jurisdiction: US

text: b"OFFICE OF INSPECTOR GENERAL\n For the Millennium Challenge Corporation\n\n\n\nAUDIT OF THE MILLENNIUM\nCHALLENGE CORPORATION\xe2\x80\x99S\nFINANCIAL STATEMENTS, INTERNAL\nCONTROLS, AND COMPLIANCE FOR\nTHE PERIOD ENDING\nSEPTEMBER 30, 2010 AND 2009\n\nAUDIT REPORT NO. M-000-11-001-C\nNovember 15, 2010\n\n\nWASHINGTON, DC\n\x0c Office of Inspector General\n for the Millennium Challenge Corporation\n\n\n\nNovember 15, 2010\n\nMr. Daniel Yohannes\nChief Executive Officer\nMillennium Challenge Corporation\n875 15th Street, NW\nWashington, DC 20005-2221\n\n\nSubject: Audit of the Millennium Challenge Corporation\xe2\x80\x99s Financial Statements, Internal\n Controls, and Compliance for the Periods Ending September 30, 2010 and 2009\n Report No. M-000-011-001-C\n\nDear Mr. Yohannes,\n\nEnclosed is the final report on the subject audit. The Office of Inspector General (OIG)\ncontracted with the independent certified public accounting firm of Cotton & Company LLP to\naudit the financial statements of the Millennium Challenge Corporation (MCC) for the period\nending September 30, 2010. The contract required that the audit be performed in accordance\nwith United States Generally Accepted Government Auditing Standards, Office of Management\nand Budget (OMB) Bulletin 07-04 as amended, Audit Requirements for Federal Financial\nStatements, and the GAO/PCIE Financial Audit Manual.\n\nThe Independent Auditors expressed a qualified opinion on MCC\xe2\x80\x99s FY 2010 and 2009 Financial\nStatements. The report stated that the auditors discovered certain errors during the audits of\nthe current year that resulted in understatements of previously reported advances as of\nSeptember 30, 2009. Consequently, the financial statements as of September 30, 2009 were\nrestated to reflect corrections to previously reported advances and the related effect on\nexpenses.\n\nThe report also stated that MCC\xe2\x80\x99s process for compiling accruals was not comprehensive\nenough to record accruals for material amounts of current-year expenses not paid or invoiced\nuntil the subsequent period. While additional procedures were performed to compile such\ninformation for the FY 2010 statements, these procedures did not extend to FY 2009, which in\n\n\n\nMillennium Challenge Corporation\n1401 H Street N.W.\nSuite 770\nWashington, DC 20005\nwww.usaid.gov/oig\n\x0cthe independent auditors\xe2\x80\x99 opinion, should have been included in accordance with accounting\nprocedures generally accepted in the United States of America. FY 2009 expenses were\nunderstated by accrual amounts, and FY 2010 expenses were overstated by those same\namounts.\n\nIn their opinion, except for the effects of insufficiently accruing for expenses reported in a\nsubsequent period, as discussed in the preceding paragraph, MCC\xe2\x80\x99s financial statements for\nFY 2010 and FY 2009 present fairly, in all material respects, the financial position of MCC as of\nSeptember 30, 2010 and 2009, and its net costs, changes in net position, and budgetary\nresources for the years then ended in conformity with accounting principles generally accepted\nin the United States of America.\n\nA deficiency in internal control exists when the design or operation of a control does not allow\nmanagement or employees, in the normal course of performing their assigned functions, to\nprevent, or detect and correct misstatements on a timely basis. A material weakness is a\ndeficiency, or combination of deficiencies, in internal control, such that there is a reasonable\npossibility that a material misstatement of an entity's financial statements will not be prevented,\nor detected and corrected on a timely basis.\n\nCotton & Company , LLP reported the following deficiencies in MCC's internal control to be\nmaterial weaknesses and the cause of qualified opinion:\n\n 1. Reporting Advance Payments.\n 2. Compiling Accruals (Proper Reporting Period).\n 3. Monitoring Controls over Millennium Challenge Accounts Activities.\n\nA significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less\nsevere than a material weakness, yet important enough to merit attention by those charged with\ngovernance.\n\nThe auditors considered the following deficiencies in MCC's internal control to be significant\ndeficiencies.\n\n 1. Reconciling Fund Balance with Treasury\n 2. Controls over Financial Reporting\n\nThe auditors did not note any instances of material non-compliance with laws and regulations.\n\nIn carrying out its oversight responsibilities, the OIG reviewed Cotton & Company, LLP\xe2\x80\x99s report\nand related audit documentation. This review, as differentiated from an audit in accordance with\nU.S. Generally Accepted Government Auditing Standards were not intended to enable the OIG\nto express, and we do not express, opinions on MCC\xe2\x80\x99s financial statements, or internal control;\nor on MCC\xe2\x80\x99s compliance with applicable laws and regulations. Cotton & Company, LLP is\nresponsible for the attached auditor\xe2\x80\x99s report, dated November 15, 2010, and the conclusions\nexpressed in the report. However, our review disclosed no instances that Cotton & Company,\nLLP did not comply, in all material respects, with applicable standards.\n\nTo address the internal control deficiencies reported by Cotton & Company, LLP, we made the\nfollowing recommendations to MCC\xe2\x80\x99s management on November 10, 2010.\n\n\n\n\n 3\n\x0cMaterial Weaknesses\n\nReporting Advance Payments\nWe recommend that the MCC Division of Finance and Department of Compact Operations:\n\nRecommendation No. 1: Modify the Payment Request Form (PRF) to specifically identify\nrequests for advance payments to vendors.\n\nRecommendation No. 2: Provide training to Fiscal Agents and other in-country personnel to\nexplain how to properly record each line of the PRF based on supporting documents and how\nMCC financial statements are affected by MCA activities and transactions.\n\nCompiling Accruals (Proper Reporting Period)\nWe recommend that MCC Division of Finance revise and strengthen its process for determining\naccruals required at yearend by implementing the following:\n\nRecommendation No. 3: Establish a comprehensive methodology and/or standard process for\nobtaining, recording, and reporting yearend accruals which covers all MCAs and funds and\ninclude invoiced and rendered services which have not been recorded in the yearend trial\nbalance.\n\nRecommendation No. 4: Establish consistent communication with NBC and the MCAs for\nunderstanding the process and methodology developed.\n\nRecommendation No. 5: Perform quality control procedures over amounts obtained and\nrecorded. Review the amounts posted for reasonableness, accuracy, and completeness.\n\nMonitor Controls over MCAs Activities\n\nWe recommend that the MCC Department of Compact Operations and Division of Finance:\n\nPerformance of Timely and Complete MCA Audits\nRecommendation No. 6: Implement a process for coordinating with MCAs, audit firms, and the\nOIG to ensure all parties are adequately informed of the progress of all audits to ensure that\nMCA audits are completed in accordance with the compact.\n\nRecommendation No. 7: Establish and implement a process to ensure that MCAs prepare and\nmake available for audit the status of advances to contractors, retention balances and data\nnecessary for MCC to properly report its accruals.\n\nImproper and Untimely Quarterly Reporting\nWe recommend that MCC Management and Department of Compact Operations:\n\nRecommendation No. 8: Establish and implement a process to ensure that all personnel\nresponsible for QFRs to guide them to submit accurately prepared and properly approved QFRs\nand Disbursement Requests in a timely manner.\n\nRecommendation No. 9: Establish and implement a process to ensure that funds are\nperiodically reviewed to determine if MCAs should submit final QFRs to record deobligations for\nfunds no longer needed.\n\n\n\n 4\n\x0cInadequate Oversight of 609(g)-Funded Transactions\n\nRecommendation No. 10: We recommend that MCC Department of Compact Operations coordinate\nwith appropriate management levels to implement a formal process for administering 609(g) funds in all\ncountries not managed by either MCC or an MCA.\n\nRecommendation No. 11: We recommend that MCC Department of Compact Operations, in\ncoordination with the Division of Finance monitor on a quarterly basis the cumulative obligation and\ndisbursements of all countries that have received 609(g) funds and communicate with the MCAs to\ndetermine if there is still an immediate need to maintain excess 609(g) funds that have not been\ndisbursed. The input from MCC Department of Compact Operations must be documented. Deobligate\n609(g) funds that are no longer considered an immediate need to the MCA/Partnering Country.\n\nRecommendation No. 12: We recommend that MCC Department of Compact Operations\nstrengthen its CPS Signature Card process to include a MCC authorizing signature, effective\nand termination dates, to include an annual or other periodic review process between MCC, its\nfinancial service provider, and the MCAs to ensure that signature cards are kept on file for only\nactive users of its CPS payment requesting system.\n\nInadequate Processing of Closed Programs:\nWe recommend that the MCC management and Department of Compact Operations:\n\nRecommendation No. 13: Develop policies and procedures for Program Closure of Compacts\nthat have been suspended or terminated to ensure that programs, activities, and assets are\nproperly accounted for, and final disposition is reported to MCC.\n\nRecommendation No. 14: Establish guidelines for Fiscal Accountability Directors, Fiscal\nAgents, as well as personnel in the Division of Finance and MCC\xe2\x80\x99s financial services provider to\nmake them fully aware of any restrictions to process payments made during a program or\ncompact close-out period.\n\nSignificant Deficiencies\n\nReconciling Fund Balance with Treasury\nRecommendation No. 15: We recommend that the MCC Division of Finance continue to follow\nUSAID\xe2\x80\x99s progress toward elimination of cash balance differences between USAID and Treasury\nand timely clearing of suspense account items in order to monitor MCC\xe2\x80\x99s risk of potential\nmisstatements.\n\nControl over Financial Reporting:\nWe recommend that the MCC Division of Finance:\n\nRecommendation No. 16: Strengthen its quality reviews over financial statements to validate\nthat information presented is accurate, complete, and complies with accounting standards and\nreporting guidance.\n\nRecommendation No. 17: Establish quality control procedures to document during the review\nprocess any discrepancies, errors, and other anomalies that have occurred to provide an audit\ntrail of issues that may require on-top adjustments.\n\n\n\n\n 5\n\x0cIn finalizing the report, we received and considered MCC\xe2\x80\x99s response to the draft audit report\nand the recommendations included therein. In its comments, MCC concurred with all of the\nrecommendations. We acknowledge that management decisions have been reached on all 17\naudit recommendations. Please inform us when final action has been taken.\n\nThe OIG appreciates the cooperation and courtesies extended to our staff and to the staff of\nCotton & Company, LLP during the audit. Please contact me at (202) 216-6962, if you have any\nquestions concerning this report.\n\n\n Sincerely,\n\n /s/\n Alvin A. Brown\n Assistant Inspector General\n Millennium Challenge Corporation\n\n\n\n\n 6\n\x0c TABLE OF CONTENTS\n\n\n\n Page\n\nIndependent Auditor\xe2\x80\x99s Report\n Opinion on the Financial Statements 2\n\n Internal Control over Financial Reporting and 4\n Management Comments\n\n Compliance with Laws and Regulations 24\n\n Status of Prior Year Findings \xe2\x80\x93 Appendix A 26\n\n Management Comments and Our Evaluation \xe2\x80\x93 Appendix B 29\n\nFinancial Section 33\n\nBalance Sheet 34\n\nStatement of Budgetary Resources 35\n\nStatement of Net Cost 36\n\nStatements of Operations and Changes in Net Position 37\n\nNotes to Financial Statements 38\n\x0cInspector\xc2\xa0General\xc2\xa0\xc2\xa0\nUnited\xc2\xa0States\xc2\xa0Agency\xc2\xa0for\xc2\xa0International\xc2\xa0Development\xc2\xa0\n\xc2\xa0\xc2\xa0\nBoard\xc2\xa0of\xc2\xa0Directors\xc2\xa0\nMillennium\xc2\xa0Challenge\xc2\xa0Corporation\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n INDEPENDENT\xc2\xa0AUDITOR\xe2\x80\x99S\xc2\xa0REPORT\xc2\xa0\xc2\xa0\n\xc2\xa0\n\nWe\xc2\xa0have\xc2\xa0audited\xc2\xa0the\xc2\xa0Balance\xc2\xa0Sheets\xc2\xa0of\xc2\xa0the\xc2\xa0Millennium\xc2\xa0Challenge\xc2\xa0Corporation\xc2\xa0(MCC)\xc2\xa0as\xc2\xa0of\xc2\xa0\nSeptember\xc2\xa030,\xc2\xa02010\xc2\xa0and\xc2\xa02009,\xc2\xa0and\xc2\xa0the\xc2\xa0related\xc2\xa0Statements\xc2\xa0of\xc2\xa0Net\xc2\xa0Cost,\xc2\xa0Changes\xc2\xa0in\xc2\xa0Net\xc2\xa0Position,\xc2\xa0\nand\xc2\xa0Budgetary\xc2\xa0Resources\xc2\xa0for\xc2\xa0the\xc2\xa0years\xc2\xa0then\xc2\xa0ended.\xc2\xa0These\xc2\xa0financial\xc2\xa0statements\xc2\xa0are\xc2\xa0the\xc2\xa0\nresponsibility\xc2\xa0of\xc2\xa0MCC\xc2\xa0management.\xc2\xa0Our\xc2\xa0responsibility\xc2\xa0is\xc2\xa0to\xc2\xa0express\xc2\xa0an\xc2\xa0opinion\xc2\xa0on\xc2\xa0the\xc2\xa0financial\xc2\xa0\nstatements\xc2\xa0based\xc2\xa0on\xc2\xa0our\xc2\xa0audits.