payments via electronic transfer, 

a 2.5 percent increase over FY 2006’s 96.4 percent. 

Debt Collection Improvement Act of 1996 

In 1996, Congress passed the DCIA in response to steady increases in the amount of delinquent 

debt owed to the Government. Under the Act, all federal agencies must refer past due, legally 

enforceable, non-tax debts that are more than 180 days delinquent to the Department of the 

Treasury’s Financial Management Service (FMS) for collection through the Treasury Offset 

Program. A debt is considered delinquent if it is 180 days past due and is legally enforceable. A 

debt is legally enforceable if there has been a final agency decision that the debt, in the amount 

stated, is due and there are no legal bars to collection action. 

During FY 2007, MCC referred no debts to FMS for collection. 

Improper Payments Information Act of 2002 

An improper payment is any payment that should not have been made or was made in an 

incorrect amount. The President has made the development of management controls to detect and 

prevent improper payments a major focus of his Management Agenda. Congress, following the 

President’s lead, passed the Improper Payments Information Act of 2002 (Public Law 107-300). 

The Act requires agencies to review annually all programs and activities to identify those that are 

susceptible to improper payments, estimate the annual improper payments in susceptible 

programs and activities, and report the result of their improper payment reduction plans and 

activities. OMB Memorandum 03-13 defines a program as susceptible to improper payments if it 

has improper payments that exceed 2.5 percent and $10 million of program spending. MCC can 

report excellent payment performance that was significantly below the OMB ceiling. 

` 36 _
MILLENNIUM CHALLENGE CORPORATION

Federal Information Security Management Act 

The OIG audit of FY 2007 indicates that MCC has made improvements in complying with 

FISMA. In FY 2006, the OIG recommended that MCC complete the Certification and 

Accreditation process on MCCnet, provide quarterly FISMA filings to OMB, conduct risk 

assessments and security audits, document policies and procedures, provide security training for 

staff, and establish a comprehensive Continuity of Operations Plan (COOP). 

To address these recommendations, MCC formed a dedicated FISMA team. During FY 2007, 

MCC completed one-third of the Certification and Accreditation. MCC also conducted a risk 

assessment and security awareness training. In addition, MCC brought all servers into compliance 

with requisite security patches and updates. MCC also introduced and tested a new COOP. 

Although MCC is making progress, weaknesses still remain. For example, MCC needs to prepare 

additional policies and procedures for its information security program; reconsider the lowimpact categorization assigned its general support system, MCCnet; and strengthen its process for 

mitigating security vulnerabilities on its network. In addition, it needs to address two FISMA 

audit recommendations that pertain to weaknesses in MCC’s COOP and the Certification and 

Accreditation of its general support system. 

MCC’s system now stores sensitive data and should be categorized as a medium impact system, 

thus requiring greater protection. Using the guidelines in Federal Information Processing 

Standard (FIPS) 199, MCC’s Information Technology Department and the FISMA Internal Audit 

Team are taking the necessary steps to secure MCCnet as a moderate impact system. 

MCC’s internal FISMA team began conducting MCCnet scans in July 2007 and correcting 

vulnerabilities that were found. MCC’s internal FISMA team also will make the corrections to the 

findings contained in the 2007 OIG audit. The expected completion date for all additional 

FISMA-related improvements is March 2008. 

Summary of Material Weaknesses, Non-Compliance, and Corrective Actions 

MCC received two material weakness findings related to internal control over financial reporting 

and two instances of non-compliance with federal regulations. MCC reviewed and commented on 

current status and corrective actions for the future. The section below summarizes the audit 

findings and MCC’s corrective action plans. 

` 37 _
MILLENNIUM CHALLENGE CORPORATION

MCC Did Not Sufficiently Execute Its Monitoring Functions Related to Advances (material

weakness) 

MCC agreed to work with its financial services provider, the NBC, to ensure all prior and future 

advances are liquidated on a first in, first out (FIFO) basis and to update the Financial 

Management Policy and Procedures to affect this change. 

MCC implemented the CPS in Mali in May 2007. All countries signing compacts after that date 

will use CPS. The CPS provides for payment of MCA expenses through the U.S. Treasury based 

upon presentation of a valid approved invoice. CPS supports sound cash management by

eliminating the current practice of cash advances to MCA compact countries. MCC will establish 

a timeline for converting to CPS countries that entered into compacts prior to May 2007. In the 

interim, MCC intends to follow sound cash management practices and will disburse funds 

consistent with the GAO policy and based on the best information available and grant 

requirements in any given quarter. MCC will continue to release the funds in monthly tranches. 

MCC Lacks Written Policies and Procedures Related to Financial Reporting Accountability

and Document Control (material weakness) 

In conjunction with the reorganization of the Operations Department, MCC will be reviewing 

existing polices and procedures related to compact implementation. This will include 

documenting the roles and responsibilities for ensuring receipt of required reports from partner 

countries. 

MCC has submitted a comprehensive Records Disposition (retention) schedule to the National 

Archives and Records Association for review and approval within the next 6 to 9 months. The 

issue of version control and a centralized repository is being addressed as part of development of 

the Enterprise Architecture and the implementation of the Business Intelligence and Data Storage 

(BIDS). A key component of BIDS will be the Administrative Data Store (ADS). The ADS is a 

data warehouse that will include MCA compact data; MCA progress reports; and records of MCC 

reviews, approvals, and decisions captured through an automated workflow process. The 

expected implementation date for this BIDS component is June 2008. In the interim, MCC will 

establish procedures to address the version control issue using existing tools. 

MCC Does Not Fully Comply With the Federal Financial Management Improvement Act 

(material non-compliance) 

During FY 2007, A&F made substantial progress on reviewing its current financial systems 

environment and developing alternatives for a fully integrated system to meet FFMIA 

requirements. A&F established system requirements, performed a gap analysis based on its 

current environment, and developed cost alternatives to close the existing gaps. A&F also will

work with OMB to find the best resolution for this condition, whether with the NBC or some

other federal or private center of excellence. 

` 38 _
MILLENNIUM CHALLENGE CORPORATION

A&F will continue to work with the NBC on the interface between E-travel and Oracle to resolve 

the issues noted during initial testing phases. Also, MCC will be changing to a new government 

credit card provider in FY 2008 for travel and purchase card transactions to address the need for 

an integrated financial management system. MCC is currently considering banks that have a fully 

tested and integrated interface with the Oracle Federal Financial System (OFFS). Regarding the 

payroll integration, the NBC has indicated its business plan does not include the integration of 

payroll with OFFS apart from the labor interface already provided. 

MCC Does Not Fully Comply With the Federal Information Security Management Act

(material non-compliance) 

During FY 2007, MCC management created a new Chief Information Systems Security Officer 

(CISSO) position, hired two full-time FISMA staff, and completed three milestones in the initial 

phases of FISMA compliance. Also during the year, MCC approved three additional FISMA 

team members to review policies and procedures, document controls, and ensure the necessary 

steps toward full FISMA compliance. 

Other Management Information, Initiatives, and Issues 

While MCC has received unqualified opinions on its annual financial statements, improvements 

and refinements are warranted in the financial management operations area to further enhance 

efficiencies and effectively resolve identified deficiencies. The following are brief summaries of a 

number of goals, initiatives, and issues that the Division of Finance will address in future fiscal 

periods: 

` Implementation of Enterprise Architecture. Contribute financial management, budget, and 

performance expertise in MCC’s efforts to implement a comprehensive Enterprise 

Architecture, which will include a fully integrated financial management application, a 

collaborative environment application (i.e., SharePoint), a business intelligence application 

and data store, and a management information system. 

` Consistent and comparable performance metrics for compacts. Further develop MCC’s 

reporting capacity and routinely disseminate to MCC’s managers viable and pertinent 

information on funds status to assist in the development of performance metrics to be used for 

decision-making and monitoring of corporate performance. 

` Improve financial management operations and internal controls. Continue to devise, 

enhance, implement, and maintain strong financial management policies, procedures, and 

internal controls, stressing continuous improvement in all aspects of MCC’s financial 

management operations. Desired outcomes include improved timeliness, accuracy, and 

consistency in the financial data and reports provided to internal and external customers. 

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Limitations of Financial Statements 

The principal financial statements have been prepared to report the financial position and results 

of MCC’s operations pursuant to the requirements of 31 U.S.C. 3515(b). While the statements 

have been prepared from the books and records of MCC in accordance with Generally Accepted 

Accounting Principles (GAAP) for federal entities and the formats promulgated by OMB and 

prescribed by the Federal Accounting Standards Advisory Board, the statements are in addition to 

the financial reports used to monitor and control budgetary resources that are prepared from the 

same books and records. 

The statements should be read with the understanding that they have been prepared for a 

component of the U.S. Government, a sovereign entity. 

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2. PERFORMANCE REPORT

In accordance with the Government Performance Results Act of 1993, MCC’s Board of Directors 

approved its Strategic Plan on November 8, 2005, covering FY 2006 to FY 2011. The Strategic 

Plan defines MCC’s mission as follows: 

MCC’s mission is to reduce poverty by supporting sustainable, transformative 

economic growth in developing countries which create and maintain sound policy

environments. 

The Strategic Plan defines four strategic goals for MCC: 

` Strategic Goal #1. Achieve sustainable, transformative development. 

` Strategic Goal #2. Support development of a sound policy environment for economic growth 

and poverty reduction in the developing world. 

` Strategic Goal #3. Advance international development assistance practice by continually 

improving MCC’s operational effectiveness. 

` Strategic Goal #4. Build MCC’s capabilities to achieve its primary strategic goals. 

MCC developed and submitted a FY 2007 Performance Plan to OMB in February 2007. The 

Performance Plan includes input, output, and outcome measures that tie to the four strategic goals 

outlined in the 5-year Strategic Plan. Exhibit 2-1 maps the annual performance goals from the 

FY 2007 MCC Performance Plan to MCC’s strategic goals. The following section details MCC’s 

FY 2007 annual performance objectives, methods for verifying data, and approach to setting 

targets and measuring progress. The remaining portion of the performance section is dedicated to 

reporting the results for each of MCC’s annual performance objectives for 2007, including data 

from previous years as available. 
ILLENNIUM CHALLENGE CORPORATION

42 _

Exhibit 2-1: MCC’s Corporate Performance Plan 

M`

GRAPHIC Millennium (MCC) PAR Report 10/06

Reduce poverty by supporting sustainable, transformative

economicgrowth indeveloping countrieswhich create and 

maintain soundpolicy environments

Reduce poverty by supporting sustainable, transformative

economicgrowthindeveloping countrieswhich create and

maintain soundpolicy environments

Strategic 

Goals Outcomes Outputs 

EEccononomi omicc G Grrowowthth

PoPoveverrtty Re y Redduuccttiioonn

Susta Sustaiinanabil biliityty

EEccononomi omicc G Grrowowthth

PoPoveverrtty Re y Redduuccttiioonn

Susta Sustaiinanabil biliityty

TTrraannsfor sformmaativtivee I Immppaactct

Poli Policcyy Perfor Performmaannccee

Recognition 

and Support

Recognition 

and Support

Mission

Achieve sustainabletransformativedevelopment

Achieve sustainabletransformativedevelopment

Support development of sound policy environment for economic growth and poverty reduction in the developing world

Support development of sound policy environment for economic growth and poverty reduction in the developing world

Advance international development assistancepractice by continuallyimproving MCC's operational effectiveness

Advance international development assistancepractice by continuallyimproving MCC's operational effectiveness

Build MCC's capabilitiesto achieve its primarystrategic goals

Build MCC's capabilitiesto achieve its primarystrategic goals

Quality

Compact Programs

Quality

Compact Programs
MILLENNIUM CHALLENGE CORPORATION

PERFORMANCE INDICATOR FRAMEWORK

MCC is designed to support innovative strategies and to ensure accountability with measurable 

results. MCC integrates monitoring and evaluating into each compact so that progress can be

measured against targets agreed to at the start of the program. However, due to the nature of 

international development work, the difficulty of obtaining current data, and the impact of 

external factors, performance is not always quantifiable or immediately measurable. Setting 

baseline data has been difficult due to the lack of current data. Many of MCC’s partner countries 

also have limited capacity to measure outcome or output results. In addition, compacts are 

normally implemented over a 5-year period, making outcome data available only well into the 

implementation period. 

As a result, MCC did not set targets for all indicators for FY 2007/2008. Please see MCC’s policy 

on performance targets below for details on MCC’s approach. In the coming years, MCC will 

consider further refinements to these measures, including the possibility of measuring criteria 

relative to trends, addressing the problem of infrequently measured data, and considering 

alternative data sources. MCC has already incorporated significant enhancements to its corporate 

performance management by establishing a Performance Management Working Group, bringing 

together MCC resources across all its departments. The working group met weekly over a period 

of 5 months to assess and screen the quality of numerous data sources for the corporate 

performance indicators. The working group only selected data that is SMART (Specific, 

Measurable, Achievable/Attributable, Realistic/Relevant, and Timely/Trackable). Accordingly, 

most data comes from reliable external sources, including other donor agencies or independent 

evaluations contracted for by the candidate countries during the compact implementation process. 

Where data is not available for select indicators, MCC is developing and conducting surveys by

independent third parties to assess its performance. 

Data Verification and Validation 

MCC has developed improved tools and increased transparency for economic analysis, including 

joint efforts with newly eligible countries to do a growth constraint analysis as a framework for 

consultation on program development, enhanced beneficiary analysis, and improved sensitivity 

analysis of expected returns. For performance results that are based on data that MCC collects, 

MCC has taken steps to ensure that information from MCA reports is accurate. MCAs are 

required to submit comprehensive quarterly reports that form the basis for annual performance 

evaluations on compact-specific indicators. MCC reviews these reports for accuracy to ensure 

that the final performance results reported in the PAR are accurate. 

Beginning with threshold programs approved in FY 2007, MCC has incorporated more vigorous 

monitoring and evaluation activities, and all FY 2007 programs include independent program 

evaluations. MCC has devised Results Reporting Tables (RRT) to measure quarterly progress on 

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MILLENNIUM CHALLENGE CORPORATION

a series of program indicators. MCC initiated this process and has coordinated efforts closely

with USAID, which submits the RRTs along with its quarterly narrative reports. The RRT 

indicators typically originate either from the Threshold Country Plan or from a list of 

performance benchmarks that MCC, USAID, and the Threshold country government work 

together to develop. 

MCC Policy on Performance Targets 

MCC’s policy on setting performance targets addresses three related issues: which indicators 

should include targets, how numerical values should be set, and how frequently performance 

against targets should be assessed. It is MCC’s policy that the performance indicators selected for 

targeting be important, measurable, and to the extent possible subject to MCC’s control. 

Compact-specific target values are established according to what would be required to achieve 

the economic returns or benefits envisaged at the time the project was presented for approval by 

the MCC Board of Directors. Therefore, the target values are closely linked to the original 

justification of the projects. 

The frequency of performance assessment against output targets is established on a case-by-case 

basis, dictated by the nature of the program. For example, infrastructure projects that do not start 

construction for a year do not have targets for the first year. Agricultural projects involving crops

that will mature in year three will have targets on yields starting in year three. Assessment against 

compact-specific outcome targets will not normally take place until later in the life cycle of each 

compact because their targets assume the completion of most compact activities.

Supplemental Measures 

Because MCC’s mission is to be transformative, a number of supplemental measures of economic 

growth, poverty reduction, and policy reform are included in this performance plan. However, 

these measures do not strictly meet the “A” in the SMART criteria, because they are not directly 

attributable to MCC interventions. For example, while MCC can point to specific examples 

where the “MCC effect” has led to policy reform measures, MCC cannot claim credit for country 

performance on the 13 policy indicator measures in this plan. Similarly, while MCC and partner 

countries have jointly set targeted economic growth and poverty reduction targets in each MCC 

compact, MCC will not be solely responsible for nation-wide improvements in per capita income 

growth, poverty rate reduction, the Human Development Index, or the Institutional Investor credit 

rating. 

At the same time, dropping these indicators altogether would deprive MCC of important 

information on the overall progress of partner countries that is directly relevant to MCC’s 

programs. Therefore, while MCC will measure trends in these 17 supplemental indicators, it will 

not set specific targets for these indicators or otherwise treat them as formal outcome indicators. 

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MILLENNIUM CHALLENGE CORPORATION

External Factors Affecting Performance 

Various external factors affected MCC’s ability to reach its performance goals for FY 2007–

2008. These factors, consistent with those identified in MCC’s FY 2007 Performance Plan, 

included: 

` Economic and political environment. Stable economic and political environments in partner 

countries are necessary for these countries to pursue MCC programs. 

` Policy reform. MCC compact, threshold, and candidate6

countries must undertake significant 

policy reforms that may face significant domestic opposition. Compact-eligible countries at a 

minimum must avoid backsliding on key policy issues. 

` Compact-eligible country capacity. Compact-eligible countries must adequately engage in 

all aspects of compact development and implementation with sufficient resources and human 

and political capital. Inadequacies in administrative capability, technical expertise, fiscal and 

procurement capacity, and other areas can impact a country’s performance. 

` Congress. Congress authorized MCC in 2004, and as an entirely grant-making institution 

MCC, depends on congressional appropriations to fund its compacts and Threshold programs. 

` Partner U.S. Government agencies. MCC must maintain the support of agencies that serve 

on the MCC Board, as well as OMB and the National Security Council, on key policy and 

operational issues. MCC also depends on assistance from a number of agencies in the 

implementation of MCC programs. 

` Non-Governmental Organizations. The support of key U.S. NGOs is essential to MCC 

because NGOs provide (a) an independent source of information about the countries with 

which MCC works, and (b) can provide independent evaluation and validation of specific 

MCC programs. 

 6

 Candidate countries are those countries that meet per capita income levels set by MCC. 

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MCC PERFORMANCE IN FY 2007 

STRATEGIC GOAL #1 

Achieve Sustainable, Transformative Development 

The following are the objectives that constitute Strategic Goal #1: 

1.1 Generate economic growth and reduce poverty in compact regions 

1.2 Achieve sustainability of successful projects in compact countries 

1.3 Improve compact countries’ capacity to meet basic human needs 

1.4 Improve compact countries’ GDP growth 

1.5 Decrease percentage of population living on less than $1 and $2 per day 

1.6 Improve compact-eligible and threshold countries’ average country credit ratings 

1.7 Improve annual percentage of compact targets met on time

1.8 Increase the number of Conditions Precedents (CPs) met on time

The MCC Strategic Plan defines the expected outcome for this strategic goal to be a significant 

reduction in poverty through sustainable, material economic growth for a significant number of 

people. MCC has defined a number of outcome, output, and input measures to assess progress 

toward this strategic goal. Over the last year, MCC has refined these measures further, including 

measuring criteria relative to trend, managing the problem of infrequently measured data, and 

considering alternative data sources. MCC has also added several indicators this year to measure 

economic growth and poverty reduction effectively at a level tailored more specifically to MCC 

programs. 

Example of Significant Achievement 

MCC Helps Malagasy Families Increase Rural Incomes 

Ampasimazava is a village situated on the east coast of Madagascar where 

because of poor soil quality and poor agricultural infrastructure, few options existed 

for revenue generation. In the past, the principal economic activities of the villagers 

consisted of collecting firewood and producing charcoal. The average weekly

revenue for a charcoal producer was less than $5. 

In October 2006, MCA-Madagascar’s Agricultural Business Investment Project began working 

with an association of 18 villagers from Ampasimazava in producing essential oil from niaouli 

leaves, commonly used in cosmetic and skin care products. MCA-Madagascar assisted the 

association in developing a business plan, acquiring financing of $3,000 from a local microfinance institution to set up a distilling plant, and linking the association to buyers in the capital.

As a result of the villagers’ dynamism and MCA-Madagascar’s assistance, the association and 

its members have become successful almost overnight. 

The association has generated more than $1,000 of profit within the first 2 months of 

operations from member fees, which the members plan to use to make improvements to the 

village, including building wells to supply drinking water. They have begun to pay off their loan 

with the micro-finance institution, and they have begun to create a tree nursery to begin 

production of eucalyptus essential oil. 

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MILLENNIUM CHALLENGE CORPORATION

Exhibits 2-2 and 2.3 detail MCC’s performance against its objectives for Strategic Goal #1. 

Exhibit 2-2 summarizes the number of objectives MCC met in FY 2007. Exhibit 2-3 details the 

specific objective, indicator, and performance, including for prior years. Four supplemental 

indicators are included under Strategic Goal #1 due to the fact that progress in these areas is 

largely outside of MCC’s control. 

Exhibit 2-2: Strategic Goal #1 Results Summary 

Strategic Goal #1: Achieve Sustainable, Transformative Development 

Summary Results 

Total Indicators Performance Summary 

Number of Objectives 8 Number of Targets Met 1 

Number of Indicators 8 Number of Targets Not Met 0 

Number with Data Lags or Not Yet Defined 3 

Supplemental Indicators (no target) 4 

Exhibit 2-3: Strategic Goal #1 Detailed Results 

Objective 1.1: Generate Economic Growth and Reduce Poverty in Compact Countries

Outcome Indicator: Compact-Specific Economic Growth and Poverty Reduction 

Baseline Compact 

Country Income Indicator (varies by country) Year Value7

Armenia Change in real income from agriculture in 

rural areas (Index) 

2005 100%

Benin Average household income in land and 

finance areas 

2006 Baseline data is not yet 

available 

Cape Verde Increase in annual income (US$ millions) 2005 $0

Annual per capita income of program 

beneficiaries in the Northern Zone 

(treatment group) 

El Salvador 2004 $720

Annual per capita income of program 

beneficiaries in the Northern Zone (control 

group) 

2004 $720

Georgia Incremental increase in household incomes 

from compact interventions 

2007 $0

Crop income (Northern Zone) (US$ per 

household) 

2006 $700

Crop income (Afram Basin Zone – East) 

(US$ per household) 

2006 $820

Crop income (Afram Basin Zone – West) 

(US$ per household) 

2006 $540

Ghana 

Crop income (Southern Zone) (US$ per 

household) 

2006 $1,860 

 7

 The baseline value for compact-specific GDP will be in national currency units. The baseline value for the poverty headcount 

ratio will be in percent. 

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MILLENNIUM CHALLENGE CORPORATION

Objective 1.1: Generate Economic Growth and Reduce Poverty in Compact Countries

Outcome Indicator: Compact-Specific Economic Growth and Poverty Reduction 

Baseline Compact 

Country Income Indicator (varies by country) Year Value7

Honduras Increase in income of beneficiaries (annual 

US$ millions) 

2005 $0 

Madagascar Increase in household income in zones 2005 $698 

Total revenue of firms servicing the airport 

(US$ millions) 

2007 $8

Total receipts of hotels and restaurants in

Bamako (US$ millions) 

 2007 $133 

Gross value-added of firms in the Industrial 

Park (US$ millions) 

 2007 $0 

Mali 

Real income from irrigated agricultural 

production (US$ per capita) 

 2007 $0 

Nicaragua Total expected income gains (US$ millions) 2007 Data not yet available 

Vanuatu Average cash income per capita of residents 

living within the catchment area of 

infrastructure sub-projects

2005 $1,206

Rating Data not yet available. Will measure once compact completed. 

Justification Creating compacts that increase economic growth and reduce poverty is MCC’s most 

important goal. Successful projects in compact countries will produce economic growth 

and reduce poverty for the populations affected by the compact. Baseline years for this 

measure vary country by country and are determined by the implementation schedule of 

the compact. The first round of results for these indicators are not expected until 2009 as

was stated in the FY 2007 Annual Performance Plan. 

Objective 1.2: Achieve Sustainable Projects in Compact Countries 

Outcome Indicator: Sustainability 

Comments 

MCC is in the process of defining an indicator to accurately measure the sustainability of projects. MCC 

intends for this indicator to measure the extent to which the impact of successful programs or compact 

activities has continued after a compact has been completed and all funding has been disbursed. 

Baselines, targets, and a reporting framework for this indicator will be completed when a precise 

indicator is identified. 

Rating Indicator not yet defined 

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Objective 1.3: Countries Improve Their Capacity to Meet Basic Human Needs 

Supplemental Indicator: United Nations Human Development Index (HDI) 

Date Actual Comments 

2006 0.545 for non-eligible countries; 0.555 

for threshold countries; 0.601 for 

compact countries 

Baseline data is from the 2006 Human 

Development Report, which uses 2004 country 

data. The baseline covers countries that were 

compact-eligible or Threshold-eligible 

candidates in FY 2004 and FY 2005. 

