Millennium Challenge Corporation:

Progress Made on Key Challenges in First Year of Operations

GAO-05-455T: Published: Apr 26, 2005. Publicly Released: Apr 26, 2005.

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In January 2004, Congress established the Millennium Challenge Corporation (MCC) to administer the Millennium Challenge Account. MCC's mission is to promote economic growth and reduce extreme poverty in developing countries. The act requires MCC to rely to the maximum extent possible on quantitative criteria in determining countries' eligibility for assistance. MCC will provide assistance primarily through compacts--agreements with country governments. MCC aims to be one of the top donors in countries with which it signs compacts. For fiscal years 2004 and 2005, Congress appropriated nearly $2.5 billion for the Millennium Challenge Corporation; for fiscal year 2006, the President is requesting $3 billion. GAO was asked to monitor MCC's (1) process for determining country eligibility, (2) progress in developing compacts, (3) coordination with key stakeholders, and (4) establishment of management structures and accountability mechanisms.

For fiscal years 2004 and 2005, the MCC board used the quantitative criteria as well as judgment in determining 17 countries to be eligible for MCA compacts. Although MCC chose the indicators based in part on their public availability, our analysis showed that not all of the source data for the indicators were readily accessible. In addition, we found that reliance on the indicators carried certain inherent limitations, such as measurement uncertainty. Between August 2004 and March 2005, MCC received compact proposals, concept papers, or both, from 16 eligible countries. It signed a compact with Madagascar in April 2005 and is negotiating compacts with four countries. MCC's 4-year compact with Madagascar for $110 million would make it the country's fifth largest donor. MCC is continuing to refine its compact development process. In addition, MCC has identified elements of program implementation and fiscal accountability that can be adapted to eligible countries' compact objectives and institutional capacities. MCC is taking steps to coordinate with key stakeholders to use existing expertise and conduct outreach. The U.S. agencies on the MCC Board of Directors--USAID, the Departments of State and Treasury, and the Office of the U.S. Trade Representative--have provided resources and other assistance to MCC, and five U.S. agencies have agreed to provide technical assistance. Bilateral and multilateral donors are providing information and expertise. MCC is also consulting with nongovernmental organizations in the United States and abroad as part of its outreach activities. MCC has made progress in developing key administrative infrastructures that support its mission and operations. MCC has also made progress in establishing corporatewide structures for accountability, governance, internal control, and human capital management, including establishing an audit capability through its Inspector General, adopting bylaws, providing ethics training to employees, and expanding its permanent full-time staff. However, MCC has not yet completed comprehensive plans, strategies, and related time frames for establishing these essential management structures and accountability mechanisms on a corporatewide basis.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In April 2005, GAO recommended (MILLENNIUM CHALLENGE CORPORATION: Progress Made on Key Challenges in First Year of Operation, 04/26/05) that the Chief Executive Officer of the Millennium Challenge Corporation complete the development and implementation of overall plans and related time frames for actions needed to establish an effective human capital infrastructure, including a thorough and systematic assessment of the staffing requirements and critical skills needed to carry out MCC's mission; a plan to acquire, develop, and retain talent that is aligned with the corporation's strategic goals; and a performance management system linking compensation to employee contributions toward the achievement of MCC's mission and goals. In July 2006, in GAO-06-805, we reported that MCC had made improvements to its human capital systems, including re-assessing its staff needs, updating its human capital model, identified hiring priorities, developed training procedures, and established a performance framework linking compensation to employee expectations and performance reviews to MCC goals.

    Recommendation: The Chief Executive Officer of the Millennium Challenge Corporation should complete the development and implementation of overall plans and related time frames for actions needed to establish an effective human capital infrastructure, including a thorough and systematic assessment of the staffing requirements and critical skills needed to carry out MCC's mission; a plan to acquire, develop, and retain talent that is aligned with the corporation's strategic goals; and a performance management system linking compensation to employee contributions toward the achievement of MCC's mission and goals.