\xc2\xa0\xc2\xa0\xc2\xa0\n\xc2\xa0 \xc2\xa0\nWe\xc2\xa0conducted\xc2\xa0our\xc2\xa0audits\xc2\xa0in\xc2\xa0accordance\xc2\xa0with\xc2\xa0auditing\xc2\xa0standards\xc2\xa0generally\xc2\xa0accepted\xc2\xa0in\xc2\xa0the\xc2\xa0\nUnited\xc2\xa0States\xc2\xa0of\xc2\xa0America;\xc2\xa0standards\xc2\xa0applicable\xc2\xa0to\xc2\xa0financial\xc2\xa0audits\xc2\xa0contained\xc2\xa0in\xc2\xa0Government\xc2\xa0\nAuditing\xc2\xa0Standards,\xc2\xa0issued\xc2\xa0by\xc2\xa0the\xc2\xa0Comptroller\xc2\xa0General\xc2\xa0of\xc2\xa0the\xc2\xa0United\xc2\xa0States;\xc2\xa0and\xc2\xa0Office\xc2\xa0of\xc2\xa0\nManagement\xc2\xa0and\xc2\xa0Budget\xc2\xa0(OMB)\xc2\xa0audit\xc2\xa0guidance.\xc2\xa0These\xc2\xa0standards\xc2\xa0require\xc2\xa0that\xc2\xa0we\xc2\xa0plan\xc2\xa0and\xc2\xa0\nperform\xc2\xa0the\xc2\xa0audits\xc2\xa0to\xc2\xa0obtain\xc2\xa0reasonable\xc2\xa0assurance\xc2\xa0about\xc2\xa0whether\xc2\xa0the\xc2\xa0financial\xc2\xa0statements\xc2\xa0are\xc2\xa0\nfree\xc2\xa0of\xc2\xa0material\xc2\xa0misstatement.\xc2\xa0An\xc2\xa0audit\xc2\xa0includes\xc2\xa0examining,\xc2\xa0on\xc2\xa0a\xc2\xa0test\xc2\xa0basis,\xc2\xa0evidence\xc2\xa0supporting\xc2\xa0\namounts\xc2\xa0and\xc2\xa0disclosures\xc2\xa0in\xc2\xa0the\xc2\xa0financial\xc2\xa0statements.\xc2\xa0An\xc2\xa0audit\xc2\xa0also\xc2\xa0includes\xc2\xa0assessing\xc2\xa0accounting\xc2\xa0\nprinciples\xc2\xa0used\xc2\xa0and\xc2\xa0significant\xc2\xa0estimates\xc2\xa0made\xc2\xa0by\xc2\xa0management,\xc2\xa0as\xc2\xa0well\xc2\xa0as\xc2\xa0evaluating\xc2\xa0overall\xc2\xa0\nfinancial\xc2\xa0statement\xc2\xa0presentation.\xc2\xa0We\xc2\xa0believe\xc2\xa0that\xc2\xa0our\xc2\xa0audits\xc2\xa0provide\xc2\xa0a\xc2\xa0reasonable\xc2\xa0basis\xc2\xa0for\xc2\xa0our\xc2\xa0\nopinion.\xc2\xa0\xc2\xa0\n\xc2\xa0\nAs\xc2\xa0more\xc2\xa0fully\xc2\xa0described\xc2\xa0in\xc2\xa0Note\xc2\xa010\xc2\xa0to\xc2\xa0the\xc2\xa0above\xe2\x80\x90referenced\xc2\xa0statements,\xc2\xa0we\xc2\xa0discovered\xc2\xa0certain\xc2\xa0\nerrors\xc2\xa0during\xc2\xa0our\xc2\xa0audits\xc2\xa0of\xc2\xa0the\xc2\xa0current\xc2\xa0year\xc2\xa0that\xc2\xa0resulted\xc2\xa0in\xc2\xa0understatements\xc2\xa0of\xc2\xa0previously\xc2\xa0\nreported\xc2\xa0advances\xc2\xa0as\xc2\xa0of\xc2\xa0September\xc2\xa030,\xc2\xa02009.\xc2\xa0Accordingly,\xc2\xa0the\xc2\xa0Balance\xc2\xa0Sheet\xc2\xa0as\xc2\xa0of\xc2\xa0September\xc2\xa0\n30,\xc2\xa02009,\xc2\xa0and\xc2\xa0related\xc2\xa0Statements\xc2\xa0of\xc2\xa0Net\xc2\xa0Cost,\xc2\xa0Changes\xc2\xa0in\xc2\xa0Net\xc2\xa0Position,\xc2\xa0and\xc2\xa0Budgetary\xc2\xa0Resources\xc2\xa0\nfor\xc2\xa0the\xc2\xa0year\xc2\xa0then\xc2\xa0ended\xc2\xa0have\xc2\xa0been\xc2\xa0restated\xc2\xa0to\xc2\xa0reflect\xc2\xa0corrections\xc2\xa0to\xc2\xa0previously\xc2\xa0reported\xc2\xa0\nadvances\xc2\xa0and\xc2\xa0the\xc2\xa0related\xc2\xa0effect\xc2\xa0on\xc2\xa0expenses.\xc2\xa0\xc2\xa0\n\xc2\xa0\nIn\xc2\xa0addition,\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0process\xc2\xa0for\xc2\xa0compiling\xc2\xa0accruals\xc2\xa0was\xc2\xa0not\xc2\xa0comprehensive\xc2\xa0enough\xc2\xa0to\xc2\xa0record\xc2\xa0\naccruals\xc2\xa0for\xc2\xa0material\xc2\xa0amounts\xc2\xa0of\xc2\xa0current\xe2\x80\x90year\xc2\xa0expenses\xc2\xa0not\xc2\xa0paid\xc2\xa0or\xc2\xa0invoiced\xc2\xa0until\xc2\xa0the\xc2\xa0\nsubsequent\xc2\xa0period.\xc2\xa0While\xc2\xa0additional\xc2\xa0procedures\xc2\xa0were\xc2\xa0performed\xc2\xa0to\xc2\xa0compile\xc2\xa0such\xc2\xa0information\xc2\xa0\nfor\xc2\xa0the\xc2\xa0FY\xc2\xa02010\xc2\xa0statements,\xc2\xa0these\xc2\xa0procedures\xc2\xa0did\xc2\xa0not\xc2\xa0extend\xc2\xa0to\xc2\xa0FY\xc2\xa02009,\xc2\xa0which,\xc2\xa0in\xc2\xa0our\xc2\xa0opinion,\xc2\xa0\nshould\xc2\xa0have\xc2\xa0been\xc2\xa0included\xc2\xa0in\xc2\xa0accordance\xc2\xa0with\xc2\xa0accounting\xc2\xa0principles\xc2\xa0generally\xc2\xa0accepted\xc2\xa0in\xc2\xa0the\xc2\xa0\n 2\n\x0cUnited\xc2\xa0States\xc2\xa0of\xc2\xa0America.\xc2\xa0FY\xc2\xa02009\xc2\xa0expenses\xc2\xa0were\xc2\xa0understated\xc2\xa0by\xc2\xa0accrual\xc2\xa0amounts,\xc2\xa0and\xc2\xa0FY\xc2\xa02010\xc2\xa0\nexpenses\xc2\xa0were\xc2\xa0overstated\xc2\xa0by\xc2\xa0those\xc2\xa0same\xc2\xa0amounts.\xc2\xa0\n\xc2\xa0\nIn\xc2\xa0our\xc2\xa0opinion,\xc2\xa0except\xc2\xa0for\xc2\xa0the\xc2\xa0effects\xc2\xa0of\xc2\xa0insufficiently\xc2\xa0accruing\xc2\xa0for\xc2\xa0expenses\xc2\xa0reported\xc2\xa0in\xc2\xa0a\xc2\xa0\nsubsequent\xc2\xa0period,\xc2\xa0as\xc2\xa0discussed\xc2\xa0in\xc2\xa0the\xc2\xa0preceding\xc2\xa0paragraph,\xc2\xa0the\xc2\xa0financial\xc2\xa0statements\xc2\xa0referred\xc2\xa0\nto\xc2\xa0above\xc2\xa0present\xc2\xa0fairly,\xc2\xa0in\xc2\xa0all\xc2\xa0material\xc2\xa0respects,\xc2\xa0the\xc2\xa0financial\xc2\xa0position\xc2\xa0of\xc2\xa0MCC\xc2\xa0as\xc2\xa0of\xc2\xa0September\xc2\xa0\n30,\xc2\xa02010\xc2\xa0and\xc2\xa02009,\xc2\xa0and\xc2\xa0its\xc2\xa0net\xc2\xa0costs,\xc2\xa0changes\xc2\xa0in\xc2\xa0net\xc2\xa0position,\xc2\xa0and\xc2\xa0budgetary\xc2\xa0resources\xc2\xa0for\xc2\xa0the\xc2\xa0\nyears\xc2\xa0then\xc2\xa0ended\xc2\xa0in\xc2\xa0conformity\xc2\xa0with\xc2\xa0accounting\xc2\xa0principles\xc2\xa0generally\xc2\xa0accepted\xc2\xa0in\xc2\xa0the\xc2\xa0United\xc2\xa0\nStates\xc2\xa0of\xc2\xa0America.\xc2\xa0\xc2\xa0\n\xc2\xa0\nThe\xc2\xa0information\xc2\xa0in\xc2\xa0the\xc2\xa0Management\xe2\x80\x99s\xc2\xa0Discussion\xc2\xa0and\xc2\xa0Analysis\xc2\xa0(MD&A)\xc2\xa0and\xc2\xa0Other\xc2\xa0\nAccompanying\xc2\xa0Information\xc2\xa0sections\xc2\xa0is\xc2\xa0not\xc2\xa0required\xc2\xa0as\xc2\xa0part\xc2\xa0of\xc2\xa0the\xc2\xa0basic\xc2\xa0financial\xc2\xa0statements.\xc2\xa0We\xc2\xa0\nmade\xc2\xa0certain\xc2\xa0inquiries\xc2\xa0of\xc2\xa0management\xc2\xa0and\xc2\xa0compared\xc2\xa0information\xc2\xa0for\xc2\xa0consistency\xc2\xa0with\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0\naudited\xc2\xa0financial\xc2\xa0statements\xc2\xa0and\xc2\xa0against\xc2\xa0other\xc2\xa0knowledge\xc2\xa0we\xc2\xa0obtained\xc2\xa0during\xc2\xa0our\xc2\xa0audits.\xc2\xa0On\xc2\xa0\nthe\xc2\xa0basis\xc2\xa0of\xc2\xa0this\xc2\xa0limited\xc2\xa0work,\xc2\xa0we\xc2\xa0found\xc2\xa0no\xc2\xa0material\xc2\xa0inconsistencies\xc2\xa0with\xc2\xa0the\xc2\xa0financial\xc2\xa0\nstatements,\xc2\xa0U.S.\xc2\xa0generally\xc2\xa0accepted\xc2\xa0accounting\xc2\xa0principles,\xc2\xa0or\xc2\xa0OMB\xc2\xa0guidance.\xc2\xa0We\xc2\xa0did\xc2\xa0not\xc2\xa0audit\xc2\xa0\nthe\xc2\xa0MD&A\xc2\xa0or\xc2\xa0Other\xc2\xa0Accompanying\xc2\xa0Information\xc2\xa0and\xc2\xa0therefore\xc2\xa0express\xc2\xa0no\xc2\xa0opinion\xc2\xa0on\xc2\xa0them.\xc2\xa0\n\xc2\xa0\nIn\xc2\xa0accordance\xc2\xa0with\xc2\xa0Government\xc2\xa0Auditing\xc2\xa0Standards,\xc2\xa0we\xc2\xa0have\xc2\xa0also\xc2\xa0issued\xc2\xa0separate\xc2\xa0reports\xc2\xa0dated\xc2\xa0\nNovember\xc2\xa015,\xc2\xa02010,\xc2\xa0on\xc2\xa0our\xc2\xa0consideration\xc2\xa0of\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0internal\xc2\xa0control\xc2\xa0over\xc2\xa0financial\xc2\xa0reporting\xc2\xa0and\xc2\xa0\non\xc2\xa0our\xc2\xa0tests\xc2\xa0of\xc2\xa0its\xc2\xa0compliance\xc2\xa0with\xc2\xa0certain\xc2\xa0provisions\xc2\xa0of\xc2\xa0laws\xc2\xa0and\xc2\xa0regulations.\xc2\xa0The\xc2\xa0purpose\xc2\xa0of\xc2\xa0\nthese\xc2\xa0reports\xc2\xa0is\xc2\xa0to\xc2\xa0describe\xc2\xa0the\xc2\xa0scope\xc2\xa0of\xc2\xa0our\xc2\xa0testing\xc2\xa0of\xc2\xa0internal\xc2\xa0control\xc2\xa0over\xc2\xa0financial\xc2\xa0reporting\xc2\xa0\nand\xc2\xa0compliance\xc2\xa0and\xc2\xa0results\xc2\xa0of\xc2\xa0that\xc2\xa0testing,\xc2\xa0and\xc2\xa0not\xc2\xa0to\xc2\xa0provide\xc2\xa0an\xc2\xa0opinion\xc2\xa0on\xc2\xa0internal\xc2\xa0control\xc2\xa0\nover\xc2\xa0financial\xc2\xa0reporting\xc2\xa0or\xc2\xa0on\xc2\xa0compliance.\xc2\xa0These\xc2\xa0reports\xc2\xa0are\xc2\xa0an\xc2\xa0integral\xc2\xa0part\xc2\xa0of\xc2\xa0an\xc2\xa0audit\xc2\xa0\nperformed\xc2\xa0in\xc2\xa0accordance\xc2\xa0with\xc2\xa0Government\xc2\xa0Auditing\xc2\xa0Standards\xc2\xa0and\xc2\xa0should\xc2\xa0be\xc2\xa0considered\xc2\xa0in\xc2\xa0\nassessing\xc2\xa0results\xc2\xa0of\xc2\xa0our\xc2\xa0audits.\xc2\xa0\n\xc2\xa0\xc2\xa0\n\xc2\xa0\nCOTTON\xc2\xa0&\xc2\xa0COMPANY\xc2\xa0LLP\xc2\xa0\n\xc2\xa0\nColette\xc2\xa0Y.\xc2\xa0Wilson,\xc2\xa0CPA\xc2\xa0\nPartner\xc2\xa0\n\n\n\n\nNovember\xc2\xa015,\xc2\xa02010\xc2\xa0\nAlexandria,\xc2\xa0Virginia\xc2\xa0\n\n\n\n\n \xc2\xa0\n 3\n\x0c\xc2\xa0Inspector\xc2\xa0General\xc2\xa0\xc2\xa0\nUnited\xc2\xa0States\xc2\xa0Agency\xc2\xa0for\xc2\xa0International\xc2\xa0Development\xc2\xa0\n\xc2\xa0\xc2\xa0\nBoard\xc2\xa0of\xc2\xa0Directors\xc2\xa0\nMillennium\xc2\xa0Challenge\xc2\xa0Corporation\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n INDEPENDENT\xc2\xa0AUDITOR\xe2\x80\x99S\xc2\xa0REPORT\xc2\xa0ON\xc2\xa0INTERNAL\xc2\xa0CONTROL\xc2\xa0\n\xc2\xa0\n\xc2\xa0\nWe\xc2\xa0have\xc2\xa0audited\xc2\xa0the\xc2\xa0Balance\xc2\xa0Sheets\xc2\xa0of\xc2\xa0the\xc2\xa0Millennium\xc2\xa0Challenge\xc2\xa0Corporation\xc2\xa0(MCC)\xc2\xa0as\xc2\xa0of\xc2\xa0September\xc2\xa0\n30,\xc2\xa02010\xc2\xa0and\xc2\xa02009,\xc2\xa0and\xc2\xa0the\xc2\xa0related\xc2\xa0Statements\xc2\xa0of\xc2\xa0Net\xc2\xa0Cost,\xc2\xa0Changes\xc2\xa0in\xc2\xa0Net\xc2\xa0Position,\xc2\xa0and\xc2\xa0Budgetary\xc2\xa0\nResources\xc2\xa0for\xc2\xa0the\xc2\xa0years\xc2\xa0then\xc2\xa0ended.\xc2\xa0We\xc2\xa0have\xc2\xa0issued\xc2\xa0our\xc2\xa0report\xc2\xa0thereon\xc2\xa0dated\xc2\xa0November\xc2\xa015,\xc2\xa02010.\xc2\xa0We\xc2\xa0\nconducted\xc2\xa0our\xc2\xa0audits\xc2\xa0in\xc2\xa0accordance\xc2\xa0with\xc2\xa0auditing\xc2\xa0standards\xc2\xa0generally\xc2\xa0accepted\xc2\xa0in\xc2\xa0the\xc2\xa0United\xc2\xa0States\xc2\xa0of\xc2\xa0\nAmerica;\xc2\xa0standards\xc2\xa0applicable\xc2\xa0to\xc2\xa0financial\xc2\xa0audits\xc2\xa0contained\xc2\xa0in\xc2\xa0Government\xc2\xa0Auditing\xc2\xa0Standards,\xc2\xa0issued\xc2\xa0by\xc2\xa0\nthe\xc2\xa0Comptroller\xc2\xa0General\xc2\xa0of\xc2\xa0the\xc2\xa0United\xc2\xa0States;\xc2\xa0and\xc2\xa0Office\xc2\xa0of\xc2\xa0Management\xc2\xa0and\xc2\xa0Budget\xc2\xa0(OMB)\xc2\xa0audit\xc2\xa0\nguidance.\xc2\xa0\xc2\xa0\n\xc2\xa0 \xc2\xa0\nIn\xc2\xa0planning\xc2\xa0and\xc2\xa0performing\xc2\xa0our\xc2\xa0audits\xc2\xa0of\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0financial\xc2\xa0statements\xc2\xa0as\xc2\xa0of\xc2\xa0and\xc2\xa0for\xc2\xa0the\xc2\xa0years\xc2\xa0ended\xc2\xa0\nSeptember\xc2\xa030,\xc2\xa02010\xc2\xa0and\xc2\xa02009,\xc2\xa0in\xc2\xa0accordance\xc2\xa0with\xc2\xa0auditing\xc2\xa0standards\xc2\xa0generally\xc2\xa0accepted\xc2\xa0in\xc2\xa0the\xc2\xa0United\xc2\xa0\nStates\xc2\xa0of\xc2\xa0America,\xc2\xa0we\xc2\xa0considered\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0internal\xc2\xa0control\xc2\xa0over\xc2\xa0financial\xc2\xa0reporting\xc2\xa0(internal\xc2\xa0control)\xc2\xa0as\xc2\xa0a\xc2\xa0\nbasis\xc2\xa0for\xc2\xa0designing\xc2\xa0our\xc2\xa0auditing\xc2\xa0procedures\xc2\xa0for\xc2\xa0the\xc2\xa0purpose\xc2\xa0of\xc2\xa0expressing\xc2\xa0our\xc2\xa0opinion\xc2\xa0on\xc2\xa0the\xc2\xa0financial\xc2\xa0\nstatements,\xc2\xa0but\xc2\xa0not\xc2\xa0for\xc2\xa0the\xc2\xa0purpose\xc2\xa0of\xc2\xa0expressing\xc2\xa0an\xc2\xa0opinion\xc2\xa0on\xc2\xa0the\xc2\xa0effectiveness\xc2\xa0of\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0internal\xc2\xa0\ncontrol.\xc2\xa0Accordingly,\xc2\xa0we\xc2\xa0do\xc2\xa0not\xc2\xa0express\xc2\xa0an\xc2\xa0opinion\xc2\xa0on\xc2\xa0the\xc2\xa0effectiveness\xc2\xa0of\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0internal\xc2\xa0control.\xc2\xa0\xc2\xa0\n\xc2\xa0\nOur\xc2\xa0consideration\xc2\xa0of\xc2\xa0internal\xc2\xa0control\xc2\xa0was\xc2\xa0for\xc2\xa0the\xc2\xa0limited\xc2\xa0purpose\xc2\xa0described\xc2\xa0in\xc2\xa0the\xc2\xa0preceding\xc2\xa0paragraph\xc2\xa0\nand\xc2\xa0was\xc2\xa0not\xc2\xa0designed\xc2\xa0to\xc2\xa0identify\xc2\xa0all\xc2\xa0deficiencies\xc2\xa0in\xc2\xa0internal\xc2\xa0control\xc2\xa0that\xc2\xa0might\xc2\xa0be\xc2\xa0significant\xc2\xa0deficiencies\xc2\xa0\nor\xc2\xa0material\xc2\xa0weaknesses\xc2\xa0and\xc2\xa0therefore,\xc2\xa0there\xc2\xa0can\xc2\xa0be\xc2\xa0no\xc2\xa0assurance\xc2\xa0that\xc2\xa0all\xc2\xa0deficiencies,\xc2\xa0significant\xc2\xa0\ndeficiencies,\xc2\xa0or\xc2\xa0material\xc2\xa0weaknesses\xc2\xa0have\xc2\xa0been\xc2\xa0identified.\xc2\xa0However,\xc2\xa0as\xc2\xa0discussed\xc2\xa0below,\xc2\xa0we\xc2\xa0identified\xc2\xa0\ncertain\xc2\xa0deficiencies\xc2\xa0in\xc2\xa0internal\xc2\xa0control\xc2\xa0that\xc2\xa0we\xc2\xa0consider\xc2\xa0to\xc2\xa0be\xc2\xa0material\xc2\xa0weaknesses\xc2\xa0and\xc2\xa0other\xc2\xa0\ndeficiencies\xc2\xa0that\xc2\xa0we\xc2\xa0consider\xc2\xa0to\xc2\xa0be\xc2\xa0significant\xc2\xa0deficiencies.\xc2\xa0\xc2\xa0\n\xc2\xa0\nA\xc2\xa0deficiency\xc2\xa0in\xc2\xa0internal\xc2\xa0control\xc2\xa0exists\xc2\xa0when\xc2\xa0the\xc2\xa0design\xc2\xa0or\xc2\xa0operation\xc2\xa0of\xc2\xa0a\xc2\xa0control\xc2\xa0does\xc2\xa0not\xc2\xa0allow\xc2\xa0\nmanagement\xc2\xa0or\xc2\xa0employees,\xc2\xa0in\xc2\xa0the\xc2\xa0normal\xc2\xa0course\xc2\xa0of\xc2\xa0performing\xc2\xa0their\xc2\xa0assigned\xc2\xa0functions,\xc2\xa0to\xc2\xa0prevent,\xc2\xa0or\xc2\xa0\ndetect\xc2\xa0and\xc2\xa0correct\xc2\xa0misstatements\xc2\xa0on\xc2\xa0a\xc2\xa0timely\xc2\xa0basis.\xc2\xa0A\xc2\xa0material\xc2\xa0weakness\xc2\xa0is\xc2\xa0a\xc2\xa0deficiency,\xc2\xa0or\xc2\xa0combination\xc2\xa0\nof\xc2\xa0deficiencies,\xc2\xa0in\xc2\xa0internal\xc2\xa0control,\xc2\xa0such\xc2\xa0that\xc2\xa0there\xc2\xa0is\xc2\xa0a\xc2\xa0reasonable\xc2\xa0possibility\xc2\xa0that\xc2\xa0a\xc2\xa0material\xc2\xa0\nmisstatement\xc2\xa0of\xc2\xa0an\xc2\xa0entity's\xc2\xa0financial\xc2\xa0statements\xc2\xa0will\xc2\xa0not\xc2\xa0be\xc2\xa0prevented,\xc2\xa0or\xc2\xa0detected\xc2\xa0and\xc2\xa0corrected\xc2\xa0on\xc2\xa0a\xc2\xa0\ntimely\xc2\xa0basis.