2007 Will be provided in November 2007 

when the 2007 Human Development 

Report is released. 

The 2007 Human Development Report will use 

2005 country data. Data is expected to be 

available on November 27, 2007. 

Rating Not applicable. 

Justification The HDI measures a country’s achievements in three dimensions of human 

development—life expectancy at birth; adult literacy rate and the combined primary, 

secondary, and tertiary gross school enrollment ratio; and GDP per capita. The average 

HDI score of countries that are eligible for MCC assistance (either compact or

threshold) gives a broad indication of their level of development. MCC will monitor the 

average HDI score of countries eligible for compact or threshold assistance to see 

whether the level of human development is increasing following MCC selection and 

delivery of assistance. Relative changes in average HDI schores of the three country 

groups (candidate, threshold, and eligible) will be monitored. 

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MILLENNIUM CHALLENGE CORPORATION

Objective 1.4: Improve GDP Growth 

Supplemental Indicator: GDP Per Capita Growth Rate 

Date Actual Comments 

2004 Non-eligible countries: 4.277%

Threshold countries: 1.99% 

Compact countries: 3.581% 

These are the baseline figures (per capita growth rates 

in 2004). 

2005 Non-eligible countries: 4.165%

Threshold countries: 2.183% 

Compact countries: 3.730% 

Non-eligible countries had a decrease of 0.112% in 

GDP per capita annual growth rate from 2004 to 2005. 

Threshold countries had an increase of 0.184% in GDP 

per capita annual growth rate from 2004 to 2005. 

Compact countries had an increase of 0.149% in GDP

per capita annual growth rate from 2004 to 2005. 

2006 Non-eligible countries: 4.047%

Threshold countries: 3.022% 

Compact countries: 4.155% 

Non-eligible countries had a decrease of 0.229% in 

GDP per capita annual growth rate from 2004 to 2006. 

Threshold countries had an increase of 1.023% in GDP 

per capita annual growth rate from 2004 to 2006. 

Compact countries had an increase of 0.574% in GDP

per capita annual growth rate from 2004 to 2006. 

2007 Data available November 

2007 

MCC is using the International Monetary Fund (IMF)

World Economic Outlook (WEO) database instead of the 

World Bank Development Indicators (WDI) database,

which had been used in the prior year. This decision was 

based on a few key factors. First, the IMF produces its

database through biannual exercises of data collection, 

resulting in the production of timely, accurate national 

income data twice a year. Conversely, the WDI produces

its statistics once a year (April) and does not always have 

the most recent data to publish. Further, national income 

data from the WEO database is used in other indicator

analysis in this report (e.g., fiscal policy). To ensure data

integrity of the entire report, it is best to use the WEO

going forward.

Rating Not applicable. 

Justification The average GDP growth per capita of countries that are eligible for MCC assistance 

(either compact or threshold) gives a broad indication of whether their economic 

performance is improving and creating conditions for sustainable poverty reduction. 

MCC will monitor year-on-year changes in the average GDP growth per capita of 

countries eligible for compact or threshold assistance to see how their economies are 

performing following MCC selection and delivery of assistance. 

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Objective 1.5: Decrease Percent Living on Less Than $1 and $2 Per Day

Supplemental Indicator: Percent of Population Living below $1 and $2 per Day 

Date Country $1 per day (actual) $2 per day (actual) 

Armenia 2% (2003) 31.07% (2003) 

Benin 30.9% (2003) 73.74% (2003) 

Bolivia 23.2% (2002) 42.18% (2002) 

Burkina Faso 27.19% (2003) 71.77% (2003) 

Cape Verde NA NA 

El Salvador 19.04% (2002) 40.55% (2002) 

Georgia 6.514% (2003) 25.29% (2003) 

Ghana 45.05% (1999) 75.01% (1999) 

Honduras 14.9% (2003) 35.71% (2003) 

Jordan 2% (2003) 6.95% (2003) 

Lesotho 36.4% (1995) 56.03% (1995) 

Madagascar 61.03% (2001) 85.1% (2001) 

Mali 36.13% (2001) 72.07% (2001) 

Moldova 2% (2003) 20.75% (2003) 

Mongolia 10.82% (2002) 44.58% (2002) 

Morocco 2% (1999) 14.33% (1999) 

Mozambique 36.18% (2002) 74.14% (2002) 

Namibia 34.93% (1993) 55.78% (1993) 

Nicaragua 45.12% (2001) 79.93% (2001) 

Senegal 17.01% (2001) 56.17% (2001) 

Sri Lanka 5.55% (2002) 41.59% (2002) 

Tanzania 57.82% (2000) 89.93% (2000) 

Timor-Leste NA NA

Ukraine 2% (2003) 4.94% (2003) 

2007 

Vanuatu NA NA

Rating Not applicable. 

Justification Data reported in 2007 sets the baseline for this indicator. MCC will monitor progress 

on this indicator on an annual basis. Changes in this indicator are a measure of 

poverty reduction. Compact-specific indicators outlined in Objective 1.1 are specific to 

those households directly impacted by MCC projects. This metric provides

supplementary data for MCC to assess trends in poverty reduction at a national level. 

Because MCC programs do not have a national scope, targets will not be set. 

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Objective 1.6: Compact Eligible and Threshold Countries Receive Higher Average Country

Credit Ratings 

Supplemental Indicator: Institutional Investor Country Credit Rating8

Period (Year) Actual–Compact Eligible 

2004 (Baseline) 26.2 

2006 28.0 

2007 32.1 

Period (Year) Actual–Threshold 

2004 (Baseline) 23.1 

2006 26.7 

2007 31.1 

Period (Year) Actual–Other Candidate 

2004 (Baseline) 22.0 

2006 28.3 

2007 31.2 

Rating Not applicable. 

Justification This indicator was added in the 2007 Annual Performance Plan because it 

demonstrates the extent to which a country is making progress in attracting 

private investment. Moving countries toward “graduation” from donor funding to

private sector funding of development is one of the key goals of the MCC model 

of assistance. It is expected that performance on this indicator will improve more 

significantly for threshold- and compact-eligible countries than for the remaining 

MCA candidate countries. 

 8

 The Country Credit Rating indicator measures on a scale of 0 to 100, with 0 representing the highest risk and 100 representing

the lowest risk. 

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MILLENNIUM CHALLENGE CORPORATION

Objective 1.7: Improve Annual Percentage of Compact Targets Met on Time 

Output Indicator: Quality of Compacts in Implementation 

Date Target Actual Comments 

2006 NA 67% Actual percent targets met include: 

à Madagascar completed two out of three targets 

2007 80% 33%* à As of June 2007, a total of six compact countries—Cape 

Verde, Georgia, Honduras, Madagascar, Nicaragua, and 

Vanuatu—have an obligation to report on targets. 

à Thirty-five of a total of 51 targets were reported, 

representing a 69% response rate. 

à Seventeen of the 35 reported targets achieved or 

exceeded the targets established in MCC approved 

Monitoring and Evaluation Plans, representing an overall 

33% achievement of all established target values. 

*This percent achievement (33%) is lower than the target 

because: 

à The data reflected for FY 2007 includes only the first two 

quarters. Final data should be received by the end of 

December 2007. At that time, MCC’s performance is 

anticipated to be much closer to the 80% target. 

à MCC has given no margin for “targets completed,” i.e., 

they were either fully completed quantitatively and counted 

or not fully completed and not counted. MCC Monitoring 

and Evaluation group is currently in discussions about how 

to put margins around these targets. 

à It is also worth noting that some targets identified as

“completed” or “met” have in fact been exceeded by a wide 

margin, i.e., over-achieved. This is not reflected here 

because the indicator is nominal in scale—either you met 

the target or you did not. 

Rating Complete data is expected to be available in December 2007. 

Justification This indicator is a composite measure of quality of MCA implementation of all MCC 

compacts. As such it is an appropriate measure of MCC performance in implementing 

its compacts. It treats all compacts to be of equal importance and all targets of equal 

weight. The scaling of the scorecard is arbitrary but consistent across all compacts. 

The level of indicator achievement should increase from one year to the next as shown 

in the targets below. 

Program 

Improvement 

MCC anticipates reaching 80% compact targets met when all final information is 

reported in December 2007. 

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MILLENNIUM CHALLENGE CORPORATION

Objective 1.8: Increase the Conditions Precedents (CPs) Met on Time 

Input Indicator: Compact Execution Quality 

Date Target Actual Comments 

2006 (Baseline) NA 73% met 

on time 

For 13 disbursements made during FY 2006, 250 CPs were 

met on time and 92 CPs were deferred. None were waived. 

2007 Meet 

75% on 

time 

77% met 

on time 

For FY 2007, 1,201 CPs were scheduled to be reported 

during this period and 77% (915) were met on time. 

Rating Target met 

Justification This metric measures the percentage of CPs that were met on time. CPs are actions 

that a compact country needs to take before MCC will release a disbursement of 

funds. CPs can include such actions as appointing key personnel, completing 

feasibility studies or environmental impact assessments, or reaching specific 

implementation milestones. The low percentage of CPs deferred or waived 

demonstrates that MCA countries are taking necessary actions to ensure proper

implementation of their compacts. 

The percent of CPs met on time for each compact country during FY 2007 is outlined in 

Exhibit 2-4. 

Exhibit 2-4: Conditions Precedents Met 

Compact Country CPs Reported for FY 2007 CPs Met % of CPs Met 

Armenia 163 144 88% 

Benin 249 169 68%

Cape Verde 124 95 76% 

Georgia 276 199 72%

Ghana 24 20 83% 

Honduras 59 54 92%

Madagascar 152 120 77% 

Nicaragua 115 89 77% 

Vanuatu 39 25 64%

Total 1,201 915 77%

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STRATEGIC GOAL #2 

Support Development of a Sound Policy Environment for Economic Growth and 

Poverty Reduction in the Developing World 

The following are the objectives that constitute Strategic Goal #2: 

2.1 Improve policy performance in ruling justly 

2.2 Improve policy performance in investing in people 

2.3 Improve policy performance in economic freedom

The MCC Strategic Plan defines the expected outcome for this strategic goal to be the creation of 

incentives for developing countries to adopt sound policies by making available substantial 

benefits to countries that rule justly, invest in their people, and encourage economic freedom. 

Due to the policy-reform nature of the objectives under this strategic goal and the fact that 

progress in these areas is largely outside of MCC’s control, all the indicators identified under this 

strategic goal are supplemental indicators. They do not strictly meet the “A” in the SMART 

criteria in that they are not directly attributable to MCC interventions, as discussed in more detail 

in the previous section. Although MCC cannot claim credit for country performance along these 

indicators, they are included because they are reflective of overall progress in partner countries 

and therefore directly relevant to MCC’s programs. Therefore, while MCC will measure trends in 

these supplemental indicators, MCC will not set specific targets for these indicators or otherwise 

treat them as formal outcome measures. 

Tied closely to Strategic Goal #2 is the Threshold program, for which MCC has identified several 

formal outcome measures. The Threshold program assists countries in becoming eligible for 

compact assistance by helping countries improve their performance on the policy indicators under 

Goal #2. Therefore, results for this program are also reported in this section. 

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Example of Significant Achievement—Sound Policy Environment for Economic Growth 

Burkina Faso and MCC Foster Learning Through Girl-Friendly Schools 

Safoura is among the lucky children with a new opportunity for learning in Koutoula 

Yarce, one of the 132 communities receiving elementary school funding from MCC 

in Burkina Faso. As a 9-year-old, Safoura should already be in third grade. 

However, when she was 7, the age of enrollment in Burkina Faso, her village had

no school, and her parents were reluctant to allow her to walk several kilometers to 

the nearest school. 

Although she started school late, Safoura is still among a fortunate minority in Burkina Faso, 

where fewer than half of all girls attend school. Long walking distances from schools, early and 

forced marriages, time-consuming household chores, and lack of interest in educating girls are 

some of the barriers that keep thousands of girls like Safoura from going to school. 

The 2-year MCC project, called BRIGHT, provides incentives to remove these barriers and 

encourages increased enrollment and regular attendance of children, particularly girls. The 

program is simple, but grand in its scope: to build, equip, and support 132 schools in 10 of the

45 provinces. Three-classroom schools, boreholes for drinking water, separate latrines for girls

and boys, and teacher housing are being constructed in remote communities that have no

education infrastructure. Each school will be provided with sufficient desks to allow children to 

sit comfortably, free textbooks and school supplies, and a mid-day lunch. An incentive will be 

provided to girls who have at least a 90 percent attendance rate in the form of a take-home 

food ration worth $4 per month. An awareness raising campaign will be organized with 

students’ parents and community leaders during the 2-year project period to help overcome the 

various obstacles that keep girls from attending school. 

Example of Significant Achievement—Threshold Program

In Paraguay, the government resolved as part of its Threshold program to make the business 

registration process faster and more efficient. This year, it cut the cost of business registration

by more than $600 and reduced the number of days it takes to register a business from 74 to 

35. It now plans to lower the average wait to fewer than 10 days—beyond its original objective.

Kenya, one of the top 10 reformers of 2007, eliminated 10 days worth of red tape at the 

company registry by simply streamlining administrative processes. It also introduced 

competition among land valuers, which reduced the time it takes to register property by 9 days. 

In Albania, the government, which already has reduced the cost of starting a business by 

30 percent in 2 years, plans to use its Threshold program to lower costs by an additional 

40 percent. To implement its 2007 law on business registration, the first National Registration

Center opened in September 2007, initiating “one stop” business registration. 

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How MCC Measures Policy Reform 

Calculating Rates of Change for Policy Performance Variables 

To calculate rates of change for different indicators and comparison groups, MCC has made a 

number of important assumptions. MCC chose to calculate proportional changes in the median

performance of individual peer groups for each income level classification. The Low Income 

Countries (LIC) are divided into compact-eligible countries, threshold countries, and the 

remaining candidate countries.9

 

MCC first measured absolute changes in median performance on 13 indicators.10 This calculation 

uses 2002 as the base year (in most cases) and the most recent year for which data is available as 

the end year.11 MCC then divided the absolute change in a particular peer group’s median 

performance by the “data range” in the base year. MCC defines the data range as the difference

between the 90th percentile and the 10th percentile for all countries classified as LIC or Low 

Middle Income Countries (LMIC) in 2003. 

There are a number of important caveats regarding these calculations. MCC divides these caveats 

into five categories: sample sizes, time lags, inferences based on median changes, categorical 

classifications, and rate of reform comparisons. 

General Caveats 

` Sample Sizes. For some of the indicators, data is missing for a non-trivial number of 

countries. This can significantly reduce the sample of countries for which comparisons can be 

made across any specific time period.12 It is possible that these reduced sample sizes may

introduce bias into the calculations, because rapidly improving countries may be more likely

or less likely to have more complete data series, and therefore may be more likely or less 

likely to be included in our calculations. 

 9

 The Remaining Candidate Countries category includes all countries that satisfy the income criteria for MCA candidacy,

including those that are statutorily prohibited from receiving U.S. assistance. We chose to include the statutorily prohibited

countries because they are currently included in the median calculations used to determine eligibility for MCA assistance. 

The basis for determining whether countries satisfy the income criteria comes from the most recently available data on Gross 

National Income (GNI) per capita for 2003. 

10 The MCC currently uses 17 indicators in its selection process, however only 13 are discussed in this exercise. The indicators

omitted include: land rights and access, which are used for the first time in the FY 2008 selection process; natural resource 

management, which are used for the first time in the FY 2008 selection process; trade policy, for which the underlying tariff 

rate data come from varying years and which may not reflect changes made in the time period of interest; and inflation, for

which many changes will be driven by exogenous factors. 

11 2002 is used as the base year due to the fact that the MCA selection criteria were first announced in 2002 and since much of 

the data used in the initial selection rounds (FY 2004 and FY 2005) was from 2002. 12 The sample size is further constrained by a rule that requires a country to have data for both the base year and the end year in

order to remain in the sample considered for the calculation. This rule was created to eliminate the kind of bias that would 

emerge if, for example, one country that was a lower performer, had data only in the base year and another country that was a 

higher performer had data only in the end year. The change in median would therefore be skewed not by country performance 

but by the difference in composition of the base year and end year groups. 

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In addition, when countries are separated into different categories, e.g., threshold, compact, 

and other, the sample of countries for which the necessary data points are available may be 

quite small. Across indicators, the composition of the sample for these different categories 

may vary for any given time period. While there is no reason to assume that this will 

introduce any systematic bias, it may introduce noise into the measure that will limit MCC’s 

ability to draw inferences from observed changes. 

Within the small samples for which median performance is being calculated there are also 

very large outliers present for some indicators. The use of the median rather than the average 

attempts to mitigate the impact of outliers, but outliers can still tend to make the rate of 

change very noisy from year to year. For this reason, great caution should be used in drawing

inferences about the performance of categories of countries (e.g., threshold, compact, or other 

candidate countries) from year to year. 

For the purposes of this exercise, data points are considered missing either because no data 

has been reported for a given year or because third-party providers have reported data that has 

not been updated, e.g., they have reported the same value for a given indicator in consecutive 

years without updating the information.13

` Time Lags. In most cases, there is a significant lag between changes in policy performance 

and changes in indicator performance. Reporting periods also vary by indicator, rendering 

rate-of-reform comparisons across indicators and “categorical rates of reform” highly 

problematic. The data available in a given year for a given indicator may also reflect a range

of reporting periods. For example, some sub-indicators, which jointly constitute the indicators 

used in the selection process, report on a calendar year; others report on 12-month periods 

that vary from the calendar year; and others cover 2- or 3-year periods. 

` Inferences Based on Changes in the Median. The measure of reform reflects changes in the 

medians for individual indicators. This measure necessarily gives a limited picture of how the 

full distribution of values changes over time. The median only provides information about 

where the two countries in the middle of each distribution fall. It does not provide any

information about the mean or the rest of the distribution, which might be compressing, 

expanding, or skewing in either direction. Medians are also highly sensitive to the 

composition of the group being evaluated. The presence or absence of just one country can 

potentially have dramatic effects on the median score; this potential is greater in smaller 

sample sizes. Any inferences regarding the change in performance over time for any given 

indicator should keep the nature of MCC’s chosen summary statistic well in mind. 

 13 There are some cases in which data values from different years have been pooled to construct values for a given year. Where 

this is applicable, this has been noted in the text. 

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` Categorical Classifications. For the purposes of this exercise, countries were divided into 

different categories according to their status (e.g., compact eligible, threshold, and other) as 

established by the FY 2005 selection process for LICs and the FY 2006 selection process for 

LMICs. 

Differences from the FY07 Measures 

To report on FY 2007 performance, MCC revised how it calculated results on the policy

measures. As a result, MCC revised historical data that was previously reported in MCC’s 

FY 2007–2008 Performance Plan. Changes regarding the calculation of results are explained 

below:

` Changing the Basis for Status Categorization for Low Income Countries. Eligibility 

status in FY 2005 was used to classify LICs in this exercise. In FY 2007, FY 2004, and 

FY 2005, status was used to create categories. This year only FY 2005 status is used, and 

FY 2006 figures have been updated to reflect this new classification rule in order to provide 

comparability across years. 

` Fiscal Policy Indicator. This year MCC is using the figure used for the selection process, 

i.e., the average ratio of fiscal deficit to GDP for 3 years (e.g., “2005” data actually reflects 

performance in 2003, 2004, and 2005). Last year MCC used annual data on fiscal balances. 

The reason for the change is that a round of debt relief caused unusual volatility in the fiscal 

deficit figures for the most recent fiscal year. 

Exhibit 2-5 details MCC’s performance against its objectives for Strategic Goal #2 and 

summarizes the number of objectives MCC met in FY 2007. Exhibit 2-6 details the specific 

objective, indicator, and performance, including for prior years. 

Exhibit 2-5: Strategic Goal #2 Results Summary 

Strategic Goal #2 (a): Support Development of a Sound Policy Environment for Economic 

Growth and Poverty Reduction in the Developing World 

Summary Results 

Total Indicators Performance Summary 

Number of Objectives 3 Number of Targets Met 0 

Number of Indicators 13 Number of Targets Not Met 0 

Number with Data Lags 0 

Supplemental Indicators (no target) 13 

Strategic Goal #2 (b): Threshold Program 

Summary Results 

Total Indicators Performance Summary 

Number of Objectives 88 Number of Targets Met 42 

Number of Indicators 88 Number of Targets Not Met 12 

Number with Data Lags 34 

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Exhibit 2-6: Strategic Goal #2 (a) Detailed Results 

Objective 2.1: Improve Policy Performance in Ruling Justly

Supplemental Indicator: Political Rights14 

Date Actual–Compact Eligible Comments 

2003 27 Actual data is from 2002. 

2006 27 Actual data is from 2005 (1-year time lag). The 

political rights indicator rate of change for 2003-

2006 is 0%. 

2007 28 Actual data from 2006 (1-year lag). 

The political rights indicator rate of change for 

2003–2007 is 3.39%. 

Date Actual–Threshold Comments 

2003 21 Actual data is from 2002. 

2006 24 Actual data is from 2005. The political rights 

indicator rate of change for 2003–2006 is 10.17%. 

2007 25 Actual data is from 2006. 

The political rights indicator rate of change for 

2003–2007 is 13.56%. 

Period (Year) Actual Value–Other Candidate Notes 

2003 9.5 Actual data is from 2002. 

2006 10.5 Actual data is from 2005. 

The political rights indicator rate of change for 

2003–2006 is 3.39%. 

2007 11 Actual data is from 2006. 

The political rights indicator rate of change for 

2003–2007 is 5.08%. 

Rating Not Applicable. 

Justification The indicators were selected as a proxy for quality of policy environment. 

An improvement in these indicators is consistent with improvement in the policy 

environment in this area. It is expected that performance on these indicators will

improve more for threshold- and compact-eligible countries. 

Supplemental Indicator: Civil Liberties15

Period (Year) Actual Value–Compact Eligible Notes 

2003 41 Actual data is from 2002. 

2006 41.5 Actual data is from 2005. 

The civil liberties indicator rate of change for 2003–

2006 is 1.43%. 

2007 41 Actual data is from 2006. 

The civil liberties indicator rate of change for 2003–

2007 is 0%. 

 14 The Political Rights indicator evaluates countries on a 40-point scale, with 40 representing “most free” and 0 representing

“least free.” 

15 The Civil Liberties indicator evaluates countries on a 60-point scale, with 60 representing “most free” and 0 representing “least

free.” 

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Objective 2.1: Improve Policy Performance in Ruling Justly

Period (Year) Actual Value–Threshold Notes 

2003 35 Actual data is from 2002. 

2006 37 Actual data is from 2005. The civil liberties 

indicator rate of change for 2003–2006 is 5.71%. 

2007 36 Actual data from 2006. 

The civil liberties indicator rate of change for 2003–

2007 is 2.86%. 

Period (Year) Actual Value–Other Candidate Notes 

2003 20 Actual data is from 2002. 

2006 21 Actual data is from 2005. 

The civil liberties indicator rate of change for 2003–

2006 is 2.86%. 

2007 22 Actual data is from 2006. 

The civil liberties indicator rate of change for 2003-

07 is 5.71%. 

Rating Not applicable. 

Justification The indicators were selected as a proxy for quality of policy environment. 

An improvement in these indicators is consistent with improvement in the policy 

environment in this area. It is expected that performance on these indicators will

improve more for threshold- and compact-eligible countries. 

Supplemental Indicator: Control of Corruption16

Period (Year) Actual Value–Compact Eligible Notes 

2003 -0.411 Actual data is from 2002. 

2006 -0.466 Actual data is from 2005. 

The control of corruption indicator rate of change 

for 2003–2006 is -4.32%. 

2007 -0.479 Actual data is from 2006. 

The control of corruption indicator rate of change 

for 2003–2007 is -5.38%. 

Period (Year) Actual Value–Threshold Notes 

2003 -0.821 Actual data is from 2002. 

2006 -0.803 Actual data is from 2005. 

The control of corruption indicator rate of change 

for 2003–2006 is 1.46%. 

2007 -0.702 Actual data is from 2006. 

The control of corruption indicator rate of change 

for 2003–2007 is 9.38%. 

 16 The Control of Corruption indicator measures rate of change on a scale that ranges from 3 to -3. A higher score indicates a 

higher level of performance. 

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Objective 2.1: Improve Policy Performance in Ruling Justly

Period (Year) Actual Value–Other Candidate Notes 

2003 -0.918 Actual data is from 2002. 

2006 -1.034 Actual data is from 2005. 

The control of corruption indicator rate of change 

for 2003–2006 is -9.18%. 

