    Millennium Challenge Corporation: Progress and Challenges with
    Compacts in Africa (28-JUN-07, GAO-07-1049T).

    In January 2004, Congress established the Millennium Challenge
    Corporation (MCC) to administer the Millennium Challenge Account
    for foreign assistance. MCC's mission is to reduce poverty by
    supporting sustainable, transformative economic growth in
    partnership with developing countries that create and maintain
    sound policy environments. MCC signs compacts obligating funds
    for such projects with countries it selects as eligible for this
    assistance, according to criteria outlined in MCC's authorizing
    legislation. Each compact has a maximum duration of 5 years.
    After signed compacts enter into force, MCC begins to disburse
    funds. For fiscal years 2004 to 2007, MCC received appropriations
    of almost $6 billion. MCC has obligated almost $3 billion for 11
    compacts; $1.5 billion of this amount is for 5 compacts in
    sub-Saharan Africa (Africa). This testimony examines (1) the pace
    of MCC's initiation of compacts in Africa, (2) MCC projects and
    management structures in African countries with signed compacts,
    and (3) MCC's progress in disbursing compact funds. In preparing
    this testimony, GAO drew from, and updated, previous reports on
    MCC's compact development, obligations, implementation,
    management, and disbursements.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-07-1049T
        ACCNO:   A71707
      TITLE:     Millennium Challenge Corporation: Progress and Challenges
    with Compacts in Africa
         DATE:   06/28/2007
      SUBJECT:   Budget obligations
    	     Eligibility criteria
    	     Eligibility determinations
    	     Federal aid to foreign countries
    	     Federal funds
    	     Funds management
    	     Program evaluation
    	     Program management
    	     Sustainable development
    	     Program implementation
    	     Africa
    	     Benin
    	     Cape Verde
    	     Ghana
    	     Madagascar
    	     Mali

    ******************************************************************
    ** This file contains an ASCII representation of the text of a  **
    ** GAO Product.                                                 **
    **                                                              **
    ** No attempt has been made to display graphic images, although **
    ** figure captions are reproduced.  Tables are included, but    **
    ** may not resemble those in the printed version.               **
    **                                                              **
    ** Please see the PDF (Portable Document Format) file, when     **
    ** available, for a complete electronic file of the printed     **
    ** document's contents.                                         **
    **                                                              **
    ******************************************************************
    GAO-07-1049T

         * [1]Summary
         * [2]Background
         * [3]MCC's Pace of Compact Initiation in Africa Has Varied
         * [4]MCC Projects in Africa Emphasize Transportation and Agricult
         * [5]MCC Has Not Achieved Its Planned Rate of Disbursements
         * [6]GAO Contacts and Staff Acknowledgments
         * [7]Appendix I: Objectives, Scope, and Methodology

              * [8]Order by Mail or Phone

    Testimony

    Before the Subcommittee on Africa and Global Health, Committee on Foreign
    Affairs, House of Representatives

    United States Government Accountability Office
    GAO

    For Release on Delivery
    Expected at 2:30 p.m. EDT
    Thursday, June 28, 2007

    MILLENNIUM CHALLENGE CORPORATION

    Progress and Challenges with Compacts in Africa

    Statement of David B. Gootnick, Director
    International Affairs and Trade

    GAO-07-1049T

    Mr. Chairman and Members of the Committee:

    Thank you for the opportunity to discuss GAO's findings and observations
    regarding the Millennium Challenge Corporation's (MCC) activities and
    progress in sub-Saharan Africa.^1

    In January 2004, Congress established MCC to administer the Millennium
    Challenge Account (MCA) for foreign assistance.^2 MCC's mission is to
    reduce poverty by supporting sustainable, transformative economic growth
    in partnership with developing countries that create and maintain sound
    policy environments. In countries where it funds projects or activities,
    MCC expects to raise incomes and lift thousands out of poverty. For fiscal
    years 2004 to 2007, MCC received appropriations of almost $6 billion,
    about $5.1 billion of which has been set aside for compact assistance.^3
    MCC is currently working with 40 countries worldwide--either providing
    compact assistance or helping them become eligible for compact
    assistance^4--and had obligated almost $3 billion for compacts with 11 of
    these countries as of May 2007.