\xc2\xa0\xc2\xa0\n\xc2\xa0\nWe\xc2\xa0consider\xc2\xa0the\xc2\xa0following\xc2\xa0deficiencies\xc2\xa0in\xc2\xa0MCC's\xc2\xa0internal\xc2\xa0control\xc2\xa0to\xc2\xa0be\xc2\xa0material\xc2\xa0weaknesses.\xc2\xa0\n \xc2\xa0\n 4\n\x0c\xc2\xa0\n 3. Reporting\xc2\xa0Advance\xc2\xa0Payments.\xc2\xa0MCC\xc2\xa0improperly\xc2\xa0recorded\xc2\xa0advance\xc2\xa0payments\xc2\xa0as\xc2\xa0\n expenses\xc2\xa0and\xc2\xa0therefore\xc2\xa0did\xc2\xa0not\xc2\xa0perform\xc2\xa0appropriate\xc2\xa0liquidation\xc2\xa0procedures.\xc2\xa0These\xc2\xa0\n errors\xc2\xa0resulted\xc2\xa0in\xc2\xa0expenses\xc2\xa0being\xc2\xa0overstated\xc2\xa0by\xc2\xa0material\xc2\xa0amounts\xc2\xa0in\xc2\xa0the\xc2\xa0current\xc2\xa0and\xc2\xa0\n prior\xc2\xa0fiscal\xc2\xa0years.\xc2\xa0As\xc2\xa0a\xc2\xa0result,\xc2\xa0Fiscal\xc2\xa0Year\xc2\xa0(FY)\xc2\xa02009\xc2\xa0financial\xc2\xa0statements\xc2\xa0were\xc2\xa0restated.\xc2\xa0\n\xc2\xa0\n 4. Compiling\xc2\xa0Accruals\xc2\xa0(Proper\xc2\xa0Reporting\xc2\xa0Period).\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0process\xc2\xa0for\xc2\xa0compiling\xc2\xa0accruals\xc2\xa0\n was\xc2\xa0not\xc2\xa0comprehensive\xc2\xa0enough\xc2\xa0to\xc2\xa0sufficiently\xc2\xa0accrue\xc2\xa0for\xc2\xa0material\xc2\xa0amounts\xc2\xa0of\xc2\xa0current\xe2\x80\x90\n year\xc2\xa0expenses\xc2\xa0that\xc2\xa0were\xc2\xa0not\xc2\xa0paid\xc2\xa0or\xc2\xa0invoiced\xc2\xa0until\xc2\xa0the\xc2\xa0subsequent\xc2\xa0period.\xc2\xa0While\xc2\xa0\n additional\xc2\xa0procedures\xc2\xa0were\xc2\xa0performed\xc2\xa0to\xc2\xa0compile\xc2\xa0such\xc2\xa0information\xc2\xa0for\xc2\xa0the\xc2\xa0FY\xc2\xa02010\xc2\xa0\n statements,\xc2\xa0these\xc2\xa0procedures\xc2\xa0did\xc2\xa0not\xc2\xa0extend\xc2\xa0to\xc2\xa0FY\xc2\xa02009.\xc2\xa0This\xc2\xa0caused\xc2\xa0FY\xc2\xa02009\xc2\xa0\n statements\xc2\xa0to\xc2\xa0be\xc2\xa0understated\xc2\xa0by\xc2\xa0accrual\xc2\xa0amounts,\xc2\xa0and\xc2\xa0FY\xc2\xa02010\xc2\xa0statements\xc2\xa0to\xc2\xa0be\xc2\xa0\n overstated\xc2\xa0by\xc2\xa0those\xc2\xa0same\xc2\xa0amounts.\xc2\xa0\xc2\xa0\n\xc2\xa0\n 5. Monitoring\xc2\xa0Controls\xc2\xa0over\xc2\xa0MCA\xc2\xa0Activities.\xc2\xa0MCC\xc2\xa0lacks\xc2\xa0sufficient\xc2\xa0controls\xc2\xa0over\xc2\xa0mission\xc2\xa0\n activities\xc2\xa0to\xc2\xa0ensure\xc2\xa0timely\xc2\xa0and\xc2\xa0accurate\xc2\xa0reporting\xc2\xa0of\xc2\xa0transactions\xc2\xa0and\xc2\xa0balances.\xc2\xa0We\xc2\xa0\n noted\xc2\xa0untimely\xc2\xa0completion\xc2\xa0of\xc2\xa0Millennium\xc2\xa0Challenge\xc2\xa0Account\xc2\xa0(MCA)\xc2\xa0audits,\xc2\xa0inadequate\xc2\xa0\n oversight\xc2\xa0of\xc2\xa0609(g)\xc2\xa0funds,\xc2\xa0untimely\xc2\xa0quarterly\xc2\xa0reporting,\xc2\xa0and\xc2\xa0inadequate\xc2\xa0processing\xc2\xa0of\xc2\xa0\n closed\xc2\xa0programs.\xc2\xa0The\xc2\xa0combination\xc2\xa0of\xc2\xa0these\xc2\xa0weaknesses\xc2\xa0increases\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0risk\xc2\xa0of\xc2\xa0\n inaccurate,\xc2\xa0incomplete,\xc2\xa0and\xc2\xa0untimely\xc2\xa0reporting\xc2\xa0of\xc2\xa0MCA\xc2\xa0activities.\xc2\xa0\xc2\xa0\n\xc2\xa0\nA\xc2\xa0significant\xc2\xa0deficiency\xc2\xa0is\xc2\xa0a\xc2\xa0deficiency,\xc2\xa0or\xc2\xa0a\xc2\xa0combination\xc2\xa0of\xc2\xa0deficiencies,\xc2\xa0in\xc2\xa0internal\xc2\xa0control\xc2\xa0that\xc2\xa0is\xc2\xa0less\xc2\xa0\nsevere\xc2\xa0than\xc2\xa0a\xc2\xa0material\xc2\xa0weakness,\xc2\xa0yet\xc2\xa0important\xc2\xa0enough\xc2\xa0to\xc2\xa0merit\xc2\xa0attention\xc2\xa0by\xc2\xa0those\xc2\xa0charged\xc2\xa0with\xc2\xa0\ngovernance.\xc2\xa0\xc2\xa0\n\xc2\xa0\nWe\xc2\xa0consider\xc2\xa0the\xc2\xa0following\xc2\xa0deficiencies\xc2\xa0in\xc2\xa0MCC's\xc2\xa0internal\xc2\xa0control\xc2\xa0to\xc2\xa0be\xc2\xa0significant\xc2\xa0deficiencies.\xc2\xa0\n\xc2\xa0\n 6. Reconciling\xc2\xa0Fund\xc2\xa0Balance\xc2\xa0with\xc2\xa0Treasury\xc2\xa0\xc2\xa0\n\n 7. Controls\xc2\xa0over\xc2\xa0Financial\xc2\xa0Reporting\xc2\xa0\n\xc2\xa0\nMATERIAL\xc2\xa0WEAKNESSES\xc2\xa0\n\xc2\xa0\n1.\xc2\xa0 REPORTING\xc2\xa0ADVANCE\xc2\xa0PAYMENTS\xc2\xa0\xc2\xa0\n \xc2\xa0\nMCA\xc2\xa0coded\xc2\xa0prepayments\xc2\xa0to\xc2\xa0vendors\xc2\xa0as\xc2\xa0expenses\xc2\xa0instead\xc2\xa0of\xc2\xa0as\xc2\xa0advances.\xc2\xa0During\xc2\xa0our\xc2\xa0tests\xc2\xa0of\xc2\xa0controls\xc2\xa0\nover\xc2\xa087\xc2\xa0expense\xc2\xa0transactions\xc2\xa0recorded\xc2\xa0in\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0general\xc2\xa0ledger\xc2\xa0as\xc2\xa0of\xc2\xa0June\xc2\xa030,\xc2\xa02010,\xc2\xa0we\xc2\xa0identified\xc2\xa0three\xc2\xa0\nMCAs\xc2\xa0that\xc2\xa0submitted\xc2\xa0a\xc2\xa0total\xc2\xa0of\xc2\xa0seven\xc2\xa0invoices\xc2\xa0for\xc2\xa0\xe2\x80\x9cexpense\xe2\x80\x9d\xc2\xa0payments\xc2\xa0to\xc2\xa0vendors\xc2\xa0rather\xc2\xa0than\xc2\xa0correctly\xc2\xa0\nreporting\xc2\xa0them\xc2\xa0as\xc2\xa0\xe2\x80\x9cadvance\xe2\x80\x9d\xc2\xa0payments\xc2\xa0for\xc2\xa0future\xc2\xa0expenses.\xc2\xa0These\xc2\xa0seven\xc2\xa0transactions\xc2\xa0totaled\xc2\xa0$40\xc2\xa0\nmillion.\xc2\xa0We\xc2\xa0expanded\xc2\xa0audit\xc2\xa0tests\xc2\xa0to\xc2\xa0include\xc2\xa0all\xc2\xa0MCAs\xc2\xa0to\xc2\xa0identify\xc2\xa0other\xc2\xa0such\xc2\xa0instances.\xc2\xa0Results\xc2\xa0of\xc2\xa0those\xc2\xa0\ntests\xc2\xa0revealed\xc2\xa0that\xc2\xa0MCAs\xc2\xa0submitted\xc2\xa0$216\xc2\xa0million\xc2\xa0in\xc2\xa0advance\xc2\xa0payments\xc2\xa0to\xc2\xa0vendors\xc2\xa0since\xc2\xa0FY\xc2\xa02008.\xc2\xa0Of\xc2\xa0this,\xc2\xa0\n$60\xc2\xa0million\xc2\xa0has\xc2\xa0been\xc2\xa0liquidated\xc2\xa0based\xc2\xa0on\xc2\xa0services\xc2\xa0provided\xc2\xa0to\xc2\xa0date.\xc2\xa0\n\xc2\xa0\nAdvance\xc2\xa0payments\xc2\xa0from\xc2\xa0MCAs\xc2\xa0are\xc2\xa0to\xc2\xa0be\xc2\xa0reported\xc2\xa0by\xc2\xa0an\xc2\xa0indication\xc2\xa0on\xc2\xa0the\xc2\xa0Payment\xc2\xa0Request\xc2\xa0Form\xc2\xa0(PRF)\xc2\xa0\nwith\xc2\xa0a\xc2\xa0project\xc2\xa0and\xc2\xa0activity\xc2\xa0code\xc2\xa0of\xc2\xa0\xe2\x80\x9cNA\xc2\xa0NA.\xe2\x80\x9d\xc2\xa0Related\xc2\xa0liquidations\xc2\xa0of\xc2\xa0those\xc2\xa0advances\xc2\xa0are\xc2\xa0to\xc2\xa0be\xc2\xa0reported\xc2\xa0\nquarterly\xc2\xa0on\xc2\xa0the\xc2\xa0Quarterly\xc2\xa0Financial\xc2\xa0Report\xc2\xa0(QFR).\xc2\xa0MCAs\xc2\xa0are\xc2\xa0aware\xc2\xa0that\xc2\xa0these\xc2\xa0payments\xc2\xa0are\xc2\xa0advances;\xc2\xa0\nsupporting\xc2\xa0invoices\xc2\xa0clearly\xc2\xa0indicate\xc2\xa0\xe2\x80\x9cpre\xe2\x80\x90payment/advance,\xe2\x80\x9d\xc2\xa0and\xc2\xa0MCAs\xc2\xa0track\xc2\xa0such\xc2\xa0information\xc2\xa0in\xc2\xa0their\xc2\xa0\n\n \xc2\xa0\n 5\n\x0cown\xc2\xa0accounting\xc2\xa0records.\xc2\xa0It\xc2\xa0appears,\xc2\xa0however,\xc2\xa0that\xc2\xa0MCAs\xc2\xa0code\xc2\xa0payments\xc2\xa0as\xc2\xa0regular\xc2\xa0expenses\xc2\xa0on\xc2\xa0PRFs,\xc2\xa0\nbecause\xc2\xa0specific\xc2\xa0project\xc2\xa0and\xc2\xa0activity\xc2\xa0codes\xc2\xa0were\xc2\xa0known\xc2\xa0at\xc2\xa0the\xc2\xa0time\xc2\xa0of\xc2\xa0the\xc2\xa0advance,\xc2\xa0and\xc2\xa0payments\xc2\xa0were\xc2\xa0\nsent\xc2\xa0directly\xc2\xa0to\xc2\xa0vendors\xc2\xa0versus\xc2\xa0MCA\xe2\x80\x99s\xc2\xa0permitted\xc2\xa0account.\xc2\xa0This\xc2\xa0practice\xc2\xa0was\xc2\xa0started\xc2\xa0when\xc2\xa0the\xc2\xa0Common\xc2\xa0\nPayment\xc2\xa0System\xc2\xa0(CPS)\xc2\xa0was\xc2\xa0instituted,\xc2\xa0and\xc2\xa0payments\xc2\xa0could\xc2\xa0be\xc2\xa0submitted\xc2\xa0directly\xc2\xa0to\xc2\xa0vendors.\xc2\xa0Before\xc2\xa0this,\xc2\xa0\nall\xc2\xa0funds\xc2\xa0were\xc2\xa0provided\xc2\xa0to\xc2\xa0MCAs\xc2\xa0as\xc2\xa0an\xc2\xa0advance.\xc2\xa0\xc2\xa0\n\xc2\xa0\nImproper\xc2\xa0recording\xc2\xa0of\xc2\xa0advance\xc2\xa0payments\xc2\xa0and\xc2\xa0lack\xc2\xa0of\xc2\xa0appropriate\xc2\xa0liquidation\xc2\xa0caused\xc2\xa0expenses\xc2\xa0to\xc2\xa0be\xc2\xa0\noverstated\xc2\xa0by\xc2\xa0$18\xc2\xa0million,\xc2\xa0$53\xc2\xa0million,\xc2\xa0and\xc2\xa0$83\xc2\xa0million\xc2\xa0in\xc2\xa0FYs\xc2\xa02008,\xc2\xa02009,\xc2\xa0and\xc2\xa02010,\xc2\xa0respectively.\xc2\xa0To\xc2\xa0\ncorrect\xc2\xa0these\xc2\xa0errors,\xc2\xa0MCC\xc2\xa0has\xc2\xa0restated\xc2\xa0its\xc2\xa0FY\xc2\xa02009\xc2\xa0financial\xc2\xa0statements\xc2\xa0for\xc2\xa0the\xc2\xa0effects\xc2\xa0of\xc2\xa0both\xc2\xa0FY\xc2\xa02008\xc2\xa0\nand\xc2\xa02009\xc2\xa0and\xc2\xa0made\xc2\xa0appropriate\xc2\xa0adjustments\xc2\xa0to\xc2\xa0the\xc2\xa0FY\xc2\xa02010\xc2\xa0financial\xc2\xa0statements.\xc2\xa0\xc2\xa0\xc2\xa0\xc2\xa0\n\xc2\xa0\nRecommendation.\xc2\xa0We\xc2\xa0recommend\xc2\xa0that\xc2\xa0the\xc2\xa0MCC\xc2\xa0Division\xc2\xa0of\xc2\xa0Finance\xc2\xa0and\xc2\xa0Department\xc2\xa0of\xc2\xa0Compact\xc2\xa0\nOperations:\xc2\xa0\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 Consider\xc2\xa0modifying\xc2\xa0the\xc2\xa0PRF\xc2\xa0to\xc2\xa0specifically\xc2\xa0identify\xc2\xa0requests\xc2\xa0for\xc2\xa0advance\xc2\xa0payments\xc2\xa0to\xc2\xa0\n vendors.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Provide\xc2\xa0training\xc2\xa0to\xc2\xa0Fiscal\xc2\xa0Agents\xc2\xa0and\xc2\xa0other\xc2\xa0in\xe2\x80\x90country\xc2\xa0personnel\xc2\xa0to\xc2\xa0explain\xc2\xa0how\xc2\xa0to\xc2\xa0\n properly\xc2\xa0record\xc2\xa0each\xc2\xa0line\xc2\xa0of\xc2\xa0the\xc2\xa0PRF\xc2\xa0based\xc2\xa0on\xc2\xa0supporting\xc2\xa0document\xc2\xa0and\xc2\xa0how\xc2\xa0MCC\xc2\xa0\n financial\xc2\xa0statements\xc2\xa0are\xc2\xa0affected\xc2\xa0by\xc2\xa0MCA\xc2\xa0activities\xc2\xa0and\xc2\xa0transactions.\xc2\xa0\xc2\xa0\xc2\xa0\n\xc2\xa0\n2.\xc2\xa0 \xc2\xa0COMPILING\xc2\xa0ACCRUALS\xc2\xa0(PROPER\xc2\xa0REPORTING\xc2\xa0PERIOD)\xc2\xa0\n\xc2\xa0\nMCC\xe2\x80\x99s\xc2\xa0process\xc2\xa0for\xc2\xa0compiling\xc2\xa0accruals\xc2\xa0was\xc2\xa0not\xc2\xa0comprehensive\xc2\xa0enough\xc2\xa0to\xc2\xa0sufficiently\xc2\xa0accrue\xc2\xa0for\xc2\xa0\nsignificant\xc2\xa0current\xc2\xa0year\xc2\xa0expenses.\xc2\xa0As\xc2\xa0a\xc2\xa0result,\xc2\xa0expenses\xc2\xa0for\xc2\xa0goods\xc2\xa0and\xc2\xa0services\xc2\xa0received\xc2\xa0and\xc2\xa0performed\xc2\xa0\nwere\xc2\xa0not\xc2\xa0recorded\xc2\xa0in\xc2\xa0the\xc2\xa0proper\xc2\xa0period.\xc2\xa0This\xc2\xa0is\xc2\xa0a\xc2\xa0repeat\xc2\xa0finding\xc2\xa0from\xc2\xa0previous\xe2\x80\x90year\xc2\xa0audits,\xc2\xa0which\xc2\xa0cited\xc2\xa0\nthat\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0accrual\xc2\xa0processes\xc2\xa0were\xc2\xa0not\xc2\xa0sufficient\xc2\xa0to\xc2\xa0identify\xc2\xa0and\xc2\xa0compute\xc2\xa0amounts\xc2\xa0owed,\xc2\xa0but\xc2\xa0not\xc2\xa0paid,\xc2\xa0\nin\xc2\xa0the\xc2\xa0appropriate\xc2\xa0period.\xc2\xa0In\xc2\xa0FY\xc2\xa02010,\xc2\xa0MCC\xc2\xa0continued\xc2\xa0its\xc2\xa0process\xc2\xa0of\xc2\xa0contacting\xc2\xa0its\xc2\xa0vendor,\xc2\xa0National\xc2\xa0\nBusiness\xc2\xa0Center\xc2\xa0(NBC),\xc2\xa0for\xc2\xa0a\xc2\xa0listing\xc2\xa0of\xc2\xa0invoices\xc2\xa0and\xc2\xa0payment\xc2\xa0requests\xc2\xa0received\xc2\xa0but\xc2\xa0not\xc2\xa0paid,\xc2\xa0and\xc2\xa0\nrequested\xc2\xa0that\xc2\xa0the\xc2\xa0information\xc2\xa0include\xc2\xa0the\xc2\xa0first\xc2\xa012\xc2\xa0days\xc2\xa0of\xc2\xa0FY\xc2\xa02011.\xc2\xa0\n\xc2\xa0\nDuring\xc2\xa0our\xc2\xa0review\xc2\xa0of\xc2\xa0accruals\xc2\xa0recorded\xc2\xa0at\xc2\xa0yearend,\xc2\xa0we\xc2\xa0noted\xc2\xa0that\xc2\xa0some\xc2\xa0payment\xc2\xa0requests\xc2\xa0made\xc2\xa0on\xc2\xa0or\xc2\xa0\nbefore\xc2\xa0October\xc2\xa012,\xc2\xa02010\xc2\xa0were\xc2\xa0not\xc2\xa0accrued,\xc2\xa0and\xc2\xa0other\xc2\xa0significant\xc2\xa0payments\xc2\xa0were\xc2\xa0requested\xc2\xa0within\xc2\xa0a\xc2\xa0few\xc2\xa0\ndays\xc2\xa0of\xc2\xa0October\xc2\xa012,\xc2\xa02010.\xc2\xa0We\xc2\xa0determined\xc2\xa0that\xc2\xa0these\xc2\xa0payments\xc2\xa0were\xc2\xa0for\xc2\xa0FY\xc2\xa02010\xc2\xa0services.\xc2\xa0Based\xc2\xa0on\xc2\xa0our\xc2\xa0\nsample\xc2\xa0testing,\xc2\xa0we\xc2\xa0identified\xc2\xa0unrecorded\xc2\xa0accruals\xc2\xa0for\xc2\xa0FY\xc2\xa02010\xc2\xa0expenses\xc2\xa0reported\xc2\xa0in\xc2\xa0FY\xc2\xa02011\xc2\xa0that\xc2\xa0\nresulted\xc2\xa0in\xc2\xa0understated\xc2\xa0expenses\xc2\xa0for\xc2\xa0compact\xc2\xa0funds\xc2\xa0of\xc2\xa0$11\xc2\xa0million\xc2\xa0in\xc2\xa0known\xc2\xa0amounts\xc2\xa0and\xc2\xa0$873,000\xc2\xa0in\xc2\xa0\nlikely\xc2\xa0amounts.\xc2\xa0In\xc2\xa0addition,\xc2\xa0our\xc2\xa0review\xc2\xa0noted\xc2\xa0that\xc2\xa0accruals\xc2\xa0were\xc2\xa0not\xc2\xa0recorded\xc2\xa0for\xc2\xa0anticipated\xc2\xa0expenses\xc2\xa0\nincurred\xc2\xa0but\xc2\xa0not\xc2\xa0yet\xc2\xa0invoiced,\xc2\xa0payments\xc2\xa0made\xc2\xa0to\xc2\xa0U.S.\xc2\xa0vendors,\xc2\xa0609(g)\xc2\xa0and\xc2\xa0Compact\xc2\xa0Implementation\xc2\xa0\nFunds\xc2\xa0(CIF),\xc2\xa0compact\xc2\xa0funds\xc2\xa0for\xc2\xa0two\xc2\xa0MCAs,\xc2\xa0and\xc2\xa0liquidations\xc2\xa0of\xc2\xa0advances\xc2\xa0for\xc2\xa0two\xc2\xa0additional\xc2\xa0MCAs.\xc2\xa0\xc2\xa0\xc2\xa0\xc2\xa0\n\xc2\xa0\nAlso,\xc2\xa0MCC\xc2\xa0retained\xc2\xa0amounts\xc2\xa0withheld\xc2\xa0from\xc2\xa0vendor\xc2\xa0payments\xc2\xa0on\xc2\xa0large\xc2\xa0construction\xe2\x80\x90type\xc2\xa0contracts\xc2\xa0in\xc2\xa0its\xc2\xa0\ncompact\xc2\xa0countries.\xc2\xa0MCC\xc2\xa0was\xc2\xa0unaware\xc2\xa0of\xc2\xa0these\xc2\xa0retained\xc2\xa0amounts\xc2\xa0being\xc2\xa0held\xc2\xa0and\xc2\xa0the\xc2\xa0need\xc2\xa0to\xc2\xa0record\xc2\xa0\nthem\xc2\xa0as\xc2\xa0expenses\xc2\xa0incurred\xc2\xa0in\xc2\xa0the\xc2\xa0year\xc2\xa0of\xc2\xa0retention.\xc2\xa0Because\xc2\xa0these\xc2\xa0retained\xc2\xa0fees\xc2\xa0were\xc2\xa0incurred\xc2\xa0at\xc2\xa0the\xc2\xa0\ntime\xc2\xa0of\xc2\xa0invoicing,\xc2\xa0but\xc2\xa0not\xc2\xa0paid\xc2\xa0until\xc2\xa0a\xc2\xa0later\xc2\xa0date,\xc2\xa0an\xc2\xa0accrual\xc2\xa0must\xc2\xa0be\xc2\xa0recorded\xc2\xa0to\xc2\xa0match\xc2\xa0the\xc2\xa0expense\xc2\xa0with\xc2\xa0\nthe\xc2\xa0period\xc2\xa0in\xc2\xa0which\xc2\xa0it\xc2\xa0was\xc2\xa0incurred.