2007 -0.980 Actual data is from 2006. 

The control of corruption indicator rate of change 

for 2003–2007 is -4.88%. 

Rating Not applicable. 

Justification The indicators were selected as a proxy for quality of policy environment. 

An improvement in these indicators is consistent with improvement in the policy 

environment in this area. It is expected that performance on these indicators will

improve more for threshold- and compact-eligible countries. 

Supplemental Indicators: Government Effectiveness17

Period (Year) Actual Value–Compact Eligible Notes 

2003 -0.303 Actual data is from 2002. 

2006 -0.348 Actual data is from 2005. 

The government effectiveness indicator rate of 

change for 2003–2006 is -3.24%. 

2007 -0.330 Actual data is from 2006. 

The government effectiveness indicator rate of 

change for 2003–2007 is -1.95%. 

Period (Year) Actual Value–Threshold Notes 

2003 -0.735 Actual data is from 2002. 

2006 -0.775 Actual data is from 2005. 

The government effectiveness indicator rate of 

change for 2003–2006 is -2.83%. 

2007 -0.727 Actual data is from 2006. 

The government effectiveness indicator rate of 

change for 2003–2007 is 0.57%. 

Period (Year) Actual Value–Other Candidate Notes 

2003 -0.906 Actual data is from 2002. 

2006 -0.996 Actual data is from 2005. 

The government effectiveness indicator rate of 

change for 2003–2006 is -6.36%. 

2007 -1.009 Actual data is from 2006. 

The government effectiveness indicator rate of 

change for 2003–2007 is -7.29%. 

 17 The Government Effectiveness indicator measures rate of change on a scale that ranges from 3 to -3. A higher score indicates a

higher level of performance. 

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Objective 2.1: Improve Policy Performance in Ruling Justly

Rating Not applicable. 

Justification The indicators were selected as a proxy for quality of policy environment. 

An improvement in these indicators is consistent with improvement in the policy 

environment in this area. It is expected that performance on these indicators will

improve more for threshold- and compact-eligible countries. 

Supplemental Indicators: Rule of Law18

Period (Year) Actual Value–Compact Eligible Notes 

2003 -0.297 Actual data is from 2002. 

2006 -0.210 Actual data is from 2005. 

The rule of law indicator rate of change for 2003–

2006 is 5.71%. 

2007 -0.323 Actual data is from 2006. 

The rule of law indicator rate of change for 2003–

2007 is -1.68%. 

Period (Year) Actual Value–Threshold Notes 

2003 -0.589 Actual data is from 2002. 

2006 -0.601 Actual data is from 2005. 

The rule of law indicator rate of change for 2003–

2006 is -0.79%. 

2007 -0.559 Actual data is from 2006. 

The rule of law indicator rate of change for 2003–

2007 is 1.97%. 

Period (Year) Actual Value–Other Candidate Notes 

2003 -1.031 Actual data is from 2002. 

2006 -1.051 Actual data is from 2005. 

The rule of law indicator rate of change for 2003–

2006 is -1.29%. 

2007 -0.979 Actual data is from 2006. 

The rule of law indicator rate of change for 2003–

2007 is 3.46%. 

Rating Not applicable. 

Justification The indicators were selected as a proxy for quality of policy environment. 

An improvement in these indicators is consistent with improvement in the policy 

environment in this area. It is expected that performance on these indicators will

improve more for threshold- and compact-eligible countries. 

 18 The Rule of Law indicator measures rate of change on a scale that ranges from 3 to -3. A higher score indicates a higher level

of performance. 

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Objective 2.1: Improve Policy Performance in Ruling Justly

Supplemental Indicator: Voice and Accountability19

Period (Year) Actual Value–Compact Eligible Notes 

2003 -0.100 Actual data is from 2002. 

2006 -0.080 Actual data is from 2005. 

The voice and accountability indicator rate of 

change for 2003–2006 is 0.96%. 

2007 -0.053 Actual data is from 2006. 

The voice and accountability indicator rate of 

change for 2003–2007 is 2.24%. 

Period (Year) Actual Value–Threshold Notes 

2003 -0.402 Actual data is from 2002. 

2006 -0.352 Actual data is from 2005. 

The voice and accountability indicator rate of 

change for 2003–2006 is 2.39%. 

2007 -0.311 Actual data is from 2006. 

The voice and accountability indicator rate of 

change for 2003–2007 is 4.32%. 

Period (Year) Actual Value–Other Candidate Notes 

2003 -1.220 Actual data is from 2002. 

2006 -1.153 Actual data is from 2005. 

The voice and accountability indicator rate of 

change for 2003–2006 is 3.19%. 

2007 -1.105 Actual data is from 2006. 

The voice and accountability indicator rate of 

change for 2003–2007 is 5.45%. 

Rating Not applicable. 

Justification The indicators were selected as a proxy for quality of policy environment. 

An improvement in these indicators is consistent with improvement in the policy 

environment in this area. It is expected that performance on these indicators will

improve more for threshold- and compact-eligible countries. 

 19 The Voice and Accountability indicator measures rate of change on a scale that ranges from 3 to -3. A higher score indicates a

higher level of performance. 

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MILLENNIUM CHALLENGE CORPORATION

Objective 2.2: Improve Policy Performance in Investing in People 

Supplemental Indicator: Health Expenditure20

Period (Year) Actual Value–Compact Eligible Notes 

2004 2.64 Actual data is from 2002. 

2006 2.79 Actual data is from 2004. 

The health expenditure indicator rate of change for 

2003–2006 is 3.55%. 

2007 2.88 Actual data is from 2005. 

The health expenditure indicator rate of change for 

2003–2007 is 5.51%. 

Period (Year) Actual Value–Threshold Notes 

2004 2.56 Actual data is from 2002. 

2006 2.96 Actual data is from 2004. 

The health expenditure indicator rate of change for 

2003–2006 is 9.18%. 

2007 2.79 Actual data is from 2005. 

The health expenditure indicator rate of change for 

2003–2007 is 5.39%. 

Period (Year) Actual Value–Other Candidate Notes 

2004 1.95 Actual data is from 2002. 

2006 1.76 Actual data is from 2004. 

The health expenditure indicator rate of change for 

2003–2006 is -4.36%. 

2007 1.69 Actual data is from 2005. 

The health expenditure indicator rate of change for 

2003–2007 is -5.97%. 

Rating Not applicable. 

Justification The indicator was selected as a proxy for quality of policy environment. 

An improvement in these indicators is consistent with improvement in the policy 

environment in this area. It is expected that performance on these indicators will

improve more for threshold- and compact-eligible countries. 

Supplemental Indicator: Immunization Rates21

Period (Year) Actual Value–Compact Eligible Notes 

2004 86.5 Actual data is from 2002. 

2006 90 Actual data is from 2004. 

The immunization indicator rate of change for 

2003–2006 is 7.14%. 

2007 91 Actual data is from 2006. 

The immunization indicator rate of change for 

2003–2007 is 9.18%. 

 20 The actual value reported under the Health Expenditure indicator is government health expenditure as a percentage of GDP. 

Figures are originally estimated in million national currency units (million NCU) and in current prices. 

21 The Immunization Rate indicator measures the percentage of population that has received immunizations. 

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Objective 2.2: Improve Policy Performance in Investing in People 

Period (Year) Actual Value–Threshold Notes 

2004 74.5 Actual data is from 2002. 

2006 87.5 Actual data is from 2004. 

The immunization indicator rate of change for 

2003–2006 is 26.53%. 

2007 90 Actual data is from 2006. 

The immunization indicator rate of change for 

2003–2007 is 31.63%. 

Period (Year) Actual Value–Other Candidate Notes 

2004 69 Actual data is from 2002. 

2006 74.5 Actual data is from 2004. 

The immunization indicator rate of change for 

2003–2006 is 11.22%. 

2007 77 Actual data is from 2006. 

The immunization indicator rate of change for 

2003–2007 is 16.33%. 

Rating Not applicable. 

Justification The indicator was selected as a proxy for quality of policy environment. 

An improvement in these indicators is consistent with improvement in the policy 

environment in this area. It is expected that performance on these indicators will

improve more for threshold- and compact-eligible countries. 

Supplemental Indicator: Girls Primary Education Completion Rate22

Period (Year) Actual Value–Compact Eligible Notes 

2004 57.57 Actual data is the most recent of 2001 or 2002. 

2006 68.75 Actual data is the most recent of 2003 or 2004. 

The girls’ primary education completion indicator 

rate of change for 2003–2006 is 15.65%. 

2007 70.58 Actual data is the most recent of 2005 or 2006. 

The girls’ primary education completion indicator 

rate of change for 2003–2007 is 18.21%. 

Period (Year) Actual Value–Threshold Notes 

2004 62.63 Actual data is the most recent of 2001 or 2002. 

2006 62.43 Actual data is the most recent of 2003 or 2004. 

The girls’ primary education completion indicator 

rate of change for 2003–2006 is -0.28%. 

2007 71.64 Actual data is the most recent of 2005 or 2006. 

The girls’ primary education completion indicator 

rate of change for 2003–2007 is 12.61%. 

 22 The Girls’ Primary Education Completion Rate measures gross intake ratio of female students into their last year of primary

school. 

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Objective 2.2: Improve Policy Performance in Investing in People 

Period (Year) Actual Value–Other Candidate Notes 

2004 56.10 Actual data is the most recent of 2001 or 2002. 

2006 65.41 Actual data is the most recent of 2003 or 2004. 

The girls’ primary education completion indicator 

rate of change for 2003–2006 is 13.03%. 

2007 64.46 Actual data is the most recent of 2005 or 2006. 

The girls’ primary education completion indicator 

rate of change for 2003–2007 is 11.70%. 

Rating Not applicable. 

Justification The indicator was selected as a proxy for quality of policy environment. 

An improvement in these indicators is consistent with improvement in the policy 

environment in this area. It is expected that performance on these indicators will

improve more for threshold- and compact-eligible countries. 

Objective 2.3: Improve Policy Performance in Economic Freedom 

Supplemental Indicator: Fiscal Policy23 

Period (Year) Actual Value–Compact Eligible Notes 

2002 -0.048 Actual data is from 2002. 

2006 -0.024 Actual data is from 2005. 

The fiscal policy indicator rate of change for 2003–

2006 is 29.43%. 

2007 -0.017 Actual data is from 2006. 

The fiscal policy indicator rate of change for 2003–

2007 is 38.85%. 

Period (Year) Actual Value–Threshold Notes 

2002 -0.043 Actual data is from 2002. 

2006 -0.026 Actual data is from 2005. 

The fiscal policy indicator rate of change for 2003–

2006 is 20.39%. 

2007 -0.010 Actual data is from 2005. 

The fiscal policy indicator rate of change for 2003–

2007 is 40.41%. 

Period (Year) Actual Value–Other Candidate Notes 

2002 -0.031 Actual data is from 2002. 

2006 -0.024 Actual data is from 2005. 

The fiscal policy indicator rate of change for 2003–

2006 is 8.10%. 

2007 -0.014 Actual data is from 2006. 

The fiscal policy indicator rate of change for 2003–

2007 is 21.17%. 

 23 The Fiscal Policy indicator measures the percent rate of change based on the percentage change of the budget deficit divided

by GDP as a three year average.

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MILLENNIUM CHALLENGE CORPORATION

Objective 2.3: Improve Policy Performance in Economic Freedom 

Rating Not applicable. 

Justification The indicator was selected as a proxy for quality of policy environment. 

An improvement in these indicators is consistent with improvement in the policy 

environment in this area. It is expected that performance on these indicators will

improve more for threshold- and compact-eligible countries. 

Supplemental Indicator: Cost of Starting a Business24

Period (Year) Actual Value–Compact Eligible Notes 

2003 77 Actual data is from 2003. 

2006 49.6 Actual data is from 2006. 

The cost of starting a business indicator rate of 

change for 2003–2006 is -11.27%. 

2007 37.4 Actual data is from 2007. 

The cost of starting a business indicator rate of 

change for 2003–2007 for is -16.29%. 

Period (Year) Actual Value–Threshold Notes 

2003 123.2 Actual data is from 2003. 

2006 96.0 Actual data is from 2006. 

The cost of starting a business indicator rate of 

change for 2003–2006 is -11.19%. 

2007 77.6 Actual data is from 2007. 

The cost of starting a business indicator rate of 

change for 2003–2007 is -18.75%. 

Period (Year) Actual Value–Other Candidate Notes 

2003 139.5 Actual data is from 2003. 

2006 78.5 Actual data is from 2006. 

The cost of starting a business indicator rate of 

change for 2003–2006 is -25.09%. 

2007 73.9 Actual data is from 2007. 

The cost of starting a business indicator rate of 

change for 2003–2007 is -26.98%. 

Rating Not applicable 

Justification The indicator was selected as a proxy for quality of policy environment. 

An improvement in these indicators is consistent with improvement in the policy 

environment in this area. It is expected that performance on these indicators will

improve more for threshold- and compact-eligible countries. 

 24 The Cost of Starting a Business measures the cost incurred in all stages of starting a new business. Cost is expressed as a 

percentage of the country’s Gross National Income per capita. 

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Objective 2.3: Improve Policy Performance in Economic Freedom 

Supplemental Indicator: Time of Starting a Business25

Period (Year) Actual Value–Compact Eligible Notes 

2003 58 Actual data is from 2003. 

2006 42 Actual data is from 2006. 

The days to start a business indicator rate of 

change for 2003–06 is -20.20%. 

2007 29 Actual data is from 2007. 

The days to start a business indicator rate of 

change for 2003–2007 is -36.62%. 

Period (Year) Actual Value–Threshold Notes 

2003 43 Actual data is from 2003. 

2006 37 Actual data is from 2006. 

The days to start a business indicator rate of 

change for 2003–2006 is -7.58%. 

2007 35 Actual data is from 2007. 

The days to start a business indicator rate of 

change for 2003–2007 is -10.04%. 

Period (Year) Actual Value–Other Candidate Notes 

2003 44 Actual data is from 2003. 

2006 43 Actual data is from 2006. 

The days to start a business indicator rate of 

change for 2003–2006 is -7.58%. 

2007 37 Actual data is from 2007. 

The days to start a business indicator rate of 

change is -8.84%. 

Rating Not applicable 

Justification The indicator was selected as a proxy for quality of policy environment. 

An improvement in these indicators is consistent with improvement in the policy 

environment in this area. It is expected that performance on these indicators will

improve more for threshold- and compact-eligible countries. 

Supplemental Indicator: Regulatory Quality26

Period (Year) Actual Value–Compact Eligible Notes 

2003 -0.327 Actual data is from 2002.

2006 -0.329 Actual data is from 2005. 

The regulatory quality indicator rate of change for 

2003–2006 is -0.16%. 

2007 -0.299 Actual data is from 2006. 

The regulatory quality indicator rate of change for 

2003–2007 is 1.68%.

 25 The Time of Starting a Business measures the number of days necessary to start a new business. 26 The Regulatory Quality indicator measures on a scale that ranges from 3 to -3. A higher score indicates a higher level of

performance. 

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Objective 2.3: Improve Policy Performance in Economic Freedom 

Period (Year) Actual Value–Threshold Notes 

2003 -0.503 Actual data is from 2002.

2006 -0.508 Actual data is from 2005. 

The regulatory quality indicator rate of change for 

2003–2006 is -0.33%.

2007 -0.520 Actual data is from 2006. 

The regulatory quality indicator rate of change for 

2003–2007 is -1.03%.

Period (Year) Actual Value–Other Candidate Notes 

2003 -0.963 Actual data is from 2002.

2006 

-1.001 

Actual data is from 2005. 

The regulatory quality indicator rate of change for 

2003–2006 is -2.31%.

2007 

-0.992 

Actual data is from 2006. 

The regulatory quality indicator rate of change for 

2003–2007 is -1.79%.

Rating Not applicable 

Justification The indicator was selected as a proxy for regulatory quality of policy environment. 

An improvement in these indicators is consistent with improvement in the policy 

environment in this area. It is expected that performance on these indicators will

improve more for threshold- and compact-eligible countries.

Threshold Program Performance Results 

The Threshold program is closely related to Strategic Goal #2 because the program assists 

countries in becoming eligible for compact assistance by helping them improve their performance 

on the policy indicators that fall under Strategic Goal #2. For this reason, Threshold program

results are reported in this section. Each Threshold program has performance objectives based on 

the specifications of the program, so each country has unique objectives and targets. 

Exhibit 2-7 summarizes the performance results for Tanzania, Ukraine, the Philippines, Paraguay,

Malawi, Indonesia, Burkina Faso, and Albania and provides a breakdown for each country. These 

countries have begun program implementation. The remaining Threshold countries are in the 

early stages of program development and did not report on indicator progress in FY 2007. 

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MILLENNIUM CHALLENGE CORPORATION

Exhibit 2-7: Strategic Goal #2 (b) Threshold Program Detailed Results 

Threshold Program 

Summary Results 

Performance Summary 

Country 

Number of

Objectives Targets Met Targets Not Met Data Lag/NA 

Tanzania 6 3 2 1

Ukraine 21 5 1 15

Philippines 9 6 1 2

Paraguay 10 2 2 6

Malawi 8 5 3 -

Indonesia 9 - - 9

Burkina Faso 8 5 2 1 

Albania 17 16 1 -

Total 88 42 12 34

Tanzania 

Target Actual

Performance Objective 

Expected 

Output

Baseline as of 

May 2006 2006 2007 2006 2007 

Districts using public expenditure 

tracking 

60 12 18 34 15 31 

Anti-corruption investigations 

brought to court 

28 20 21 24 37 144

Media stories exposing corruption 1,300 144 576 60 816 

Media stories of anti-corruption 

cases brought to court 

300 50 -- 124 0 109

Financial Intelligence Unit cases 

opened 

30 0 -- -- 0 0 

Procurement audits conducted on 

Media Development Associations 

and Local Government Authorities 

40 0 -- 12 0 20

Rating Target Met (3), Not Met (2), NA (1) 

Justification The indicator was selected as a proxy for quality of policy environment. An 

improvement in the indicator is consistent with improvement in the policy

environment in this area. 

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MILLENNIUM CHALLENGE CORPORATION

Ukraine 

Target Actual

Performance Objective Target

Baseline as of 

January 2007 2007 Q3 2007 Q3

Increased public knowledge of

corruption reforms and issues

4.5 million 0 1.5 million 1.4 million 

Advocacy campaigns lead to anticorruption reforms 

24 0 0 0

More consistent application of law TBD TBD -- 0 

More transparent case assignment 100 0 -- 0 

More transparent and substantive 

selection of judges 

600 0 0 0 

More transparent and objective 

discipline practice 

32 0 -- 0

Improved transparency in enforcement 

procedures 

100% 40 42 42 

Improved enforcement of judgments 28% 22 22 22 

Well-trained administrative judges 500 - 

Opportunity for corrupt licensing 

practice reduced 

100% 0 NA

Improved monitoring of professional 

standards 

40 0 NA 

Improved customs regulatory system 19 0 1 

Improved transport regulatory system TBD 0 NA 

Trained personnel on New

Computerized Transit System 

30 0 5

Regulations governing construction 

permits improved 

9 0 0 0 

Streamlined regulatory processes 25 0 0 0 

Procedures of land parcels connectivity

to utilities improved and simplified 

9 0 0 

Student body prepared for standardized 

testing techniques 

100% 10 10 10

Question bank adequately populated 100% 0 NA 0 

Tests securely administered 1.5 million 82,000 240 247 

Rating Target Met (5), Not Met (1), NA (15) 

Justification The indicator was selected as a proxy for quality of policy environment. 

An improvement in the indicator is consistent with improvement in the 

policy environment in this area. 

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MILLENNIUM CHALLENGE CORPORATION

Philippines 

Target Actual

Performance Objective Target

Baseline as of 

December 2005 2006 2007 2006 2007 

Conviction rate of Office of 

Ombudsman 

40 33% 33 33 25 35 

Cases mediated in the Office of 

Ombudsman 

300/year 0 0 25 0 10

Revenue integrity protection service 

cases filed 

50/year 18 13 15 27 16 

Number of officials charged by RIPS–

Suspended by the Ombudsman 

35 6 7 7 12 12

Percentage increase in income tax 

returns filed 

+10% 487,594 tax returns 5.0 7.0 8.3 NA 

Percentage increase in corporate tax 

returns filed 

+10% 134,151 tax returns 5.0 7.0 6.6 NA 

Number of tax evasion cases filed 116 44 44 50 77 87 

Number of cases filed by RATS at the 

Department of Justice 

24/yr 11 9 7 17 16

RATS cases filed before the Court of 

Tax Appeals 

15/yr 1 2 3 4 4 

Rating Target Met (6), Not Met (1), NA (2) 

Justification The indicator was selected as a proxy for quality of policy environment. 

An improvement in the indicator is consistent with improvement in the 

policy environment in this area. 

Paraguay

Target Actual

Performance Objective Target

Baseline as of 

January 2007 2007 Q3 2007 Q3

The number of cases being investigated

by newly trained personnel using new

forensic laboratory and new criminal

investigative techniques 

20 0 Results are not

expected until a 

later date. 

NA 

Increase in number of disciplinary

measures, cases, and accusations 

submitted to the Public Ministry and the 

Jury for the Prosecution of Judges 

Baseline not 

defined 

NA NA

Number of audits yielding punishable 

offenses or administrative misconduct 

that are then followed by the Public 

Ministry and Congress 

12 0 This indicator is

under review for 

possible 

substitution. 

NA 

Percentage of information accessed 

(Motor Vehicles Registry, Judiciary Court 

Registry, and Identifications Registry

database) 

100% 0 20% This indicator is

under review for 

possible 

modification. 

Number of public agencies subject to 

budget execution legislative oversight 

system

20 0 NA NA 

Reduced Value Added Tax (VAT) Breach 35% 53% 46% Data not available

` 73 _
MILLENNIUM CHALLENGE CORPORATION

Paraguay

Target Actual

Performance Objective Target

Baseline as of 

January 2007 2007 Q3 2007 Q3

Customs collections from seized 

merchandise

$6.5 million 0 $1.3 million $1.07 million 

Internal corruption cases from Finance 

Ministry submitted correctly to the Public 

Ministry

13 0 1 36

Number of days to start a business 36 74 36 25 

Number of maquilas (businesses with

low cost structures) installed 

15 0 4 0

27

Rating Target Met (2), Not Met (2), NA (6) 

Justification The indicator was selected as a proxy for quality of policy environment. 

An improvement in the indicator is consistent with improvement in the 

policy environment in this area. 

Malawi

Performance Target Actual

Objective Target

Baseline as 

of July 2006 2006 2007 2006 2007 

Adequate reports for 

ministries and the 

National Assembly 

Reports 

implemented

Reports 

distributed 2 

years after 

fiscal year 

Computer 

procurement 

process 

initiated 

IFMIS training 

for capacity to 

deliver quarterly 

reports 

Yes No 

Financial Intelligence 

Unit (FIU) established 

in accordance with the 

anti-money 

laundering/combating 

financing of terrorism 

law

Establishment 

and operation 

of an effective 

FIU 

No FIU AML/CFT law

passed 

Procurement 

initiated 

Yes No

National Assembly has 

more control over own 

budget 

National 

Assembly

oversight 

function 

strengthened 

MOF did not 

fully and 

regularly fund

National 

Assembly

MOF allocates 

full budget 

allowance 

MOF allocates 

full budget 

allowance 

Yes Yes 

Media Council (MC) 

established 

MC 

established by

2007 

No MC in 

operation 

Identification of

key

stakeholders 

MC develops 

transparent bylaws

Yes Yes

Number of civil society

groups testifying

before the National 

Assembly triples 

Civil society

integrated into 

anti-corruption 

campaign 

0 4 9 4 4 

AML/CFT passed by

November 2006

Key pieces of 

reform 

legislation 

promulgated

No AML/CFT

law

AML/CFT 

legislation 

passed by

National 

Assembly

AML/CFT 

legislation 

passed by

National 

Assembly

Yes Yes

 27 Five maquilas are in the process of installation. This indicator is in the process of modification. 

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MILLENNIUM CHALLENGE CORPORATION

Malawi

Performance Target Actual

Objective Target

Baseline as 

of July 2006 2006 2007 2006 2007 

More than 500 people 

trained across all 

program components 

Government 

of Malawi’s 

capacity to 

combat 

corruption 

enhanced 

0 85 340 47 718 

Sovereign credit rating 

moves from CCC+ to 

B- (positive outlook) 

Sovereign 

credit rating 

improved

2006: CCC+ Hire Fitch and 

prepare for 

GOM/Fitch 

meeting 

Develop plan to

disseminate 

and explain 

results of Fitch 

report 

Yes Yes

Rating Target Met (5), Not Met (3) 

Justification The indicator was selected as a proxy for quality of policy environment. An improvement in

the indicator is consistent with improvement in the policy environment in this area. 