    In 2006, we reported on MCC's implementation of its first
    compacts--including compacts with Madagascar and Cape Verde--examining
    MCC's process for initiating the compacts and its management structures
    for implementing them.^5 Today I will discuss MCC's activities in
    sub-Saharan Africa (Africa), where MCC has signed compacts with five
    countries and identified another six countries as eligible for assistance.
    Specifically, I will discuss (1) the pace of MCC's initiation of compacts
    in Africa, (2) MCC projects and management structures in African countries
    with signed compacts, and (3) MCC's progress in disbursing compact funds.

    ^1Sub-Saharan Africa does not include the additional MCC-eligible country
    of Morocco.

    ^2Millennium Challenge Act of 2003, Public Law 108-199, Division D, Title
    VI of the Consolidated Appropriations Act, 2004. Title II, Division D of
    this act established the MCA for MCC appropriations.

    ^3An MCC compact is an agreement between the U.S. government, acting
    through MCC, and the government of a country eligible for MCC assistance.
    Other funds are used for MCC's threshold country program, administrative
    expenses, due diligence, monitoring and evaluation, and other costs.

    ^4MCC uses criteria outlined in the Millennium Challenge Act to select
    countries as eligible for compact assistance. In general, MCC selects as
    eligible countries that are not barred from receiving U.S. assistance;
    that meet income criteria; and that also meet criteria for ruling justly,
    encouraging economic freedom, investing in people, and combating
    corruption.

    To address these objectives, we updated our previous reports as needed. We
    updated and summarized MCC's progress in initiating and implementing
    programs in Africa, using public documents available from the MCC Web site
    and the results of our previous reporting. Our analysis of MCC's
    obligations for compact assistance to African countries is based on a
    budget analysis that we conducted in February 2007. Our analysis of MCC's
    disbursements is based on a budget analysis that we conducted in May 2007,
    comparing MCC data about actual and planned disbursements from July 2005
    through March 2007. We conducted our work for this testimony in June 2007
    in accordance with generally accepted government auditing standards. (See
    app. I for further details of our scope and methodology.)

    Summary

    The pace at which MCC has initiated compacts with African countries has
    varied. For the five signed compacts--with Madagascar, Cape Verde, Benin,
    Ghana, and Mali--progressing from eligibility selection to compact
    signature took between 12 and 31 months. Four of the compacts have entered
    into force--on average, about 5 months after compact signature. Of the six
    additional eligible African countries, none has reached compact signature,
    although three have been compact eligible for more than 3 years. In
    general, MCC's rate of establishing and obligating funds for new compacts
    has been slower than projected, with the result that MCC currently has
    more than $2 billion in unobligated funds set aside for compacts.

    ^5GAO, Millennium Challenge Corporation: Compact Implementation Structures
    Are Being Established; Framework for Measuring Results Needs Improvement,
    [9]GAO-06-805 (Washington, D.C.: July 28, 2006). Previous GAO work
    summarized MCC's progress in its first year of operations and in making
    awards for compact assistance. See GAO, Millennium Challenge Corporation:
    Progress Made on Key Challenges in First Year of Operations,
    [10]GAO-05-455T (Washington, D.C.: Apr. 26, 2005) and [11]GAO-05-625T
    (Washington, D.C.: Apr. 27, 2005); Analysis of Future Millennium Challenge
    Corporation Obligations, [12]GAO-06-466R (Washington, D.C.: Feb. 21,
    2006).

    MCC's compact projects in Africa have emphasized transportation and
    agriculture and are to be implemented through country-run management
    structures. Approximately three-quarters of the compact funding in Africa
    has been budgeted for (1) transportation and other infrastructure projects
    (37 percent) and (2) agriculture and rural development projects (39
    percent). To provide oversight and accountability and facilitate
    stakeholder involvement, the countries have established management
    structures with common components. The countries' management structures
    generally include a steering committee, responsible for compact oversight
    and results; a stakeholder committee, to advise the steering committee on
    compact implementation; and a management unit, principally responsible for
    compact management and implementation. As we reported in July 2006,
    Madagascar and Cape Verde--the first two African countries to sign
    compacts--did not fill key positions in their management structures until
    several months after entry into force, and this delay may limit their
    achievement of compact objectives. According to MCC, key management
    officials for subsequent compacts with Benin and Ghana were in place
    around the time of entry into force. Key positions for Mali, whose compact
    has not entered into force, have not yet been filled.