\xc2\xa0With\xc2\xa0respect\xc2\xa0to\xc2\xa0retained\xc2\xa0fees\xc2\xa0that\xc2\xa0should\xc2\xa0have\xc2\xa0been\xc2\xa0accrued\xc2\xa0for\xc2\xa0\ninvoices\xc2\xa0received\xc2\xa0as\xc2\xa0of\xc2\xa0September\xc2\xa030,\xc2\xa02010,\xc2\xa0we\xc2\xa0noted\xc2\xa0that\xc2\xa0expenses\xc2\xa0were\xc2\xa0understated\xc2\xa0by\xc2\xa0$26\xc2\xa0million\xc2\xa0in\xc2\xa0\nFY\xc2\xa02010.\xc2\xa0The\xc2\xa0FY\xc2\xa02009\xc2\xa0amount\xc2\xa0accrued\xc2\xa0should\xc2\xa0have\xc2\xa0been\xc2\xa0$9\xc2\xa0million.\xc2\xa0\xc2\xa0\n\n \xc2\xa0\n 6\n\x0c\xc2\xa0\nStatements\xc2\xa0of\xc2\xa0Federal\xc2\xa0Financial\xc2\xa0Accounting\xc2\xa0Standards\xc2\xa0(SFFAS)\xc2\xa0No.\xc2\xa05,\xc2\xa0Accounting\xc2\xa0for\xc2\xa0Liabilities\xc2\xa0of\xc2\xa0the\xc2\xa0\nFederal\xc2\xa0Government\xc2\xa0(Paragraphs\xc2\xa022\xc2\xa0and\xc2\xa023),\xc2\xa0states:\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa6a\xc2\xa0liability\xc2\xa0is\xc2\xa0recognized\xc2\xa0when\xc2\xa0one\xc2\xa0party\xc2\xa0receives\xc2\xa0goods\xc2\xa0or\xc2\xa0services\xc2\xa0in\xc2\xa0return\xc2\xa0for\xc2\xa0\n a\xc2\xa0promise\xc2\xa0to\xc2\xa0provide\xc2\xa0money\xc2\xa0or\xc2\xa0other\xc2\xa0resources\xc2\xa0in\xc2\xa0the\xc2\xa0future\xe2\x80\xa6.\xc2\xa0The\xc2\xa0expense\xc2\xa0is\xc2\xa0\n recognized\xc2\xa0in\xc2\xa0the\xc2\xa0period\xc2\xa0that\xc2\xa0the\xc2\xa0exchange\xc2\xa0occurs.\xc2\xa0\n\xc2\xa0\nFurther,\xc2\xa0OMB\xc2\xa0Circular\xc2\xa0A\xe2\x80\x90136,\xc2\xa0Form\xc2\xa0and\xc2\xa0Content\xc2\xa0of\xc2\xa0the\xc2\xa0Performance\xc2\xa0and\xc2\xa0Accountability\xc2\xa0Report\xc2\xa0(PAR),\xc2\xa0\nBalance\xc2\xa0Sheet,\xc2\xa0Section\xc2\xa0III.3.4,\xc2\xa0Liabilities,\xc2\xa0states\xc2\xa0that:\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa6liabilities\xc2\xa0shall\xc2\xa0be\xc2\xa0recognized\xc2\xa0when\xc2\xa0they\xc2\xa0are\xc2\xa0incurred\xc2\xa0regardless\xc2\xa0of\xc2\xa0whether\xc2\xa0they\xc2\xa0are\xc2\xa0\n covered\xc2\xa0by\xc2\xa0available\xc2\xa0budgetary\xc2\xa0resources.\xc2\xa0\n\xc2\xa0\nIn\xc2\xa0the\xc2\xa0FY\xc2\xa02009\xc2\xa0audit\xc2\xa0report,\xc2\xa0we\xc2\xa0recommended\xc2\xa0that\xc2\xa0MCC\xc2\xa0ensure\xc2\xa0that\xc2\xa0all\xc2\xa0countries,\xc2\xa0types\xc2\xa0of\xc2\xa0funding,\xc2\xa0and\xc2\xa0\nprograms\xc2\xa0be\xc2\xa0considered\xc2\xa0when\xc2\xa0recording\xc2\xa0accruals.\xc2\xa0We\xc2\xa0further\xc2\xa0recommended\xc2\xa0that\xc2\xa0MCC\xc2\xa0communicate\xc2\xa0\nprocedures\xc2\xa0to\xc2\xa0MCAs\xc2\xa0to\xc2\xa0require\xc2\xa0submission\xc2\xa0of\xc2\xa0estimates\xc2\xa0or\xc2\xa0payment\xc2\xa0requests\xc2\xa0for\xc2\xa0current\xe2\x80\x90period\xc2\xa0\nexpenses\xc2\xa0that\xc2\xa0have\xc2\xa0not\xc2\xa0or\xc2\xa0will\xc2\xa0not\xc2\xa0be\xc2\xa0recorded\xc2\xa0until\xc2\xa0the\xc2\xa0subsequent\xc2\xa0year\xc2\xa0for\xc2\xa0each\xc2\xa0fund\xc2\xa0type.\xc2\xa0No\xc2\xa0such\xc2\xa0\ncommunication\xc2\xa0was\xc2\xa0made\xc2\xa0to\xc2\xa0the\xc2\xa0MCAs.\xc2\xa0\n\xc2\xa0\nUpon\xc2\xa0notification\xc2\xa0of\xc2\xa0such\xc2\xa0material\xc2\xa0omissions\xc2\xa0and\xc2\xa0auditor\xc2\xa0adjustments,\xc2\xa0MCC\xc2\xa0made\xc2\xa0additional\xc2\xa0inquiries\xc2\xa0to\xc2\xa0\nobtain\xc2\xa0better\xc2\xa0data\xc2\xa0and\xc2\xa0adjusted\xc2\xa0the\xc2\xa0FY\xc2\xa02010\xc2\xa0statements\xc2\xa0for\xc2\xa0an\xc2\xa0additional\xc2\xa0$95\xc2\xa0million.\xc2\xa0Based\xc2\xa0on\xc2\xa0these\xc2\xa0\nadjustments,\xc2\xa0it\xc2\xa0was\xc2\xa0noted\xc2\xa0that\xc2\xa0amounts\xc2\xa0were\xc2\xa0not\xc2\xa0accrued\xc2\xa0for\xc2\xa0FY\xc2\xa02009\xc2\xa0in\xc2\xa0the\xc2\xa0same\xc2\xa0fashion.\xc2\xa0As\xc2\xa0a\xc2\xa0result,\xc2\xa0\nFY\xc2\xa02009\xc2\xa0expenses\xc2\xa0were\xc2\xa0understated,\xc2\xa0and\xc2\xa0FY\xc2\xa02010\xc2\xa0expenses\xc2\xa0overstated\xc2\xa0for\xc2\xa0work\xc2\xa0performed\xc2\xa0in\xc2\xa0FY\xc2\xa02009\xc2\xa0\nbut\xc2\xa0not\xc2\xa0reported\xc2\xa0or\xc2\xa0accrued\xc2\xa0in\xc2\xa0the\xc2\xa0FY\xc2\xa02009\xc2\xa0statements.\xc2\xa0For\xc2\xa0this\xc2\xa0reason,\xc2\xa0we\xc2\xa0qualified\xc2\xa0our\xc2\xa0opinions\xc2\xa0on\xc2\xa0\nboth\xc2\xa0fiscal\xc2\xa0years.\xc2\xa0\n\xc2\xa0\nRecommendation.\xc2\xa0We\xc2\xa0recommend\xc2\xa0that\xc2\xa0MCC\xc2\xa0Division\xc2\xa0of\xc2\xa0Finance\xc2\xa0revise\xc2\xa0and\xc2\xa0strengthen\xc2\xa0its\xc2\xa0process\xc2\xa0for\xc2\xa0\ndetermining\xc2\xa0accruals\xc2\xa0needed\xc2\xa0at\xc2\xa0yearend\xc2\xa0by\xc2\xa0implementing\xc2\xa0the\xc2\xa0following:\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 Establish\xc2\xa0a\xc2\xa0comprehensive\xc2\xa0methodology\xc2\xa0and/or\xc2\xa0standard\xc2\xa0process\xc2\xa0for\xc2\xa0obtaining\xc2\xa0yearend\xc2\xa0\n accruals\xc2\xa0which\xc2\xa0covers\xc2\xa0all\xc2\xa0MCAs\xc2\xa0and\xc2\xa0funds.\xc2\xa0Ensure\xc2\xa0that\xc2\xa0accruals\xc2\xa0include\xc2\xa0invoiced\xc2\xa0and\xc2\xa0\n rendered\xc2\xa0services\xc2\xa0which\xc2\xa0have\xc2\xa0not\xc2\xa0been\xc2\xa0recorded\xc2\xa0in\xc2\xa0the\xc2\xa0yearend\xc2\xa0trial\xc2\xa0balance.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Establish\xc2\xa0consistent\xc2\xa0communication\xc2\xa0with\xc2\xa0NBC\xc2\xa0and\xc2\xa0the\xc2\xa0MCAs\xc2\xa0to\xc2\xa0ensure\xc2\xa0a\xc2\xa0clear\xc2\xa0\n understanding\xc2\xa0of\xc2\xa0the\xc2\xa0process\xc2\xa0and\xc2\xa0methodology\xc2\xa0developed.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Perform\xc2\xa0quality\xc2\xa0control\xc2\xa0procedures\xc2\xa0over\xc2\xa0amounts\xc2\xa0obtained\xc2\xa0and\xc2\xa0recorded\xc2\xa0to\xc2\xa0ensure\xc2\xa0that\xc2\xa0\n amounts\xc2\xa0posted\xc2\xa0are\xc2\xa0properly\xc2\xa0reviewed\xc2\xa0for\xc2\xa0reasonableness,\xc2\xa0accuracy,\xc2\xa0and\xc2\xa0completeness.\xc2\xa0\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Ensure\xc2\xa0that\xc2\xa0current\xc2\xa0and\xc2\xa0prior\xc2\xa0year\xc2\xa0financial\xc2\xa0statements\xc2\xa0are\xc2\xa0fairly\xc2\xa0stated\xc2\xa0as\xc2\xa0it\xc2\xa0relates\xc2\xa0to\xc2\xa0\n accruals\xc2\xa0recorded.\xc2\xa0\xc2\xa0\xc2\xa0\xc2\xa0\n \xc2\xa0\n3.\xc2\xa0 MONITORING\xc2\xa0CONTROLS\xc2\xa0OVER\xc2\xa0MCA\xc2\xa0ACTIVITIES\n\xc2\xa0\nMost\xc2\xa0activities\xc2\xa0and\xc2\xa0expenses\xc2\xa0occurred\xc2\xa0in\xc2\xa0the\xc2\xa0Compact\xc2\xa0and\xc2\xa0Threshold\xc2\xa0programs.\xc2\xa0As\xc2\xa0such,\xc2\xa0controls\xc2\xa0in\xc2\xa0the\xc2\xa0\nmission\xc2\xa0countries\xc2\xa0must\xc2\xa0be\xc2\xa0adequately\xc2\xa0designed\xc2\xa0and\xc2\xa0operating\xc2\xa0effectively.\xc2\xa0Also,\xc2\xa0MCC\xc2\xa0must\xc2\xa0be\xc2\xa0actively\xc2\xa0\n\n \xc2\xa0\n 7\n\x0cmonitoring\xc2\xa0controls\xc2\xa0to\xc2\xa0gain\xc2\xa0sufficient\xc2\xa0assurance\xc2\xa0over\xc2\xa0activities\xc2\xa0taking\xc2\xa0place\xc2\xa0and\xc2\xa0reliance\xc2\xa0of\xc2\xa0financial\xc2\xa0\ninformation\xc2\xa0being\xc2\xa0reported.\xc2\xa0\xc2\xa0\n\xc2\xa0\nWhile\xc2\xa0we\xc2\xa0identified\xc2\xa0improvements\xc2\xa0related\xc2\xa0to\xc2\xa0complete\xc2\xa0and\xc2\xa0timely\xc2\xa0submission\xc2\xa0of\xc2\xa0documentation\xc2\xa0from\xc2\xa0\nthe\xc2\xa0missions\xc2\xa0and\xc2\xa0accurate\xc2\xa0reporting\xc2\xa0of\xc2\xa0re\xe2\x80\x90disbursements\xc2\xa0on\xc2\xa0quarterly\xc2\xa0financial\xc2\xa0reports,\xc2\xa0weaknesses\xc2\xa0\ncontinued\xc2\xa0through\xc2\xa0untimely\xc2\xa0performance\xc2\xa0and\xc2\xa0lack\xc2\xa0of\xc2\xa0monitoring\xc2\xa0of\xc2\xa0MCA\xc2\xa0audits.\xc2\xa0This\xc2\xa0was\xc2\xa0identified\xc2\xa0in\xc2\xa0\nthe\xc2\xa0prior\xe2\x80\x90year\xc2\xa0report\xc2\xa0and\xc2\xa0is\xc2\xa0discussed\xc2\xa0under\xc2\xa0Item\xc2\xa0A,\xc2\xa0below.\xc2\xa0\xc2\xa0\n\xc2\xa0\nWe\xc2\xa0also\xc2\xa0identified\xc2\xa0other\xc2\xa0weaknesses\xc2\xa0related\xc2\xa0to\xc2\xa0mission\xc2\xa0activities\xc2\xa0regarding:\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 Improper\xc2\xa0and\xc2\xa0Untimely\xc2\xa0Quarterly\xc2\xa0Reporting\xc2\xa0(Item\xc2\xa0B,\xc2\xa0below)\xc2\xa0\n \xe2\x80\xa2 Inadequate\xc2\xa0Oversight\xc2\xa0of\xc2\xa0609(g)\xe2\x80\x90fund\xc2\xa0Transactions\xc2\xa0(Item\xc2\xa0C,\xc2\xa0below)\xc2\xa0\n \xe2\x80\xa2 Inadequate\xc2\xa0Processing\xc2\xa0of\xc2\xa0Closed\xc2\xa0Programs\xc2\xa0(Item\xc2\xa0D,\xc2\xa0below)\xc2\xa0\n\xc2\xa0\nThe\xc2\xa0combination\xc2\xa0of\xc2\xa0these\xc2\xa0weaknesses\xc2\xa0increases\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0risk\xc2\xa0of\xc2\xa0inaccurate,\xc2\xa0incomplete,\xc2\xa0and\xc2\xa0untimely\xc2\xa0\nreporting\xc2\xa0of\xc2\xa0MCA\xc2\xa0activities.\xc2\xa0Each\xc2\xa0area\xc2\xa0is\xc2\xa0detailed\xc2\xa0below.\xc2\xa0\xc2\xa0\n\xc2\xa0\nA. Untimely\xc2\xa0Performance\xc2\xa0of\xc2\xa0MCA\xc2\xa0Audits\xc2\xa0\n\xc2\xa0\nThis\xc2\xa0is\xc2\xa0a\xc2\xa0repeat\xc2\xa0finding\xc2\xa0from\xc2\xa0the\xc2\xa0prior\xc2\xa0year.\xc2\xa0Audits\xc2\xa0of\xc2\xa0controls,\xc2\xa0transactions,\xc2\xa0and\xc2\xa0balances\xc2\xa0of\xc2\xa0MCA\xc2\xa0\nentities\xc2\xa0were\xc2\xa0not\xc2\xa0completed,\xc2\xa0submitted\xc2\xa0to\xc2\xa0the\xc2\xa0Office\xc2\xa0of\xc2\xa0Inspector\xc2\xa0General\xc2\xa0(OIG),\xc2\xa0or\xc2\xa0issued\xc2\xa0in\xc2\xa0a\xc2\xa0timely\xc2\xa0\nmanner.\xc2\xa0While\xc2\xa0we\xc2\xa0identified\xc2\xa0some\xc2\xa0improvements\xc2\xa0in\xc2\xa0the\xc2\xa0monitoring\xc2\xa0of\xc2\xa0these\xc2\xa0audits\xc2\xa0by\xc2\xa0management,\xc2\xa0the\xc2\xa0\nresults\xc2\xa0of\xc2\xa0untimely\xc2\xa0completion\xc2\xa0remain.\xc2\xa0\xc2\xa0\n\xc2\xa0\nAs\xc2\xa0a\xc2\xa0major\xc2\xa0component\xc2\xa0of\xc2\xa0internal\xc2\xa0control\xc2\xa0over\xc2\xa0the\xc2\xa0MCAs,\xc2\xa0MCC\xc2\xa0required\xc2\xa0audits\xc2\xa0to\xc2\xa0be\xc2\xa0conducted\xc2\xa0on\xc2\xa0a\xc2\xa0\nsemiannual\xc2\xa0basis\xc2\xa0for\xc2\xa0the\xc2\xa0six\xc2\xa0months\xc2\xa0ending\xc2\xa0December\xc2\xa0and\xc2\xa0June\xc2\xa0of\xc2\xa0each\xc2\xa0year.\xc2\xa0Audit\xc2\xa0results\xc2\xa0give\xc2\xa0MCC\xc2\xa0\nsome\xc2\xa0assurance\xc2\xa0over\xc2\xa0the\xc2\xa0effectiveness\xc2\xa0and\xc2\xa0accuracy\xc2\xa0of\xc2\xa0MCA\xc2\xa0controls\xc2\xa0and\xc2\xa0transactions,\xc2\xa0because\xc2\xa0\nsupporting\xc2\xa0documentation\xc2\xa0for\xc2\xa0transactions\xc2\xa0reported\xc2\xa0are\xc2\xa0not\xc2\xa0reviewed\xc2\xa0or\xc2\xa0maintained\xc2\xa0by\xc2\xa0MCC\xc2\xa0or\xc2\xa0its\xc2\xa0\nservice\xc2\xa0provider.\xc2\xa0Instead,\xc2\xa0MCC\xc2\xa0relied\xc2\xa0on\xc2\xa0approved\xc2\xa0advance,\xc2\xa0disbursement,\xc2\xa0and\xc2\xa0payment\xc2\xa0request\xc2\xa0\ndocuments\xc2\xa0submitted\xc2\xa0by\xc2\xa0MCA\xc2\xa0personnel.\xc2\xa0\n\xc2\xa0\nWe\xc2\xa0inquired\xc2\xa0of\xc2\xa0MCC\xc2\xa0management\xc2\xa0and\xc2\xa0the\xc2\xa0OIG\xc2\xa0as\xc2\xa0to\xc2\xa0the\xc2\xa0status\xc2\xa0of\xc2\xa0MCA\xc2\xa0audits.\xc2\xa0The\xc2\xa0status\xc2\xa0of\xc2\xa0audits\xc2\xa0for\xc2\xa0\nthe\xc2\xa06\xc2\xa0months\xc2\xa0ending\xc2\xa0December\xc2\xa031,\xc2\xa02009,\xc2\xa0is\xc2\xa0summarized\xc2\xa0below.\xc2\xa0Audit\xc2\xa0reports\xc2\xa0were\xc2\xa0due\xc2\xa0by\xc2\xa0March\xc2\xa031,\xc2\xa0\n2010.\xc2\xa0\n\xc2\xa0\nOf\xc2\xa018\xc2\xa0MCAs\xc2\xa0that\xc2\xa0had\xc2\xa0entered\xc2\xa0into\xc2\xa0force\xc2\xa0and\xc2\xa0were\xc2\xa0due\xc2\xa0for\xc2\xa0audit:\xc2\xa0\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 Three\xc2\xa0audit\xc2\xa0reports\xc2\xa0are\xc2\xa0past\xc2\xa0due.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 One\xc2\xa0audit\xc2\xa0report\xc2\xa0was\xc2\xa0rejected\xc2\xa0by\xc2\xa0the\xc2\xa0OIG\xc2\xa0due\xc2\xa0to\xc2\xa0concerns\xc2\xa0over\xc2\xa0audit\xc2\xa0procedures.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 The\xc2\xa0audit\xc2\xa0period\xc2\xa0for\xc2\xa0one\xc2\xa0MCA\xc2\xa0was\xc2\xa0extended\xc2\xa0and\xc2\xa0will\xc2\xa0be\xc2\xa0combined\xc2\xa0with\xc2\xa0the\xc2\xa0June\xc2\xa02010\xc2\xa0\n audit.\xc2\xa0\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Five\xc2\xa0audit\xc2\xa0reports\xc2\xa0were\xc2\xa0submitted\xc2\xa0to\xc2\xa0the\xc2\xa0OIG\xc2\xa0and\xc2\xa0are\xc2\xa0currently\xc2\xa0under\xc2\xa0review.\xc2\xa0Only\xc2\xa0one\xc2\xa0\n of\xc2\xa0these\xc2\xa0reports\xc2\xa0was\xc2\xa0submitted\xc2\xa0timely,\xc2\xa0others\xc2\xa0were\xc2\xa0submitted\xc2\xa0in\xc2\xa0July\xc2\xa0and\xc2\xa0August.\xc2\xa0\xc2\xa0\n \xc2\xa0\n\n \xc2\xa0\n 8\n\x0c \xe2\x80\xa2 Eight\xc2\xa0audit\xc2\xa0reports\xc2\xa0were\xc2\xa0issued\xc2\xa0by\xc2\xa0the\xc2\xa0OIG\xc2\xa0(all\xc2\xa0were\xc2\xa0issued\xc2\xa0in\xc2\xa0June,\xc2\xa0August,\xc2\xa0and\xc2\xa0\n September\xc2\xa02010,\xc2\xa0after\xc2\xa0the\xc2\xa0March\xc2\xa031\xc2\xa0due\xc2\xa0date).\xc2\xa0Only\xc2\xa0three\xc2\xa0of\xc2\xa0these\xc2\xa0reports\xc2\xa0were\xc2\xa0initially\xc2\xa0\n submitted\xc2\xa0to\xc2\xa0the\xc2\xa0OIG\xc2\xa0by\xc2\xa0the\xc2\xa0March\xc2\xa031\xc2\xa0due\xc2\xa0date.\xc2\xa0\n \xc2\xa0\nThe\xc2\xa0status\xc2\xa0of\xc2\xa0audits\xc2\xa0for\xc2\xa0the\xc2\xa06\xc2\xa0months\xc2\xa0ending\xc2\xa0June\xc2\xa030,\xc2\xa02010,\xc2\xa0in\xc2\xa0which\xc2\xa0audit\xc2\xa0reports\xc2\xa0were\xc2\xa0due\xc2\xa0by\xc2\xa0\nSeptember\xc2\xa030,\xc2\xa02010,\xc2\xa0are\xc2\xa0summarized\xc2\xa0below.\xc2\xa0\n\xc2\xa0\nOf\xc2\xa017\xc2\xa0MCAs\xc2\xa0that\xc2\xa0had\xc2\xa0entered\xc2\xa0into\xc2\xa0force\xc2\xa0and\xc2\xa0were\xc2\xa0due\xc2\xa0for\xc2\xa0audit:\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 Nine\xc2\xa0audit\xc2\xa0reports\xc2\xa0are\xc2\xa0past\xc2\xa0due.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Five\xc2\xa0audits\xc2\xa0were\xc2\xa0extended\xc2\xa0and\xc2\xa0will\xc2\xa0be\xc2\xa0included\xc2\xa0in\xc2\xa0the\xc2\xa0December\xc2\xa02010\xc2\xa0audit.