Millennium Challenge Corporation: MCC Has Addressed a Number of Implementation Challenges, but Needs to Improve Financial Controls and Infrastructure Planning
Highlights
Established in January 2004 with a mission to reduce poverty through economic growth, the Millennium Challenge Corporation (MCC) has committed $6.9 billion for compacts with 19 developing countries. MCC vests compact management with accountable entities in recipient countries, called Millennium Challenge Accounts (MCA). MCAs, with guidance from MCC, allocate resources, oversee and implement a financial plan, approve expenditures and procurements, and implement compact projects. This report, directed by the fiscal year 2008 Consolidated Appropriations Act, assesses MCC and MCA (1) financial controls; (2) procurement practices; and (3) development, implementation, and oversight of contracts and projects. GAO focused on financial and procurement transactions and projects at MCAs in Honduras, Georgia, and Cape Verde, countries with high disbursement totals as of the end of fiscal year 2008.
As required by MCC guidelines, each of the three MCAs GAO reviewed had developed a Fiscal Accountability Plan (FAP) that documented policies and procedures related to internal control, such as funds control, documentation, and segregation of duties. However, each of the FAPs GAO reviewed, in place as of the end of fiscal year 2008, had gaps in certain areas, such as incomplete policies and procedures for some expenses. Although MCC agreements require that each country prepare a FAP, the initial guidance MCC provided to the three MCAs was general and did not contain sufficient information to help the countries develop sound internal control structures. For example, guidance stated that records must support transactions and that procedures must incorporate segregation of duties. However, specific guidance on payroll, travel, and inventory controls would have helped the MCAs develop comprehensive policies. To address this, MCC developed a FAP template in November 2008, but MCC allows the MCAs flexibility and does not require them to implement the template's policies and procedures. In addition, GAO identified a significant number of the transactions tested that lacked adequate supporting documentation or were not properly approved by management. These deficiencies increase the risk of fraud, waste, and abuse of MCC program funding. MCC has increased standardization of the MCA procurement guidelines, which were initially developed on a country-by-country basis. The MCAs GAO assessed generally adhered to MCC's procurement guidelines. GAO found that, in some cases, MCAs did not document a price reasonableness analysis of winning bids. GAO also found that when MCAs delegated procurement responsibility to outside entities, the procedures used by these entities were generally consistent with MCC's procurement framework. MCC conducts oversight of MCA infrastructure contracts and projects, but insufficient planning of projects during compact development and cost escalation has undermined project implementation. As a result of insufficient planning, designs had to be revised, and project scopes have been reduced. Significant delays to project schedules--the result of undertaking additional planning and design--further compounded the escalation in construction costs experienced on projects and contributed to the restructuring of projects. For example, two of five planned roads in Cape Verde were eliminated, in part due to insufficient design and cost increases. In addition, the schedule for construction of the remaining three roads was extended by 11 months. MCC has worked with the MCAs to significantly restructure projects to keep them within their budgets and 5-year compact time frames. MCC also has taken steps to provide increased assistance to MCAs to help them conduct better planning for projects. However, these changes alone will not address the problems projects encountered with design development and cost escalation. Industry best practices and past GAO work have shown that conducting design reviews and updating cost estimates prior to contract solicitation help to ensure that projects can be successfully bid and constructed.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Millennium Challenge Corporation | To improve financial controls, procurement practices, and contract management, the Chief Executive Officer of the Millennium Challenge Corporation should revise MCC guidance to MCAs to require that MCA FAPs include comprehensive policies and procedures related to the MCAs' financial transactions that are in accordance with best practices covering procedures such as authorizations, approvals, and key documentation of all transaction types. |
MCC concurred with the recommendation. MCC revised its Interim Fiscal Accountability Plan (IFAP) in 2011 and 2012 to require MCAs to, among other things, (1) develop comprehensive policies detailing the responsible officials authorized to approve key documents and tasks, (2) develop policies to ensure that key information is documented to support transactions, and (3) develop policies to require the MCA to review supporting documentation to confirm that invoices are complete and fully supported. As a result of these actions, if properly implemented, MCAs are better positioned to support their financial transactions, and reduce their risk of fraud, waste, and abuse of MCC program funding.
|
| Millennium Challenge Corporation | To improve financial controls, procurement practices, and contract management, the Chief Executive Officer of the Millennium Challenge Corporation should revise MCC guidance to MCAs to require that MCA FAPs incorporate policies and procedures related to disbursements of the MCAs' primary project- or program-related expenses, including oversight procedures and responsibilities for MCA personnel in charge of monitoring and evaluating the implementing entities' compliance with contract agreements. |
MCC concurred with the recommendation. In 2011 and 2012, MCC revised its Interim Fiscal Accountability Plan (IFAP) to clarify that the MCA's Fiscal Agent's staff is responsible for, among other things, confirming that invoices received comply with contract terms, applicable fee schedules, and all required approvals. As a result, if properly implemented, MCAs are better positioned to support their financial transactions related to each compact's main project or program expenses, and reduce their risk of fraud, waste, and abuse of MCC program funding.
|
| Millennium Challenge Corporation | To improve financial controls, procurement practices, and contract management, the Chief Executive Officer of the Millennium Challenge Corporation should reinforce existing MCC guidance to MCAs on conducting and documenting price reasonableness analyses. |
In response to our findings, MCC amended its procurement guidelines to explicitly require a price reasonableness analysis as part of the procurement process. MCC also has stated that it has directed MCA procurement directors to reject any procurement evaluation report that did not include a price reasonableness analysis.
|
| Millennium Challenge Corporation | To improve financial controls, procurement practices, and contract management, the Chief Executive Officer of the Millennium Challenge Corporation should establish a programmatic goal that MCAs conclude all project planning efforts--to include MCC final approvals of the MCAs' final feasibility surveys, engineering surveys, environmental surveys, and resettlement studies--prior to entry-into-force, but not later than the point at which the MCAs issue contract solicitations. |
In response to our findings, MCC issued updated Compact Development guidance in January 2012 that includes a series of steps to ensure that project planning efforts are concluded prior to compact entry-into-force. The compact guidance identifies processes for MCA development of project concept papers that may be used to address specific planning elements such as feasibility surveys, environmental surveys, and resettlement studies.
|
| Millennium Challenge Corporation | To improve financial controls, procurement practices, and contract management, the Chief Executive Officer of the Millennium Challenge Corporation should require MCAs to obtain detailed reviews of project cost estimates--to include the extent that risks to projects, such as cost escalation, schedule delays, and other issues, have been considered--and of project designs before contract solicitation for large construction projects to better ensure that projects can be successfully bid and built. |
In response to our recommendation, MCC updated its Compact Development guidance in January 2012. The guidance requires that prior to compact signature, MCC review preliminary technical designs, develop project cost estimates, and identify major project risks and quantify the impact of risks on project cost, timeline, and quality.
|