    MCC has disbursed compact funds in Africa more slowly than planned and,
    unless it can make future disbursements more quickly, may have large
    unexpended balances and uncompleted projects when the compacts expire.
    According to MCC, its unexpectedly slow rates of disbursement have
    primarily reflected its high standards for program accountability and
    sustainability as well as its initial overestimation of partner country
    capacity to meet these standards. As of March 31, 2007, MCC had disbursed
    $26 million (23 percent) of the $113.9 million it had planned to disburse
    by that date. The slower-than-expected disbursement is most critical for
    Madagascar and Cape Verde, both in their second year of compact
    implementation.

    Background

    The Millennium Challenge Act of 2003 requires MCC to select countries as
    eligible for MCA assistance each fiscal year.^6 Countries with per capita
    income at or below a set threshold may be selected as eligible if they
    meet MCC indicator criteria and are not statutorily barred from receiving
    U.S. assistance.^7 MCC has signed compacts with five countries in Africa
    and identified six other African countries as eligible for compact
    assistance (see fig. 1).

    ^6The Millennium Challenge Act also authorizes a limited amount of
    assistance to certain candidate countries to help them become eligible for
    MCA assistance; this assistance is referred to as MCC's threshold program.
    Threshold candidate countries must (1) meet the requirements for MCA
    candidacy and (2) demonstrate a significant commitment to meeting the
    act's eligibility criteria but fail to meet those criteria. We have not
    analyzed MCC's work with threshold countries.

    ^7MCC uses 16 indicators divided into three categories: Ruling Justly,
    Encouraging Economic Freedom, and Investing in People. To be eligible for
    MCA assistance, countries must score above the median relative to their
    peers on at least half of the indicators in each category and above the
    median on the indicator for combating corruption.

    Figure 1: African Countries Receiving or Eligible for MCC Compact
    Assistance, as of June 2007

    Note: On June 16, 2006, MCC suspended Gambia from eligibility for
    assistance, citing a pattern of actions inconsistent with MCC's selection
    criteria, including documented evidence of human rights abuses and
    increased restrictions on political rights, civil liberties, and press
    freedom by the government, as well as worsening economic policies and
    anticorruption efforts.

    After MCC selects a country as compact eligible, the country may begin a
    four-phase process that can lead to a compact's entry into force (see fig.
    2).

    Figure 2: Summary of MCC Compact Development and Implementation Process as
    of June 2007

    aMCC must notify congressional appropriations committees 15 days prior to
    obligating funds.

    bCompact negotiations begin after the MCC investment committee approves a
    consultation memorandum prepared by the MCC transaction team. The
    memorandum is based on the transaction team's determination that the
    country proposal has sufficient information to justify entering into
    negotiations with the country. MCC must consult with and report to the
    appropriate congressional committees 15 days prior to the start of compact
    negotiations.

    cThe MCC Board suspended Gambia's eligibility on June 16, 2006, citing a
    pattern of actions inconsistent with MCC's selection criteria.

               o Country proposal development. The eligible country is invited to
               submit a compact proposal, to be developed in consultation with
               members of civil society, including the private sector and
               nongovernmental organizations.
               o MCC due diligence review. In conducting due diligence, MCC
               evaluates the eligible country's proposal against MCC criteria to
               ensure that proposed programs will be effective and funds will be
               well used.
               o Compact negotiation and MCC approval. Following due diligence,
               MCC enters into compact negotiations with the eligible country. If
               compact negotiations are successful, the MCC Board of Directors^8
               may approve the compact, and MCC and the eligible country may sign
               it. Each signed compact includes a multiyear Financial Plan
               Summary that documents MCC's planned projects and disbursements by
               project in each compact year.
               o MCC and compact country complete entry-into-force requirements.
               MCC's compact with each country identifies supplemental agreements
               that MCC and the country's accountable entity must complete before
               the compact can enter into force.

               After a compact enters into force, MCC may begin disbursements and
               the country may begin implementing projects. The Millennium
               Challenge Act stipulates that a compact may last no longer than 5
               years and that MCC may have only one compact with a country at a
               time. The compacts stipulate that, with limited exceptions, all
               funds must be spent during the term of the compact period.^9

               MCC has obligated a total of about $1.5 billion as of May 2007
               through its five compacts with African countries. The average size
               of these compacts is about $307 million, providing per capita
               assistance ranging from $6 to $222, or an average of $25 (see
               table 1).^10 Four of MCC's compacts--with Benin, Cape Verde,
               Ghana, and Madagascar--have entered into force. According to MCC,
               two additional compacts, with Lesotho and Mozambique, are being
               brought before the MCC board at its meeting on June 27, 2007.^11
               The proposed amounts of these compacts are $362 million and $507
               million, respectively.