\xc2\xa0Extensions\xc2\xa0\n relate\xc2\xa0to\xc2\xa0delayed\xc2\xa0start\xc2\xa0of\xc2\xa0current\xc2\xa0period\xc2\xa0audits,\xc2\xa0untimely\xc2\xa0procurements,\xc2\xa0and\xc2\xa0issues\xc2\xa0with\xc2\xa0\n auditors.\xc2\xa0\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Three\xc2\xa0audit\xc2\xa0reports\xc2\xa0were\xc2\xa0submitted\xc2\xa0to\xc2\xa0the\xc2\xa0OIG\xc2\xa0and\xc2\xa0are\xc2\xa0under\xc2\xa0review.\xc2\xa0Two\xc2\xa0were\xc2\xa0\n received\xc2\xa0by\xc2\xa0the\xc2\xa0September\xc2\xa030\xc2\xa0due\xc2\xa0date,\xc2\xa0and\xc2\xa0one\xc2\xa0was\xc2\xa0received\xc2\xa0on\xc2\xa0October\xc2\xa01.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 No\xc2\xa0audits\xc2\xa0have\xc2\xa0been\xc2\xa0issued\xc2\xa0as\xc2\xa0final\xc2\xa0by\xc2\xa0the\xc2\xa0OIG\xc2\xa0as\xc2\xa0of\xc2\xa0September\xc2\xa030.\xc2\xa0\n \xc2\xa0\nOutstanding\xc2\xa0audit\xc2\xa0reports\xc2\xa0for\xc2\xa0the\xc2\xa0period\xc2\xa0ending\xc2\xa0June\xc2\xa030,\xc2\xa02010,\xc2\xa0which\xc2\xa0cover\xc2\xa0two\xc2\xa0quarters\xc2\xa0of\xc2\xa0FY\xc2\xa02010\xc2\xa0\nactivity,\xc2\xa0will\xc2\xa0now\xc2\xa0be\xc2\xa0received\xc2\xa0well\xc2\xa0after\xc2\xa0the\xc2\xa0current\xc2\xa0fiscal\xc2\xa0period,\xc2\xa0and\xc2\xa0will\xc2\xa0not\xc2\xa0be\xc2\xa0useful\xc2\xa0in\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0\nassessment\xc2\xa0or\xc2\xa0assurance\xc2\xa0of\xc2\xa0MCA\xe2\x80\x99s\xc2\xa0FY\xc2\xa02010\xc2\xa0activities.\xc2\xa0\xc2\xa0\n\xc2\xa0\nAudit\xc2\xa0reports\xc2\xa0not\xc2\xa0issued\xc2\xa0in\xc2\xa0a\xc2\xa0timely\xc2\xa0manner\xc2\xa0increase\xc2\xa0the\xc2\xa0risk\xc2\xa0that\xc2\xa0MCC\xc2\xa0will\xc2\xa0not\xc2\xa0be\xc2\xa0notified\xc2\xa0of\xc2\xa0potential\xc2\xa0\ninadequate\xc2\xa0controls\xc2\xa0and\xc2\xa0inaccurate\xc2\xa0financial\xc2\xa0information,\xc2\xa0which\xc2\xa0could\xc2\xa0have\xc2\xa0a\xc2\xa0material\xc2\xa0impact\xc2\xa0on\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0\nfinancial\xc2\xa0statements.\xc2\xa0OIG\xc2\xa0comments,\xc2\xa0which\xc2\xa0can\xc2\xa0delay\xc2\xa0audit\xc2\xa0report\xc2\xa0issuance,\xc2\xa0have\xc2\xa0related\xc2\xa0to\xc2\xa0\nquestionable\xc2\xa0amounts\xc2\xa0presented,\xc2\xa0clarification\xc2\xa0of\xc2\xa0audit\xc2\xa0findings,\xc2\xa0and\xc2\xa0lack\xc2\xa0of\xc2\xa0adherence\xc2\xa0to\xc2\xa0audit\xc2\xa0\nrequirements\xc2\xa0and\xc2\xa0formatting\xc2\xa0of\xc2\xa0reports.\xc2\xa0Resolution\xc2\xa0of\xc2\xa0these\xc2\xa0comments\xc2\xa0is\xc2\xa0dependent\xc2\xa0on\xc2\xa0sufficient\xc2\xa0and\xc2\xa0\ntimely\xc2\xa0responses\xc2\xa0from\xc2\xa0MCA\xc2\xa0auditors.\xc2\xa0\n\xc2\xa0\nOIG\xe2\x80\x99s\xc2\xa0Guidelines\xc2\xa0or\xc2\xa0Financial\xc2\xa0Audits\xc2\xa0Contracted\xc2\xa0by\xc2\xa0the\xc2\xa0Millennium\xc2\xa0Challenge\xc2\xa0Corporation\xe2\x80\x99s\xc2\xa0Accountable\xc2\xa0\nEntities\xc2\xa0(revised\xc2\xa0August\xc2\xa02007)\xc2\xa0states:\xc2\xa0\n\xc2\xa0\n MCC\xc2\xa0standard\xc2\xa0audit\xc2\xa0provisions\xc2\xa0require\xc2\xa0that\xc2\xa0the\xc2\xa0Accountable\xc2\xa0Entity\xc2\xa0(hereafter\xc2\xa0referred\xc2\xa0to\xc2\xa0\n as\xc2\xa0MCA)\xc2\xa0ensures\xc2\xa0that\xc2\xa0an\xc2\xa0audit\xc2\xa0is\xc2\xa0contracted\xc2\xa0by\xc2\xa0MCA\xc2\xa0for\xc2\xa0itself\xc2\xa0at\xc2\xa0least\xc2\xa0annually\xc2\xa0in\xc2\xa0\n accordance\xc2\xa0with\xc2\xa0these\xc2\xa0Guidelines.\xc2\xa0The\xc2\xa0MCC\xc2\xa0may\xc2\xa0require\xc2\xa0more\xc2\xa0frequent\xc2\xa0audits\xc2\xa0than\xc2\xa0\n annually\xc2\xa0(\xc2\xa71.5).\xc2\xa0\n \xc2\xa0\n MCC\xc2\xa0responsibilities\xc2\xa0are\xc2\xa0to:\xc2\xa01)\xc2\xa0monitor\xc2\xa0and\xc2\xa0ensure\xc2\xa0that\xc2\xa0the\xc2\xa0required\xc2\xa0contracted\xc2\xa0audits\xc2\xa0of\xc2\xa0\n the\xc2\xa0MCA\xe2\x80\xa6\xc2\xa0are\xc2\xa0performed\xc2\xa0in\xc2\xa0a\xc2\xa0timely\xc2\xa0manner;\xe2\x80\xa6\xc2\xa0(\xc2\xa71.8)\xc2\xa0\n \xc2\xa0\n All\xc2\xa0required\xc2\xa0audits\xc2\xa0must\xc2\xa0be\xc2\xa0completed\xc2\xa0and\xc2\xa0the\xc2\xa0reports\xc2\xa0issued\xc2\xa0in\xc2\xa0accordance\xc2\xa0with\xc2\xa0the\xc2\xa0\n compact\xc2\xa0(no\xc2\xa0later\xc2\xa0than\xc2\xa090\xc2\xa0days\xc2\xa0after\xc2\xa0the\xc2\xa0end\xc2\xa0of\xc2\xa0the\xc2\xa0audit\xc2\xa0period)\xe2\x80\xa6\xc2\xa0(\xc2\xa71.15)\xc2\xa0\n \xc2\xa0\n The\xc2\xa0OIG\xc2\xa0must\xc2\xa0receive\xc2\xa0the\xc2\xa0audit\xc2\xa0report\xc2\xa0in\xc2\xa0accordance\xc2\xa0with\xc2\xa0the\xc2\xa0Compact,\xc2\xa0no\xc2\xa0later\xc2\xa0than\xc2\xa090\xc2\xa0\n days\xc2\xa0after\xc2\xa0the\xc2\xa0first\xc2\xa0anniversary\xc2\xa0of\xc2\xa0the\xc2\xa0Entry\xc2\xa0into\xc2\xa0Force\xc2\xa0and\xc2\xa0no\xc2\xa0later\xc2\xa0than\xc2\xa090\xc2\xa0days\xc2\xa0after\xc2\xa0the\xc2\xa0\n\n \xc2\xa0\n 9\n\x0c end\xc2\xa0of\xc2\xa0the\xc2\xa0audited\xc2\xa0period\xc2\xa0thereafter,\xc2\xa0or\xc2\xa0such\xc2\xa0other\xc2\xa0periods\xc2\xa0as\xc2\xa0the\xc2\xa0Parties\xc2\xa0may\xc2\xa0otherwise\xc2\xa0\n agree\xc2\xa0(\xc2\xa72.3).\xc2\xa0\xc2\xa0\xc2\xa0\n\xc2\xa0\nLack\xc2\xa0of\xc2\xa0accurate\xc2\xa0and\xc2\xa0timely\xc2\xa0audit\xc2\xa0processing\xc2\xa0(including\xc2\xa0procurement,\xc2\xa0execution,\xc2\xa0and\xc2\xa0submission\xc2\xa0of\xc2\xa0\nreports)\xc2\xa0increases\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0risk\xc2\xa0of\xc2\xa0not\xc2\xa0knowing,\xc2\xa0in\xc2\xa0a\xc2\xa0timely\xc2\xa0manner,\xc2\xa0the\xc2\xa0effectiveness\xc2\xa0and\xc2\xa0accuracy\xc2\xa0of\xc2\xa0MCA\xc2\xa0\nactivities\xc2\xa0in\xc2\xa0regards\xc2\xa0to\xc2\xa0costs\xc2\xa0incurred,\xc2\xa0transactions\xc2\xa0recorded,\xc2\xa0and\xc2\xa0existence\xc2\xa0of\xc2\xa0underlying\xc2\xa0support.\xc2\xa0\xc2\xa0\n\xc2\xa0\nRecommendation.\xc2\xa0We\xc2\xa0recommend\xc2\xa0that\xc2\xa0the\xc2\xa0MCC\xc2\xa0Department\xc2\xa0of\xc2\xa0Compact\xc2\xa0Operations\xc2\xa0and\xc2\xa0Division\xc2\xa0of\xc2\xa0\nFinance:\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 Continue\xc2\xa0to\xc2\xa0actively\xc2\xa0monitor\xc2\xa0the\xc2\xa0MCA\xc2\xa0audit\xc2\xa0process,\xc2\xa0from\xc2\xa0procurement\xc2\xa0and\xc2\xa0start\xc2\xa0of\xc2\xa0the\xc2\xa0\n audit\xc2\xa0through\xc2\xa0issuance\xc2\xa0of\xc2\xa0the\xc2\xa0audit\xc2\xa0report\xc2\xa0to\xc2\xa0ensure\xc2\xa0timely\xc2\xa0completion\xc2\xa0and\xc2\xa0sufficient\xc2\xa0\n time\xc2\xa0for\xc2\xa0OIG\xc2\xa0review\xc2\xa0and\xc2\xa0MCC\xc2\xa0consideration\xc2\xa0of\xc2\xa0any\xc2\xa0impact\xc2\xa0on\xc2\xa0its\xc2\xa0financial\xc2\xa0reporting.\xc2\xa0\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 Continue\xc2\xa0active\xc2\xa0communication\xc2\xa0with\xc2\xa0MCAs,\xc2\xa0audit\xc2\xa0firms,\xc2\xa0and\xc2\xa0the\xc2\xa0OIG\xc2\xa0to\xc2\xa0ensure\xc2\xa0all\xc2\xa0\n parties\xc2\xa0are\xc2\xa0adequately\xc2\xa0informed\xc2\xa0of\xc2\xa0the\xc2\xa0progress\xc2\xa0of\xc2\xa0all\xc2\xa0audits.\xc2\xa0\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Ensure\xc2\xa0that\xc2\xa0MCAs\xc2\xa0and\xc2\xa0respective\xc2\xa0auditor\xc2\xa0firms\xc2\xa0understand\xc2\xa0the\xc2\xa0importance\xc2\xa0of\xc2\xa0timely\xc2\xa0and\xc2\xa0\n complete\xc2\xa0audits\xc2\xa0and\xc2\xa0how\xc2\xa0they\xc2\xa0affect\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0assessment\xc2\xa0and\xc2\xa0reliance\xc2\xa0of\xc2\xa0overall\xc2\xa0MCA\xc2\xa0\n controls.\xc2\xa0\n\xc2\xa0\nB. Improper\xc2\xa0and\xc2\xa0Untimely\xc2\xa0Quarterly\xc2\xa0Reporting\xc2\xa0\n \xc2\xa0\nMCAs\xc2\xa0did\xc2\xa0not\xc2\xa0submit\xc2\xa0QFRs\xc2\xa0and\xc2\xa0Disbursement\xc2\xa0Requests\xc2\xa0properly\xc2\xa0or\xc2\xa0in\xc2\xa0a\xc2\xa0timely\xc2\xa0manner.\xc2\xa0We\xc2\xa0reviewed\xc2\xa0\nQFRs\xc2\xa0for\xc2\xa0all\xc2\xa0funds\xc2\xa0from\xc2\xa0a\xc2\xa0sample\xc2\xa0of\xc2\xa05\xc2\xa0of\xc2\xa0MCC\xe2\x80\x99s\xc2\xa018\xc2\xa0active\xc2\xa0MCAs\xc2\xa0and\xc2\xa0noted\xc2\xa0the\xc2\xa0following:\xc2\xa0\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 FY\xc2\xa02010\xc2\xa0Quarterly\xc2\xa0Disbursement\xc2\xa0Requests\xc2\xa0and\xc2\xa0QFRs\xc2\xa0were\xc2\xa0not\xc2\xa0received\xc2\xa0for:\xc2\xa0\n \xe2\x88\x92 MCA\xe2\x80\x90Benin\xe2\x80\x99s\xc2\xa0CIF\xc2\xa0(last\xc2\xa0reporting\xc2\xa0was\xc2\xa0FY\xc2\xa02006).\xc2\xa0\n \xe2\x88\x92 MCA\xe2\x80\x90Namibia\xe2\x80\x99s\xc2\xa0609(g)\xc2\xa0funds\xc2\xa0(last\xc2\xa0reporting\xc2\xa0was\xc2\xa0FY\xc2\xa02009).\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 MCA\xe2\x80\x90Burkina\xc2\xa0Faso\xc2\xa0did\xc2\xa0not\xc2\xa0submit\xc2\xa0Disbursement\xc2\xa0Requests\xc2\xa0in\xc2\xa0a\xc2\xa0timely\xc2\xa0manner\xc2\xa0for\xc2\xa0its\xc2\xa0\n 609(g),\xc2\xa0CIF,\xc2\xa0and\xc2\xa0Compact\xc2\xa0funds\xc2\xa0during\xc2\xa0FY\xc2\xa02010.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 MCA\xe2\x80\x90Lesotho\xc2\xa0submitted\xc2\xa0its\xc2\xa0Compact\xc2\xa0fund\xc2\xa0Disbursement\xc2\xa0Requests\xc2\xa0without\xc2\xa0formal\xc2\xa0\n signatures\xc2\xa0of\xc2\xa0appropriate\xc2\xa0MCA\xc2\xa0personnel,\xc2\xa0including\xc2\xa0the\xc2\xa0Fiscal\xc2\xa0Agent\xc2\xa0who\xc2\xa0assists\xc2\xa0in\xc2\xa0its\xc2\xa0\n preparation.\xc2\xa0Instead,\xc2\xa0MCA\xc2\xa0personnel\xc2\xa0waited\xc2\xa0until\xc2\xa0all\xc2\xa0documents\xc2\xa0were\xc2\xa0vetted,\xc2\xa0revised\xc2\xa0\n and\xc2\xa0resubmitted,\xc2\xa0and\xc2\xa0approved\xc2\xa0by\xc2\xa0MCC\xc2\xa0before\xc2\xa0submitting\xc2\xa0a\xc2\xa0request\xc2\xa0to\xc2\xa0the\xc2\xa0MCA\xc2\xa0Board\xc2\xa0\n for\xc2\xa0formal\xc2\xa0approval,\xc2\xa0which\xc2\xa0is\xc2\xa0not\xc2\xa0the\xc2\xa0standard\xc2\xa0process.\xc2\xa0\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 MCA\xe2\x80\x90Lesotho\xe2\x80\x99s\xc2\xa0Resident\xc2\xa0Country\xc2\xa0Director\xc2\xa0did\xc2\xa0not\xc2\xa0formally\xc2\xa0or\xc2\xa0timely\xc2\xa0document\xc2\xa0his\xc2\xa0\n approval\xc2\xa0of\xc2\xa0quarterly\xc2\xa0submissions.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 MCA\xe2\x80\x90Mongolia\xc2\xa0and\xc2\xa0MCA\xe2\x80\x90Namibia\xc2\xa0submitted\xc2\xa0some\xc2\xa0FY\xc2\xa02010\xc2\xa0quarterly\xc2\xa0reports\xc2\xa0with\xc2\xa0\n incorrect\xc2\xa0Compact\xc2\xa0or\xc2\xa0CIF\xc2\xa0numbers.\xc2\xa0\xc2\xa0\xc2\xa0\n \xc2\xa0\nWe\xc2\xa0also\xc2\xa0noted\xc2\xa0during\xc2\xa0our\xc2\xa0review\xc2\xa0of\xc2\xa0Compact\xc2\xa0and\xc2\xa0CIF\xc2\xa0funds\xc2\xa0for\xc2\xa0MCA\xe2\x80\x90Burkina\xc2\xa0Faso,\xc2\xa0which\xc2\xa0are\xc2\xa0\nadministered\xc2\xa0by\xc2\xa0United\xc2\xa0States\xc2\xa0Agency\xc2\xa0for\xc2\xa0International\xc2\xa0Development\xc2\xa0(USAID),\xc2\xa0that\xc2\xa0QFRs\xc2\xa0were\xc2\xa0not\xc2\xa0\n\n \xc2\xa0\n 10\n\x0csubmitted\xc2\xa0to\xc2\xa0MCC\xc2\xa0in\xc2\xa0a\xc2\xa0timely\xc2\xa0manner\xc2\xa0for\xc2\xa0all\xc2\xa0of\xc2\xa0FY\xc2\xa02010.\xc2\xa0Upon\xc2\xa0notification\xc2\xa0by\xc2\xa0the\xc2\xa0auditors,\xc2\xa0the\xc2\xa0QFRs\xc2\xa0\nwere\xc2\xa0requested,\xc2\xa0and\xc2\xa0liquidations\xc2\xa0against\xc2\xa0this\xc2\xa0advance\xc2\xa0were\xc2\xa0posted\xc2\xa0in\xc2\xa0the\xc2\xa0amount\xc2\xa0of\xc2\xa0$11.8\xc2\xa0million.\xc2\xa0\n \xc2\xa0\nMCC\xe2\x80\x99s\xc2\xa0Financial\xc2\xa0Management\xc2\xa0Policies\xc2\xa0and\xc2\xa0Procedures\xc2\xa0(FMPP)\xc2\xa0on\xc2\xa0Compact\xc2\xa0Management\xc2\xa0(as\xc2\xa0updated\xc2\xa0in\xc2\xa0\nA&F\xe2\x80\x902007\xe2\x80\x9077.2\xc2\xa0received\xc2\xa0during\xc2\xa0FY\xc2\xa02010\xc2\xa0audit)\xc2\xa0states\xc2\xa0the\xc2\xa0following:\xc2\xa0\xc2\xa0\n \xc2\xa0\n The\xc2\xa0Accountable\xc2\xa0Entity\xc2\xa0is\xc2\xa0required\xc2\xa0to\xc2\xa0submit\xc2\xa0a\xc2\xa0QFR\xc2\xa0at\xc2\xa0least\xc2\xa0every\xc2\xa0fiscal\xc2\xa0quarter\xc2\xa0\n even\xc2\xa0if\xc2\xa0no\xc2\xa0additional\xc2\xa0cash\xc2\xa0is\xc2\xa0to\xc2\xa0be\xc2\xa0requested.\xc2\xa0In\xc2\xa0addition,\xc2\xa0separate\xc2\xa0QFRs\xc2\xa0are\xc2\xa0due\xc2\xa0\n for\xc2\xa0609(g)\xc2\xa0funds\xc2\xa0and\xc2\xa0for\xc2\xa0funds\xc2\xa0provided\xc2\xa0under\xc2\xa0other\xc2\xa0mechanisms\xc2\xa0(e.g.\xc2\xa0Compacts)\xc2\xa0\n when\xc2\xa0both\xc2\xa0are\xc2\xa0disbursed\xc2\xa0in\xc2\xa0the\xc2\xa0same\xc2\xa0period.\xc2\xa0QFRs\xc2\xa0are\xc2\xa0due\xc2\xa0to\xc2\xa0MCC\xc2\xa0twenty\xc2\xa0(20)\xc2\xa0\n calendar\xc2\xa0days\xc2\xa0prior\xc2\xa0to\xc2\xa0end\xc2\xa0of\xc2\xa0the\xc2\xa0quarter\xc2\xa0(\xc2\xa75.3).\xc2\xa0\xc2\xa0\n \xc2\xa0\n The\xc2\xa0Disbursement\xc2\xa0Request,\xc2\xa0which\xc2\xa0is\xc2\xa0completed\xc2\xa0by\xc2\xa0the\xc2\xa0Accountable\xc2\xa0Entity\xc2\xa0team\xc2\xa0\n and\xc2\xa0Fiscal\xc2\xa0Agent,\xc2\xa0details\xc2\xa0the\xc2\xa0requested\xc2\xa0budgeting\xc2\xa0authority\xc2\xa0to\xc2\xa0cover\xc2\xa0the\xc2\xa0\n projected\xc2\xa0disbursements\xc2\xa0made\xc2\xa0through\xc2\xa0CPS\xc2\xa0during\xc2\xa0the\xc2\xa0next\xc2\xa0quarter\xc2\xa0(\xc2\xa75.4).\xc2\xa0\n \xc2\xa0\nFMPP\xc2\xa0further\xc2\xa0details\xc2\xa0responsibilities\xc2\xa0of\xc2\xa0the\xc2\xa0Accountable\xc2\xa0Entity\xc2\xa0Designated\xc2\xa0Officials\xc2\xa0and\xc2\xa0Fiscal\xc2\xa0Agents\xc2\xa0to\xc2\xa0\njointly\xc2\xa0prepare\xc2\xa0and\xc2\xa0submit\xc2\xa0QFRs\xc2\xa0and\xc2\xa0Disbursement\xc2\xa0Requests\xc2\xa0to\xc2\xa0Transaction\xc2\xa0Team\xc2\xa0Leadership\xc2\xa0(\xc2\xa76.5;\xc2\xa06.7).\xc2\xa0\n\xc2\xa0\nMCAs\xc2\xa0did\xc2\xa0not\xc2\xa0submit\xc2\xa0final\xc2\xa0QFRs\xc2\xa0to\xc2\xa0report\xc2\xa0final\xc2\xa0disbursement\xc2\xa0amounts\xc2\xa0when\xc2\xa0fund\xc2\xa0use\xc2\xa0was\xc2\xa0completed.\xc2\xa0\nThis\xc2\xa0precludes\xc2\xa0MCC\xc2\xa0from\xc2\xa0properly\xc2\xa0and\xc2\xa0timely\xc2\xa0deobligating\xc2\xa0any\xc2\xa0unneeded\xc2\xa0funds.\xc2\xa0Untimely\xc2\xa0receipt\xc2\xa0of\xc2\xa0\nQFRs\xc2\xa0and\xc2\xa0Disbursement\xc2\xa0Requests,\xc2\xa0including\xc2\xa0those\xc2\xa0not\xc2\xa0properly\xc2\xa0approved,\xc2\xa0increases\xc2\xa0the\xc2\xa0risk\xc2\xa0to\xc2\xa0MCC\xc2\xa0that\xc2\xa0\ncurrent\xe2\x80\x90year\xc2\xa0transactions\xc2\xa0and\xc2\xa0accruals\xc2\xa0are\xc2\xa0inaccurate\xc2\xa0or\xc2\xa0incomplete.