Indonesia 

Target Actual 

Performance Objective Target

Baseline as of 

May 2007 2007 Q4 2007 Q3

Number of judges trained on

judicial code of ethics 

200 0 72 NA 

Number of court personnel 

trained on budget procedures

1,600 0 0 NA

Number of trials monitored in 

Jakarta 

180 p.a. 160 43 NA 

Percentage of Suspicious 

Transaction Reports filed by

non-bank financial institutions as 

percent of total filings 

10% 3.20% 3.2% NA

Total number of children less 

than 1 year of age immunized

with DPT and measles in seven 

Threshold provinces 

Cumulative 

Target: 4,754,265 

2005 Baseline: 

2,283,094 

adjusted for overreporting 

611,998 NA 

Percentage of Puskesmas using 

local area monitoring (LAM) 

mapping tools for immunization

coverage 

100% Puskesmas 

in Threshold 

Districts 

Available 

September 2007 

10% NA

Number of project priority

districts/municipalities annual 

EPI action plans launched and

monitored by local government 

Cumulative 

Target: 75 

0 10 NA 

Percent of presence districts that 

faced no vaccine (DPT or 

measles) stock outs greater than 

1 week during the reporting 

quarter 

0% Available 

September 2007 

50% NA

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MILLENNIUM CHALLENGE CORPORATION

Indonesia 

Target Actual 

Performance Objective Target

Baseline as of 

May 2007 2007 Q4 2007 Q3

Number of individuals trained in 

immunization, supportive 

supervision, and vaccine

management 

Cumulative 

Target: 2,543 

0 271 NA 

Rating Target Met (), Not Met (), NA (9) 

Justification The indicator was selected as a proxy for quality of policy environment. An 

improvement in the indicator is consistent with improvement in the policy

environment in this area. 

Burkina Faso

Target Actual

Performance 

Objective Target

Baseline 

as of April 

2006 

2006 

Q3

2006 

Q4 2007 

2006 

Q3

2006 

Q4 2007 

Total number of girls 

recruited (cumulative Year 

1 plus Year 2) 

3,300 0 1,650 - 3,300 2417 - 6,338 

Temporary classrooms 

in operation 

132 0 120 132

Girl-friendly educational 

complexes: 

–Completed

–Construction in progress 

132 0 0 132 26 101 

21 

Take-home rations 

provided for each girl 

3,300 0 3,300 NA

Total number of social 

mobilization campaigns 

conducted on the benefits 

of girls’ schooling 

132 

Comm

unities 

0 33 33 33 33 33 33 

Literacy and training 

provided to mother 

mentors 

7,920 0 0 0 7,920 0 0 7,840

Teachers and outreach 

staff trained in gender 

pedagogy 

238 0 0 0 238 0 0 246 

Government employees 

trained in monitoring and 

evaluation 

30 0 0 30 0 0 30

Rating Target Met (5), Not Met (2), NA (1) 

Justification The indicator was selected as a proxy for quality of policy environment. An 

improvement in the indicator is consistent with improvement in the policy environment 

in this area. 

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MILLENNIUM CHALLENGE CORPORATION

Albania 

Target Actual

Performance Objective 

Project End 

Target Baseline 2007 Q3 2007 Q3

Number of tax laws, pieces of secondary 

legislation, and regulations reviewed, 

drafted, revised, and/or amended 

17 0 15 19 

Tax revenues collected from the large 

taxpayers as a percentage of total tax 

50% 30% 30% 50.75%

Number of procurement regulations 

developed, reviewed, and/or revised 

5 0 0 6 

Training modules complete 1 0 0 1 

Number of trainers trained 35 0 20 20 

Percentage of Public Procurement Bulletins 

electronically published 

100% 0 37.5% 25.0%

Percentage of Public Procurement Agency 

staff trained in new procurement policies 

100% 0 92% 92% 

Percentage of PPA staff trained in IT

integration using e-procurement software

35% 0 40% 48%

Number of procurement officers and public 

officials trained

2,000 0 400 411 

Number of economic operators trained in

new public procurement law and regulations

1,400 0 0 97

Number of commercial registry-related laws

reviewed 

20 0 0 18 

Number of commercial registry- related laws

drafted, revised, and/or amended 

9 0 0 11

Preparation of secondary legislation for the 

establishment of National Registration

Center (NRC) 

16 0 0 16 

New commercial registry law establishing 

the NRC enacted by Council of Ministers 

1 0 0 1

New commercial registry law establishing 

the NRC enacted by parliament 

1 0 0 1 

Amendments for the new commercial 

registry laws enacted by parliament 

9 0 0 9

NRC secondary legislation enacted by

Council of Ministers 

16 0 0 16 

Rating Target Met (1), Not Met (16), NA () 

Justification The indicator was selected as a proxy for quality of policy 

environment. An improvement in the indicator is consistent with 

improvement in the policy environment in this area. 

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MILLENNIUM CHALLENGE CORPORATION

STRATEGIC GOAL #3 

Advance International Development Assistance Practice by Continually 

Improving MCC’s Operational Effectiveness 

The following are the objectives that constitute Strategic Goal #3: 

3.1 Enhance MCA model recognition and support within the international community 

3.2 Enhance MCC country partnership 

MCC’s Strategic Plan defines the expected outcome for Strategic Goal #3 to be that MCC will be 

at the forefront of the development assistance field and viewed as a model of effectiveness by

other development practitioners. MCC identifies best practices, internally and externally, and 

adopts them to improve its operations. 

The first objective, “Enhance MCA model recognition and support within the international 

community,” assesses whether there is recognition of MCC’s approach, or a good understanding 

of the MCA model and whether MCC is recognized for innovative and best practice approaches. 

The second indicator, “Enhance MCC country partnership,” assesses how good a development 

partner MCC is relative to other donors and to itself over time. 

Exhibit 2-8 details MCC’s performance against its objectives for Strategic Goal #3 and 

summarizes the number of objectives MCC met in FY 2007. Exhibit 2-9 details the specific 

objective, indicator, and performance, including for prior years. 

Exhibit 2-8: Strategic Goal #3 Results Summary

Strategic Goal #3: Advance International Development Assistance Practice by Continually

Improving MCC’s Operational Effectiveness 

Summary Results 

Total Indicators Performance Summary 

Number of Objectives 2 Number of Targets Met 0 

Number of Indicators 2 Number of Targets Not Met 0 

Number with Data Lags or NA 2 

` 78 _
MILLENNIUM CHALLENGE CORPORATION

Exhibit 2-9: Strategic Goal #3 Detailed Results 

Objective 3.1: Enhance MCA Model Recognition and Support Within the International 

Community

Output Indicator: Leadership in Development Practice 

Date Target Actual Comments 

2007 NA NA Survey to be conducted every other year beginning in

FY 2008. 

Rating NA 

Justification Data is not available until the end of FY 2008.To assess whether MCC is receiving 

recognition and support for the MCA approach, it will be necessary to determine first 

whether stakeholders in the international development community know about and 

understand the model and whether MCC is impacting other development actors’ 

behavior. This indicator expects that as MCC demonstrates the effectiveness of the 

operational approach and, as a result, the recognition of the MCA model increases, 

MCC will have an increasing impact on others’ behavior. 

Objective 3.2: Enhance MCC Country Partnership 

Input Indicator: Assessment of MCC Country Partnership 

Date Target Actual Comments 

Baseline 

year (2007) 

NA Baseline Will set performance trend once baseline data is collected. 

Rating NA 

Justification Data will be available November 2008.The measure will evaluate MCC’s performance 

relative to other donors and to MCC itself and will aid in assessing effectiveness and 

informing efforts to improve performance. The trend, therefore, should be continually 

improving. 

` 79 _
MILLENNIUM CHALLENGE CORPORATION

STRATEGIC GOAL #4 

Build MCC’s Capabilities to Achieve Its Primary Strategic Goals 

The following are the objectives that constitute Strategic Goal #4: 

4.1 Minimize the administrative cost of developing and implementing MCC compacts 

compared to the total value of compacts 

4.2 Address and close Inspector General recommendations within agreed-upon 

timeframes

4.3 Achieve high level of staff effectiveness and satisfaction 

MCC’s Strategic Plan defines the expected outcome for Strategic Goal #4 to be the efficient and 

effective operation of MCC. To enable MCC to achieve its mission, MCC will develop its human 

resources and financial and administrative capacities; articulate clear processes, policies, and 

quality standards; and build strong support systems. 

Example of Significant Achievement 

MCC Receives Award for Being a Best Place to Work in the Federal Government 

The MCC placed fifth out of 31 small agencies in the Federal Government in the 2007 Best 

Places to Work ranking. The Best Places to Work award drew on responses from more than 

221,000 civil servants to produce detailed rankings of employee engagement across 283 

federal agencies and subcomponents. In addition to the employee engagement rating, 

agencies and subcomponents are also scored in 10 workplace environment categories such as

effective leadership, employee skills/mission match, and work/life balance. 

Exhibit 2-10 details MCC’s performance against its objectives for Strategic Goal #4 and 

summarizes the number of objectives MCC met in FY 2007. Exhibit 2-11 details the specific 

objective, indicator, and performance, including for prior years. 

Exhibit 2-10: Strategic Goal #4 Results Summary

Strategic Goal #4: Build MCC’s Capabilities to Achieve Its Primary Strategic Goals 

Summary Results 

Total Indicators Performance Summary 

Number of Objectives 3 Number of Targets Met 1 

Number of Indicators 4 Number of Targets Not Met 2 

Number with Data Lags 1 

` 80 _
MILLENNIUM CHALLENGE CORPORATION

Exhibit 2-11: Strategic Goal #4 Detailed Results 

Objective 4.1: Minimize the Administrative Cost of Developing and Implementing MCC 

Compacts Compared to the Total Value of Compacts 

Input Indicator: Efficiency and Resource Productivity 1 

Period (Year) Target Actual Notes 

2005 (Baseline) NA 3.4% The numerator is the annual total administrative and 

due diligence obligations and the denominator is the 

total amount committed under compacts and threshold 

agreements in the fiscal year. 

2006 NA 4.7%

2007 2.7% 2.6% MCC outperformed its target. 

Rating Target met 

Justification As MCC signs and begins to implement compacts, the workload for MCC staff is 

shifting from compact development to compact implementation. This indicator 

measures efficiency increases as MCC’s administrative and due diligence expenses

are focused on project implementation and results. A lower percentage indicates 

improvement in efficiency. 

Input Indicator: Efficiency and Resource Productivity 2 

Period (Year) Target Actual Notes 

2005 (Baseline) NA 1,289.8% The numerator is the annual total administrative and 

due diligence disbursements and the denominator is the 

annual total amount disbursed for compacts, threshold 

agreements, and 609(g) activities. 

2006 NA 151.2%

2007 40.0% 61.5%

Rating Target not met 

Justification As MCC signs and begins to implement compacts, the workload for MCC staff is 

shifting from organizational start-up to on-the-ground implementation of compacts 

and threshold agreements. This indicator measures efficiency increases as MCC’s 

administrative and due diligence expenditures shift from fixed start-up costs to 

marginal costs of implementation. A lower percentage indicates improvement in 

efficiency. 

Performance 

Improvement 

MCC is taking several steps to improve the compact implementation process, 

therefore increasing the amount of funds disbursed. For example, MCC has reduced 

the amount of time between compact signing, entry into force, and the first 

disbursement. In addition, MCC is putting fiscal and procurement agents in place 

earlier in the process to reduce delays in initial compact disbursement. Strategies 

noted under Strategic Goal #1 in the MD&A are expected to bolster MCC’s results 

on this objective in coming years. 

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MILLENNIUM CHALLENGE CORPORATION

Objective 4.2: Address and Close Inspector General Recommendations Within Agreed-Upon 

Timeframes

Input Indicator: Compliance 

Date Target Actual Comments 

2006 (Baseline) NA 44%

2007 75% 67% There were a total of 36 recommendations that were closed, 

24 of which (67%) were closed on time. MCC had several 

OIG recommendations that had been completed on time but 

MCC failed to formally notify the OIG and so they remained 

open. Had MCC provided the formal notification, the 

recommendations would have closed before their due dates 

and MCC would have achieved its performance target of 75%.

Rating Target not met. 

Justification The MCC IG assesses MCC internal controls and practices through the annual 

financial audit and other audit reports and program reviews. While MCC may 

disagree with the IG in very isolated instances, MCC’s responsiveness on the vast 

majority of recommendations on which it makes a “management decision” to accept 

is the best single measure of MCC’s compliance with U.S. Government laws and 

regulations and implementation of financial management best practices. 

Performance 

Improvement 

MCC has since dedicated a resource to track OIG recommendations and due dates. 

Objective 4.3: Achieve High Level of Staff Effectiveness and Satisfaction 

Input Indicator: Staffing Survey 

Date Target Actual Comments 

2007 NA 3.64 

Grand 

Mean 

For FY 2007, 300 MCC employees were sent invitations to 

complete the 2007 Employee Engagement Survey (Gallup’s 

Q12 questions plus the Federal Human Capital Survey

questions); 250 employees participated.

The Gallup median response rate for their survey is 85%; 

MCC’s response rate of 83% is considered to be good. 

MCC’s Grand Mean for 2007 is 3.64, which puts the 

organization at the 31st percentile in the Gallup 2007 Overall 

Q12 database of public and private sector clients and at the 

39th percentile in the Gallup 2007 Public Sector Q12 

database and 44th percentile for first year clients. 

Rating NA – FY 2007 sets the baseline for this indicator. 

Justification This indicator was selected to measure MCC’s ability to recruit, motivate and provide 

professional development for, and retain a workforce of high-performing staff and 

reward exceptional results. Indicator changes may signal a need for modifications to 

MCC’s procedures, compensation, and benefits package. 

` 82 _
MILLENNIUM CHALLENGE CORPORATION

3. FINANCIAL SECTION

In accordance with the OMB Circular A-136, Financial Reporting Requirements, MCC is 

presenting its financial statements in the appropriate form and content for FY 2007. The tables

below outline the following financial statements: 

` Balance Sheets 

` Statements of Budgetary Resources 

` Statements of Net Cost 

` Statements of Changes in Net Position 

Further details are provided in the Notes to Financial Statements section that follows. 

` 83 _
MILLENNIUM CHALLENGE CORPORATION

BALANCE SHEETS 

FY 2007 FY 2006 

Assets 

Intra-Governmental 

Fund Balance with Treasury (Note 2) $5,549,289,597 $4,078,656,972

Accounts Receivable (Note 3) 67,798 62,202

Total Intra-Governmental 5,549,357,395 4,078,719,174 

General Property, Plant, and Equipment (Notes 4 and 5) 7,115,606 4,632,785

Advances (Note 1F, P) 32,243,157 18,881,386

Total Assets $5,588,716,158 $4,102,233,345 

Liabilities 

Intra-Governmental 

Other $1,457,862 $2,516,786 

Total Intra-Governmental 1,457,862 2,516,786 

Accounts Payable (Note 1G) 39,176,698 10,134,698

Other 3,971,886 2,698,070 

Total Liabilities $44,606,446 $15,349,554 

Net Position 

Unexpended Appropriations – Other Funds $5,536,714,361 $4,082,189,638 

Cumulative Results of Operations – Other Funds 7,395,351 4,694,153 

Total Net Position $5,544,109,712 $4,086,883,791 

Total Liabilities and Net Position $5,588,716,158 $4,102,233,345 

The notes are an integral part of these financial statements. 

` 84 _
MILLENNIUM CHALLENGE CORPORATION

STATEMENTS OF BUDGETARY RESOURCES

FY 2007 FY 2006 

Budgetary Resources 

Unobligated Balance – Beginning of Period $2,671,372,416 $2,053,722,184 

Recoveries of Prior Years Obligations 15,930,609 - 

Budget Authority:

Appropriations 1,752,300,000 1,770,000,000

Nonexpenditure Transfers, Net, Anticipated and Actual (9,415,980) 0 

Permanently Not Available (Note 7) (17,700,000)

Total Budgetary Resources $4,430,187,045 $3,806,022,184 

Status of Budgetary Resources 

Obligations Incurred 

Direct $2,174,044,542 $1,109,535,594

Unobligated Balance Available 1,516,900,216 877,383,424 

Unobligated Balance Not Available $739,242,287 $1,819,103,166 

Total Status of Budgetary Resources $4,430,187,045 $3,806,022,184 

Change in Obligated Balance 

Obligated Balance, Net – as of October 1, 2005 

Unpaid Obligations, Brought Forward, October 1 $1,408,398,635 $272,636,873

Obligations Incurred 2,174,044,542 1,109,535,594 

Gross Outlays (278,605,423) (109,119,072)

Recoveries of Prior Year Unpaid Obligations, Actual (15,930,609) - 

Obligated Balance, Net – End of Period 

Unpaid obligations $3,287,907,145 $1,273,053,395 

Net Outlays 

Gross Outlays $278,605,423 $109,119,072

The notes are an integral part of these financial statements. 

` 85 _
MILLENNIUM CHALLENGE CORPORATION

STATEMENTS OF NET COSTS

Program 2007 Total 2006 Total 

Program Costs 

Compact 

Gross Costs (Note 6) $81,079,458 $16,747,194

Less: Earned Revenue - -

Net Program Costs 81,079,458 16,747,194

609 (g) Programs 

Gross Costs 17,172,113 5,895,167

Less: Earned Revenue - -

Net Program Costs 17,172,113 5,895,167

Threshold Programs 

Gross Costs 75,766,215 15,235,063

Less: Earned Revenue - -

Net Program Costs 75,766,215 15,235,063

Due Diligence Programs 

Gross Costs 32,789,662 15,137,340

Less: Earned Revenue - -

Net Program Costs 32,789,662 15,137,340

Audit 

Gross Costs 2,865,820 619,714

Less: Earned Revenue - -

Net Program Costs 2,865,820 619,714

Administrative

Gross Costs 77,922,457 54,785,827

Less: Earned Revenue - -

Net Program Costs 77,922,457 54,785,827

Program Costs – Net of All Programs $287,595,725 $108,420,305

Net Costs of Operations $287,595,725 $108,420,305

The notes are an integral part of these financial statements. 

` 86 _
MILLENNIUM CHALLENGE CORPORATION

STATEMENTS OF CHANGES IN NET POSITION

FY 2007 FY 2006 

Cumulative Results of Operations 

Beginning Balances $4,694,987 $4,276,833 

Adjustments - -

Beginning Balance, as Adjusted $4,694,987 $4,276,833 

Budgetary Financing Sources 

Appropriations Used $288,359,297 $107,689,343

Other Financing Sources 

Donations and Forfeitures of Property $123,750 $ - 

Imputed Financing 1,813,042 1,148,282 

Total Financing Sources 290,296,089 108,837,625 

Net Cost of Operations (287,595,725) (108,420,305)

Net Change 2,700,364 417,320 

Cumulative Results of Operations $7,395,351 $4,694,153 

Unexpended Appropriations 

Beginning Balance $4,082,189,638 $2,437,546,656

Changes in Accounting Principles - - 

Beginning Balance, as Adjusted $4,082,189,638 $2,437,546,656 

Budgetary Financing Sources 

Appropriations Received $1,752,300,000 $1,770,000,000

Appropriations Transferred In/Out (9,415,980) - 

Other adjustments (Note 7) (17,700,000)

Appropriations Used (288,359,297) (107,657,018)

Total Budgetary Financing Sources 1,454,524,723 1,644,642,982 

Total Unexpended Appropriations 5,536,714,361 4,082,189,638 

Net Position $5,544,109,712 $4,086,883,791 

The notes are an integral part of these financial statements. 

` 87 _
MILLENNIUM CHALLENGE CORPORATION

NOTES TO FINANCIAL STATEMENTS (AS OF SEPTEMBER 30, 2007) 

Note 1—Summary of Significant Accounting Policies 

A. Basis of Presentation 

The accompanying principal financial statements have been prepared to report the financial 

position, results of operations, and budgetary resources for MCC, as required by Section 613 of 

the Millennium Challenge Act of 2003. They have been prepared using MCC’s books and records 

in accordance with MCC accounting policies, the most significant of which are summarized in 

this note. The statements are presented in accordance with the guidance and requirements of the 

recently issued OMB Circular A-136, which incorporates and updates Bulletin 01-09, Form and 

Content of Agency Financial Statements, and the Government Management Reform Act of 1994. 

FY 2006 statements, previously prepared in accordance with the Government Corporation 

Control Act (31 U.S.C. §9106), have been reformatted and republished for Circular A-136 

comparative purposes. FY 2006 financial statements also have been restated for comparative 

purposes to include Threshold program balances that were not reflected in a timely manner prior 

to final publication. 

MCC accounting policies follow generally accepted accounting principles for the Federal 

Government, as recommended by the Federal Accounting Standards Advisory Board (FASAB). 

The FASAB has been recognized by the American Institute of Certified Public Accountants 

(AICPA) as the official accounting standard set for the Federal Government. These standards 

have been agreed to and published by the Director of OMB, Secretary of the Treasury, and 

Comptroller General. 

MCC’s principal financial statements are: 

` Balance Sheets 

` Statements of Budgetary Resources 

` Statements of Net Cost 

` Statements of Changes in Net Position 

These notes are considered an integral part of the financial statements. 

B. Reporting Entity 

MCC was formed in January 2004 pursuant to the Millennium Challenge Act of 2003 (Public 

Law 108-199). MCC’s mission is to reduce poverty by supporting sustainable, transformative 

economic growth in developing countries that create and maintain sound policy environments. 

The assistance is intended to provide economic growth and the elimination of extreme poverty,

strengthen good governance, encourage economic freedom, and promote investments in people. 

` 88 _
MILLENNIUM CHALLENGE CORPORATION

C. Budgets and Budgetary Accounting 

MCC’s programs and activities are funded through no-year appropriations. Such funds are 

available for obligation without fiscal year limitation and remain available until expended. MCC 

was provided total appropriations of almost $1.752 billion and $1.770 billion in FY 2007 and 

FY 2006, respectively. OMB apportions MCC administrative funds on an annual basis pursuant 

to statutory limitations in MCC’s annual congressional appropriations. In addition, MCC receives 

from OMB a separate apportionment for due diligence funds, which MCC uses for compact 

evaluations and support, compact programs, 609(g) funds, the Threshold program, and audit 

funds. Because of the no-year status of MCC appropriations, unobligated administrative, audit, 

and due diligence funds (apportioned annually) are not returned to the Treasury; however, 

unobligated balances as of September 30 for these three categories of funds are transferred to the 

compact fund category at the beginning of the subsequent fiscal year for future use. 

D. Basis of Accounting 

Financial transactions are recorded on accrual and budgetary bases in accordance with pertinent 

federal accounting and financial reporting requirements. Under the accrual method of accounting, 

financing sources are recognized when used and expenses are recognized when incurred, without 

regard to receipt or payment of cash. Budgetary accounting facilitates MCC’s compliance with 

legal constraints and controls over the use of federal funds. 

The accompanying Balance Sheets, Statements of Net Cost, and Statements of Changes in Net 

Position have been prepared on the accrual basis. The Statements of Budgetary Resources have 

been prepared in accordance with budgetary accounting rules. 

E. Fund Balance with Treasury 

MCC does not maintain cash in commercial bank accounts. Rather, MCC’s funds are maintained 

in Treasury accounts. The Department of the Treasury processes all cash receipts and 

disbursements for MCC. The Fund Balances with Treasury represent no-year funds, which are 

maintained in appropriated funds that are available to pay current and future commitments. 

F. Advances to Others 

MCC advances funds to eligible compact and pre-compact countries in order to implement 

compact projects in an MCA country or for Federal Government inter-agency agreements. Funds 

advanced to compact and pre-compact countries are used to pay legitimate costs and expenses 

incurred by MCC and partner countries. Advances at the end of FY 2007 and FY 2006 were 

$32.2 million and $18.9 million, respectively. Of the 21 MCC outstanding advances, four are 

greater than 180 days. 

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MILLENNIUM CHALLENGE CORPORATION

G. Accounts Payable 

MCC records as liabilities all amounts due to others as a direct result of transactions or events 

that have occurred. Accounts payable represent amounts due to federal and non-federal entities 

for goods and services received by MCC, but not paid at the end of the accounting period. 