    ^8MCC is a government corporation, managed by a Chief Executive Officer
    (CEO) whom the President appoints with the advice and consent of the
    Senate, and is overseen by a Board of Directors. The Secretary of State
    serves as board chair, and the Secretary of the Treasury serves as
    vice-chair. Other board members are the U.S. Trade Representative, the
    Administrator of the U.S. Agency for International Development (USAID),
    the CEO of MCC, and up to four Senate-confirmed public members who are
    appointed by the President from lists of individuals submitted by
    congressional leadership.

    ^9MCC compacts signed as of May 2007 contain language stipulating that all
    disbursements and redisbursements shall cease upon expiration, suspension,
    or termination of a compact provided that reasonable expenditures for
    goods, services, and works properly incurred under or in furtherance of
    these compacts before the compact term expires or is terminated may be
    paid from MCC funding. In addition, signed compacts contain language
    providing that when a compact expires or is terminated, any funding not
    disbursed by MCC is automatically released from any obligation in
    connection with that compact.

    ^10Overall, MCC's 11 compacts as of May 2007 provide an average of $34 per
    capita.

               Table 1: MCC Compacts with African Countries, as of June 25, 2007

    Country      Compact amount Compact amount per capita (2004 population)
    Madagascar   $109.8 million                                          $6
    Cape Verde   $110.1 million                                        $222
    Benin        $307.3 million                                         $38
    Ghana        $547.0 million                                         $25
    Mali         $460.8 million                                         $35
    Total      $1,535.0 million
    Average      $307.0 million                                         $25

               Source: GAO analysis of MCC data.

    			  MCC's Pace of Compact Initiation in Africa Has Varied

               The time involved in MCC's initiation of compacts with African
               countries has varied, with three countries remaining in the
               compact development process for more than 3 years without reaching
               compact signature. For the five African countries with signed
               compacts, progressing from eligibility selection to compact
               signature took from 347 to 921 days, or about 12 to 31 months--an
               average of 633 days, or about 21 months. For the four compacts
               that have entered into force, achieving entry into force took an
               average of 158 days, or about 5 months, from compact signature.
               For all MCC compacts, the process from eligibility to compact
               signature has taken an average of 567 days, or approximately 19
               months, with an additional 167 days on average to entry into
               force. (See fig. 3.) MCC has not yet signed compacts with six
               additional African countries eligible for compact
               assistance--Burkina Faso, Lesotho, Mozambique, Namibia, Senegal,
               and Tanzania. MCC completed due diligence for Lesotho and
               Mozambique on May 24 and June 6, 2007, respectively. As of June 6,
               2007, MCC was performing due diligence for the remaining four.
               Three of these six countries--Lesotho, Mozambique, and
               Senegal--have been eligible since MCC's initial determination of
               eligible countries in May 2004.

    ^11In February 2007, we estimated the rate of MCC's future obligations,
    including those in Africa, under two scenarios. In the first scenario,
    using MCC's projected amount and rate of compact awards as stated in its
    2008 congressional budget justification ($485 million at 1.5 compacts per
    quarter), we estimated that MCC would obligate the balance of its
    2004-2007 appropriations set aside for compact assistance ($2.1 billion)
    by the fourth quarter of 2007 and the $3 billion requested for 2008 by the
    fourth quarter of that year. In the second scenario, using MCC's
    historical amount and rate of compact awards ($271 million at about 1.2
    compacts per quarter), we estimated that the corporation would obligate
    the balance of its 2004-2007 appropriations by the fourth quarter of 2008
    and the $3 billion requested for 2008 by the fourth quarter of 2010.

    Figure 3: Duration of Compact Development Process for Eligible African
    Countries with and without Signed Compacts, as of June 6, 2007

    aAs of June 6, 2007, the Mali compact had been signed for 205 days without
    entering into force.

    bAverage time to enter into force does not include countries that have not
    yet entered into force.

    cTen of the 11 countries with signed compacts became eligible during the
    first round of MCC country eligibility announcements in May 2004.

    dAccording to MCC, it approved the Mozambique investment memo on June 6,
    2007.

    Compact development does not operate on a fixed timetable or schedule.
    However, during 2005-2007, MCC's actual rate of establishing new compacts
    was slower than the rate projected by the corporation's annual budget
    requests. As a result, MCC's obligations for compact assistance have been
    substantially less than projected. MCC currently has more than $2 billion
    in unobligated funds set aside for compacts.