\xc2\xa0\xc2\xa0\xc2\xa0\xc2\xa0\n\xc2\xa0\nRecommendation.\xc2\xa0We\xc2\xa0recommend\xc2\xa0that\xc2\xa0MCC\xc2\xa0management\xc2\xa0and\xc2\xa0Department\xc2\xa0of\xc2\xa0Compact\xc2\xa0Operations:\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 Ensure\xc2\xa0that\xc2\xa0all\xc2\xa0personnel\xc2\xa0responsible\xc2\xa0for\xc2\xa0QFRs\xc2\xa0adhere\xc2\xa0to\xc2\xa0requirements\xc2\xa0to\xc2\xa0submit\xc2\xa0\n accurately\xc2\xa0prepared\xc2\xa0and\xc2\xa0properly\xc2\xa0approved\xc2\xa0QFRs\xc2\xa0and\xc2\xa0Disbursement\xc2\xa0Requests\xc2\xa0in\xc2\xa0a\xc2\xa0\n timely\xc2\xa0manner.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Ensure\xc2\xa0that\xc2\xa0funds\xc2\xa0are\xc2\xa0periodically\xc2\xa0reviewed\xc2\xa0to\xc2\xa0determine\xc2\xa0if\xc2\xa0MCAs\xc2\xa0should\xc2\xa0submit\xc2\xa0final\xc2\xa0\n QFRs\xc2\xa0to\xc2\xa0record\xc2\xa0deobligations\xc2\xa0for\xc2\xa0funds\xc2\xa0no\xc2\xa0longer\xc2\xa0needed.\xc2\xa0\n\xc2\xa0\nC. Inadequate\xc2\xa0Oversight\xc2\xa0of\xc2\xa0609(g)\xe2\x80\x90Fund\xc2\xa0Transactions\xc2\xa0\n \xc2\xa0\nMCC\xe2\x80\x99s\xc2\xa0original\xc2\xa0intent\xc2\xa0was\xc2\xa0to\xc2\xa0manage\xc2\xa0609(g)\xc2\xa0funds\xc2\xa0provided\xc2\xa0for\xc2\xa0countries\xc2\xa0and\xc2\xa0ultimately\xc2\xa0have\xc2\xa0oversight\xc2\xa0\nof\xc2\xa0all\xc2\xa0transactions\xc2\xa0and\xc2\xa0underlying\xc2\xa0support\xc2\xa0until\xc2\xa0an\xc2\xa0MCA\xc2\xa0was\xc2\xa0established,\xc2\xa0and\xc2\xa0a\xc2\xa0Compact\xc2\xa0was\xc2\xa0issued\xc2\xa0and\xc2\xa0\nentered\xc2\xa0into\xc2\xa0force.\xc2\xa0Processes\xc2\xa0have\xc2\xa0evolved,\xc2\xa0and\xc2\xa0MCC\xc2\xa0has\xc2\xa0allowed\xc2\xa0some\xc2\xa0countries\xc2\xa0with\xc2\xa0only\xc2\xa0an\xc2\xa0\nestablished\xc2\xa0Millennium\xc2\xa0Challenge\xc2\xa0Unit\xc2\xa0(MCU),\xc2\xa0rather\xc2\xa0than\xc2\xa0an\xc2\xa0MCA,\xc2\xa0to\xc2\xa0manage\xc2\xa0their\xc2\xa0own\xc2\xa0609(g)\xc2\xa0funds,\xc2\xa0\nreferred\xc2\xa0to\xc2\xa0as\xc2\xa0\xe2\x80\x9ccountry\xc2\xa0managed.\xe2\x80\x9d\xc2\xa0\xc2\xa0\n\xc2\xa0\nThis\xc2\xa0new\xc2\xa0process\xc2\xa0did\xc2\xa0not\xc2\xa0always\xc2\xa0include\xc2\xa0MCC\xc2\xa0involvement\xc2\xa0and/or\xc2\xa0review\xc2\xa0of\xc2\xa0underlying\xc2\xa0invoices\xc2\xa0for\xc2\xa0\nreported\xc2\xa0expenses\xc2\xa0for\xc2\xa0MCAs.\xc2\xa0Thus,\xc2\xa0MCC\xc2\xa0management\xc2\xa0did\xc2\xa0not\xc2\xa0review\xc2\xa0these\xc2\xa0transactions\xc2\xa0until\xc2\xa0they\xc2\xa0were\xc2\xa0\nincluded\xc2\xa0in\xc2\xa0the\xc2\xa0agency\xe2\x80\x99s\xc2\xa0annual\xc2\xa0financial\xc2\xa0statement\xc2\xa0audit,\xc2\xa0because\xc2\xa0MCA\xc2\xa0audits\xc2\xa0do\xc2\xa0not\xc2\xa0occur\xc2\xa0without\xc2\xa0an\xc2\xa0\nMCA\xc2\xa0in\xc2\xa0place.\xc2\xa0\n\xc2\xa0\n\n\n \xc2\xa0\n 11\n\x0cWe\xc2\xa0identified\xc2\xa0other\xc2\xa0matters\xc2\xa0during\xc2\xa0our\xc2\xa0review\xc2\xa0of\xc2\xa0policies\xc2\xa0and\xc2\xa0procedures\xc2\xa0over\xc2\xa0609(g)\xc2\xa0funds:\xc2\xa0\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 Controls\xc2\xa0over\xc2\xa0approvals\xc2\xa0of\xc2\xa0vendor\xc2\xa0invoices\xc2\xa0and\xc2\xa0related\xc2\xa0payments\xc2\xa0for\xc2\xa0country\xe2\x80\x90managed\xc2\xa0\n funds\xc2\xa0were\xc2\xa0established,\xc2\xa0but\xc2\xa0were\xc2\xa0not\xc2\xa0adequately\xc2\xa0or\xc2\xa0formally\xc2\xa0documented\xc2\xa0or\xc2\xa0shared\xc2\xa0\n with\xc2\xa0relevant\xc2\xa0personnel.\xc2\xa0\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Countries\xc2\xa0with\xc2\xa0the\xc2\xa0ability\xc2\xa0to\xc2\xa0approve\xc2\xa0their\xc2\xa0own\xc2\xa0invoices\xc2\xa0did\xc2\xa0not\xc2\xa0clearly\xc2\xa0document\xc2\xa0those\xc2\xa0\n approvals\xc2\xa0and\xc2\xa0authorizations\xc2\xa0to\xc2\xa0pay.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 The\xc2\xa0Fiscal\xc2\xa0Accountability\xc2\xa0Director\xc2\xa0and\xc2\xa0Assistant\xc2\xa0Chief\xc2\xa0Financial\xc2\xa0Officer\xc2\xa0(CFO)\xc2\xa0did\xc2\xa0not\xc2\xa0\n document\xc2\xa0their\xc2\xa0approvals\xc2\xa0of\xc2\xa0PRF\xc2\xa0submitted\xc2\xa0by\xc2\xa0in\xe2\x80\x90country\xc2\xa0persons\xc2\xa0for\xc2\xa0vendor\xc2\xa0payments\xc2\xa0\n via\xc2\xa0CPS.\xc2\xa0\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Names\xc2\xa0and\xc2\xa0signatures\xc2\xa0on\xc2\xa0PRFs\xc2\xa0submitted\xc2\xa0for\xc2\xa0two\xc2\xa0sampled\xc2\xa0items\xc2\xa0did\xc2\xa0not\xc2\xa0match\xc2\xa0MCC\xc2\xa0CPS\xc2\xa0\n Signature\xc2\xa0Cards\xc2\xa0on\xc2\xa0file\xc2\xa0for\xc2\xa0the\xc2\xa0country.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Sampled\xc2\xa0CPS\xc2\xa0Signature\xc2\xa0Cards\xc2\xa0did\xc2\xa0not\xc2\xa0have\xc2\xa0effective\xc2\xa0dates\xc2\xa0or\xc2\xa0MCC\xc2\xa0signatures\xc2\xa0ensuring\xc2\xa0\n card\xc2\xa0validity\xc2\xa0before\xc2\xa0being\xc2\xa0sent\xc2\xa0to\xc2\xa0NBC.\xc2\xa0\n \xc2\xa0\nIn\xc2\xa0addition,\xc2\xa0during\xc2\xa0our\xc2\xa0review\xc2\xa0of\xc2\xa0balances\xc2\xa0as\xc2\xa0of\xc2\xa0March\xc2\xa031,\xc2\xa02010,\xc2\xa0we\xc2\xa0identified\xc2\xa0several\xc2\xa0countries\xc2\xa0with\xc2\xa0\nactive\xc2\xa0compacts\xc2\xa0that\xc2\xa0had\xc2\xa0609(g)\xc2\xa0balances\xc2\xa0for\xc2\xa0which\xc2\xa0disbursements\xc2\xa0had\xc2\xa0not\xc2\xa0been\xc2\xa0made\xc2\xa0for\xc2\xa0one\xc2\xa0or\xc2\xa0more\xc2\xa0\nfiscal\xc2\xa0years.\xc2\xa0MCC\xc2\xa0Compact\xc2\xa0personnel\xc2\xa0did\xc2\xa0not\xc2\xa0adequately\xc2\xa0review\xc2\xa0aged\xc2\xa0obligations\xc2\xa0for\xc2\xa0countries\xc2\xa0with\xc2\xa0\n609(g)\xc2\xa0funds\xc2\xa0to\xc2\xa0determine\xc2\xa0if\xc2\xa0\xe2\x80\x9can\xc2\xa0immediate\xc2\xa0need\xe2\x80\x9d\xc2\xa0still\xc2\xa0existed.\xc2\xa0At\xc2\xa0yearend,\xc2\xa0we\xc2\xa0noted\xc2\xa0disbursement\xc2\xa0\nactivity\xc2\xa0for\xc2\xa0some\xc2\xa0funds,\xc2\xa0while\xc2\xa0others\xc2\xa0were\xc2\xa0deobligated.\xc2\xa0\xc2\xa0\n \xc2\xa0 \xc2\xa0\nFMPP,\xc2\xa0Section\xc2\xa0210,\xc2\xa0Policies\xc2\xa0and\xc2\xa0Procedures\xc2\xa0on\xc2\xa0Authorizing\xc2\xa0and\xc2\xa0Recording\xc2\xa0Commitments\xc2\xa0and\xc2\xa0Obligations,\xc2\xa0\nstates:\xc2\xa0\xc2\xa0\n\xc2\xa0\n MCC\xc2\xa0ensures\xc2\xa0that\xc2\xa0obligated\xc2\xa0funds\xc2\xa0are\xc2\xa0de\xe2\x80\x90obligated\xc2\xa0when\xc2\xa0an\xc2\xa0obligating\xc2\xa0or\xc2\xa0\n authorizing\xc2\xa0official\xc2\xa0determines\xc2\xa0that\xc2\xa0the\xc2\xa0funds\xc2\xa0are\xc2\xa0no\xc2\xa0longer\xc2\xa0needed.\xc2\xa0\xe2\x80\xa6\xc2\xa0At\xc2\xa0the\xc2\xa0end\xc2\xa0\n of\xc2\xa0each\xc2\xa0quarter,\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0DCFO\xc2\xa0initiates\xc2\xa0and\xc2\xa0coordinates\xc2\xa0a\xc2\xa01311\xc2\xa0Review\xc2\xa0of\xc2\xa0Open\xc2\xa0\n Obligations\xc2\xa0for\xe2\x80\xa6609(g)\xc2\xa0and\xc2\xa0audit\xc2\xa0funds\xc2\xa0to\xc2\xa0identify\xc2\xa0and\xc2\xa0de\xe2\x80\x90obligate\xc2\xa0any\xc2\xa0excess\xc2\xa0or\xc2\xa0\n unneeded\xc2\xa0balances.\xc2\xa0\xe2\x80\xa6\xc2\xa0In\xc2\xa0addition\xc2\xa0to\xc2\xa0the\xc2\xa0quarterly\xc2\xa0review\xc2\xa0of\xc2\xa0open\xc2\xa0obligations\xc2\xa0led\xc2\xa0\n by\xc2\xa0the\xc2\xa0DCFO,\xc2\xa0authorizing\xc2\xa0and\xc2\xa0obligating\xc2\xa0officials\xc2\xa0are\xc2\xa0required\xc2\xa0to\xc2\xa0routinely\xc2\xa0\n monitor\xc2\xa0and\xc2\xa0review\xc2\xa0unexpended\xc2\xa0obligated\xc2\xa0balances\xc2\xa0for\xc2\xa0which\xc2\xa0they\xc2\xa0are\xc2\xa0\n responsible\xc2\xa0to\xc2\xa0ensure\xc2\xa0that\xc2\xa0balances\xc2\xa0are\xc2\xa0de\xe2\x80\x90obligated\xc2\xa0when\xc2\xa0no\xc2\xa0longer\xc2\xa0needed\xc2\xa0\n (\xc2\xa76.2,\xc2\xa0Review\xc2\xa0and\xc2\xa0De\xe2\x80\x90Obligation\xc2\xa0of\xc2\xa0Unliquidated\xc2\xa0Obligations;\xc2\xa0\xc2\xa75.2\xc2\xa0in\xc2\xa0draft\xc2\xa0FMPP\xc2\xa0\n of\xc2\xa0same\xc2\xa0name).\xc2\xa0\n \xc2\xa0\n Government\xc2\xa0Accountability\xc2\xa0Office\xe2\x80\x99s\xc2\xa0(GAO)\xc2\xa0Internal\xc2\xa0Control\xc2\xa0Standards\xc2\xa0for\xc2\xa0the\xc2\xa0Federal\xc2\xa0Government,\xc2\xa0\n GAO/AIMD\xe2\x80\x9000\xe2\x80\x9021.3.1\xc2\xa0(11/90),\xc2\xa0states:\xc2\xa0\xc2\xa0\n\xc2\xa0\n Internal\xc2\xa0control\xc2\xa0should\xc2\xa0generally\xc2\xa0be\xc2\xa0designed\xc2\xa0to\xc2\xa0assure\xc2\xa0that\xc2\xa0ongoing\xc2\xa0monitoring\xc2\xa0\n occurs\xc2\xa0in\xc2\xa0the\xc2\xa0course\xc2\xa0of\xc2\xa0normal\xc2\xa0operations.\xc2\xa0It\xc2\xa0is\xc2\xa0performed\xc2\xa0continually\xc2\xa0and\xc2\xa0is\xc2\xa0\n ingrained\xc2\xa0in\xc2\xa0the\xc2\xa0agency\xe2\x80\x99s\xc2\xa0operations.\xc2\xa0\n\xc2\xa0\n\n\n \xc2\xa0\n 12\n\x0cThe\xc2\xa0MCC\xc2\xa0Fiscal\xc2\xa0Accountability\xc2\xa0Director\xc2\xa0for\xc2\xa0one\xc2\xa0country\xc2\xa0documented\xc2\xa0a\xc2\xa0cursory\xc2\xa0set\xc2\xa0of\xc2\xa0desk\xc2\xa0procedures\xc2\xa0for\xc2\xa0\nentities\xc2\xa0for\xc2\xa0which\xc2\xa0funds\xc2\xa0are\xc2\xa0country\xe2\x80\x90managed.\xc2\xa0This\xc2\xa0procedures\xc2\xa0document\xc2\xa0was\xc2\xa0not,\xc2\xa0however,\xc2\xa0vetted\xc2\xa0\nthrough\xc2\xa0any\xc2\xa0formal\xc2\xa0process,\xc2\xa0and\xc2\xa0it\xc2\xa0was\xc2\xa0not\xc2\xa0a\xc2\xa0shared\xc2\xa0document,\xc2\xa0thereby\xc2\xa0preventing\xc2\xa0other\xc2\xa0Fiscal\xc2\xa0\nAccountability\xc2\xa0Directors\xc2\xa0from\xc2\xa0using\xc2\xa0the\xc2\xa0same\xc2\xa0procedures\xc2\xa0for\xc2\xa0the\xc2\xa0same\xc2\xa0or\xc2\xa0similar\xc2\xa0processes.\xc2\xa0\n\xc2\xa0\nThe\xc2\xa0failure\xc2\xa0to\xc2\xa0have\xc2\xa0a\xc2\xa0prescribed\xc2\xa0set\xc2\xa0of\xc2\xa0procedures\xc2\xa0for\xc2\xa0609(g)\xc2\xa0administration\xc2\xa0creates\xc2\xa0the\xc2\xa0risk\xc2\xa0that\xc2\xa0each\xc2\xa0\ncountry\xc2\xa0will\xc2\xa0be\xc2\xa0managed\xc2\xa0by\xc2\xa0a\xc2\xa0different\xc2\xa0set\xc2\xa0of\xc2\xa0guidelines,\xc2\xa0and\xc2\xa0that\xc2\xa0sufficient\xc2\xa0controls\xc2\xa0may\xc2\xa0not\xc2\xa0be\xc2\xa0in\xc2\xa0place\xc2\xa0\nto\xc2\xa0ensure\xc2\xa0proper\xc2\xa0approval\xc2\xa0and\xc2\xa0request\xc2\xa0of\xc2\xa0vendor\xc2\xa0invoices\xc2\xa0and\xc2\xa0payments\xc2\xa0and\xc2\xa0accurate\xc2\xa0reporting\xc2\xa0of\xc2\xa0\ntransactions\xc2\xa0to\xc2\xa0MCC.\xc2\xa0\n\xc2\xa0\nRecommendation.\xc2\xa0We\xc2\xa0recommend\xc2\xa0that\xc2\xa0MCC\xc2\xa0Department\xc2\xa0of\xc2\xa0Compact\xc2\xa0Operations\xc2\xa0coordinate\xc2\xa0with\xc2\xa0\nappropriate\xc2\xa0management\xc2\xa0levels\xc2\xa0to\xc2\xa0implement\xc2\xa0a\xc2\xa0formal\xc2\xa0process\xc2\xa0for\xc2\xa0administering\xc2\xa0609(g)\xc2\xa0funds\xc2\xa0in\xc2\xa0all\xc2\xa0\ncountries\xc2\xa0not\xc2\xa0managed\xc2\xa0by\xc2\xa0either\xc2\xa0MCC\xc2\xa0or\xc2\xa0an\xc2\xa0MCA.\xc2\xa0\xc2\xa0\n \xc2\xa0\nWe\xc2\xa0further\xc2\xa0recommend\xc2\xa0that\xc2\xa0MCC\xc2\xa0Department\xc2\xa0of\xc2\xa0Compact\xc2\xa0Operations,\xc2\xa0in\xc2\xa0coordination\xc2\xa0with\xc2\xa0the\xc2\xa0Division\xc2\xa0\nof\xc2\xa0Finance:\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 Monitor\xc2\xa0on\xc2\xa0at\xc2\xa0least\xc2\xa0a\xc2\xa0quarterly\xc2\xa0basis\xc2\xa0obligations\xc2\xa0and\xc2\xa0disbursements\xc2\xa0of\xc2\xa0all\xc2\xa0countries\xc2\xa0that\xc2\xa0\n received\xc2\xa0609(g)\xc2\xa0funds\xc2\xa0and\xc2\xa0communicate\xc2\xa0with\xc2\xa0the\xc2\xa0MCAs\xc2\xa0to\xc2\xa0determine\xc2\xa0if\xc2\xa0immediate\xc2\xa0\n needs\xc2\xa0still\xc2\xa0exist\xc2\xa0to\xc2\xa0maintain\xc2\xa0excess\xc2\xa0609(g)\xc2\xa0funds\xc2\xa0that\xc2\xa0have\xc2\xa0not\xc2\xa0been\xc2\xa0disbursed\xc2\xa0within\xc2\xa0a\xc2\xa0\n period\xc2\xa0of\xc2\xa09\xc2\xa0months\xc2\xa0or\xc2\xa0more\xc2\xa0and\xc2\xa0deobligate\xc2\xa0609(g)\xc2\xa0funds\xc2\xa0no\xc2\xa0longer\xc2\xa0considered\xc2\xa0an\xc2\xa0\n immediate\xc2\xa0need\xc2\xa0to\xc2\xa0the\xc2\xa0MCA/Partnering\xc2\xa0Country.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Strengthen\xc2\xa0its\xc2\xa0CPS\xc2\xa0Signature\xc2\xa0Card\xc2\xa0process\xc2\xa0to\xc2\xa0include\xc2\xa0an\xc2\xa0MCC\xc2\xa0authorizing\xc2\xa0signature,\xc2\xa0\n effective\xc2\xa0and\xc2\xa0termination\xc2\xa0dates,\xc2\xa0and\xc2\xa0annual\xc2\xa0or\xc2\xa0other\xc2\xa0periodic\xc2\xa0review\xc2\xa0process\xc2\xa0for\xc2\xa0MCC,\xc2\xa0\n its\xc2\xa0financial\xc2\xa0service\xc2\xa0provider,\xc2\xa0and\xc2\xa0the\xc2\xa0MCAs\xc2\xa0to\xc2\xa0ensure\xc2\xa0that\xc2\xa0signature\xc2\xa0cards\xc2\xa0are\xc2\xa0kept\xc2\xa0on\xc2\xa0\n file\xc2\xa0for\xc2\xa0only\xc2\xa0active\xc2\xa0users\xc2\xa0of\xc2\xa0the\xc2\xa0CPS\xc2\xa0system.\xc2\xa0\n \xc2\xa0\nD. Inadequate\xc2\xa0Processing\xc2\xa0of\xc2\xa0Closed\xc2\xa0Programs\xc2\xa0\n \xc2\xa0\nMCC\xc2\xa0did\xc2\xa0not\xc2\xa0have\xc2\xa0a\xc2\xa0comprehensive\xc2\xa0close\xe2\x80\x90out\xc2\xa0process\xc2\xa0for\xc2\xa0its\xc2\xa0compacts\xc2\xa0and\xc2\xa0other\xc2\xa0programs,\xc2\xa0specifically\xc2\xa0\nthose\xc2\xa0terminated\xc2\xa0or\xc2\xa0suspended.\xc2\xa0MCA\xe2\x80\x90Madagascar\xc2\xa0was\xc2\xa0formally\xc2\xa0terminated\xc2\xa0August\xc2\xa031,\xc2\xa02009,\xc2\xa0after\xc2\xa0\nwhich\xc2\xa0MCC\xc2\xa0Fiscal\xc2\xa0Accountability\xc2\xa0worked\xc2\xa0with\xc2\xa0MCA\xc2\xa0Fiscal\xc2\xa0Agents\xc2\xa0to\xc2\xa0determine\xc2\xa0a\xc2\xa0timeline\xc2\xa0for\xc2\xa0the\xc2\xa0audit\xc2\xa0\nand\xc2\xa0for\xc2\xa0processing\xc2\xa0payments.\xc2\xa0During\xc2\xa0our\xc2\xa0review\xc2\xa0of\xc2\xa0this\xc2\xa0program\xc2\xa0that\xc2\xa0ended\xc2\xa0in\xc2\xa0August\xc2\xa02009,\xc2\xa0we\xc2\xa0noted\xc2\xa0\nthe\xc2\xa0following\xc2\xa0during\xc2\xa0the\xc2\xa0\xe2\x80\x9cwind\xe2\x80\x90up\xe2\x80\x9d\xc2\xa0period:\xc2\xa0\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 The\xc2\xa0audit\xc2\xa0performed\xc2\xa0in\xe2\x80\x90country\xc2\xa0did\xc2\xa0not\xc2\xa0encompass\xc2\xa0the\xc2\xa0entire\xc2\xa0compact\xc2\xa0activity\xc2\xa0period\xc2\xa0or\xc2\xa0\n any\xc2\xa0period\xc2\xa0involving\xc2\xa0wind\xe2\x80\x90up\xc2\xa0activities.