Accounts payable reported at the end of FY 2007 and 2006 were $39.2 million and $10.1 million, 

respectively. The increase in the Accounts Payable is attributable to an increase from $7.6 million 

in FY 2006 to $28.6 million in FY 2007 for USAID Threshold programs. 

H. Actuarial FECA Liability 

The Federal Employees’ Compensation Act (FECA) provides income and medical cost protection 

to covered federal civilian employees injured on the job, employees who have incurred a workrelated occupational disease, and beneficiaries of employees whose deaths are attributable to a 

job-related injury or occupational disease. 

Claims incurred for benefits for MCC employees under FECA are administered by the 

Department of Labor (DOL) and later billed to MCC. MCC’s actuarial liability for workers’ 

compensation includes any costs incurred but unbilled as of year-end, as calculated by DOL, and 

not funded by current appropriations. 

MCC incurred no FECA liabilities during FY 2007 and FY 2006. 

I. Accrued Annual Leave 

The value of employees’ unused annual leave at the end of each fiscal quarter is accrued as a 

liability. At the end of each fiscal quarter, the balance in the accrued annual leave account is 

adjusted to reflect current pay rates and leave balances. Annual leave is funded from current 

appropriations. Sick leave and other types of non-vested leave are expensed when used, and in

accordance with federal requirements no accruals are recorded for unused leave. 

J. Net Position 

Net position is composed of unexpended appropriations and cumulative results of operations. 

Unexpended appropriations are funds appropriated by Congress to MCC that are still available 

for expenditure at the end of the fiscal year. Cumulative results of operations represent the net 

differences between financing sources and expenses from MCC’s inception. 

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MILLENNIUM CHALLENGE CORPORATION

K. Financing Sources 

In accordance with Note 1.C, MCC funds its program and operating expenses through no-year 

appropriations. Appropriations are recognized as an accrual-based financing source at the time

they are used to pay program or administrative expenses, except for expenses to be funded by

future appropriations. 

L. Retirement Benefits 

MCC’s employees participate in either the Civil Service Retirement System (CSRS) or the 

Federal Employees Retirement System (FERS). FERS was established by Public Law 99-335. 

Pursuant to this law, most U.S. Government employees hired after December 31, 1983, are 

covered by FERS and Social Security. Federal employees hired prior to January 1, 1984, were 

allowed to elect whether they desired to participate in FERS (with Social Security coverage) or 

remain in CSRS. For employees covered by CSRS, MCC contributes 7 percent of their gross pay 

toward their retirement benefits. For those employees covered by FERS, MCC contributes 

11 percent of their gross pay toward retirement. Employees are also allowed to participate in the 

federal Thrift Savings Plan (TSP). For employees under FERS, MCC contributes an automatic 

1 percent of basic pay to TSP and matches employee contributions up to an additional 4 percent 

of pay, for a maximum MCC contribution amounting to 5 percent of pay. Employees under CSRS 

may participate in the TSP, but will not receive either MCC’s automatic or matching 

contributions.

For FY 2007, MCC has made contributions of $142,000 to CSRS, $2.4 million to FERS, and 

$849,000 to TSP. During FY 2006, MCC made retirement contributions of $761,000 to CSRS, 

$1.977 million to FERS, and $620,700 to TSP. 

M. Use of Estimates 

The preparation of financial statements requires management to make estimates and assumptions 

that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and 

liabilities at the date of the financial statements, and the reported amounts of financing sources 

and expenses during the reporting period. Actual results could differ from such estimates. 

N. Contingencies 

MCC can be a party to various routine administrative proceedings, legal actions, and claims

brought by or against it, including threatened or pending litigation involving labor relations 

claims, some of which may ultimately result in settlements or decisions against MCC. In the 

opinion of MCC’s management and legal counsel, there are no proceedings, actions, or claims

outstanding or threatened that would materially impact MCC’s financial statements. 

` 91 _
MILLENNIUM CHALLENGE CORPORATION

O. Judgment Fund 

Certain legal matters to which MCC can be named as a party may be administered and, in some 

instances, litigated and paid by other federal agencies. In general, amounts paid in excess of 

$2,500 for Federal Tort Claims Act settlements or awards pertaining to these litigations are 

funded from a special appropriation administered by the Department of the Treasury called the 

Judgment Fund. Although the ultimate disposition of any potential Judgment Fund proceedings 

cannot be determined, management expects that any liability or expense that might ensue would 

not be material to MCC’s financial statements. 

P. Custodial Receivables and Liabilities 

Under current policy and procedures, MCC funds all compacts and pre-compacts with countries 

by advancing funds on a monthly basis to cover projected needs. Such funds provided to the 

countries are required to be deposited in interest-bearing accounts, if legally feasible, until 

disbursed. The interest earned on these accounts is remitted to MCC and deposited into an 

account at the U.S. Treasury. Such interest may not be retained or used by MCC, but periodically 

is returned to the Treasury’s general funds. MCC had outstanding advances related to compact 

and pre-compact financing of approximately $30.8 million and $18.8 million on September 30, 

2007, and September 30, 2006, respectively. MCC received and deposited $1.65 million and 

$304,000 in interest remittances on September 30, 2007, and September 30, 2006, respectively. 

Q. Donated Services 

MCC may on occasion use donated services from other federal agencies and private firms in the 

course of business operations. The approximate fair market value of these donated services for 

September 30, 2007, was $123,750 and was $0 in FY 2006. 

R. Transfers to Other Federal Agencies 

MCC is a party to allocation transfers to other federal agencies as a transferring entity.

Allocations are legal delegations by one agency of its authority to obligate budget authority and 

outlay funds to another agency. A separate fund account (child account) is created in the U.S. 

Treasury as a subset of the parent fund account for tracking and reporting purposes. All allocation 

transfers of budget authority are credited to this account, and subsequent obligations and outlays

incurred by the child entity are charged to this allocation account as they execute the delegated 

activity on behalf of the parent entity. 

All financial activity related to these allocations and transfers (e.g., budget authority, obligations, 

and outlays) is reported in the financial statements of the parent entity, from which the underlying 

legislative authority, appropriations, and budget appointments are derived. MCC allocates funds, 

as a parent agency, to USAID to administer designated MCC programs. In FY 2007 and 

FY 2006, MCC transferred budgetary authority of $161 million and $155 million, respectively, to 

USAID for Threshold programs. 

` 92 _
MILLENNIUM CHALLENGE CORPORATION

Note 2—Fund Balance with Treasury 

The U.S. Treasury accounts for all U.S. Government cash on an overall consolidated basis. The 

Fund Balance with Treasury (FBWT) line items on the Balance Sheets for September 30, 2007, 

and September 30, 2006, consisted of amounts presented in Exhibit 3-1. MCC funds its program

and operating expenses through no-year appropriations; therefore, all unobligated balances as of

September 30 are transferred to the compact fund category at the beginning of the subsequent 

fiscal year and are available for use in future years until fully expended. 

Exhibit 3-1: Fund Balance with Treasury as of September 30 (in thousands) 

September 30, 2007 September 30, 2006 

Appropriated Funds

Unobligated $2,261,383 $2,805,604

Obligated 3,287,907 1,273,053

Total $ 5,549,290 $ 4,078,657 

Note 3—Accounts Receivable, Net 

Accounts receivable reflect overpayments of payroll, travel, and other MCC current/former 

employee expenses. MCC does not record an allowance for doubtful accounts because these 

expenses are deemed wholly collectible. Total receivables were $68,000 and $62,000 as of 

September 30, 2007, and September 30, 2006, respectively. 

Note 4—General Property, Plant, and Equipment, Net 

In March 2007, MCC revised its property capitalization threshold from an original cost of 

$25,000 or more and an estimated useful life of 2 or more years to an original cost of $50,000 or 

more and an estimated useful life of 5 or more years, except for its software capitalization (which 

was changed to an original cost of $200,000 or more and an estimated useful life of 5 or more 

years) and its information technology infrastructure capitalization (which was changed to an 

original cost of $200,000 or more and an estimated useful life of 3 or more years). These 

revisions reduce MCC’s administrative costs associated with accounting for General Property,

Plant, and Equipment (PP&E) and results in increased operational efficiency. 

MCC changed its depreciation convention, converting from a half-year convention to a quarteryear convention. Assets are depreciated (or amortized) quarterly over their estimated useful lives 

using the straight-line depreciation method. This change resulted in additional depreciation 

expense of $181,638. As required by FASAB 21, the net effect of this change has been included 

in the FY 2007 cumulative results of operations and net position. 

MCC’s actual depreciation expense for FY 2007 is $860,061. 

` 93 _
MILLENNIUM CHALLENGE CORPORATION

Note 5—Leases 

MCC leases office space in two adjacent locations in Washington, D.C. These leases are on 

10-year (Bowen Building) and 8-year (City Center) lease terms that terminate on May 25 and 

May 26, 2015, respectively (see Exhibit 3-2). MCC made significant leasehold improvements to 

the office space and amortizes the improvement based on the in-service (invoice) date of the 

improvement. Amortization is calculated on a quarterly basis. These leasehold improvements will 

be reflected as a Fixed Asset on MCC’s Balance Sheets net of amortization. 

Exhibit 3-2: Operating Leases (in dollars) 

Future Payments Due 

Fiscal Year Bowen City Center Totals 

FY 2008 $5,394,621 $1,889,524 $7,284,145

FY 2009 5,394,621 1,889,524 7,284,145

FY 2010 6,352,911 1,889,524 8,242,435

FY 2011 6,352,911 1,942,376 8,295,287

FY 2012 6,352,911 1,942,376 8,295,287

After 5 Years 19,058,733 5,932,834 24,991,567

Total Future Lease Payments $48,906,708 $15,486,158 $64,392,866 

Note 6—Intra-Governmental Costs and Exchange Revenue 

The Statements of Net Cost reports MCC’s gross cost less earned revenues to arrive at net cost of 

operations. Costs have been illustrated by MCC specific programs (see Exhibit 3-3). The format 

of the Statements of Net Cost is also now consistent with OMB Circular A-136 guidance. 

Exhibit 3-3 shows the value of exchange transactions between MCC and other federal entities as 

well as non-federal entities. Intra-Governmental Costs relate to transactions between MCC and 

other federal entities. Public costs, on the other hand, relate to transactions between MCC and 

non-federal entities. MCC does not have any exchange revenues. 

Exhibit 3-3: Intra-Governmental Costs and Exchange Revenue (in thousands) Compact 609(g) Threshold Due 

Diligence Audit Admin 

September 

30, 2007 

September 

30, 2006 

IntraGovernmental 

- 59 - 3,567 2,789 7,741 14,156 9,428 

Public 81,079 17,113 75,766 29,223 77 70,181 273,439 98,992

Total–Program 81,079 17,172 75,766 32,790 2,866 77,922 287,595 108,420

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MILLENNIUM CHALLENGE CORPORATION

Note 7—Adjustments to Beginning Balance of Budgetary Resources 

In FY 2006, $17.7 million of amounts appropriated under the FY 2006 Foreign Operations, 

Export Financing, and Related Programs Appropriations Acts (Public Law 109-148) were 

rescinded. The rescission was part of the Across-the-Board Rescission enacted for FY 2006. 

There were no adjustments to the FY 2007 beginning balances of Budgetary Resources. 

Note 8—Explanation of Differences between the SBR and the Budget of the 

U.S. Government 

MCC ensures that the information reported on its books is reflected within the Budget of the U.S. 

Government. Because MCC’s financial statements are published before the President’s Budget, 

this reconciliation is based on the Statements of Budgetary Resources for FY 2006 and the 2006 

actual data reported in the President’s 2008 budget submission. FY 2007 actual data will be 

published in February 2008 within the 2009 Budget of the United States. Material differences 

reported in the Budgetary Resources column ($2.053 billion) represent unobligated balances 

reported on MCC’s SBR and SF 133, but not in the Budget of the U.S. Government. Material 

differences reported in the Total Outlays column represent SF 133 outlays reported by USAID in 

FY 2006 that were not reported timely to MCC to present in its FY 2006 financial statements 

(See Exhibit 3-4). 

Exhibit 3-4: Material Differences Between the SBR and the President’s Budget (in millions) 

Budgetary

Resources 

Obligations 

Incurred 

Distributed Offsetting 

Receipts Net Outlays

Statements of Budgetary

Resources 

3,806 1,109 109 

Unobligated Balance Carry

Forward from FY 2005 

(2,053) 

Unreported Outlays 2 

Budget of the U.S. 

Government 

1,753 1 111

Note 9—Undelivered Orders at the End of the Period 

The reported net position consists of unexpended appropriations and cumulative results of 

operations, which reflects the difference between financing sources and expenses since MCC’s 

inception. Exhibit 3-5 represents undelivered orders—unpaid for compact and 609(g) funds as of 

September 30, 2007 and September 30, 2006. 

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MILLENNIUM CHALLENGE CORPORATION

Exhibit 3-5: Undelivered Orders—Compact and 609(g) Funds (in dollars) 

Undelivered Orders 2007 Compacts 

609(g) 

Funding 2006 

Armenia $227,716,911 $227,716,911 $- $235,646,174

Benin 293,870,370 293,870,370 - 1,062,985

Cape Verde 96,151,990 96,147,871 4,119 106,077,520 

El Salvador 458,715,779 458,715,779 - - 

Georgia 265,875,250 264,656,190 1,219,060 296,178,084 

Ghana 538,097,271 537,668,659 428,612 13,584,891

Honduras 204,027,319 204,027,319 - 213,166,147 

Kenya 25,000 25,000 - -

Lesotho 16,078,147 15,668,416 409,731 902,934 

Madagascar 87,042,735 87,042,735 - 103,290,130

Mali 462,993,330 458,630,248 4,363,082 4,421,534 

Morocco 32,400,000 32,400,000 - -

Mozambique 31,254,763 25,346,200 5,908,563 12,956,078 

Nicaragua 165,314,884 165,314,884 - 173,583,320

Senegal 1,930,524 - 1,930,524 4,882,237 

Tanzania 9,800,000 - 9,800,000 -

Vanuatu 63,683,392 63,683,392 - 65,214,603 

Total–Undelivered 

Orders $2,954,977,665 $2,930,913,974 $24,063,691 $1,230,966,637 

Note 10—Reconciliation of Net Cost of Operations to Budget 

Exhibit 3-6 reconciles the FY 2007 resources available to MCC to finance operations with the net 

cost of operating MCC’s programs. Some operating costs, such as depreciation, do not require 

direct financing sources. This exhibit illustrates the reconciliation of Net Cost of Operations to 

Budget. 

` 96 _
MILLENNIUM CHALLENGE CORPORATION

Exhibit 3-6: Reconciliation of Net Cost of Operations to Budget (in dollars) 

Resources Used to Finance 

Activities Program Costs 

Budgetary Resources Obligated 

Net obligations $2,189,975,151 $287,595,725

Net other resources used to 

finance activities 

 1,936,792 

Total resources used to 

finance activities 

 2,191,911,943

Gross Costs 

Total resources used to finance 

items not part of the net cost of 

operations 

 (1,905,176,279) - 

Total resources used to 

finance the net cost of 

operations 

 286,735,664

Total components of net cost of 

operations that will not require or 

generate resources 

 860,061 

Less: Earned Revenue 

Net Cost of Operations $ 287,595,725 Net Cost of Operations $287,595,725

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` 98 _
MILLENNIUM CHALLENGE CORPORATION

4. AUDIT OF THE MILLENNIUM CHALLENGE 

CORPORATION ’S FINANCIAL STATEMENTS,

I NTERNAL CONTROLS, AND COMPLIANCE FOR THE 

PERIOD E NDING SEPTEMBER 30, 2007 AND 2006

REPORT NO. M-000-08-001-C 

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MILLENNIUM CHALLENGE CORPORATION

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` 100 _
Office of Inspector General 

 for the 

Millennium Challenge Corporation

November 9, 2007 

The Honorable John J. Danilovich 

Chief Executive Officer 

Millennium Challenge Corporation 

875 15th Street, NW 

Washington, DC 20005-2203 

Subject: Audit of the Millennium Challenge Corporation’s Financial Statements, Internal 

Controls, and Compliance for the Period Ending September 30, 2007 and 2006 

 Report No. M-000-08-001-C 

Dear Mr. Ambassador: 

Enclosed is the final report on the subject audit. The Office of Inspector General (OIG) 

contracted with the independent certified public accounting firm of Williams Adley & Company, 

LLP to audit the financial statements of the Millennium Challenge Corporation (MCC) for the 

period ending September 30, 2007. The contract required that the audit be performed in 

accordance with United States Generally Accepted Government Auditing Standards, Office of 

Management and Budget (OMB) Bulletin 07-04, Audit Requirements for Federal Financial 

Statements, and the GAO/PCIE Financial Audit Manual. 

In its audit of the MCC’s financial statements for the period ending September 30, 2007 the 

auditors found: 

• The financial statements were fairly presented in conformity with U.S. Generally 

Accepted Accounting Principals. 

• MCC’s internal controls over financial reporting and its operation contained two 

significant deficiencies. These significant deficiencies are material weaknesses. 

• MCC had two instances of material noncompliance with laws and regulations. 

The material weaknesses identified in MCC’s internal controls process increases MCC’s need to 

develop written policies and procedures to streamline its financial operations. Under current 

operating procedures, the material weaknesses increase the risk of improper recording, 

unauthorized transactions, omissions, potential funds control violations and noncompliance with 

U.S. Agency for International Development 

1401 H Street, N.W. 

Washington, DC 20005 

www.usaid.gov 
laws, regulations, contracts and grant agreements. Williams Adley & Company, LLP reported 

the following internal control weaknesses: 

1. MCC did not sufficiently execute its monitoring functions related to advances. 

2. MCC lacks written policies and procedures related to financial reporting 

accountability and document control. 

Williams Adley & Company, LLP also reported 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 under Government Auditing 

Standards, issued by the Comptroller General of the United States, and OMB Bulletin 07-04, 

Audit Requirements for Federal Financial Statements. The instances of noncompliance are: 

1. MCC did not fully comply with FFMIA (material noncompliance). 

2. MCC did not fully comply with the Federal Information Security Management Act

(FISMA) (material noncompliance). 

In carrying out its oversight responsibilities, the OIG reviewed Williams Adley & Company, LLP’s 

report and related audit documentation. This review, as differentiated from an audit in 

accordance with U.S. Generally Accepted Government Auditing Standards, was not intended to 

enable the OIG to express, and we do not express, opinions on MCC’s financial statements, or 

internal control; on whether MCC’s financial management systems substantially complied with 

FFMIA; or on MCC’s compliance with other laws and regulations. Williams Adley & Company, 

LLP is responsible for the attached auditor’s report, dated October 23, 2007, and the 

conclusions expressed in the report. However, our review disclosed no instances that Williams 

Adley & Company, LLP did not comply, in all material respects, with applicable standards. 

To address the internal control weaknesses and the noncompliance findings reported by 

Williams Adley & Company, LLP, we are making the following recommendations to MCC’s 

management: 

Recommendation No. 1: We recommend that the Millennium Challenge 

Corporation’s management: 

 

1.1. Implement a policy that reduces outstanding advances based on the 

First-in, First-out (FIFO) method. 

1.2. Implement the common payment system for all MCAs on a more

aggressive timeline. 

1.3. Make payments in accordance with the monthly schedule, and if a 

payment is held, consider the need for it to be disbursed at all. 

1.4. Ensure that there is a more rigorous review of advance requests

including an assessment of outstanding advances. 

2
Recommendation No. 2: We recommend that the Millennium Challenge 

Corporation management: 

2.1. Formally document the MCC accountability for ensuring MCA 

compliance with the reporting provisions. 

2.2. Implement document retention policies that include standards for 

version control and a central repository for documents that are used by multiple 

MCC units.

2.3. Continue with the planned implementation of the BIDS project and 

ensure that information is validated prior to inclusion in the new system. 

Recommendation No. 3: We recommend that management continue to assess the

automated options available to handle the Millennium Challenge Corporation 

operations and develop short range and long range plans for the implementation 

of the most appropriate information technology structure to address electronic

integration of, at least, the payroll, procurement and travel functions and systems 

to increase the efficiencies and effectiveness of the processing of financial

transactions, and decrease the risk of errors. 

In finalizing the report, we received and considered MCC’s response to the draft report and the 

recommendations included therein. In its comments, MCC was generally responsive; however, 

the corporation did not provide estimated implementation dates for corrective action on

recommendations 1 and 3. 

Please provide revised management decisions for recommendations 1 and 3, and inform us 

when you have taken final action on recommendation number 2. 

The OIG appreciates the cooperation and courtesies extended to our staff and to the staff of 

Williams Adley & Company, LLP during the audit. Please contact me or Richard J. Taylor, 

Director, Financial Audits Division, at (202) 216-6963, if you have any questions concerning this 

report. 

Sincerely, 

/s/ 

John M. Phee 

Assistant Inspector General 

Millennium Challenge Corporation 

3
TABLE OF CONTENTS 

 Page 

Independent Auditor’s Report 1 

 

 Opinion on the Financial Statements 2 

 Internal Control over Financial Reporting 3 

 Compliance with Laws and Regulations 9 

 Status of Prior Year Findings – Appendix A 12 

 Management Comments and Our Evaluation – Appendix B 21 

 Management Comments – Appendix C 24 

Balance Sheet s 28 

Statements of Budgetary Resources 29 

Statements of Net Costs 30 

Statements of Changes in Net Position 31 

Notes to Financial Statements 32 
 Williams, Adley & Company, LLP

Certified Public Accountants/Financial Management Consultants

Independent Auditors’ Report 

Inspector General 

United States Agency for International Development 

Board of Directors 

Millennium Challenge Corporation 

We have audited the accompanying Balance Sheets of the Millennium Challenge 

Corporation (MCC or Corporation) as of September 30, 2007 and 2006 and the related 

Statements of Net Costs, Changes in Net Position, and Budgetary Resources for the year 

ended September 30, 2007 and 2006. These financial statements are the responsibility of 

Corporation management. Our responsibility is to express an opinion on these financial 

statements based on our audit. 

In the prior fiscal year MCC prepared their financial statements in accordance with the

requirements of the Government Corporation Control Act and the OMB Circular A-136 

requirement for 45 day reporting. In fiscal year 2007 MCC decided to early adopt all 

requirements of OMB Circular A-136, as permitted by the Circular. The requirements 

resulted in a change in the financial statements presented by the Corporation. The fiscal year 

2006 information has been formatted in accordance with the new presentation. 

In connection with our audit, we also considered the MCC’s internal control over financial

reporting and tested the MCC’s compliance with certain provisions of applicable laws, 

regulations, contracts and grant agreements that could have a direct and material effect on the 

financial statements. 

SUMMARY 

As stated in our opinion, we concluded that the MCC’s financial statements as of and for the 

year ended September 30, 2007 and 2006 are presented fairly, in all material respects, in

conformity with accounting principles generally accepted in the United States of America. 

Our consideration of internal control over financial reporting and its operation resulted in two

matters that we consider to be significant deficiencies. We believe that these significant 

deficiencies are material weaknesses.

1250 H Street, NW, Suite 1150 ● Washington, DC 20005 ● (202) 371-1397 ● Fax: (202) 371-9161
1. MCC Did Not Sufficiently Execute Its Monitoring Functions Related to Advances 

2. MCC Lacks Written Policies and Procedures Related to Financial Reporting

Accountability and Document Control 

The results of our tests of compliance with certain provisions of laws, regulations, contracts, 

and grant agreements, inclusive of those referred to in the Federal Financial Management 

Improvement Act of 1996 (FFMIA), disclosed two 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. 07-04, Audit Requirements for Federal Financial Statements:

3. MCC did not fully comply with FFMIA (material noncompliance)

4. MCC did not fully comply with Federal Information Security Management Act 

(material noncompliance) 

The following sections discuss our opinion on the MCC’s financial statements, our

consideration of the MCC’s internal control over financial reporting, our tests of the MCC’s

compliance with certain provisions of applicable laws, regulations, contracts, and grant 

agreements, and the distribution of our report. The status of prior year findings is included as 

Appendix A. Management’s response to the findings and our evaluation of said response is 

included as Appendix C and Appendix B, respectively. We noted other matters that were 

communicated to management in a separate letter. 

OPINION ON THE FINANCIAL STATEMENTS 

We have audited the accompanying Balance Sheets of the Corporation as of September 30, 

2007 and 2006, and the related Statements of Net Costs, Changes in Net Position, and 

Budgetary Resources for the year ended September 30, 2007 and 2006. These financial 

statements are the responsibility of Corporation management. Our responsibility is to

express an opinion on these financial statements based on our audit. 