    MCC Projects in Africa Emphasize Transportation and Agriculture, and Management
    Structures Have Been Established

    About three-quarters of MCC's compact funding in Africa supports
    transportation and agriculture projects. To implement and oversee the
    projects, the countries with compacts in force have established management
    structures with similar components. For MCC's first two African compacts,
    key management officials were not in place until months after entry into
    force, but such positions were filled before, or shortly after, the two
    subsequent African compacts entered into force.

    Approximately 76 percent of MCC compact funding has been budgeted for (1)
    transportation and other infrastructure projects and (2) agricultural and
    rural development projects. (See fig. 4.) Specifically, about 37 percent
    ($575.2 million) of compact funding in Africa is allocated to
    transportation and other infrastructure, and about 39 percent ($605.4
    million) is allocated to agriculture and rural development. MCC's six
    non-African compacts likewise obligate about 76 percent for these two
    project categories, with 55 percent ($791.6 million) for transportation
    and other infrastructure and 21 percent ($299.1 million) for agriculture
    and rural development.

    Figure 4: Types of MCC Compact Projects in African and Non-African
    Countries (dollars in millions)

    aThe Access to Markets Project in Benin is a major construction project at
    the Port of Cotonou and includes associated studies and institutional
    strengthening. The Mali compact includes the Bamako-Senou Airport
    Improvement Project and an Industrial Park Project.

    bThe Irrigated Agriculture Project in Armenia includes the repair of
    irrigation infrastructure. The Alatona Irrigation Project in Mali includes
    planning and infrastructure, land allocation, and resettlement activities,
    among other items.

    cOther programs include the Justice Program in Benin and the Human
    Development Project in El Salvador. The Benin program includes
    institutional strengthening and infrastructure components (construction of
    new courthouses). The El Salvador program includes Education and Training,
    and Community Development activities.

    Examples of MCC infrastructure and agriculture projects in Africa include
    the following:

               o Infrastructure projects. Reconstruction of roads and the Port of
               Praia in Cape Verde, a major construction project at the Port of
               Cotonou in Benin, and the Bamako-Senou Airport Improvement Project
               and an Industrial Park Project in Mali.
               o Agriculture projects. Agricultural business centers and
               technical assistance in Madagascar and training and institutional
               strengthening programs in Mali and Ghana.

               To implement compact projects, MCC directly hires a resident
               country director and a small staff for each country to serve as
               MCC's public face and to manage its relationship with the compact
               country. However, MCC gives the compact countries authority to
               manage and oversee their compact programs using MCC funds.^12
               Figure 5 shows the general structure that MCC's first three
               compact countries, including two in Africa, have established to
               provide oversight and management of their compact programs and to
               facilitate stakeholder input (see fig. 5).^13

    ^12According to MCC, three of MCC's five Resident Country Director
    positions in Africa are currently filled. The Benin position was filled
    from March 2006 to May 2007 and MCC is currently seeking to hire a
    replacement. The Ghana position has not yet been filled, but MCC expects
    the selected candidate to arrive in country in August 2007.

    ^13The countries' oversight structures have most elements in common, but
    countries have the flexibility to design the structures to fit their
    needs.

               Figure 5: MCC Compact Country Oversight and Management Structure
               in the First Three Compact Countries

               Note: This figure represents a composite of the Madagascar, Cape
               Verde, and Honduras oversight and management structures. However,
               in Honduras, stakeholder input is obtained through representatives
               on the steering committee, rather than through a stakeholder
               committee.

               The three countries have generally included the following
               oversight and management entities in their structures:

               o The steering committee represents the country government and
               interfaces directly with MCC. The committee is ultimately
               responsible for the oversight and results of the MCC compact,
               oversees management unit employees, and approves and signs off on
               key decisions and reporting to MCC.
               o In Madagascar and Cape Verde, a stakeholder committee meets
               periodically to advise and inform the steering committee regarding
               compact implementation and to serve as the official liaison
               between interested parties and the steering committee.
               o The management unit is directed by the steering committee and
               has principal responsibility for overall compact management and
               implementation, including financial management and procurement.
               The financial management and procurement functions may also be
               handled by an external fiscal agent or procurement agent.
               Together, the steering committee and the management unit form the
               "accountable entity."^14

               We reported in July 2006 that key compact management positions
               remained unfilled after the Madagascar and Cape Verde compacts
               entered into force; the two countries did not hire key officials
               until several months after their compacts' entry into force in
               July and October 2005, respectively. This incomplete staffing at
               entry into force may limit the countries' ability to achieve their
               compact objectives within the fixed time period of the
               compacts.^15 According to MCC, key positions at MCC's subsequent
               compacts with Benin and Ghana were filled prior to, or shortly
               after, entry into force. Key positions for the Mali compact, which
               has not entered into force, are not yet filled, but MCC expects to
               fill these positions in August 2007.