\xc2\xa0The\xc2\xa0last\xc2\xa0audit\xc2\xa0covered\xc2\xa0the\xc2\xa0period\xc2\xa0January\xc2\xa01\xc2\xa0to\xc2\xa0\xc2\xa0\n September\xc2\xa030,\xc2\xa02009,\xc2\xa0whereas\xc2\xa0wind\xe2\x80\x90up\xc2\xa0activities\xc2\xa0were\xc2\xa0not\xc2\xa0scheduled\xc2\xa0to\xc2\xa0end\xc2\xa0until\xc2\xa0\n December\xc2\xa03,\xc2\xa02009.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 The\xc2\xa0detailed\xc2\xa0cash\xc2\xa0management\xc2\xa0plan\xc2\xa0did\xc2\xa0not\xc2\xa0allow\xc2\xa0for\xc2\xa0administrative\xc2\xa0wind\xe2\x80\x90up\xc2\xa0activities\xc2\xa0\n that\xc2\xa0might\xc2\xa0occur\xc2\xa0after\xc2\xa0the\xc2\xa0December\xc2\xa03,\xc2\xa02009,\xc2\xa0period,\xc2\xa0and\xc2\xa0it\xc2\xa0did\xc2\xa0it\xc2\xa0not\xc2\xa0mention\xc2\xa0the\xc2\xa0\n provision\xc2\xa0for\xc2\xa0payment\xc2\xa0to\xc2\xa0the\xc2\xa0auditor\xc2\xa0for\xc2\xa0the\xc2\xa0final\xc2\xa0audit\xc2\xa0period\xc2\xa0or\xc2\xa0final\xc2\xa0payments\xc2\xa0to\xc2\xa0the\xc2\xa0\n Fiscal\xc2\xa0and\xc2\xa0Procurement\xc2\xa0Agents.\xc2\xa0\n \xc2\xa0\n\n\n \xc2\xa0\n 13\n\x0c \xe2\x80\xa2 The\xc2\xa0detailed\xc2\xa0cash\xc2\xa0management\xc2\xa0plan\xc2\xa0did\xc2\xa0not\xc2\xa0provide\xc2\xa0for\xc2\xa0balances\xc2\xa0remaining\xc2\xa0on\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0\n general\xc2\xa0ledger\xc2\xa0for\xc2\xa0outstanding\xc2\xa0advances\xc2\xa0and\xc2\xa0undelivered\xc2\xa0order\xc2\xa0balances.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 QFRs\xc2\xa0were\xc2\xa0not\xc2\xa0submitted\xc2\xa0for\xc2\xa0MCA\xe2\x80\x90Madagascar\xc2\xa0since\xc2\xa0August\xc2\xa014,\xc2\xa02009.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Budget\xc2\xa0authority\xc2\xa0was\xc2\xa0appropriately\xc2\xa0established\xc2\xa0and\xc2\xa0approved\xc2\xa0for\xc2\xa0the\xc2\xa0period\xc2\xa0ending\xc2\xa0\n December\xc2\xa03,\xc2\xa02009,\xc2\xa0although\xc2\xa0three\xc2\xa0PRFs\xc2\xa0were\xc2\xa0submitted\xc2\xa0to\xc2\xa0NBC\xc2\xa0for\xc2\xa0payment\xc2\xa0after\xc2\xa0this\xc2\xa0\n date.\xc2\xa0\n \xc2\xa0\nMCC\xe2\x80\x99s\xc2\xa0Guidelines\xc2\xa0for\xc2\xa0the\xc2\xa0Program\xc2\xa0Closure\xc2\xa0of\xc2\xa0Millennium\xc2\xa0Challenge\xc2\xa0Compacts,\xc2\xa0effective\xc2\xa0September\xc2\xa08,\xc2\xa0\n2009,\xc2\xa0do\xc2\xa0not\xc2\xa0provide\xc2\xa0for\xc2\xa0terminated\xc2\xa0or\xc2\xa0suspended\xc2\xa0programs,\xc2\xa0instead\xc2\xa0stating\xc2\xa0that\xc2\xa0specific\xc2\xa0guidelines\xc2\xa0can\xc2\xa0\nbe\xc2\xa0applied\xc2\xa0to\xc2\xa0any\xc2\xa0of\xc2\xa0the\xc2\xa0closed\xc2\xa0programs.\xc2\xa0The\xc2\xa0final\xc2\xa0disbursement\xc2\xa0period\xc2\xa0should\xc2\xa0be\xc2\xa0extended\xc2\xa0to\xc2\xa0include\xc2\xa0\nan\xc2\xa0additional\xc2\xa060\xc2\xa0days\xc2\xa0to\xc2\xa0ensure\xc2\xa0that\xc2\xa0valid\xc2\xa0invoices\xc2\xa0received\xc2\xa0after\xc2\xa0the\xc2\xa0Closure\xc2\xa0Period\xc2\xa0can\xc2\xa0be\xc2\xa0submitted\xc2\xa0\nand\xc2\xa0paid,\xc2\xa0and,\xc2\xa0if\xc2\xa0the\xc2\xa0spending\xc2\xa0authority\xc2\xa0is\xc2\xa0not\xc2\xa0sufficient\xc2\xa0to\xc2\xa0cover\xc2\xa0expenses\xc2\xa0after\xc2\xa0that\xc2\xa0period,\xc2\xa0then\xc2\xa0\nadditional\xc2\xa0spending\xc2\xa0authority\xc2\xa0must\xc2\xa0be\xc2\xa0requested\xc2\xa0and\xc2\xa0approved\xc2\xa0(\xc2\xa75.7.3,\xc2\xa0Spending\xc2\xa0Authority\xc2\xa0for\xc2\xa0Final\xc2\xa0\nDisbursement\xc2\xa0Period,\xc2\xa0and\xc2\xa0\xc2\xa75.7.5,\xc2\xa0Cash\xc2\xa0Flow\xc2\xa0Management).\xc2\xa0When\xc2\xa0all\xc2\xa0disbursements\xc2\xa0have\xc2\xa0been\xc2\xa0made\xc2\xa0\nduring\xc2\xa0the\xc2\xa0specified\xc2\xa0Closure\xc2\xa0Period,\xc2\xa0the\xc2\xa0final\xc2\xa0QFR\xc2\xa0should\xc2\xa0be\xc2\xa0submitted\xc2\xa0to\xc2\xa0report\xc2\xa0actual\xc2\xa0expenditures.\xc2\xa0\xc2\xa0\nDue\xc2\xa0to\xc2\xa0timing\xc2\xa0of\xc2\xa0the\xc2\xa0Closure\xc2\xa0Period\xc2\xa0and\xc2\xa0audit\xc2\xa0end\xc2\xa0dates,\xc2\xa0special\xc2\xa0arrangements\xc2\xa0should\xc2\xa0be\xc2\xa0made\xc2\xa0for\xc2\xa0final\xc2\xa0\npayment\xc2\xa0to\xc2\xa0the\xc2\xa0audit\xc2\xa0firm\xc2\xa0(\xc2\xa75.10.4,\xc2\xa0Final\xc2\xa0Financial\xc2\xa0Audit).\xc2\xa0\n\xc2\xa0\nFinally,\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0Financial\xc2\xa0Management\xc2\xa0Policies\xc2\xa0and\xc2\xa0Procedures\xc2\xa0for\xc2\xa0Compact\xc2\xa0Management,\xc2\xa0as\xc2\xa0well\xc2\xa0as\xc2\xa0its\xc2\xa0\ninstructions\xc2\xa0for\xc2\xa0submitting\xc2\xa0QFRs,\xc2\xa0discusses\xc2\xa0requirements\xc2\xa0for\xc2\xa0submitting\xc2\xa0QFRs\xc2\xa0for\xc2\xa0each\xc2\xa0quarter\xc2\xa0that\xc2\xa0\nfunds\xc2\xa0are\xc2\xa0maintained\xc2\xa0for\xc2\xa0a\xc2\xa0compact,\xc2\xa0whether\xc2\xa0activity\xc2\xa0has\xc2\xa0occurred\xc2\xa0or\xc2\xa0not,\xc2\xa0until\xc2\xa0a\xc2\xa0final\xc2\xa0QFR\xc2\xa0is\xc2\xa0submitted\xc2\xa0\n(A&F\xe2\x80\x902007\xe2\x80\x9077.2,\xc2\xa0\xc2\xa75.3).\xc2\xa0\xc2\xa0\n\xc2\xa0\nAs\xc2\xa0a\xc2\xa0result\xc2\xa0of\xc2\xa0not\xc2\xa0having\xc2\xa0and/or\xc2\xa0adhering\xc2\xa0to\xc2\xa0comprehensive\xc2\xa0close\xe2\x80\x90out\xc2\xa0procedures:\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 Payments\xc2\xa0were\xc2\xa0processed\xc2\xa0after\xc2\xa0budgeted\xc2\xa0authority\xc2\xa0expired.\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 MCC\xc2\xa0Division\xc2\xa0of\xc2\xa0Finance\xc2\xa0was\xc2\xa0unable\xc2\xa0to\xc2\xa0determine\xc2\xa0if\xc2\xa0expenses\xc2\xa0needed\xc2\xa0to\xc2\xa0be\xc2\xa0accrued\xc2\xa0or\xc2\xa0\n liquidations\xc2\xa0posted,\xc2\xa0because\xc2\xa0it\xc2\xa0did\xc2\xa0not\xc2\xa0have\xc2\xa0interim\xc2\xa0and\xc2\xa0final\xc2\xa0QFRs.\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 MCC\xc2\xa0is\xc2\xa0at\xc2\xa0risk\xc2\xa0for\xc2\xa0funds\xc2\xa0being\xc2\xa0used\xc2\xa0for\xc2\xa0expenses\xc2\xa0that\xc2\xa0would\xc2\xa0not\xc2\xa0be\xc2\xa0considered\xc2\xa0allowable\xc2\xa0\n under\xc2\xa0a\xc2\xa0fully\xc2\xa0documented\xc2\xa0Compact\xc2\xa0Closure\xc2\xa0Plan.\xc2\xa0\n\xc2\xa0\nRecommendation.\xc2\xa0We\xc2\xa0recommend\xc2\xa0that\xc2\xa0MCC\xc2\xa0management\xc2\xa0and\xc2\xa0Department\xc2\xa0of\xc2\xa0Compact\xc2\xa0Operations:\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 Develop\xc2\xa0policies\xc2\xa0and\xc2\xa0procedures\xc2\xa0for\xc2\xa0Program\xc2\xa0Closure\xc2\xa0of\xc2\xa0Compacts\xc2\xa0that\xc2\xa0have\xc2\xa0been\xc2\xa0\n suspended\xc2\xa0or\xc2\xa0terminated\xc2\xa0to\xc2\xa0ensure\xc2\xa0that\xc2\xa0programs,\xc2\xa0activities,\xc2\xa0and\xc2\xa0assets\xc2\xa0are\xc2\xa0properly\xc2\xa0\n accounted\xc2\xa0for,\xc2\xa0and\xc2\xa0final\xc2\xa0disposition\xc2\xa0is\xc2\xa0reported\xc2\xa0to\xc2\xa0MCC.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Ensure\xc2\xa0that\xc2\xa0Fiscal\xc2\xa0Accountability\xc2\xa0Directors,\xc2\xa0Fiscal\xc2\xa0Agents,\xc2\xa0as\xc2\xa0well\xc2\xa0as\xc2\xa0personnel\xc2\xa0in\xc2\xa0the\xc2\xa0\n Division\xc2\xa0of\xc2\xa0Finance\xc2\xa0and\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0financial\xc2\xa0services\xc2\xa0provider\xc2\xa0are\xc2\xa0fully\xc2\xa0aware\xc2\xa0of\xc2\xa0any\xc2\xa0\n restrictions\xc2\xa0to\xc2\xa0process\xc2\xa0payments\xc2\xa0made\xc2\xa0during\xc2\xa0a\xc2\xa0program\xc2\xa0or\xc2\xa0compact\xc2\xa0close\xe2\x80\x90out\xc2\xa0period.\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\n \xc2\xa0\n 14\n\x0cSIGNIFICANT\xc2\xa0DEFICIENCIES\xc2\xa0\xc2\xa0\n\xc2\xa0\n4.\xc2\xa0 RECONCILING\xc2\xa0FUND\xc2\xa0BALANCE\xc2\xa0WITH\xc2\xa0TREASURY\xc2\xa0\n\xc2\xa0\nUSAID\xc2\xa0administers\xc2\xa0the\xc2\xa0Threshold\xc2\xa0Program\xc2\xa0for\xc2\xa0MCC,\xc2\xa0and\xc2\xa0Phoenix\xc2\xa0is\xc2\xa0the\xc2\xa0accounting\xc2\xa0system\xc2\xa0of\xc2\xa0record.\xc2\xa0\nMany\xc2\xa0of\xc2\xa0USAID\xe2\x80\x99s\xc2\xa0cash\xc2\xa0balances\xc2\xa0at\xc2\xa0Treasury\xc2\xa0for\xc2\xa0individual\xc2\xa0appropriations\xc2\xa0are\xc2\xa0different\xc2\xa0from\xc2\xa0cash\xc2\xa0\nbalances\xc2\xa0in\xc2\xa0the\xc2\xa0accounting\xc2\xa0system\xc2\xa0for\xc2\xa0those\xc2\xa0appropriations.\xc2\xa0During\xc2\xa0the\xc2\xa0review\xc2\xa0of\xc2\xa0internal\xc2\xa0controls,\xc2\xa0we\xc2\xa0\nnoted\xc2\xa0that\xc2\xa0USAID\xc2\xa0was\xc2\xa0granted\xc2\xa0a\xc2\xa0waiver\xc2\xa0from\xc2\xa0Treasury\xc2\xa0to\xc2\xa0temporarily\xc2\xa0post\xc2\xa0transactions\xc2\xa0to\xc2\xa0the\xc2\xa0suspense\xc2\xa0\naccount.\xc2\xa0USAID\xc2\xa0has\xc2\xa0not,\xc2\xa0however,\xc2\xa0complied\xc2\xa0with\xc2\xa0Treasury\xe2\x80\x99s\xc2\xa0requirement\xc2\xa0that\xc2\xa0transactions\xc2\xa0be\xc2\xa0taken\xc2\xa0out\xc2\xa0\nof\xc2\xa0the\xc2\xa0suspense\xc2\xa0account\xc2\xa0and\xc2\xa0accurately\xc2\xa0posted\xc2\xa0within\xc2\xa060\xc2\xa0days.\xc2\xa0Balances\xc2\xa0in\xc2\xa0the\xc2\xa0USAID\xc2\xa0suspense\xc2\xa0account\xc2\xa0\nare\xc2\xa0significant\xc2\xa0and\xc2\xa0are\xc2\xa0not\xc2\xa0cleared\xc2\xa0and\xc2\xa0recorded\xc2\xa0to\xc2\xa0the\xc2\xa0correct\xc2\xa0appropriation\xc2\xa0in\xc2\xa0a\xc2\xa0timely\xc2\xa0fashion.\xc2\xa0USAID\xe2\x80\x99s\xc2\xa0\nsuspense\xc2\xa0aging\xc2\xa0report\xc2\xa0includes\xc2\xa0amounts\xc2\xa0from\xc2\xa0prior\xc2\xa0fiscal\xc2\xa0years.\xc2\xa0\xc2\xa0\n\nThe\xc2\xa0Treasury\xc2\xa0Financial\xc2\xa0Manual\xc2\xa0(TFM),\xc2\xa0Preparing\xc2\xa0FMS\xc2\xa0224,\xc2\xa0Paragraph\xc2\xa03330,\xc2\xa0states:\xc2\xa0\n \xc2\xa0\n Agencies\xc2\xa0prepare\xc2\xa0the\xc2\xa0monthly\xc2\xa0FMS\xc2\xa0224\xc2\xa0based\xc2\xa0on:\xc2\xa0\n \xe2\x80\xa2 Vouchers\xc2\xa0paid\xc2\xa0or\xc2\xa0accomplished\xc2\xa0by\xc2\xa0[Regional\xc2\xa0Finance\xc2\xa0Centers\xc2\xa0(RFC)];\xc2\xa0\n \xe2\x80\xa2 Intra\xe2\x80\x90governmental\xc2\xa0Payments\xc2\xa0and\xc2\xa0Collections\xc2\xa0(IPAC)\xc2\xa0transactions\xc2\xa0\n accomplished;\xc2\xa0\n \xe2\x80\xa2 Cash\xc2\xa0collections\xc2\xa0received\xc2\xa0for\xc2\xa0deposit\xc2\xa0on\xc2\xa0SF\xc2\xa0215s\xc2\xa0[Deposit\xc2\xa0Ticket];\xc2\xa0and\xc2\xa0\n \xe2\x80\xa2 Electronic\xc2\xa0payments/deposits\xc2\xa0such\xc2\xa0as\xc2\xa0those\xc2\xa0processed\xc2\xa0through\xc2\xa0the\xc2\xa0\n Automated\xc2\xa0Standard\xc2\xa0Application\xc2\xa0for\xc2\xa0Payments\xc2\xa0(ASAP)\xc2\xa0System\xc2\xa0or\xc2\xa0the\xc2\xa0Fedwire\xc2\xa0\n Deposit\xc2\xa0System.\xc2\xa0\n \xc2\xa0\n Agencies\xc2\xa0also\xc2\xa0should\xc2\xa0report\xc2\xa0transactions\xc2\xa0recorded\xc2\xa0in\xc2\xa0their\xc2\xa0[GL]\xc2\xa0that\xc2\xa0are\xc2\xa0not\xc2\xa0\n associated\xc2\xa0with\xc2\xa0an\xc2\xa0SF\xc2\xa0215,\xc2\xa0SF\xc2\xa05515\xc2\xa0[Debit\xc2\xa0Voucher],\xc2\xa0IPAC,\xc2\xa0or\xc2\xa0vouchers\xc2\xa0paid\xc2\xa0or\xc2\xa0\n accomplished\xc2\xa0by\xc2\xa0RFCs\xc2\xa0in\xc2\xa0Section\xc2\xa0I\xc2\xa0of\xc2\xa0the\xc2\xa0FMS\xc2\xa0224\xc2\xa0only.\xc2\xa0\n\xc2\xa0\nParagraph\xc2\xa0V,\xc2\xa0Subsection\xc2\xa0C,\xc2\xa0Adjustments,\xc2\xa0of\xc2\xa0Part\xc2\xa02\xe2\x80\x905100,\xc2\xa0states:\xc2\xa0\n\xc2\xa0\n An\xc2\xa0agency\xc2\xa0may\xc2\xa0not\xc2\xa0arbitrarily\xc2\xa0adjust\xc2\xa0its\xc2\xa0FBWT\xc2\xa0account.\xc2\xa0Only\xc2\xa0after\xc2\xa0clearly\xc2\xa0\n establishing\xc2\xa0the\xc2\xa0causes\xc2\xa0of\xc2\xa0errors\xc2\xa0and\xc2\xa0properly\xc2\xa0documenting\xc2\xa0those\xc2\xa0errors,\xc2\xa0should\xc2\xa0\n an\xc2\xa0agency\xc2\xa0adjust\xc2\xa0its\xc2\xa0FBWT\xc2\xa0account\xc2\xa0balance.\xc2\xa0\xc2\xa0\n\xc2\xa0\nUSAID\xc2\xa0cash\xc2\xa0balances\xc2\xa0recorded\xc2\xa0in\xc2\xa0Phoenix\xc2\xa0do\xc2\xa0not\xc2\xa0tie\xc2\xa0to\xc2\xa0balances\xc2\xa0reported\xc2\xa0by\xc2\xa0Treasury.\xc2\xa0These\xc2\xa0differences\xc2\xa0\nare\xc2\xa0caused\xc2\xa0by\xc2\xa0prior\xe2\x80\x90year\xc2\xa0mistakes\xc2\xa0when\xc2\xa0USAID\xc2\xa0recorded\xc2\xa0outlays\xc2\xa0in\xc2\xa0a\xc2\xa0different\xc2\xa0appropriation\xc2\xa0than\xc2\xa0\nTreasury\xc2\xa0did\xc2\xa0and\xc2\xa0by\xc2\xa0timing\xc2\xa0differences.\xc2\xa0The\xc2\xa0existence\xc2\xa0of\xc2\xa0old\xc2\xa0transactions\xc2\xa0that\xc2\xa0have\xc2\xa0not\xc2\xa0been\xc2\xa0cleared\xc2\xa0\nfrom\xc2\xa0the\xc2\xa0suspense\xc2\xa0account\xc2\xa0is\xc2\xa0caused\xc2\xa0by\xc2\xa0a\xc2\xa0lack\xc2\xa0of\xc2\xa0monitoring\xc2\xa0in\xc2\xa0prior\xc2\xa0years\xc2\xa0and\xc2\xa0an\xc2\xa0ongoing\xc2\xa0difficulty\xc2\xa0with\xc2\xa0\nmatching\xc2\xa0incoming\xc2\xa0and\xc2\xa0outgoing\xc2\xa0suspense\xc2\xa0transactions.\xc2\xa0Untimely\xc2\xa0reconciliation\xc2\xa0of\xc2\xa0balances\xc2\xa0in\xc2\xa0the\xc2\xa0\nsuspense\xc2\xa0account\xc2\xa0presents\xc2\xa0a\xc2\xa0risk\xc2\xa0of\xc2\xa0potential\xc2\xa0misstatements\xc2\xa0to\xc2\xa0the\xc2\xa0Fund\xc2\xa0Balance\xc2\xa0with\xc2\xa0Treasury\xc2\xa0line\xc2\xa0\nitem.\xc2\xa0\n\xc2\xa0\nRecommendation.\xc2\xa0We\xc2\xa0recommend\xc2\xa0that\xc2\xa0the\xc2\xa0MCC\xc2\xa0Division\xc2\xa0of\xc2\xa0Finance\xc2\xa0continue\xc2\xa0to\xc2\xa0follow\xc2\xa0USAID\xe2\x80\x99s\xc2\xa0\nprogress\xc2\xa0toward\xc2\xa0elimination\xc2\xa0of\xc2\xa0cash\xc2\xa0balance\xc2\xa0differences\xc2\xa0between\xc2\xa0USAID\xc2\xa0and\xc2\xa0Treasury\xc2\xa0and\xc2\xa0timely\xc2\xa0\nclearing\xc2\xa0of\xc2\xa0suspense\xc2\xa0account\xc2\xa0items\xc2\xa0in\xc2\xa0order\xc2\xa0to\xc2\xa0monitor\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0risk\xc2\xa0of\xc2\xa0potential\xc2\xa0misstatements.\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n \xc2\xa0\n 15\n\x0c5.\xc2\xa0 CONTROLS\xc2\xa0OVER\xc2\xa0FINANCIAL\xc2\xa0REPORTING\xc2\xa0\xc2\xa0\n\xc2\xa0\nThis\xc2\xa0is\xc2\xa0a\xc2\xa0repeat\xc2\xa0finding\xc2\xa0from\xc2\xa0prior\xe2\x80\x90year\xc2\xa0audits.