We conducted our audit in accordance with auditing standards generally accepted in the 

United States of America and standards applicable to financial statement audits contained in 

Government Auditing Standards, issued by the Comptroller General of the United States, and

the Office of Management and Budget (OMB) Bulletin No. 07-04, Audit Requirements for 

Federal Financial Statements. Those standards require that we plan and perform the audit to

obtain reasonable assurance that the financial statements are free of material misstatement. 

An audit includes examining, on a test basis, evidence supporting the amounts and 

disclosures in the financial statements. An audit also includes assessing the accounting

principles used and significant estimates made by management, as well as evaluating the 

overall financial statement presentation. We believe that our audit provides a reasonable 

basis for our opinion. 

Page 2 of 40 
In the prior fiscal year MCC prepared their financial statements in accordance with the

requirements of the Government Corporation Control Act and the OMB Circular A-136 

requirement for 45 day reporting. In fiscal year 2007 MCC decided to early adopt all 

requirements of OMB Circular A-136, as permitted by the Circular. The requirements 

resulted in a change in the financial statements presented by the Corporation. The fiscal year 

2006 information has been formatted in accordance with the new presentation. 

In our opinion, the financial statements referred to above present fairly, in all material 

respects, the financial positions of the Corporation as of September 30, 2007 and 2006, and 

changes in net position, net costs, and budgetary resources for the years ended September 30,

2007 and 2006, in conformity with accounting principles generally accepted in the United 

States of America. 

Our audit was made for the purpose of forming an opinion on the basic financial statements 

of the Corporation taken as a whole. The information contained in the Management’s 

Discussion and Analysis and Performance Section is not a required part of the financial 

statements, but is supplementary information required by the Federal Accounting Standards 

Advisory Board guidance. We have applied certain limited procedures, which consisted 

principally of inquiries of management regarding the methods of measurement and 

presentation of the information. However, we did not audit the information and do not 

express an opinion thereon. 

INTERNAL CONTROL OVER FINANCIAL REPORTING 

In planning and performing our fiscal year 2007 audit, we considered MCC’s internal control 

over financial reporting by obtaining an understanding of MCC’s internal control, determined 

whether internal controls had been placed into operation, assessed control risk, and 

performed tests of controls in order to determine our auditing procedures for the purpose of 

expressing an opinion on the financial statements. We limited our internal control testing to

those controls necessary to achieve the objectives described in OMB Bulletin No. 07-04 and 

Government Auditing Standards. We did not test all internal controls relevant to operating

objectives as broadly defined by the Federal Managers’ Financial Integrity Act of 1982 

(FMFIA), such as those controls relevant to ensuring efficient operations. The objective of 

our audit was not to provide assurance on internal control; accordingly, we do not provide an 

opinion on internal control. 

Our consideration of internal control over financial reporting would not necessarily disclose 

all matters that might be reportable conditions. Under standards issued by the American 

Institute of Certified Public Accountants, significant deficiencies are matters coming to our

attention relating to significant deficiencies in the design or operation of the internal control 

over financial reporting that, in our judgment, could adversely affect MCC’s ability to record,

process, summarize, and report financial data consistent with the assertions by management 

in the financial statements. 

Page 3 of 40 
Material weaknesses are significant deficiencies in which the design or operation of one or

more of the internal control components does not reduce to a relatively low level the risk that 

misstatements, in amounts that would be material in relation to the financial statements being

audited, may occur and not be detected within a timely period by employees in the normal 

course of performing their assigned functions. Because of inherent limitations in internal 

controls, misstatements, losses or noncompliance may occur and not be detected. 

We noted two matters involving the internal control over financial reporting and its operation 

that we consider to be significant deficiencies. We believe that these significant deficiencies 

are material weaknesses. We noted other matters that were communicated to management in 

a separate letter. 

MATERIAL WEAKNESSES 

MCC Did Not Sufficiently Execute Its Monitoring Functions Related to Advances 

Condition: 

MCC entered into various compacts and provided several advances during fiscal year 2007.

MCC personnel indicated that monthly disbursements were made based upon the quarterly 

disbursement requests. Current policies and procedures require that the disbursement

requests are reviewed by several organizations within MCC for reasonableness, accuracy and 

need. Also, MCC personnel indicated that advances are generally liquidated within 

approximately 180 days using the quarterly financial reports provided by the Millennium

Challenge Accounts (MCAs). The current policy requires that outstanding advances are 

liquidated within the Oracle Federal Financial System on the First-in First-out (FIFO) basis.

However, we noted the following: 

1. Several advances were not liquidated within 180 days (see chart below).

2. Advances were not always liquidated on the FIFO basis. For example, we noted that 

although Georgia had an advance for $255,713 outstanding for 541 days, redisbursements equaling $6,477,332 were posted against an advance that was 348 days 

outstanding instead. Additionally, we noted that Ghana had advances totaling

$3,065,233 outstanding for 290 days or greater, however, re-disbursements totaling 

$685,738 were posted against an advance outstanding for 207 days. 

3. MCAs were granted additional funds in spite of open advances that were outstanding

for 180 days or greater. We noted that Madagascar had outstanding advances totaling 

$13,790,783 as of June 30, 2007, with re-disbursements posted of $2,467,082, and

received additional advances of $1,110,762 for August and $3,663,616 for 

September. 

4. We noted that monthly tranches were not always issued properly. Three MCAs 

received two months of advances within one month. We noted that El Salvador

received $1,361,939 and $364,347 on August 1, 2007 for the months of July and 

Page 4 of 40 
August; and Georgia received $3,655,620 and $3,500,000 on June 29, 2007 for the 

months of March and June. 

5. The fourth quarter financial reports indicated that four MCAs had cash on hand of 

greater than 30 days cash needs as evidenced by no disbursement requested until the

second month of the quarter or in one instance no disbursement was requested for the 

entire quarter. 

Country Date of 

Disbursement 

Amount of 

Disbursement 

Amount 

Remaining as 

of 9/30/07 

Days 

Outstanding

Benin 8/31/2007 $1,531,951 $556,849 264

Georgia 2/26/2007 $10,913,824 $5,966,180 348

Ghana 6/14/2007 $863,315 $299,414 294

3/7/2007 $55,620 $55,620 207

Also, in our review of the outstanding advances we noted that interagency advances to the

Department of Treasury of $1,611,899 and U.S. Agency for International Development

(USAID) of $120,000 were over 365 days outstanding. 

The Department of the Treasury’s Financial Management Service publications did not 

envision the inclusion of sovereign governments; however, in the analysis of cash

management, we used the Treasury Financial Manual (TFM) as a valuable source of sound

business practices. The TFM is the Department of the Treasury's official publication for 

financial accounting and reporting of all receipts and disbursements of the Federal 

Government. The purpose of the TFM is to provide policies, procedures, and instructions for 

Federal departments and agencies to follow in carrying out their fiscal responsibilities. 

Also, through various OMB Circulars, OMB has attempted to address the need for advances

to cover immediate cash needs or timely disbursements of an entity for direct program costs 

for carrying out the purpose of the approved program or project. Thus, funds paid to a 

grantee are not to be held, but are to be promptly applied to the grant purpose. Although the 

timeframe for immediate cash needs has not been clearly defined by OMB, the general rules

employed by various Federal agencies are 30 days for non-governmental entities as outlined 

in the TFM. Based upon this definition, MCC has provided Federal funds in excess of 

immediate cash needs. 

Criteria:

Per the Appropriations Law Volume II, advances under an assistance program are intended to

accomplish the program purposes and not to profit the recipient other than in the manner and 

extent specified in the program. Section 2025 of The Treasury Financial Manual –Volume 1, 

Page 5 of 40 
Part 6-Chapter 2000, states that advances to a recipient organization will be limited to the 

minimum amounts necessary for immediate disbursement needs and will be timed to be in

accord only with the actual immediate cash requirements of the recipient organization in

carrying out the purpose of an approved program or project. The timing and amount of cash

advances will be as close as is administratively feasible to actual disbursements by the

recipient organization. 

Best business practice defines immediate cash needs as money used for the purpose of

carrying out the Compact’s approved programs within a thirty day period. Also, when funds 

are drawn from Treasury before it is needed, or in excess of current needs, the government

loses the use of the funds. 

Cause: 

Although, MCC’s management has changed the advance issuance and monitoring policies 

and procedures, several aspects of advance monitoring have not been effectively 

implemented. The review of the advance requests related to immediate cash needs and 

outstanding advances currently performed is inadequate. 

Effect: 

The lack of effective advance monitoring has lead to excess cash on hand and increasing

amounts of interest remitted from FY 2006 ($304,000) to FY 2007 ($1,624,762). Not using 

the FIFO method to liquidate the advances distorts the aging of outstanding advances and 

provides inaccuracies in the data. 

Recommendation # 07-01: 

We recommend that MCC management: 

(1) Implement a policy that truly reduces outstanding advances based on the FIFO 

method; 

(2) Implement the common payment system for all MCAs of a more aggressive timeline; 

(3) Make payments in accordance with the monthly schedule and if a payment is held

consider the need for it to be disbursed at all; and 

(4) Management should ensure that there is a more rigorous review of advance requests 

including an assessment of outstanding advances. 

MCC Lacks Written Policies and Procedures Related to Financial Reporting 

Accountability and Document Control 

Condition: 

In performing our analysis of compact expenses and advances, we requested supporting 

documentation of approved disbursement requests and final quarterly financial reports (QFR)

Page 6 of 40 
by country for FY 2007. MCC’s Department of Administration and Finance was hampered in

addressing our request in a timely manner because of the lack of a centralized data/document 

repository. Also, MCC does not have adequate version control over the documents to ensure 

that the final documents are maintained in a manner that is accessible to all MCC employees

requiring information. 

During FY 2007, MCC disbursed over $82 million to compact countries who in turn reported

approximately $72 million in expenses on their quarterly reports. The disbursement requests 

and quarterly reports are essential to ensuring that expenses and advances are accurately

reported in the proper period. MCC has policies and procedures for processing and clearing 

the disbursement requests and quarterly financial reports that are received from the MCAs. 

The MCA is required to submit the QFR by the 10th day of the third month of the quarter.

The remaining 20 days of the month are used by MCC to process and clear the reports 

through various MCC departments including the country teams, legal, Fiscal Accountability,

and Department of Administration and Finance. However, MCC does not have written 

policies and procedures related to the non-receipt of the QFR and identification of the 

accountable person(s) for ensuring compliance and notification. 

MCC has decided to invest in an enterprise information system that will serve as a central

repository for the documentation related to the various countries supported by the MCC. The

projected implementation of the system is the third quarter of FY 2008. 

Criteria:

The GAO Standards for Internal Control in the Federal Government states that internal 

control and all transactions and other significant events need to be clearly documented and 

the documentation should be readily available for examination. Also, information should be 

recorded and communicated to management and others within the entity who need it and in a

form and within a timeframe that enables them to carry out their internal control and other

responsibilities. 

OMB Circular A-127 “Policies and Standards for Financial Management Systems” states 

that financial management in the Federal government requires accountability of financial and

program managers for financial results of actions taken, control over the Federal 

government's financial resources and protection of Federal assets. To enable these

requirements to be met, financial management systems must be in place to process and

record financial events effectively and efficiently, and to provide complete, timely, reliable 

and consistent information for decision makers and the public. 

Additionally, management and employees should establish and maintain an environment 

throughout the organization that sets a positive and supportive attitude toward internal 

control and conscientious management. A positive control environment is the foundation for 

all other standards. It provides discipline and structure as well as the climate which

influences the quality of internal controls. 

Page 7 of 40 
Cause: 

The country teams and specifically, the program officer, are responsible for ensuring that

quarterly financial reports are received from each country in accordance with the timeline

established. However, the written roles and responsibilities of the position and operational 

area do not include the accountability for these reports and provision for a centralized 

repository. Also, MCC has not established document retention standards that include 

document versioning controls. Additionally, MCC believes that because the agreements

require the submission of the reports and funds cannot be disbursed to the MCA without 

current reports on file, the possibility of nonsubmission is nonexistent. However, if the MCA 

has sufficient funds on hand and thus does not require a disbursement, the incentive to 

provide timely reporting decreases. 

Effect: 

If compact expenses are not recorded timely and accurately based upon approved

documentation, the MCC financial reporting and financial statements will be inaccurate and

MCC management’s ability to rely on the financial statements to make informed decisions 

will be impaired. As the number of compact countries and amounts of funds disbursed 

increases, the ability to maintain documentation and report accurately and timely becomes 

increasingly more important to the effective and efficient running of MCC operations. 

Also, operating efficiency is reduced because the lack of centralized records causes people to

keep their own set of records because they can not rely on information being available when 

needed. Specifically, it has required the Department of Administration and Finance to 

expend additional efforts to track down the required reports for recording in the accounting 

system and providing to the auditors. The lack of version control and central repository also

affects other reports and documentation required from the various countries including 

performance reports, monitoring and evaluations plans, etc. Currently, the 9 compacts that 

are in force require 4 QFRs, at least 4 disbursement requests, and 2 performance reports on 

an annual basis. Also, countries receiving Compact Implementation Funds (CIF) and 609g 

funds required to submit quarterly QFRs. Additionally, there are untold draft versions of 

these same reports. If you multiply these reports by the additional countries that will be 

reporting in the future, the proper controls over documentation become increasingly critical

to effective data management. 

Recommendation # 07-02: 

We recommend that MCC management: 

(1) Formally document the MCC accountability for ensuring MCA compliance with the 

reporting provisions; 

(2) Implement document retention policies that include standards for version control and 

a central repository for documents that are used by multiple MCC units; and 

Page 8 of 40 
(3) Continue with the planned implementation of the Business Intelligence and Data 

Storage (BIDS) and ensure that information is validated prior to inclusion in the new

system. 

The status of prior year’s findings is provided in Appendix A. Management’s response in its 

entirety is included in Appendix C. 

As required by OMB Bulletin No. 07-04, with respect to internal controls related to 

performance measures determined by management to be key and reported in the 

Management’s Discussion and Analysis, we obtained an understanding of the design of 

significant internal controls relating to the existence and completeness assertions. Our 

procedures were not designed to provide assurance on internal control over performance

measures and, accordingly, we do not provide an opinion thereon. 

COMPLIANCE WITH LAWS AND REGULATIONS

MCC’s management is responsible for complying with laws and regulations applicable to 

MCC. As part of obtaining reasonable assurance that MCC’s balance sheet is free of 

material misstatements, we performed tests of its compliance with certain provisions of laws 

and regulations, noncompliance with which could have a direct and material effect on the 

determination of financial statement amounts, and certain other laws and regulations 

specified in OMB Bulletin No. 07-04, including the requirements referred to in the FFMIA. 

We limited our tests of compliance to these provisions and we did not test compliance with

all laws, regulations, contracts, and agreements applicable to MCC. Providing an opinion on 

compliance with laws, regulations, contracts, and grant agreements was not an objective of 

our audit and, accordingly, we do not express such an opinion. 

Under OMB Bulletin No. 06-03 and FFMIA, we are required to report whether MCC’s 

financial management systems substantially comply with: (1) Federal financial management 

systems requirements, (2) applicable Federal accounting standards, and (3) the United States

Government Standard General Ledger at the transaction level. To meet this requirement, we 

relied on the results of a SAS 70 review of the Department of Interior’s Oracle Federal 

Financial System performed by an Independent Audit Firm. The results of that review have 

been presented to MCC in a separate report. Providing an opinion on compliance with those 

provisions was not, however, an objective of our audit and, accordingly, we do not express 

such an opinion. 

The results of our tests disclosed that the Corporation did not fully comply with the FFMIA, 

which is required to be reported under Government Auditing Standards or OMB Bulletin No. 

06-03. 

Under FFMIA, we are required to report whether the Corporation’s financial management 

systems substantially comply with the Federal financial management systems requirements, 

applicable Federal accounting standards, and the United States Government Standard 

Page 9 of 40 
General Ledger at the transaction level. To meet this requirement, we performed tests of

compliance with FFMIA section 803(a) requirements. 

The results of our tests disclosed two instances of noncompliance with laws and regulations. 

MATERIAL NONCOMPLIANCE 

MCC Does Not Fully Comply With The Federal Financial Management Improvement Act 

Condition: 

Millennium Challenge Corporation (MCC) systems do not comply with the Federal Financial 

Management Improvement Act (FFMIA). The FFMIA requires an integrated financial 

management system. MCC does not have an integrated financial management system. MCC 

has multiple incompatible systems that cannot exchange data electronically, i.e. E-Travel and 

Federal Personnel/Payroll System (FPPS). The entry of the travel expenses and

disbursements must be done manually. The entry of obligations and commitments requires a 

process of manual entry into Oracle Federal Financial (OFF). The payroll expenses and 

disbursements must be uploaded into OFF from FPPS. 

During FY 2007, the Department of Accounting and Finance (A&F) traveled to NBC’s 

Headquarters to perform testing of the interface between E-travel and OFF. A&F tested the 

interface based on 17 different employee travel scenarios, and noted that only five standard

scenarios processed through both E-travel and OFF successfully. 

Criteria:

The FFMIA requires MCC to implement and maintain a financial management system that 

complies substantially with Federal requirements for an integrated financial management 

system. 

Cause: 

The MCC does not have its own financial system. The Corporation has contracted with NBC 

to provide accounting and IT services including usage of its OFF application. The MCC is

required by government regulations to use Federal Centers of Excellence of which NBC is

one. According to MCC officials the Corporation has been directed to use the systems 

available through NBC. MCC believes that in fiscal year 2007 it used the only options 

available. NBC is working with MCC to provide enhancement to the system to

accommodate MCC needs within the context of the OMB requirements for Centers of 

Excellence. 

Page 10 of 40 
Effect: 

The financial systems may not provide users with complete, accurate, timely financial 

information needed for decision-making purposes because of the inefficiencies caused by the 

manual processes. 

Recommendation # 07-03: 

We recommend that management continue to assess the automated options available to

handle MCC operations and develop short range and long range plans for the implementation 

of the most appropriate information technology structure to address electronic integration of 

at least the payroll, procurement and travel functions and systems to increase the efficiencies

and effectiveness of the processing of financial transactions; and decrease the risk of errors. 

MCC Does Not Fully Comply With The Federal Information Security Management Act 

(FISMA) 

An OIG audit identified significant non-compliance with FISMA requirements. Also, MCC 

engaged an outside expert to perform an independent security audit. MCC acknowledged that 

it had not met the majority of the FISMA requirements and proposed a timetable for

compliance. 

 

We are reporting this deficiency as required by the guidance issued by the Office of 

Management and Budget. However, because this deficiency was addressed in a prior OIG 

audit report, we are not making any recommendations in this report. 

 

DISTRIBUTION 

This audit was performed pursuant to the Government Corporation Control Act, OMB 

Circular A-136, and is intended solely for the information and use of the United States 

Congress, the President, the Director of the Office of Management and Budget, Comptroller 

General of the United States, the Corporation and its Inspector General, and is not intended 

to be, and should not be, used by anyone other than these specific parties.

Williams, Adley & Company, LLP /s/ 

October 23, 2007 

Washington, D.C. 

Page 11 of 40 
 Appendix A 

STATUS OF PRIOR YEAR FINDINGS 

MCC Does Not Fully Comply with The Federal Information Security Management Act 

(FISMA) 

In a report issued June 2005, an OIG audit identified significant non-compliance with 

FISMA requirements. Subsequently, MCC completed its FISMA report to OMB as of

September 30, 2005, where it acknowledged that it had not met the majority of the FISMA 

requirements and proposed a timetable for compliance. 

 

We are reporting this deficiency, as required by the guidance issued by the Office of 

Management and Budget. However, because this deficiency was addressed in a prior OIG 

audit report, we are not making any recommendation in this report. 

The OIG continues to report significant noncompliances with FISMA requirements in fiscal 

year 2006 and 2007. 

MCC’s Policies and Procedures Were Not Always Complete and Consistent (material 

weakness) 

During fiscal year (FY) 2006, the Millennium Challenge Corporation (MCC) used various 

processes to address the financial aspects of its operations. These processes evolved during 

the year as the organization grew in both number of personnel and span of operations. 

However, during this growth, the development and implementation of final written policies

and procedures to guide MCC’s streamlined operational structure was not adequately 

addressed. During the fiscal year, MCC lacked final written policies and procedures.

Written policies and procedures must be in place to ensure operational efficiencies, risk

reduction, and consistent application. Several policies and procedures, i.e. advances, budget, 

and accruals, remained in draft form, throughout the year. Additionally, several procedures

do not address the responsible positions at the various control levels for the processing of 

data/data entry functions, or submission and approval levels and procedures in the areas of 

fixed assets and the open obligations review required revision.

While the current Department of Administration and Finance (A&F) management team has

emphasized the preparation and issuance of a comprehensive financial management policies 

and procedures (FMPP) manual, as of the end of the FY, such a manual was being drafted.

MCC has hired contractors to assist in the production of the FMPP manual by December 31,

2006. 

Recommendation #06-01: 

We recommend that Millennium Challenge Corporation’s Department of Administration and 

Finance complete the Financial Management Policies and Procedures (FMPP) manual and 

implement the written policies and procedures for all areas that result in a financial event. 

Page 12 of 40 
 Appendix A 

Status: 

The Department of Administration and Finance completed the FMPP manual in March 2007. 

It was implemented and also updated in August 2007. 

MCC Policies for Disbursing Advances to Grantees Do Not Accommodate Effective Cash 

Management (material weakness and noncompliance)

Condition: 

MCC entered into various compacts and provided several advances during fiscal year 2006.

MCC personnel indicated that monthly disbursements were made based upon the quarterly 

request. However, we noted that for most Millennium Challenge Authorities (MCAs), MCC 

disbursed funds on a quarterly basis based upon the disbursement request, rather than 

monthly. We noted that several disbursements were not used within 30 days nor the quarter. 

Country 

Date of 

Disbursement 

Amount of 

Disbursement 

Projected 

Cash Balance 

at September 

30, 2006 

Date when 

disbursement was 

completely 

expended 

Madagascar July 28, 2005 $ 2,500,924 - March 30, 2006 

December 13, 2005 $ 1,755,506 - June 30, 2006 

May 31, 2006 $ 5,391,665 $2,311,342 Not expected to be 

expended by 

September 30, 2006 

Georgia May 2, 2006 $ 3,603,404 $221,594 

September 15, 2006 $6,509,706 6,509,706 

Not expected to be 

expended by 

September 30, 2006 

Honduras February 28, 2006 $ 1,646,545 $138,840 

September 29, 2006 $1,369,849 $1,369,849 

Not expected to be 

expended by 

September 30, 2006 

Cape Verde February 1, 2006 $ 7,526,864 $3,913,663 Not expected to be 

expended by 

September 30, 2006

Vanuatu June 30, 2006 $ 1,127,055 $1,023,658 

August 9, 2006 $ 219,504 $219,504 

September 6, 2006 $ 111,688 $111,688 

September 18, 2006 $ 116,377 $116,377 

Not expected to be 

expended by 

September 30, 2006

Nicaragua June 30, 2006 $ 1,483,399 433,889 

August 28, 2006 $ 378,550 378,550 

Not expected to be 

expended by 

Page 13 of 40 
 Appendix A 

Country 

Date of 

Disbursement 

Amount of 

Disbursement 

Projected 

Cash Balance 

at September 

30, 2006 

Date when 

disbursement was 

completely 

expended 

August 31, 2006 $ 289,110 289,110 September 30, 2006 

The Department of the Treasury’s Financial Management Service publications did not 

envision the inclusion of sovereign governments; however, in the analysis of cash

management, we used the Treasury Financial Manual (TFM) as a valuable source of sound

business practices. The TFM is the Department of the Treasury's official publication for 

financial accounting and reporting of all receipts and disbursements of the Federal 

Government. The purpose of the TFM is to provide policies, procedures, and instructions for 

Federal departments and agencies to follow in carrying out their fiscal responsibilities. 

Also, through various OMB Circulars, OMB has attempted to address the need for advances

to cover immediate cash needs or timely disbursements of an entity for direct program costs 

for carrying out the purpose of the approved program or project. Thus, funds paid to a 

grantee are not to be held, but are to be promptly applied to the grant purpose. Although the 

timeframe for immediate cash needs has not been clearly defined by OMB, the general rules

employed by various Federal agencies are 30 days for non-governmental entities as outlined 

in the TFM. Based upon this definition, MCC has provided Federal funds in excess of 

immediate cash needs. 