    ^14MCC refers to the accountable entity by combining "MCA" and the
    country's name--for example, "MCA-Madagascar."

    ^15In October 2005, after the signature of its first six compacts, MCC
    adopted a policy implementing the authority given it by section 609(g) of
    the Millennium Challenge Act of 2003 to make grants to facilitate the
    development and implementation of compacts. MCC's policy includes a
    provision where, if certain conditions are met, it may fund an eligible
    country's request for "management support payments" for salaries, rent,
    and equipment for the country's MCA technical team prior to compact
    signature.

    MCC Has Not Achieved Its Planned Rate of Disbursements
               MCC has disbursed compact funds in Africa more slowly than planned
               and, unless the rate of disbursements increases, may have large
               unexpended balances and uncompleted projects when the compacts
               expire.^16 To address this challenge, MCC officials report taking
               several steps to expedite program implementation and better match
               disbursements with projections.

               As of March 31, 2007, MCC had disbursed $26 million in compact
               funds to four African countries--23 percent of the $113.9 million
               that it intended to disburse by that date.^17 (See table 2.)

    Table 2: MCC Disbursements to African Countries through March 31, 2007

    (Dollars in millions)
                  Date                                   Percentage of
                  compact                                      planned
                  entered       Prorated    Cumulative   disbursements Percentage
                  into           planned        actual        actually of compact
    Country    force    disbursements disbursements       disbursed    elapsed
    Madagascar Jul. 27,        $59.40        $14.47              24         42
                  2005
    Cape Verde Oct. 17,        $30.07         $7.53              25         28
                  2005
    Benin      Oct. 6,         $15.62         $3.45              22          8
                  2006
    Ghana      Feb. 16,         $8.81         $0.74               8          2
                  2007
    Total                     $113.90        $26.19              23

    Source: GAO analysis of MCC data.

    Note: Planned disbursements are prorated on an annual basis.

    As table 2 shows, MCC's actual disbursement of compact funds has fallen
    substantially behind its planned disbursement, most critically for its
    compacts with Madagascar and Cape Verde, both in the second year of
    implementation. MCC's disbursement for Madagascar by month 20 of the
    4-year implementation accounted for 24 percent of the planned
    disbursement, and its disbursement for Cape Verde by month 17 of the
    5-year implementation accounted for 25 percent of the planned
    disbursement. Our analysis of MCC's overall compact disbursements suggests
    that unless it increases the rate of compact assistance disbursements in
    Africa and elsewhere, MCC could have significant obligated but undisbursed
    balances when the compacts expire. This implies that some Africa projects
    may not be completed by the end of the current compacts. If this occurs,
    MCC will miss opportunities to achieve its mission of poverty reduction
    through economic growth in compact countries.

    ^16MCC disbursements provide funds to the accountable entity of a compact
    country. The accountable entity then redisburses funds for program
    activities.

    ^17Overall, through March 2007, MCC had disbursed 26 percent of the $257.6
    million that it had planned to disburse for the nine compacts that had
    entered into force by that date.

    According to MCC, its unexpectedly slow rates of disbursement have
    primarily reflected two factors: the need to maintain high standards for
    program accountability and sustainability, and its initial overestimation
    of partner country capacity to meet these standards. The countries'
    management structures are intended to ensure fiscal accountability;
    however, at the time of our 2006 report, some required elements of these
    procurement and fiscal accountability structures in Cape Verde and
    Madagascar were not yet in place. As of May 2007, MCC did not have
    mechanisms in place to address significant delays in its planned
    disbursements. However, MCC reports taking a number of steps to expedite
    program implementation and better match disbursements with projections,
    such as providing better guidance on compact development and
    implementation and improving its initial analysis of country capacity. MCC
    noted that disbursement rates do not fully capture its progress to date,
    in part because these rates do not reflect MCC activities such as policy
    reform and capacity building.

    Mr. Chairman, this concludes my statement. I will be happy to answer any
    questions you or members of the subcommittee may have.