    Agency Affected: Millennium Challenge Corporation

  2. Status: Closed - Implemented

    Comments: In April 2005, we recommended (MILLENNIUM CHALLENGE CORPORATION: Progress Made on Key Challenges in First Year of Operations, 04/26/05) that the Chief Executive Officer of the Millennium Challenge Corporation should complete the development and implementation of overall plans and related time frames for actions needed to establish effective internal control over MCC's program and administrative operations, including establishing a positive and supportive internal control environment; a process for ongoing risk assessment; control activities and procedures for reducing risk, such as measures to mitigate risk associated with contracted operational and administrative services; ongoing monitoring and periodic testing of control activities; and a process for assessing and reporting on the effectiveness of internal controls and addressing any weaknesses identified. In July 2006 (report GAO-06-805), we followed up on this recommendation and found that MCC had taken a number of steps to improve its internal controls, including: documenting the organization's structure and strategy, implementing a procedure for addressing audit findings, conducting required audits, establishing an ethics program, identifying priority areas for internal control, and establishing formal review panels and a board-level audit committee.

    Recommendation: The Chief Executive Officer of the Millennium Challenge Corporation should complete the development and implementation of overall plans and related time frames for actions needed to establish effective internal control over MCC's program and administrative operations, including establishing a positive and supportive internal control environment; a process for ongoing risk assessment; control activities and procedures for reducing risk, such as measures to mitigate risk associated with contracted operational and administrative services; ongoing monitoring and periodic testing of control activities; and a process for assessing and reporting on the effectiveness of internal controls and addressing any weaknesses identified.

    Agency Affected: Millennium Challenge Corporation

  3. Status: Closed - Implemented

    Comments: In April 2005, we recommended (MILLENNIUM CHALLENGE CORPORATION: Progress Made on Key Challenges in First Year of Operations, 04/26/05) that the Chief Executive Officer of the Millennium Challenge Corporation should complete the development and implementation of overall plans and related time frames for actions needed to establish corporate-wide accountability, including implementing a strategic plan, establishing annual performance plans and goals, using performance measures to monitor progress in meeting both strategic and annual performance goals, and reporting internally and externally on its progress in meeting its strategic and annual performance goals. In July 2006, in Millennium Challenge Corporation: Compact Implementation Structures are Being Established; Framework for Measuring Results Needs Improvement (GAO-06-805) we reported that MCC had taken a number of steps to implement this recommendation. MCC steps included completing a strategic plan, establishing an annual performance plan and goals, and using performance measures to monitor progress. In addition, the completed annual performance plan provided benchmarks against which to measure future performance.

    Recommendation: The Chief Executive Officer of the Millennium Challenge Corporation should complete the development and implementation of overall plans and related time frames for actions needed to establish corporatewide accountability, including implementing a strategic plan, establishing annual performance plans and goals, using performance measures to monitor progress in meeting both strategic and annual performance goals, and reporting internally and externally on its progress in meeting its strategic and annual performance goals.

    Agency Affected: Millennium Challenge Corporation

  4. Status: Closed - Implemented

    Comments: In April 2005, GAO recommended (MILLENNIUM CHALLENGE CORPORTATION: Progress Made on Key Challenges in First Year Operations, 04/26/05) that the Secretary of State, in her capacity as Chair of the MCC Board of Directors, should ensure that the board considers and defines the scope of its responsibilities with respect to corporate governance and oversight of MCC and develop an overall plan or strategy, with related time frames, for carrying out these responsibilities. In doing so, the board should consider, in addition to its statutory responsibilities, other corporate governance and oversight responsibilities commonly associated with sound and effective corporate governance practices, including oversight of executive management, the formulation and execution of corporate strategies, risk management and audit and assurance processes, and communication and coordination with corporate stakeholders. In July 2006 (report GAO-06-805), we found that the MCC board had accomplished a number of these steps, including approving a corporate governance policy, participating in strategic planning, forming an audit committee, publishing guidance documents, and developing an outreach program to facilitate communication.

    Recommendation: The Secretary of State, in her capacity as Chair of the MCC Board of Directors, should ensure that the board considers and defines the scope of its responsibilities with respect to corporate governance and oversight of MCC and develop an overall plan or strategy, with related time frames, for carrying out these responsibilities. In doing so, the board should consider, in addition to its statutory responsibilities, other corporate governance and oversight responsibilities commonly associated with sound and effective corporate governance practices, including oversight of executive management, the formulation and execution of corporate strategies, risk management and audit and assurance processes, and communication and coordination with corporate stakeholders.

    Agency Affected: Department of State

 

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