Recommendation # 06-02: 

We recommend that Millennium Challenge Corporation: 

1) Develop and implement policies and procedures to ensure that the payment schedules 

and other agreements entered into with grantees are reflective of the U.S. Treasury 

requirements concerning advances and immediate cash needs.

2) Develop and implement policies and procedures to ensure that all disbursement 

requests from the accountable entity of the recipient countries follow the official 

format that documents the cash requirements for each month of the quarterly period. 

3) Make and document all payments to the recipient countries on a monthly basis 

instead of a quarterly basis. 

4) Establish and implement policies and procedures to ensure that any custodial 

liabilities, e.g. interest owed to the U.S. government resulting from the grantee 

advances, are properly recorded. 

Status: 

The Millennium Challenge Corporation developed and implemented policies and procedures 

reflective of the GAO policy based on an evaluation of what was needed to meet grant 

purposes in any given quarter, through the funds will be released in tranches on a monthly 

schedule. The MCAs submit quarterly financial reports that include disbursement requests. 

The disbursement requests provide a monthly schedule of cash needs that NBC and the 

Page 14 of 40 
 Appendix A 

Division of Finance follow to issue the disbursements. DF and The National Business Center 

(NBC) have implemented controls and review procedures to ensure quarterly disbursement

requests and subsequent monthly disbursements comply with policies and procedures per the 

FMPP. Disbursements are recorded when issued and expenses are recorded on a quarterly

basis based upon the financial reports received from the MCA. The interest receipts are 

recorded in the general ledger by NBC. 

MCC Does Not Have a Property Management System (material weakness)

We noted that MCC reported $5,656,567 in property as of June 30, 2006; however, they were

unable to provide detailed records to support the amount reported. The MCC does not have a 

property management system that provides detail information on original cost, date of 

purchase, location, useful life, depreciation, and accumulated depreciation. 

For the year end financial statements, sufficient analysis was performed to ensure consistent 

application of the capitalization policy and to determine an appropriate measure of 

depreciation expense to ensure that fixed assets would be fairly stated. 

Recommendation #06-03: 

We recommend that Millennium Challenge Corporation develop and maintain appropriate 

fixed asset records to ensure accurate reporting and physical control. 

Status: 

MCC implemented new property policies and procedures in FY 2007. MCC with the 

assistance of a contractor conducted an inventory and reconciled it to the general ledger.

Also, MCC established fixed asset records and computed and recorded depreciation expenses 

during the year. 

MCC Did Not Properly Record Compact Expenses During the Fiscal Year (material 

weakness)

As a result of our review of the third quarter financial statements, we noted that MCC did not 

report any compact program costs. Although MCC had received disbursement requests that 

can be used to post the expenses incurred, nothing was recorded. According to the compact

and disbursement agreement, each MCA is required to submit quarterly disbursement 

requests that include the expenses incurred to date. These requests are due regardless of the 

need for funding. The requests should provide the following: 

• Previous quarter advances; 

• Previous quarter disbursements; 

• Estimated expenses; and 

• Next quarter’s advance request. 

Page 15 of 40 
 Appendix A 

For the year end financial statements, MCC recorded compact expenses of $8,493,394. 

Additional analysis was performed utilizing the disbursement requests to increase expenses 

recorded and to ensure that advances and compact expenses were fairly stated. 

Recommendation #06-04: 

We recommend that Millennium Challenge Corporation’s management: 

(1) Require that the final quarterly request received from the accountable entity of the

recipient countries be made available to the Department of Administration and 

Finance and the Fiscal Accountability Office. 

(2) Develop and implement policies and procedures that ensure compact expenses are 

properly and accurately recorded and reported on a quarterly basis 

(3) Implement written procedures requiring that appropriate and timely follow-up

measures are performed and are recorded for historical reference on incomplete, 

outstanding, or late disbursement requests. 

(4) Develop and implement policies and procedures that require the Department of 

Administration and Finance to perform a thorough review of the financial statements 

to ensure that costs are not omitted. 

Status: 

The Department of Administration and Finance in conjunction with the Fiscal Accountability

Office developed and implemented revisions to the quarterly financial reports to streamline

the process for recording compact expenses and related accruals. The current process

requires that quarterly reports and disbursement requests are cleared by the Department of 

Administration and Finance and the Fiscal Accountability Office thereby ensuring that they

are received. MCC issued policies and procedures for tracking and follow-up on outstanding 

quarterly disbursement requests and financial reports. Also, procedures for the review of 

quarterly and annual financial statements were developed and implemented by the Division 

of Finance. 

MCC’s Chief Financial Officer Was Not an Integral Part of the Compact/Grant Processes

(material weakness)

Based on interviews and observations, we noted that MCC’s Division of Finance was not

integrally involved in the compact/grant processes to ensure that the financial aspects are 

addressed, recorded and reported in their proper sequence and appropriate timing. The Chief 

Financial Officer or his designees should be integrally involved in all MCC operations that 

result in a financial transaction. The CFO should be integrally involved in the: 

Page 16 of 40 
 Appendix A 

(1) establishment of the compact amount to ensure that there is sufficient 

appropriations available, 

(2) development of grant policies and procedures to ensure that they are in 

compliance with Federal government laws and regulations and to ensure that

sufficient financial information is provided to MCC to accomplish its

responsibilities, 

(3) review of compacts in order to initiate accounting transactions in the system and 

budget transactions with OMB, and 

(4) establishment of the reporting structure to ensure that financial information is 

provided timely and in the format necessary for required financial reporting. 

 

Recommendation #06-05: 

We recommend that Millennium Challenge Corporation’s management revise their policies 

and procedures to invest the Office of the Chief Financial Officer with the level of

responsibility, role, and all levels of authority established by the Chief Financial Officer Act. 

Status: 

The Chief Executive Officer sent a memorandum to MCC’s executive team iterating CFO’s

responsibilities for the full spectrum of the Corporation’s financial management activities.

The FMPP manual reiterates the full spectrum of the CFO’s responsibilities also. 

MCC’s Travel Disbursement Controls and Procedures Do Not Permit the Effective and 

Efficient Management of Travel (reportable condition)

MCC follows the Federal Travel Regulations and has an overall policy related to travel. 

However, prior to February 2006, MCC was using blanket travel authorizations (TA) to serve 

as an approval for employee travel. Once MCC approved the blanket TA, it was submitted to

National Business Center (NBC) to post an obligation within Oracle. After February, MCC 

modified the travel policy that instituted the individual TA’s that outlined the specific 

purpose of the employee’s travel. NBC no longer posts travel obligations in advance in

Oracle but obligates and pays the travel vouchers, simultaneously. 

Similar to FY 2005, MCC requires all employees to post their travel expenses online in ETravel. Although the travel voucher process is electronic, E-Travel does not interface with 

Oracle Federal Financials. Therefore, an NBC accounting technician must manually enter 

each voucher. During our travel testing, we noted twenty-six instances totaling $97,802 for 

which employees’ receipts were not available. We also noted the following: 

1. Eleven of 115 (10%) travel vouchers totaling $869 exceeded per diem rates; 

2. Six of 115 (5%) vouchers equaling $557 consisted of expenses in excess of $75 and

were not supported; and 

3. Four of 115 (3%) vouchers totaling $35,663 were not approved by the travel manager 

within E-Travel. 

Page 17 of 40 
 Appendix A 

MCC enhanced its travel policy in August 2006. MCC management changed the 

Corporation’s supporting documentation requirements to require travelers to scan into the Etravel system and electronically attach to the pertinent travel vouchers receipts for claimed

expenses of $75 or more. Division of Finance personnel are responsible for reviewing

submitted vouchers to ascertain that required receipts are electronically attached to travelers’

vouchers. Travelers who do not scan and attach their required receipts to vouchers are 

contacted by Division of Finance staff to obtain “missing” receipts. 

Recommendation #06-06: 

We recommend that Millennium Challenge Corporation’s management develop and 

implement controls to reject travel expense reimbursement requests that exceed the allowable 

country per diem unless additional electronic authorization is provided. 

Status: 

The Deputy CFO instructed the DF’s travel management staff to not approve any claimed

travel expenses that exceed established limitations as defined by the Federal Travel 

Regulations (FTR) and to reject travelers’ claims that exceed per diem limits. The travelers

were provided feedback on travel voucher errors and a traveler’s responsible 

manager/supervisor was apprised of claimed expenses that are not in compliance with per 

diem (actual costs) requirements. The manager/supervisor explicitly approved such expenses. 

DF travel management staff underwent refresher FTR training and provided training on using 

the E-Travel system to MCC employees to better orient and guide them in properly preparing 

travel authorizations and vouchers. 

MCC Did Not Fully Comply with FFMIA and GPRA 

Millennium Challenge Corporation has not fully complied with the following laws and 

regulations: 

• Government Performance and Results Act (GPRA) 

• Federal Financial Management Improvement Act (FFMIA) 

We noted that the agency performance plans provided to us did not fully comply with GPRA 

requirements, for example: human, capital and other resources needed to achieve 

performance goals were not quantified as required. Also, agency performance goals were not 

written in a manner that could be quantified in several instances and milestones were not 

included. Therefore, we could not directly link measurement of agency performance goals 

with the overall strategic plan. In addition, baseline data to be used as performance indicator

measurement thresholds were not provided for some indicators. 

Page 18 of 40 
 Appendix A 

The FFMIA requires an integrated financial management system. MCC does not have an 

integrated financial management system. When MCC decided to outsource its accounting

operations, MCC selected NBC from the available Federal Centers of Excellence as the best 

choice to meet its needs. In order to address the needs of MCC, multiple systems, i.e. ETravel, procurement, and Federal Personnel and Payroll System (FPPS), are used, but these 

systems cannot exchange data electronically. The entry of the travel expenses and 

disbursements must be done manually. The entry of obligations and commitments requires a 

process of emails, scanning and manual entry into Oracle Federal Financial (OFF) System 

application. The payroll expenses and disbursements must be uploaded into OFF from FPPS. 

Additionally, we obtained and reviewed the Financial Management Controls and Assertion 

letter and noted the following assertion, “During FY 2006, NBC’s sytems were not in 

substantial compliance with FFMIA requirements. In its assurance statement as of June 30,

2006, NBC asserted that ‘were in substantial non-compliance with FFMIA requirements’.” 

Subsequently, NBC instituted several corrective actions to address the issues raised and were 

in substantial compliance by September 30, 2006, per their representation. 

Recommendation #06-07: 

We recommend that MCC management: 

(1) Develop performance goal templates and follow-up training to ensure that 

Government Performance and Results Act (GPRA) requirements are adequately 

addressed and consistent. We also recommend that baseline data be finalized or 

performance indicators reviewed and amended such that they can be measured 

against obtainable data. 

(2) Assess the automated options available to handle MCC operations and develop short 

range and long range plans for the implementation of the most appropriate

information technology structure to address electronic integration of at least the

payroll, procurement and travel functions and systems to increase the efficiencies and 

effectiveness of the processing of financial transactions; and decrease the risk of 

errors. 

Status: 

The Department of Administration and Finance managed a performance working group, 

representing all departments to revise the MCC corporate performance plan for FY 2007, and

acquired the services of a contractor to assist in drafting the plan, setting baselines and 

targets, and developing procedures to ensure that departmental and individual performance 

plans are aligned with the corporate plan. MCC was able to complete the performance plan

which expanded the Framework, made key decisions on the baseline, performance measures,

reliable data sources, and the vetting process to be employed by each department. The 

departmental plans are expected to be completed in October and the individual employee

plans in December 2007. 

Page 19 of 40 
 Appendix A 

In FY 2007 MCC has assessed various automated options related to the integration of its

various systems and discussed options with their service provider. They have determined

system requirements and performed a gap analysis. However, integration of the various 

systems requires additional analysis, planning and assessment. 

Page 20 of 40 
 Appendix B 

Management 

Comments and Our 

Evaluation 

We received and evaluated MCC’s management comments to the 

recommendations made in this report. We considered their

comments to be generally responsive except for specific exceptions

detailed below. Management comments have been included in their

entirety in Appendix C. 

In its response, MCC’s management stated that it recognizes the 

importance of accountability, effective stewardship, and public 

disclosure related to the resources entrusted to it, and that their

goal is to achieve and maintain excellence in financial 

management, financial reporting and internal control systems. 

Further, MCC’s management commented that it will implement

the recommendations as soon as possible to strengthen their 

systems of internal controls and lend further credibility to their

financial statements and overall financial operations. MCC’s 

management went on to address each recommendation. MCC’s

management also recognized and thanked the OIG and Williams, 

Adley & Company, LLP for working closely with them during the 

audit process.

Based on MCC’s comments, we consider that a management

decision has been reached on recommendation 2 provided in this

report but not on recommendations 1 and 3. These recommendations 

do not provide defined timelines for the corrective action 

implementation. Also, the corrective action for recommendation 1.4

requires additional details to ensure that the recommendations are 

appropriately addressed. MCC should report to the OIG when

management decision has been reached on the four recommendations

and when final action has been taken on the recommendations. The

following is a brief summary of MCC’s management comments on 

the three recommendations included in this report and our evaluation 

of those comments. 

Recommendation No. 1

MCC accepts the recommendation. With regard to

Recommendation # 1, MCC’s current Financial Management 

Polices and Procedures do not contain any requirement to liquidate 

advances on a First-in, First-out (FIFO) basis; however we agree 

that FIFO would provide for improved reporting of outstanding

advances. MCC will work with the National Business Center

(NBC), its financial services provider, to ensure that all prior and 

future advances are liquidated on a FIFO basis.

Page 21 of 40 
 Appendix B 

MCC implemented the Common Payment System (CPS) in Mali in

May 2007. All countries signing compacts after that date will 

utilize CPS. The CPS provides for payment of MCA expenses 

through the U.S. Treasury based upon presentation of a valid 

approved invoice. CPS supports sound cash management by 

eliminating the current practice of cash advances to MCA compact 

countries 

 

MCC will establish a timeline for converting to CPS countries that 

entered into Compacts prior to May 2007. In the interim, MCC 

intends to follow sound cash management practices, and will 

disburse funds consistent with the GAO policy and based on the 

best information available and grant requirements in any given 

quarter. MCC will continue to release the funds in tranches 

following a monthly schedule. 

Auditor Evaluation: We conclude that management has not

adequately addressed this issue because the response does not

address recommendation 1.4; and does not provide an 

implementation date. 

Recommendation No. 2 

MCC accepts the recommendation. In conjunction with the 

reorganization of the Operations Department, MCC will be

reviewing existing polices and procedures related to compact 

implementation. This will include documenting the roles and

responsibilities for ensuring receipt of required reports from

partner countries. 

MCC has submitted a comprehensive Records Disposition

(retention) schedule to the National Archives and Records 

Association for review and approval within the next six to nine 

months. The issue of version control and a centralized repository is 

being addressed as part of development of the Enterprise 

Architecture and the implementation of the Business Intelligence 

and Data Storage (BIDS). A key component of BIDS will be the 

Administrative Data Store (ADS). The ADS is a data warehouse 

that will include MCA Compact data, MCA Progress Reports, and 

records of MCC reviews, approvals and decisions captured through 

an automated workflow process. The expected implementation 

date for this component of the BIDS is June 2008. In the interim,

MCC will establish procedures to address the version control issue 

using existing tools. 

Page 22 of 40 
 Appendix B 

Auditor Evaluation: We conclude that management has adequately

addressed this issue. 

Recommendation No. 3 

MCC accepts the recommendation. The Department of 

Administration and Finance (A&F) will continue to work to the 

National Business Center (NBC) on the interface between Etravel 

and Oracle to resolve the issues noted during initial testing. MCC 

will be changing to a new government credit card provider in FY 

2008 for both travel and purchase card transactions. MCC is

currently considering either JP Morgan Chase or Citibank, both of 

which have a fully tested and integrated interface with the Oracle

Federal Financial System (OFFS). Regarding the payroll 

integration, the NBC has indicated its business plan does not 

include the integration of FPPS with OFFS, outside of the labor 

interface already provided. 

During FY 2007, A&F made substantial progress on reviewing its 

current financial systems environment and developing alternatives 

for a fully integrated system to meet the requirements of the 

FFMIA. A&F has established system requirements, performed a 

gap analysis based on its current environment, and developed cost 

alternatives to close the exiting gaps. A&F will also work with the

Office of Management and Budget (OMB) to find the best 

resolution for this condition whether with the NBC, or with some

other federal or private center of excellence. 

Auditor Evaluation: We conclude that management has not

adequately addressed this issue because no defined timetable has

been stated for the corrective action. 

Page 23 of 40 
 

Page 24 of 40 

November 2, 2007 

TO: John Phee 

 Assistant Inspector General 

FROM: Michael Ryan /s/ 

Vice President, Administration and Finance 

SUBJECT: Management Response to Draft Independent Auditor's 

Report on MCC's Financial Statements for Fiscal Years 

Ended September 30, 2007 and 2006, Respectively 

We have received the subject draft report and are pleased to note that the independent 

auditors, Williams, Adley and Company, LLP, are issuing an unqualified opinion on our 

principal financial statements, namely the: 

Balance Sheets; 

Statements of Net Costs; 

Statements of Changes in Financial Position; and 

Statements of Budgetary Resources. 

The auditor's unqualified opinion is being issued despite material internal control weaknesses 

and noncompliance with selected laws and regulation that have been identified. 

The Millennium Challenge Corporation's (MCC) management recognizes the importance of 

accountability, effective stewardship and public disclosure related to the resources entrusted 

to it. Our goal is to achieve and maintain excellence in our financial management, financial 

reporting and internal control systems. Accordingly, we will implement the recommendations 

as soon as possible to strengthen our systems of internal control and lend further credibility 

to our financial statements and overall financial operations. 

We wish to recognize and thank you, your team, and Williams, Adley and Company for 

working closely with us during the audit process. Any questions may be addressed to Mr. 

Dennis Nolan, Deputy Chief Financial Officer, or to me. 

Following are our management decisions and responses to Williams Adley's audit 

recommendations. 
Appendix C 

Material Weakness 1: MCC did not sufficiently execute its monitoring functions related to 

advances. 

Recommendations: Williams, Adley and Company recommend that the 

Millennium Challenge Corporation’s management: 

 

1.1. Implement a policy that reduces outstanding advances based on the FIFO method. 

1.2. Implement the common payment system for all MCAs on a more aggressive 

timeline. 

1.3. Make payments in accordance with the monthly schedule and if a payment is held

consider the need for it to be disbursed at all. 

1.4. Ensure that there is a more rigorous review of advance requests including an 

assessment of outstanding advances. 

Management Decision: MCC accepts the recommendation. With regard to

Recommendation # 1, MCC’s current Financial Management Polices and Procedures do not 

contain any requirement to liquidate advances on a First-in, First-out (FIFO) basis; however 

we agree that FIFO would provide for improved reporting of outstanding advances. MCC 

will work with the National Business Center (NBC), its financial services provider, to ensure

that all prior and future advances are liquidated on a FIFO basis.

MCC implemented the Common Payment System (CPS) in Mali in May 2007. All countries 

signing compacts after that date will utilize CPS. The CPS provides for payment of MCA 

expenses through the U.S. Treasury based upon presentation of a valid approved invoice. 

CPS supports sound cash management by eliminating the current practice of cash advances 

to MCA compact countries 

 

MCC will establish a timeline for converting to CPS countries that entered into Compacts 

prior to May 2007. In the interim, MCC intends to follow sound cash management practices, 

and will disburse funds consistent with the GAO policy and based on the best information 

available and grant requirements in any given quarter. MCC will continue to release the 

funds in tranches following a monthly schedule. 

Ma erial Weaknes 2: MCC lacks written policies and procedures related to financial 

reporting accountability and document control. 

t s

Recommendations: Williams, Adley and Company recommends that the Millennium

Challenge Corporation management: 

2.1. Formally document the MCC accountability for ensuring MCA compliance with 

the reporting provisions. 

Page 25 of 40 
Appendix C 

2.2. Implement document retention policies that include standards for version control 

and a central repository for documents that are used by multiple MCC units. 

2.3. Continue with the planned implementation of the BIDS project and ensure that 

information is validated prior to inclusion in the new system. 

Management Decision: MCC accepts the recommendation. In conjunction with the 

reorganization of the Operations Department, MCC will be reviewing existing polices and 

procedures related to compact implementation. This will include documenting the roles and 

responsibilities for ensuring receipt of required reports from partner countries. 

MCC has submitted a comprehensive Records Disposition (retention) schedule to the 

National Archives and Records Association for review and approval within the next six to 

nine months. The issue of version control and a centralized repository is being addressed as 

part of development of the Enterprise Architecture and the implementation of the Business 

Intelligence and Data Storage (BIDS). A key component of BIDS will be the Administrative 

Data Store (ADS). The ADS is a data warehouse that will include MCA Compact data, MCA 

Progress Reports, and records of MCC reviews, approvals and decisions captured through an 

automated workflow process. The expected implementation date for this component of the 

BIDS is June 2008. In the interim, MCC will establish procedures to address the version 

control issue using existing tools. 

 ********** 

Material Noncompliance 1: MCC does not fully comply with the Federal Financial 

Management Improvement Act (FFMIA). 

Recommendation: Williams, Adley and Company recommend that management continue to 

assess the automated options available to handle the Millennium Challenge Corporation 

operations and develop short range and long range plans for the implementation of the most 

appropriate information technology structure to address electronic integration of at least the 

payroll, procurement and travel functions and systems to increase the efficiencies and

effectiveness of the processing of financial transactions; and decrease the risk of errors. 

Management Decision: MCC accepts the recommendation. The Department of 

Administration and Finance (A&F) will continue to work to the National Business Center 

(NBC) on the interface between Etravel and Oracle to resolve the issues noted during initial 

testing. MCC will be changing to a new government credit card provider in FY 2008 for both 

travel and purchase card transactions. MCC is currently considering either JP Morgan Chase 

or Citibank, both of which have a fully tested and integrated interface with the Oracle Federal 

Financial System (OFFS). Regarding the payroll integration, the NBC has indicated its 

business plan does not include the integration of FPPS with OFFS, outside of the labor 

interface already provided. 

During FY 2007, A&F made substantial progress on reviewing its current financial systems 

environment and developing alternatives for a fully integrated system to meet the 

Page 26 of 40 
Appendix C 

requirements of the FFMIA. A&F has established system requirements, performed a gap 

analysis based on its current environment, and developed cost alternatives to close the exiting 

gaps. A&F will also work with the Office of Management and Budget (OMB) to find the best

resolution for this condition whether with the NBC, or with some other federal or private 

center of excellence. 

Material Noncompliance 2: MCC does not comply with the Federal Information Security 

Management Act (FISMA). Williams, Adley and Company makes no recommendation(s) 

relative to this material noncompliance. This deficiency was identified by the Office of 

Inspector General in a prior audit. During FY 2007, MCC management: 

 

• Hired two fulltime FISMA staff;

• Completed an MCC Self Assessment; 

• Completed an MCC’s Information System Security Plan (ISSP); 

• Completed Quartile scans on MCCnet; 

• Approved three additional FISMA team members-Subject Matter Expert,

Technological Writer and Network Engineer; and 

• Created a new CISSO position with an additional slot, and hired a full-time employee 

who will start in November. 