    GAO Contacts and Staff Acknowledgments

    For questions regarding this testimony, please contact David B. Gootnick
    at (202) 512-3149. Other key contributors to this statement were Emil
    Friberg (Assistant Director), Tracy Guerrero, Reid Lowe, Mike Rohrback,
    Mona Sehgal, and Michael Simon. David Dornisch, C. Etana Finkler, Ernie
    Jackson, Marc Molino, and Jena Sinkfield provided technical assistance.

    Appendix I: Objectives, Scope, and Methodology

    This testimony discusses (1) the pace of the Millennium Challenge
    Corporation's (MCC) initiation of compacts in sub-Saharan Africa (Africa),
    (2) MCC's projects and management structures in African countries with
    signed compacts, and (3) MCC's progress in disbursing compact funds.

    To determine the status of MCC's initiation of compacts in Africa, we
    determined the length of the compact development process based on our
    previous reporting and MCC's status reports on eligible countries, which
    include the dates these countries completed key milestones in the process.
    We quantified the duration of the development process for MCC's individual
    compacts as well as the average length of the process for its compacts in
    African and non-African countries.

    To describe MCC's compact projects, we relied primarily on our previous
    reporting on MCC,^1 updating it to include more recent compacts. We
    identified compact project types across broad categories and calculated
    total funding for each category to determine the general focus of MCC
    compact assistance in African and non-African countries. In describing
    MCC's management structures, we summarized our previous reporting on MCC's
    first three compacts, including those for two countries in Africa. We also
    summarized an MCC report on the status of its management staffing in
    Africa.

    To analyze the pace of MCC's disbursements for the countries with compacts
    in force, we compared MCC data for actual and planned disbursements from
    July 2005 through March 2007. For this analysis, we used MCC's assumption
    that compact funds are disbursed evenly throughout the compact
    implementation year. Because MCC's compacts are at varying stages of
    implementation, we prorated planned disbursements on an annual basis for
    each country based on the number of months the compact was in force.^2

    MCC provided technical comments on a draft of this testimony and we have
    incorporated their comments as appropriate.

    We conducted our work for this testimony during June 2007 in accordance
    with generally accepted government auditing standards. We also followed
    generally accepted government auditing standards for the published GAO
    reports on which this testimony is partly based.

    ^1 [13]GAO-06-805

    ^2In practice, MCC approves disbursements on a quarterly basis and
    disburses compact funds in monthly payments according to the terms of the
    quarterly approval.

    (320515)

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    GAO's Mission

    The Government Accountability Office, the audit, evaluation and
    investigative arm of Congress, exists to support Congress in meeting its
    constitutional responsibilities and to help improve the performance and
    accountability of the federal government for the American people. GAO
    examines the use of public funds; evaluates federal programs and policies;
    and provides analyses, recommendations, and other assistance to help
    Congress make informed oversight, policy, and funding decisions. GAO's
    commitment to good government is reflected in its core values of
    accountability, integrity, and reliability.

    Obtaining Copies of GAO Reports and Testimony

    The fastest and easiest way to obtain copies of GAO documents at no cost
    is through GAO's Web site ( [14]www.gao.gov ). Each weekday, GAO posts
    newly released reports, testimony, and correspondence on its Web site. To
    have GAO e-mail you a list of newly posted products every afternoon, go to
    [15]www.gao.gov and select "Subscribe to Updates."

    Order by Mail or Phone

    The first copy of each printed report is free. Additional copies are $2
    each. A check or money order should be made out to the Superintendent of
    Documents. GAO also accepts VISA and Mastercard. Orders for 100 or more
    copies mailed to a single address are discounted 25 percent. Orders should
    be sent to:

    U.S. Government Accountability Office 441 G Street NW, Room LM Washington,
    D.C. 20548

    To order by Phone: Voice: (202) 512-6000
    TDD: (202) 512-2537
    Fax: (202) 512-6061

    To Report Fraud, Waste, and Abuse in Federal Programs

    Contact:

    Web site: [16]www.gao.gov/fraudnet/fraudnet.htm
    E-mail: [17]fraudnet@gao.gov
    Automated answering system: (800) 424-5454 or (202) 512-7470

    Congressional Relations

    Gloria Jarmon, Managing Director, [18]JarmonG@gao.gov (202) 512-4400 U.S.
    Government Accountability Office, 441 G Street NW, Room 7125 Washington,
    D.C. 20548

    Public Affairs

    Paul Anderson, Managing Director, [19]AndersonP1@gao.gov (202) 512-4800
    U.S. Government Accountability Office, 441 G Street NW, Room 7149
    Washington, D.C. 20548

    [20]www.gao.gov/cgi-bin/getrpt?GAO-07-1049T .

    To view the full product, including the scope
    and methodology, click on the link above.

    For more information, contact David Gootnick at 202-512-3149 or
    gootnickd@gao.gov.

    Highlights of [21]GAO-07-1049T , a testimony to the Subcommittee on Africa
    and Global Health, Committee on Foreign Affairs, House of Representatives

    June 28, 2007

    MILLENNIUM CHALLENGE CORPORATION

    Progress and Challenges with Compacts in Africa

    In January 2004, Congress established the Millennium Challenge Corporation
    (MCC) to administer the Millennium Challenge Account for foreign
    assistance. MCC's mission is to reduce poverty by supporting sustainable,
    transformative economic growth in partnership with developing countries
    that create and maintain sound policy environments. MCC signs compacts
    obligating funds for such projects with countries it selects as eligible
    for this assistance, according to criteria outlined in MCC's authorizing
    legislation. Each compact has a maximum duration of 5 years. After signed
    compacts enter into force, MCC begins to disburse funds. For fiscal years
    2004 to 2007, MCC received appropriations of almost $6 billion. MCC has
    obligated almost $3 billion for 11 compacts; $1.5 billion of this amount
    is for 5 compacts in sub-Saharan Africa (Africa).

    This testimony examines (1) the pace of MCC's initiation of compacts in
    Africa, (2) MCC projects and management structures in African countries
    with signed compacts, and (3) MCC's progress in disbursing compact funds.
    In preparing this testimony, GAO drew from, and updated, previous reports
    on MCC's compact development, obligations, implementation, management, and
    disbursements.

    For MCC's five signed African compacts--with Madagascar, Cape Verde,
    Benin, Ghana, and Mali--progressing from eligibility selection to compact
    signature took between 12 and 31 months. All except the compact with Mali
    have entered into force--on average, about 5 months after compact
    signature. Of six other African countries that MCC identified as eligible
    for compact assistance, none have reached compact signature, although
    three have been eligible for more than 3 years. Overall, MCC has
    established, and obligated funds for, fewer compacts than projected.

    MCC has budgeted about three-quarters of compact funding in Africa for
    transportation and other infrastructure projects (37 percent) and
    agriculture and rural development projects (39 percent). To provide
    oversight and accountability and facilitate stakeholder involvement, the
    countries have established management structures with several common
    components. GAO reported in July 2006 that Madagascar and Cape Verde did
    not fill key positions until months after entry into force and that this
    may limit achievement of compact objectives. According to MCC, key
    officials for subsequent compacts with Benin and Ghana were in place
    around the time of entry into force; key positions for Mali have not yet
    been filled.

    MCC has disbursed compact funds in Africa more slowly than planned and,
    unless it can increase its rate of disbursements, may have large
    unexpended balances and uncompleted projects when the compacts expire. As
    of March 31, 2007, MCC had disbursed about $26 million (23 percent) of
    $113.9 million it planned to disburse by that date. The low rate of
    disbursement is most critical for Madagascar and Cape Verde, both in their
    second year of compact implementation. According to MCC, the unexpectedly
    slow disbursement reflects both its high standards for accountability and
    its initial overestimation of the countries' capacities to meet those
    standards.

    Planned vs. Actual MCC Disbursements to African Countries as of March 31,
    2007

    References

    Visible links
    9. http://www.gao.gov/cgi-bin/getrpt?GAO-06-805
      10. http://www.gao.gov/cgi-bin/getrpt?GAO-05-455T
      11. http://www.gao.gov/cgi-bin/getrpt?GAO-05-625T
      12. http://www.gao.gov/cgi-bin/getrpt?GAO-06-466R
      13. http://www.gao.gov/cgi-bin/getrpt?GAO-06-805
      14. http://www.gao.gov/
      15. http://www.gao.gov/
      16. http://www.gao.gov/fraudnet/fraudnet.htm
      17. mailto:fraudnet@gao.gov
      18. mailto:JarmonG@gao.gov
      19. mailto:AndersonP1@gao.gov
      20. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1049T
      21. http://www.gao.gov/cgi-bin/getrpt?GAO-07-1049T
    *** End of document. ***