 

Page 27 of 40 
BALANCE SHEETS

In dollars FY 2007 FY 2006 

Assets 

Intra-Governmental 

Fund Balance with Treasury (Note 2) $5,549,289,597 $4,078,656,972

Accounts Receivable (Note 3) 67,798 62,202

Total Intra-Governmental 5,549,357,395 4,078,719,174 

General Property, Plant, and Equipment(Note 4, Note 5) 7,115,606 4,632,785

Advances (Note 1F,P) 32,243,157 18,881,386

Total Assets $5,588,716,158 $4,102,233,345 

Liabilities 

Intra-Governmental 

Other $ 1,457,862 $ 2,516,786 

Total Intra-Governmental 1,457,862 2,516,786 

Accounts Payable (Note 1G) 39,176,698 10,134,698

Other 3,971,886 2,698,070 

Total Liabilities $ 44,606,446 $ 15,349,554 

Net Position 

Unexpended Appropriations – Other Funds $5,536,714,361 $4,082,189,638 

Cumulative Results of Operations – Other Funds 7,395,351 4,694,153 

Total Net Position $5,544,109,712 $4,086,883,791 

Total Liabilities and Net Position $5,588,716,158 $4,102,233,345 

The notes are an integral part of the financial statements 

Page 28 of 40 
STATEMENTS OF BUDGETARY RESOURCES

In dollars FY 2007 FY2006 

Budgetary Resources 

Unobligated Balance – Beginning of Period $2,671,372,416 $2,053,722,184 

Recoveries of Prior Years Obligations 15,930,609 - 

Budget Authority:

Appropriations 1,752,300,000 1,770,000,000

Nonexpenditure Transfers, Net, Anticipated and Actual (9,415,980) - 

Permanently Not Available (Note 7) - (17,700,000)

Total Budgetary Resources $4,430,187,045 $3,806,022,184 

Status of Budgetary Resources 

Obligations Incurred

Direct $2,174,044,542 $1,109,535,594

Unobligated Balance Available

Apportioned 1,516,900,216 877,383,424

Unobligated Balance Not Available $ 739,242,287 $1,819,103,166 

Total Status of Budgetary Resources $4,430,187,045 $3,806,022,184 

Change in Obligated Balance 

Obligated Balance, Net – as of October 1, 2005 

Unpaid Obligations, Brought Forward, October 1 $1,408,398,635 $ 272,636,873 

Obligations Incurred 2,174,044,542 1,109,535,594

Gross Outlays (278,605,423) (109,119,072)

Recoveries of Prior Year Unpaid Obligations, Actual (15,930,609) - 

Obligated Balance, Net – End of Period

Unpaid obligations $3,287,907,145 $1,273,053,395 

Net Outlays 

Gross Outlays $ 278,605,423 $ 109,119,072 

The notes are an integral part of the financial statements 

Page 29 of 40 
STATEMENTS OF NET COSTS

Program 2007 Total 2006 Total 

Program Costs (In dollars) 

Compact 

Gross Costs (Note 6) $ 81,079,458 $ 16,747,194

Less: Earned Revenue - -

Net Program Costs 81,079,458 16,747,194

609 (g) Programs 

Gross Costs 17,172,113 5,895,167

Less: Earned Revenue - -

Net Program Costs 17,172,113 5,895,167

Threshold Programs 

Gross Costs 75,766,215 15,235,063

Less: Earned Revenue - -

Net Program Costs 75,766,215 15,235,063

Due Diligence Programs 

Gross Costs 32,789,662 15,137,340

Less: Earned Revenue - -

Net Program Costs 32,789,662 15,137,340

Audit

Gross Costs 2,865,820 619,714

Less: Earned Revenue - -

Net Program Costs 2,865,820 619,714

Administrative 

Gross Costs 77,922,457 54,785,827

Less: Earned Revenue - -

Net Program Costs 77,922,457 54,785,827

Program Costs – Net of All Programs $287,595,725 $108,420,305

Net Costs of Operations $287,595,725 $108,420,305

The notes are an integral part of the financial statements 

Page 30 of 40 
STATEMENTS OF CHANGES IN NET POSITION

In dollars FY 2007 FY 2006 

Cumulative Results of Operations

Beginning Balances $ 4,694,987 $ 4,276,833 

Adjustments - -

Beginning Balance, as Adjusted $ 4,694,987 $ 4,276,833 

Budgetary Financing Sources 

Appropriations Used $ 288,359,297 $ 107,689,343 

Other Financing Sources 

Donations and Forfeitures of Property $ 123,750 $ - 

Imputed Financing 1,813,042 1,148,282 

Total Financing Sources 290,296,089 108,837,625 

Net Cost of Operations (287,595,725) (108,420,305)

Net Change 2,700,364 417,320 

Cumulative Results of Operations $ 7,395,351 $ 4,694,153 

Unexpended Appropriations

Beginning Balance $4,082,189,638 $2,437,546,656

Changes in Accounting Principles - - 

Beginning Balance, as Adjusted $4,082,189,638 $2,437,546,656 

Budgetary Financing Sources 

Appropriations Received $1,752,300,000 $1,770,000,000

Appropriations Transferred In/Out (9,415,980) - 

Other adjustments (Note 7) - (17,700,000)

Appropriations Used (288,359,297) (107,657,018)

Total Budgetary Financing Sources 1,454,524,723 1,644,642,982 

Total Unexpended Appropriations 5,536,714,361 4,082,189,638 

Net Position $5,544,109,712 $4,086,883,791 

The notes are an integral part of the financial statements 

Page 31 of 40 
NOTES TO FINANCIAL STATEMENTS (AS OF SEPTEMBER 30, 2007 AND 2006) 

Note 1—Summary of Significant Accounting Policies 

A. Basis of Presentation 

The accompanying principal financial statements have been prepared to report the financial 

position, results of operations and budgetary resources for MCC, as required by Section 613 

of the Millennium Challenge Act of 2003. They have been prepared using MCC’s books and

records in accordance with MCC accounting policies, the most significant of which are

summarized in this note. The statements are presented in accordance with the guidance and 

requirements of the recently issued OMB Circular A-136, which incorporates and updates 

Bulletin 01-09, Form and Content of Agency Financial Statements, and the Government 

Management Reform Act of 1994. Fiscal Year 2006 statements, previously prepared in

accordance with the Government Corporation Control Act (31 U.S.C. §9106), have been

reformatted and republished for Circular A-136 comparative purposes. Fiscal year 2006 

financial statements have also been restated for comparative purposes to include Threshold 

program balances that were not reflected timely prior to final publication. 

MCC accounting policies follow generally accepted accounting principles for the Federal 

government, as recommended by the Federal Accounting Standards Advisory Board 

(FASAB). The FASAB has been recognized by the American Institute of Certified Public 

Accountants (AICPA) as the official accounting standard set for the Federal government.

These standards have been agreed to, and published by the Director of OMB, the Secretary of 

the Treasury, and the Comptroller General. 

MCC’s principal financial statements are: 

` Balance Sheet 

` Statement of Budgetary Resources 

` Statement of Net Cost 

` Statement of Changes in Net Position 

These notes are considered an integral part of the financial statements. 

B. Reporting Entity 

MCC was formed in January 2004 pursuant to the Millennium Challenge Act of 2003 (Public 

Law 108-199). MCC’s mission is to reduce poverty by supporting sustainable, transformative 

economic growth in developing countries that create and maintain sound policy 

environments. The assistance is intended to provide economic growth and the elimination of 

extreme poverty, strengthen good governance, encourage economic freedom, and promote 

investments in people. 

Page 32 of 40 
NOTES TO FINANCIAL STATEMENTS (AS OF SEPTEMBER 30, 2007 AND 2006) 

C. Budgets and Budgetary Accounting 

MCC’s programs and activities are funded through no-year appropriations. Such funds are 

available for obligation without fiscal year limitation and remain available until expended. 

MCC was provided total appropriations of almost $1.752 billion and $1.770 billion in FY

2007 and FY 2006, respectively. OMB apportions MCC administrative funds on an annual

basis pursuant to statutory limitations in MCC’s annual congressional appropriations. In

addition, MCC receives from OMB a separate apportionment for due diligence funds, which 

MCC uses for compact evaluations and support, compact programs, 609(g) funds, the 

Threshold program, and audit funds. Because of the no-year status of MCC appropriations, 

unobligated administrative, audit, and due diligence funds (apportioned annually) are not

returned to the Treasury; however, unobligated balances as of September 30 for these three 

categories of funds are transferred to the compact fund category at the beginning of the 

subsequent fiscal year for future use. 

D. Basis of Accounting 

Financial transactions are recorded on accrual and budgetary bases in accordance with

pertinent federal accounting and financial reporting requirements. Under the accrual method

of accounting, financing sources are recognized when used and expenses are recognized 

when incurred, without regard to receipt or payment of cash. Budgetary accounting facilitates

MCC’s compliance with legal constraints and controls over the use of federal funds. 

The accompanying Balance Sheet, Statement of Net Cost, and Statement of Changes in Net

Position have been prepared on the accrual basis. The Statement of Budgetary Resources has 

been prepared in accordance with budgetary accounting rules. 

E. Fund Balance with Treasury 

MCC does not maintain cash in commercial bank accounts. Rather, MCC’s funds are 

maintained in Treasury accounts. The Department of the Treasury processes all cash receipts 

and disbursements for MCC. The Fund Balances with Treasury represent no-year funds,

which are maintained in appropriated funds that are available to pay current and future 

commitments. 

F. Advances to Others 

MCC advances funds to eligible compact and pre-compact countries in order to implement 

compact projects in an MCA country or for federal government inter-agency agreements. 

Funds advanced to compact and pre-compact countries are used to pay legitimate costs and 

expenses incurred by MCC and partner countries. Advances at the end of FY 2007 and FY

2006 were $32.2 million and $18.9 million, respectively. Of the twenty-one (21) MCC 

outstanding advances, four (4) are greater than 180 days. 

Page 33 of 40 
NOTES TO FINANCIAL STATEMENTS (AS OF SEPTEMBER 30, 2007 AND 2006) 

G. Accounts Payable 

MCC records as liabilities all amounts due to others as a direct result of transactions or events

that have occurred. Accounts payable represent amounts due to federal and non-federal 

entities for goods and services received by MCC, but not paid at the end of the accounting

period. Accounts payable reported at the end of FY 2007 and 2006 were $39.2 and $10.1 

million, respectively. The increase in the Accounts Payable is attributable to an increase from 

$7.6 million in FY 2006 to $28.6 million in FY 2007 for USAID Threshold programs. 

H. Actuarial FECA Liability 

The Federal Employees’ Compensation Act (FECA) provides income and medical cost 

protection to covered federal civilian employees injured on the job, employees who have 

incurred a work-related occupational disease, and beneficiaries of employees whose deaths

are attributable to a job-related injury or occupational disease. 

Claims incurred for benefits for MCC employees under FECA are administered by the 

Department of Labor (DOL) and later billed to MCC. MCC’s actuarial liability for workers’ 

compensation includes any costs incurred but unbilled as of year-end, as calculated by DOL,

and not funded by current appropriations. 

MCC incurred no FECA liabilities during FY 2007 and FY 2006. 

I. Accrued Annual Leave 

The value of employees’ unused annual leave at the end of each fiscal quarter is accrued as a 

liability. At the end of each fiscal quarter, the balance in the accrued annual leave account is

adjusted to reflect current pay rates and leave balances. Annual leave is funded from current

appropriations. Sick leave and other types of non-vested leave are expensed when used, and

in accordance with federal requirements no accruals are recorded for unused leave. 

J. Net Position 

Net position is composed of unexpended appropriations and cumulative results of operations. 

Unexpended appropriations are funds appropriated by Congress to MCC that are still

available for expenditure at the end of the fiscal year. Cumulative results of operations 

represent the net differences between financing sources and expenses from MCC’s inception. 

K. Financing Sources 

In accordance with Note 1.C, MCC funds its program and operating expenses through noyear appropriations. Appropriations are recognized as an accrual-based financing source at

the time they are used to pay program or administrative expenses, except for expenses to be 

funded by future appropriations. 

Page 34 of 40 
NOTES TO FINANCIAL STATEMENTS (AS OF SEPTEMBER 30, 2007 AND 2006) 

L. Retirement Benefits 

MCC’s employees participate in either the Civil Service Retirement System (CSRS) or the

Federal Employees Retirement System (FERS). FERS was established by Public Law 99-

335. Pursuant to this law, most U.S. Government employees hired after December 31, 1983,

are covered by FERS and Social Security. Federal employees hired prior to January 1, 1984, 

were allowed to elect whether they desired to participate in FERS (with Social Security

coverage) or remain in CSRS. For employees covered by CSRS, MCC contributes 7 percent 

of their gross pay toward their retirement benefits. For those employees covered by FERS, 

MCC contributes 11 percent of their gross pay toward retirement. Employees are also

allowed to participate in the federal Thrift Savings Plan (TSP). For employees under FERS,

MCC contributes an automatic 1 percent of basic pay to TSP and matches employee

contributions up to an additional 4 percent of pay, for a maximum MCC contribution

amounting to 5 percent of pay. Employees under CSRS may participate in the TSP, but will

not receive either MCC’s automatic or matching contributions. 

For FY 2007, MCC has made contributions of $142,000 to CSRS, $2.4 million to FERS, and 

$849,000 to TSP. During FY 2006, MCC made retirement contributions of $761,000 to

CSRS, $1.977 million to FERS, and $620,700 to TSP. 

M. Use of Estimates 

The preparation of financial statements requires management to make estimates and

assumptions that affect the reported amounts of assets and liabilities, the disclosure of 

contingent assets and liabilities at the date of the financial statements, and the reported 

amounts of financing sources and expenses during the reporting period. Actual results could 

differ from such estimates. 

N. Contingencies 

MCC can be a party to various routine administrative proceedings, legal actions, and claims

brought by or against it, including threatened or pending litigation involving labor relations 

claims, some of which may ultimately result in settlements or decisions against MCC. In the 

opinion of MCC’s management and legal counsel, there are no proceedings, actions, or 

claims outstanding or threatened that would materially impact MCC’s financial statements. 

O. Judgment Fund 

Certain legal matters to which MCC can be named as a party may be administered and, in 

some instances, litigated and paid by other federal agencies. In general, amounts paid in 

excess of $2,500 for Federal Tort Claims Act settlements or awards pertaining to these 

litigations are funded from a special appropriation administered by the Department of the 

Treasury called the Judgment Fund. Although the ultimate disposition of any potential 

Judgment Fund proceedings cannot be determined, management expects that any liability or

expense that might ensue would not be material to MCC’s financial statements. 

Page 35 of 40 
NOTES TO FINANCIAL STATEMENTS (AS OF SEPTEMBER 30, 2007 AND 2006) 

P. Custodial Receivables and Liabilities 

Under current policy and procedures, MCC funds all compacts and pre-compacts with other 

countries by advancing funds on a monthly basis to cover projected needs. Such funds 

provided to the countries are required to be deposited in interest-bearing accounts, if legally

feasible, until disbursed. The interest earned on these accounts is remitted to MCC and

deposited into an account at the U.S. Treasury. Such interest may not be retained or used by

MCC, but periodically is returned to the Treasury’s general funds. MCC had outstanding 

advances related to compact and pre-compact financing of approximately $30.8 million and 

$18.8 million on September 30, 2007, and September 30, 2006, respectively. MCC received

and deposited $1.65 million and $304,000 in interest remittances on September 30, 2007, and

September 30, 2006, respectively (see Note 2). 

Q. Donated Services 

MCC may on occasion use donated services from other federal agencies and private firms in

the course of business operations. The approximate fair market value of these donated

services for September 30, 2007, is $123,750 and was $0 in FY 2006. 

R. Transfers with Other Federal Agencies 

MCC is a party to allocation transfers with another federal agency as a transferring entity.

Allocations are legal delegations by one agency of its authority to obligate budget authority

and outlay funds to another agency. A separate fund account (child account) is created in the

U.S. Treasury as a subset of the parent fund account for tracking and reporting purposes. All

allocation transfers of budget authority are credited to this account, and subsequent 

obligations and outlays incurred by the child entity are charged to this allocation account as 

they execute the delegated activity on behalf of the parent entity. 

All financial activity related to these allocations and transfers (e.g., budget authority, 

obligations, and outlays) is reported in the financial statements of the parent entity, from 

which the underlying legislative authority, appropriations, and budget appointments are 

derived. MCC allocated funds, as the parent, to USAID. In FY 2007 and FY 2006, MCC 

transferred budgetary authority of $161 million and $155 million, respectively, to USAID for 

Threshold programs. 

Note 2—Fund Balance with Treasury 

The U.S. Treasury accounts for all U.S. Government cash on an overall consolidated basis. 

The Fund Balance with Treasury (FBWT) line items on the Balance Sheet for September 30, 

2007, and September 30, 2006, consisted of amounts presented in Exhibit 3-1. MCC funds its 

program and operating expenses through no-year appropriations; therefore, all unobligated

balances as of September 30 are transferred to the compact fund category at the beginning of

the subsequent fiscal year and are available for use in future years until fully expended. 

Page 36 of 40 
NOTES TO FINANCIAL STATEMENTS (AS OF SEPTEMBER 30, 2007 AND 2006) 

Exhibit 3-1: Fund Balance with Treasury as of September 30 (in thousands) 

September 30, 2007 September 30, 2006 

Appropriated Funds

Unobligated $2,261,383 $2,805,604

Obligated 3,287,907 1,273,053

Total $ 5,549,290 $ 4,078,657 

Note 3—Accounts Receivable, Net 

Accounts receivable reflect overpayments of payroll, travel, and other MCC current/former 

employee expenses. MCC does not record an allowance for doubtful accounts because these 

expenses are deemed wholly collectible. Total receivables were $68,000 and $62,000 as of

September 30, 2007, and September 30, 2006, respectively. 

Note 4—General Property, Plant, and Equipment, Net 

In March 2007, MCC revised its property capitalization threshold from an original cost of

$25,000 or more and an estimated useful life of 2 or more years to an original cost of $50,000

or more and an estimated useful life of 5 or more years, except for its software capitalization 

which was changed to an original cost of $200,000 or more and an estimated useful life of 5 

or more years and its information technology infrastructure capitalization to an original cost

of $200,000 or more and an estimated useful life of 3 or more years. These revisions reduce 

MCC’s administrative costs associated with accounting for General Property, Plant, and 

Equipment (PP&E) and results in increased operational efficiency. 

MCC changed its depreciation convention, converting from a half-year convention to a 

quarter-year convention. Assets are depreciated (or amortized) quarterly over their estimated 

useful lives using the straightline depreciation method. This change resulted in additional 

depreciation expense of $181,638. As required by FASAB 21, the net effect of this change

has been included in the FY 2007 cumulative results of operations and net position. 

MCC’s actual depreciation expense for FY2007 is $860,061. 

Note 5—Leases 

MCC leases office space in two adjacent locations in Washington, D.C. These leases are on

10-year (Bowen Building) and 8-year (City Center) lease terms that terminate on May 25 and 

May 26, 2015, respectively (see Exhibit 3-2). MCC made significant leasehold improvements

to the office space and amortizes the improvement based on the in-service (invoice) date of 

the improvement. Amortization is calculated on a quarterly basis. These leasehold 

improvements will be reflected as a Fixed Asset on MCC’s Balance Sheet net of 

amortization. 

Page 37 of 40 
NOTES TO FINANCIAL STATEMENTS (AS OF SEPTEMBER 30, 2007 AND 2006) 

Exhibit 3-2: Operating Leases Funds (in dollars) 

Future Payments Due 

Fiscal Year Bowen City Center Totals 

FY 2008 $5,394,621 $1,889,524 $7,284,145

FY 2009 5,394,621 1,889,524 7,284,145

FY 2010 6,352,911 1,889,524 8,242,435

FY 2011 6,352,911 1,942,376 8,295,287

FY 2012 6,352,911 1,942,376 8,295,287

After 5 Years 19,058,733 5,932,834 24,991,567

Total Future Lease Payments $48,906,708 $15,486,158 $64,392,866

Note 6—Intra-Governmental Costs and Exchange Revenue 

The Statement of Net Cost reports MCC’s gross cost less earned revenues to arrive at net cost

of operations. Costs have been illustrated by MCC specific programs (see Exhibit 3-3). The 

format of the Statement of Net Cost is also now consistent with OMB Circular A-136 

guidance. Exhibit 3-3 shows the value of exchange transactions between MCC and other 

federal entities as well as non-federal entities. Intra-Governmental Costs relate to transactions 

between MCC and other federal entities. Public costs on the other hand relate to transactions 

between MCC and non-federal entities. MCC does not have any exchange revenues. 

Exhibit 3-3: Intra-Governmental Costs and Exchange Revenue (in thousands) Com

pact 

609(g) Threshold Due Diligence Audit Admin 

September 

30, 2007

September 

30, 2006

IntraGovernmental 

- 59 - 3,567 2,789 7,741 14,156 9,428 

Public 81,079 17,113 75,766 29,223 77 70,181 273,439 98,992

Total – Program 81,079 17,172 75,766 32,790 2,866 77,922 287,595 108,420 

Note 7— Adjustments to Beginning Balance of Budgetary Resources 

In FY 2006, $17.7 million of amounts appropriated under the FY 2006 Foreign Operations, 

Export Financing and Related Programs Appropriations Acts (Public Law 109-148) were

rescinded. The rescission was part of the Across-the-Board Rescission enacted for FY 2006. 

There were no adjustments to the FY 2007 beginning balances of Budgetary Resources. 

Note 8—Explanation of Differences Between the SBR and the Budget of the U.S.

Government 

MCC ensures that the information reported on its books is reflected within the Budget of the 

U.S. Government. Because MCC’s financial statements are published before the President’s 

Budget, this reconciliation is based on the Statement of Budgetary Resources for FY 2006 

and the 2006 actual data reported in the President’s 2008 budget submission. FY 2007 actual 

data will be published in February 2008 within the 2009 Budget of the United States. 

Page 38 of 40 
NOTES TO FINANCIAL STATEMENTS (AS OF SEPTEMBER 30, 2007 AND 2006) 

Material differences reported in the Budgetary resources column ($2.053 billion) represent

unobligated balances reported on MCC’s SBR and SF 133, but not in the Budget of the U.S. 

Government. Material differences reported in the Total Outlays column represent SF 133 

outlays reported by USAID in FY 2006 that were not reported timely to MCC to present in its 

FY 2006 financial statements. (See Exhibit 3-4.) 

Exhibit 3-4: Material Differences Between the SBR and the President’s Budget (in millions) 

Budgetary 

Resources 

Obligations 

Incurred 

Distributed 

Offsetting 

Receipts 

Net 

Outlays 

Statement of Budgetary Resources 3,806 1,109 109 

Unobligated Balance Carry Forward 

from FY 2005 

(2,053) 

Unreported Outlays 2 

Budget of the U.S. Government 1,753 1 111

Note 9—Undelivered Orders at the End of the Period 

The reported net position consists of unexpended appropriations and cumulative results of 

operations, which reflects the difference between financing sources and expenses since 

MCC’s inception. Exhibit 3-5 represents Undelivered orders—unpaid for compact and 609(g) 

funds as of September 30, 2007 and September 30, 2006. 

Exhibit 3-5: Undelivered Orders—Compact and 609(g) Funds (in dollars) 

Undelivered 

Orders 2007 Compacts 

609(g) 

Funding 2006 

Armenia $ 227,716,911 $ 227,716,911 $ - $ 235,646,174

Benin 293,870,370 293,870,370 - 1,062,985

Cape Verde 96,151,990 96,147,871 4,119 106,077,520

El Salvador 458,715,779 458,715,779 - -

Georgia 265,875,250 264,656,190 1,219,060 296,178,084

Ghana 538,097,271 537,668,659 428,612 13,584,891

Honduras 204,027,319 204,027,319 - 213,166,147

Kenya 25,000 25,000 - -

Lesotho 16,078,147 15,668,416 409,731 902,934 

Madagascar 87,042,735 87,042,735 - 103,290,130

Mali 462,993,330 458,630,248 4,363,082 4,421,534 

Morocco 32,400,000 32,400,000 - -

Mozambique 31,254,763 25,346,200 5,908,563 12,956,078

Nicaragua 165,314,884 165,314,884 - 173,583,320

Senegal 1,930,524 - 1,930,524 4,882,237 

Tanzania 9,800,000 - 9,800,000 -

Vanuatu 63,683,392 63,683,392 - 65,214,603

Total–Undelivered 

Orders $2,954,977,665 $2,930,913,974 $24,063,691 $1,230,966,637

Page 39 of 40 
NOTES TO FINANCIAL STATEMENTS (AS OF SEPTEMBER 30, 2007 AND 2006) 

Note 10—Reconciliation of Net Cost of Operations to Budget 

Exhibit 3-6 reconciles the FY 2007 resources available to MCC to finance operations with the 

net cost of operating MCC’s programs. Some operating costs, such as depreciation, do not 

require direct financing sources. This exhibit illustrates the reconciliation of Net Cost of

Operations to Budget. 

Exhibit 3-6: Reconciliation of Net Cost of Operations to Budget (in dollars) 

Resources Used to Finance 

Activities Program Costs 

Budgetary Resources Obligated 

Net obligations $2,189,975,151 $287,595,725 

Net other resources used to

finance activities 

 1,936,792

Total resources used to 

finance activities 

 2,191,911,943

Gross Costs 

Total resources used to finance 

items not part of the net cost of

operations 

 (1,905,176,279) - 

Total resources used to 

finance the net cost of 

operations 

 286,735,664 

Total components of net cost of

operations that will not require 

or generate resources 

 860,061

Less: Earned Revenue 

Net Cost of Operations $ 287,595,725 Net Cost of Operations $287,595,725

Page 40 of 40