\xc2\xa0MCC\xc2\xa0needs\xc2\xa0to\xc2\xa0continue\xc2\xa0to\xc2\xa0strengthen\xc2\xa0its\xc2\xa0quality\xc2\xa0control\xc2\xa0\nprocedures\xc2\xa0over\xc2\xa0financial\xc2\xa0information\xc2\xa0presented\xc2\xa0to\xc2\xa0ensure\xc2\xa0accuracy\xc2\xa0and\xc2\xa0completeness.\xc2\xa0In\xc2\xa0addition,\xc2\xa0\nthese\xc2\xa0quality\xc2\xa0control\xc2\xa0procedures\xc2\xa0should\xc2\xa0be\xc2\xa0adhered\xc2\xa0to\xc2\xa0ensure\xc2\xa0the\xc2\xa0\xe2\x80\x9cquality\xe2\x80\x9d\xc2\xa0of\xc2\xa0information\xc2\xa0over\xc2\xa0the\xc2\xa0\n\xe2\x80\x9ctimeliness\xe2\x80\x9d\xc2\xa0of\xc2\xa0information.\xc2\xa0Although\xc2\xa0MCC\xc2\xa0has\xc2\xa0improved\xc2\xa0its\xc2\xa0review\xc2\xa0process,\xc2\xa0with\xc2\xa0documentation\xc2\xa0of\xc2\xa0its\xc2\xa0\nreview\xc2\xa0by\xc2\xa0the\xc2\xa0Assistant\xc2\xa0CFO\xc2\xa0and\xc2\xa0the\xc2\xa0Deputy\xc2\xa0CFO,\xc2\xa0review\xc2\xa0procedures\xc2\xa0are\xc2\xa0still\xc2\xa0insufficient,\xc2\xa0and\xc2\xa0a\xc2\xa0process\xc2\xa0\ndoes\xc2\xa0not\xc2\xa0exist\xc2\xa0for\xc2\xa0documenting\xc2\xa0and\xc2\xa0correcting\xc2\xa0errors\xc2\xa0in\xc2\xa0a\xc2\xa0timely\xc2\xa0manner.\xc2\xa0As\xc2\xa0a\xc2\xa0result,\xc2\xa0adjustments\xc2\xa0are\xc2\xa0\nnot\xc2\xa0being\xc2\xa0made\xc2\xa0promptly,\xc2\xa0and\xc2\xa0an\xc2\xa0audit\xc2\xa0trail\xc2\xa0does\xc2\xa0not\xc2\xa0exist\xc2\xa0to\xc2\xa0identify\xc2\xa0these\xc2\xa0issues.\xc2\xa0\xc2\xa0\xc2\xa0\n\xc2\xa0\nWe\xc2\xa0noted\xc2\xa0the\xc2\xa0following\xc2\xa0deficiencies\xc2\xa0in\xc2\xa0the\xc2\xa0preparation\xc2\xa0and\xc2\xa0review\xc2\xa0of\xc2\xa0quarterly\xc2\xa0and\xc2\xa0yearend\xc2\xa0financial\xc2\xa0\nstatements:\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 There\xc2\xa0was\xc2\xa0a\xc2\xa0$30\xc2\xa0million\xc2\xa0overstatement\xc2\xa0in\xc2\xa0the\xc2\xa0second\xe2\x80\x90quarter\xc2\xa0trial\xc2\xa0balance\xc2\xa0as\xc2\xa0the\xc2\xa0result\xc2\xa0\n of\xc2\xa0a\xc2\xa0posting\xc2\xa0error\xc2\xa0to\xc2\xa0the\xc2\xa0Appropriations\xc2\xa0Received\xc2\xa0account.\xc2\xa0MCC\xc2\xa0stated\xc2\xa0that\xc2\xa0is\xc2\xa0knew\xc2\xa0\n about\xc2\xa0this\xc2\xa0material\xc2\xa0misstatement,\xc2\xa0but\xc2\xa0submitted\xc2\xa0the\xc2\xa0resulting\xc2\xa0statements\xc2\xa0to\xc2\xa0OMB\xc2\xa0and\xc2\xa0\n its\xc2\xa0auditor\xc2\xa0without\xc2\xa0correction\xc2\xa0or\xc2\xa0notification.\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 An\xc2\xa0on\xe2\x80\x90top\xc2\xa0adjustment\xc2\xa0from\xc2\xa0the\xc2\xa0prior\xe2\x80\x90year\xc2\xa0audit\xc2\xa0was\xc2\xa0omitted\xc2\xa0from\xc2\xa0budgetary\xc2\xa0accounts,\xc2\xa0\n resulting\xc2\xa0in\xc2\xa0understated\xc2\xa0recoveries\xc2\xa0of\xc2\xa0prior\xe2\x80\x90year\xc2\xa0obligations.\xc2\xa0MCC\xc2\xa0failed\xc2\xa0to\xc2\xa0account\xc2\xa0for\xc2\xa0\n all\xc2\xa0prior\xe2\x80\x90year\xc2\xa0adjustments\xc2\xa0to\xc2\xa0ensure\xc2\xa0proper\xc2\xa0balances\xc2\xa0in\xc2\xa0the\xc2\xa0current\xc2\xa0year\xc2\xa0when\xc2\xa0preparing\xc2\xa0\n its\xc2\xa0second\xe2\x80\x90quarter\xc2\xa0statements.\xc2\xa0\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 \xc2\xa0Although\xc2\xa0not\xc2\xa0material\xc2\xa0in\xc2\xa0nature,\xc2\xa0we\xc2\xa0identified\xc2\xa0differences\xc2\xa0in\xc2\xa0comparing\xc2\xa0proprietary\xc2\xa0\n expenses\xc2\xa0and\xc2\xa0budgetary\xc2\xa0expended\xc2\xa0authority\xc2\xa0in\xc2\xa0the\xc2\xa0second\xc2\xa0and\xc2\xa0third\xc2\xa0quarters,\xc2\xa0\n respectively.\xc2\xa0\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 The\xc2\xa0manual\xc2\xa0nature\xc2\xa0of\xc2\xa0the\xc2\xa0Excel\xc2\xa0spreadsheet\xc2\xa0used\xc2\xa0to\xc2\xa0prepare\xc2\xa0the\xc2\xa0financial\xc2\xa0statements\xc2\xa0\n lends\xc2\xa0itself\xc2\xa0to\xc2\xa0human\xc2\xa0error\xc2\xa0and\xc2\xa0extensive\xc2\xa0posting\xc2\xa0and\xc2\xa0tracking\xc2\xa0of\xc2\xa0adjustments.\xc2\xa0In\xc2\xa0\n addition,\xc2\xa0one\xc2\xa0person\xc2\xa0is\xc2\xa0responsible\xc2\xa0for\xc2\xa0preparing\xc2\xa0the\xc2\xa0spreadsheet,\xc2\xa0and\xc2\xa0quality\xc2\xa0control\xc2\xa0\n procedures\xc2\xa0do\xc2\xa0not\xc2\xa0include\xc2\xa0a\xc2\xa0review\xc2\xa0and\xc2\xa0agreement\xc2\xa0of\xc2\xa0information\xc2\xa0in\xc2\xa0the\xc2\xa0trial\xc2\xa0balance\xc2\xa0to\xc2\xa0\n the\xc2\xa0notes.\xc2\xa0\xc2\xa0\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 In\xc2\xa0an\xc2\xa0effort\xc2\xa0to\xc2\xa0meet\xc2\xa0due\xc2\xa0dates\xc2\xa0and\xc2\xa0submit\xc2\xa0timely\xc2\xa0statements\xc2\xa0and\xc2\xa0notes,\xc2\xa0MCC\xc2\xa0did\xc2\xa0not\xc2\xa0\n complete\xc2\xa0its\xc2\xa0established\xc2\xa0quality\xc2\xa0control\xc2\xa0process\xc2\xa0before\xc2\xa0submitting\xc2\xa0draft\xc2\xa0yearend\xc2\xa0\n statements\xc2\xa0and\xc2\xa0notes.\xc2\xa0This\xc2\xa0process\xc2\xa0involves\xc2\xa0reviewing\xc2\xa0notes\xc2\xa0and\xc2\xa0other\xc2\xa0financial\xc2\xa0\n information\xc2\xa0in\xc2\xa0the\xc2\xa0financial\xc2\xa0statement\xc2\xa0package\xc2\xa0for\xc2\xa0accuracy\xc2\xa0and\xc2\xa0consistency\xc2\xa0with\xc2\xa0\n financial\xc2\xa0statement\xc2\xa0and\xc2\xa0trial\xc2\xa0balance\xc2\xa0information.\xc2\xa0We\xc2\xa0identified\xc2\xa0mathematical\xc2\xa0errors,\xc2\xa0\n incorrect\xc2\xa0prior\xe2\x80\x90year\xc2\xa0balances,\xc2\xa0and\xc2\xa0inconsistent\xc2\xa0information.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 MCC\xc2\xa0lacks\xc2\xa0sufficient\xc2\xa0communication\xc2\xa0with\xc2\xa0the\xc2\xa0MCAs\xc2\xa0to\xc2\xa0ensure\xc2\xa0that\xc2\xa0they\xc2\xa0understand\xc2\xa0the\xc2\xa0\n impact\xc2\xa0of\xc2\xa0their\xc2\xa0transactions\xc2\xa0on\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0financial\xc2\xa0statements\xc2\xa0and\xc2\xa0provide\xc2\xa0information\xc2\xa0that\xc2\xa0\n is\xc2\xa0complete,\xc2\xa0accurate,\xc2\xa0and\xc2\xa0sufficient\xc2\xa0for\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0accrual\xc2\xa0reporting.\xc2\xa0\xc2\xa0\n \xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\n \xc2\xa0\n 16\n\x0cOMB\xc2\xa0Circular\xc2\xa0A\xe2\x80\x90136,\xc2\xa0Form\xc2\xa0and\xc2\xa0Content\xc2\xa0of\xc2\xa0Performance\xc2\xa0and\xc2\xa0Accountability\xc2\xa0Report\xc2\xa0(PAR),\xc2\xa0states:\xc2\xa0\n \xc2\xa0\n Reporting\xc2\xa0entities\xc2\xa0should\xc2\xa0ensure\xc2\xa0that\xc2\xa0information\xc2\xa0in\xc2\xa0the\xc2\xa0financial\xc2\xa0statements\xc2\xa0is\xc2\xa0\n presented\xc2\xa0in\xc2\xa0accordance\xc2\xa0with\xc2\xa0GAAP\xc2\xa0for\xc2\xa0Federal\xc2\xa0entities\xc2\xa0and\xc2\xa0the\xc2\xa0requirements\xc2\xa0of\xc2\xa0this\xc2\xa0\n Circular\xe2\x80\xa6.\xc2\xa0\n \xc2\xa0\n Preparation\xc2\xa0of\xc2\xa0the\xc2\xa0annual\xc2\xa0financial\xc2\xa0statement\xc2\xa0is\xc2\xa0the\xc2\xa0responsibility\xc2\xa0of\xc2\xa0agency\xc2\xa0\n management\xe2\x80\xa6.\xc2\xa0\xc2\xa0\xc2\xa0\n \xc2\xa0\nFinancial\xc2\xa0statements\xc2\xa0presented\xc2\xa0for\xc2\xa0audit\xc2\xa0are\xc2\xa0the\xc2\xa0responsibility\xc2\xa0of\xc2\xa0MCC.\xc2\xa0Without\xc2\xa0conducting\xc2\xa0or\xc2\xa0ensuring\xc2\xa0\xc2\xa0\neffective,\xc2\xa0detailed\xc2\xa0analyses\xc2\xa0and\xc2\xa0quality\xc2\xa0control\xc2\xa0reviews\xc2\xa0over\xc2\xa0consolidated\xc2\xa0financial\xc2\xa0information,\xc2\xa0MCC\xc2\xa0is\xc2\xa0\nat\xc2\xa0risk\xc2\xa0for\xc2\xa0presenting\xc2\xa0statements\xc2\xa0that\xc2\xa0are\xc2\xa0not\xc2\xa0comparative,\xc2\xa0accurate,\xc2\xa0or\xc2\xa0in\xc2\xa0compliance\xc2\xa0with\xc2\xa0applicable\xc2\xa0\nrequirements\xc2\xa0and\xc2\xa0accounting\xc2\xa0standards.\xc2\xa0\xc2\xa0\n\xc2\xa0\nRecommendation.\xc2\xa0We\xc2\xa0recommend\xc2\xa0that\xc2\xa0the\xc2\xa0MCC\xc2\xa0Division\xc2\xa0of\xc2\xa0Finance:\xc2\xa0\xc2\xa0\n\xc2\xa0\n \xe2\x80\xa2 Continue\xc2\xa0to\xc2\xa0strengthen\xc2\xa0its\xc2\xa0quality\xc2\xa0control\xc2\xa0reviews\xc2\xa0over\xc2\xa0financial\xc2\xa0statements\xc2\xa0to\xc2\xa0ensure\xc2\xa0\n that\xc2\xa0information\xc2\xa0presented\xc2\xa0is\xc2\xa0accurate,\xc2\xa0complete,\xc2\xa0and\xc2\xa0complies\xc2\xa0with\xc2\xa0accounting\xc2\xa0\n standards\xc2\xa0and\xc2\xa0reporting\xc2\xa0guidance.\xc2\xa0\n \xc2\xa0\n \xe2\x80\xa2 Establish\xc2\xa0quality\xc2\xa0control\xc2\xa0procedures\xc2\xa0to\xc2\xa0document\xc2\xa0during\xc2\xa0the\xc2\xa0review\xc2\xa0process\xc2\xa0any\xc2\xa0\n discrepancies,\xc2\xa0errors,\xc2\xa0and\xc2\xa0other\xc2\xa0anomalies\xc2\xa0that\xc2\xa0have\xc2\xa0occurred\xc2\xa0to\xc2\xa0provide\xc2\xa0an\xc2\xa0audit\xc2\xa0trail\xc2\xa0\n of\xc2\xa0issues\xc2\xa0that\xc2\xa0may\xc2\xa0require\xc2\xa0on\xe2\x80\x90top\xc2\xa0adjustments.\xc2\xa0\xc2\xa0\n\xc2\xa0\nWe\xc2\xa0noted\xc2\xa0certain\xc2\xa0other\xc2\xa0matters\xc2\xa0involving\xc2\xa0internal\xc2\xa0control\xc2\xa0and\xc2\xa0its\xc2\xa0operation\xc2\xa0that\xc2\xa0we\xc2\xa0will\xc2\xa0report\xc2\xa0to\xc2\xa0MCC\xc2\xa0\nmanagement\xc2\xa0in\xc2\xa0a\xc2\xa0separate\xc2\xa0letter.\xc2\xa0\xc2\xa0\n\xc2\xa0\nMCC\xe2\x80\x99s\xc2\xa0management\xc2\xa0comments\xc2\xa0to\xc2\xa0recommendations\xc2\xa0are\xc2\xa0in\xc2\xa0the\xc2\xa0appendix\xc2\xa0to\xc2\xa0this\xc2\xa0report.\xc2\xa0We\xc2\xa0did\xc2\xa0not\xc2\xa0audit\xc2\xa0\nMCC\xe2\x80\x99s\xc2\xa0response\xc2\xa0and,\xc2\xa0accordingly,\xc2\xa0we\xc2\xa0provide\xc2\xa0no\xc2\xa0opinion\xc2\xa0on\xc2\xa0it.\xc2\xa0\n\xc2\xa0\nThis\xc2\xa0report\xc2\xa0is\xc2\xa0intended\xc2\xa0solely\xc2\xa0for\xc2\xa0the\xc2\xa0information\xc2\xa0and\xc2\xa0use\xc2\xa0of\xc2\xa0USAID,\xc2\xa0MCC\xc2\xa0management,\xc2\xa0and\xc2\xa0others\xc2\xa0\nwithin\xc2\xa0MCC,\xc2\xa0OMB,\xc2\xa0and\xc2\xa0Congress.\xc2\xa0It\xc2\xa0is\xc2\xa0not\xc2\xa0intended\xc2\xa0to\xc2\xa0be\xc2\xa0and\xc2\xa0should\xc2\xa0not\xc2\xa0be\xc2\xa0used\xc2\xa0by\xc2\xa0anyone\xc2\xa0other\xc2\xa0than\xc2\xa0\nthese\xc2\xa0specified\xc2\xa0parties.\xc2\xa0\xc2\xa0\n\xc2\xa0\n\xc2\xa0\nCOTTON\xc2\xa0&\xc2\xa0COMPANY\xc2\xa0LLP\xc2\xa0\n\xc2\xa0\nColette\xc2\xa0Y.\xc2\xa0Wilson,\xc2\xa0CPA\xc2\xa0\nPartner\xc2\xa0\n\n\n\n\nNovember\xc2\xa015,\xc2\xa02010\xc2\xa0\nAlexandria,\xc2\xa0Virginia\xc2\xa0\n\n\n\n \xc2\xa0\n 17\n\x0c\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n APPENDIX\xc2\xa0\n MANAGEMENT\xc2\xa0COMMENTS\xc2\xa0\n\n\n\n\n 18\n\x0cDate: November 12, 2010\n\nTo: Alvin A. Brown\n Assistant Inspector General\n Millennium Challenge Corporation\n\nFrom: Victoria B. Wassmer, Vice President\n Millennium Challenge Corporation\n Department of Administration and Finance\n\nSubject: Management Response to Draft Independent Auditor\xe2\x80\x99s\n Report on MCC\xe2\x80\x99s Financial Statements for Fiscal Years\n Ended September 30, 2010 and 2009.\n\nWe have received the subject draft report and note that the independent auditors, Cotton &\nCompany, LLP, have issued a narrow qualified opinion on our principal financial statements. The\nqualification and related material weakness, which also affected our FY 2009 opinion, primarily\nrelates to the accuracy of accruals for work not paid or invoiced until the subsequent period.\n\nWe at the Millennium Challenge Corporation (MCC) take our fiduciary responsibilities very\nseriously. Our team has been moving aggressively to ensure accountability, effective stewardship\nand transparency regarding the resources entrusted to MCC. Our goal is to provide sound financial\nmanagement, financial reporting and internal control systems that will help ensure successful\nimplementation of programs for sustainable poverty reduction through economic growth. We\ninitiated a variety of aggressive actions in FY 2010 to address internal controls and other issues.\n\nNow, in addition, MCC management is currently organizing a Task Force to quickly and effectively\naddress the material weaknesses raised in the FY 2010 audit. The joint Task Force of the\nDepartment of Administration and Finance (A&F) and the Department of Compact Operations\n(DCO) will be working with key stakeholders, including Millennium Challenge Account (MCA)\ncountry entities, to:\n\n (1) Analyze and revise current processes, procedures, and reporting related to the\n financial management and oversight of our partner countries\xe2\x80\x99 activities for accuracy,\n consistency, and shared agreement on how and why we need to address issues arising in\n large part from the different cash and accrual methods used by MCAs and MCC,\n respectively, and\n\n\n\n 19\n\x0c (2) Develop and provide training to implement detailed corrective action plans with\n milestone dates to implement Task Force recommendations.\n\nAny questions may be addressed to Mr. Dennis Nolan, Deputy Chief Financial Officer, or to me.\n\nMCC management also offers these responses to the five areas of audit recommendations made by\nthe Assistant Inspector General, Millennium Challenge Corporation.\n\n1. Material Weakness: Reporting Advance Payments\n\nMCC concurs with the OIG recommendation to \xe2\x80\x9cmodify the Payment Request Form (PRF) to\nspecifically identify requests for advance payments to vendors.\xe2\x80\x9d In addition, A&F will work with\nthe Office of the Inspector General (OIG) to modify the existing scope of semi-annual MCA audits\nto include audit procedures to verify the accuracy and completeness of amounts coded as advances\non PRFs.\n\nMCC also concurs with the OIG recommendation that MCC \xe2\x80\x9cprovide training to Fiscal Agents and\nother in-country personnel to explain how to properly record each line of the PRF\xe2\x80\x9d and to ensure\nshared understanding of the necessity and importance.\xe2\x80\x9d Through the Task Force mentioned earlier,\nMCC will ensure the requirement for advance payments to vendors be clearly identified,\nappropriately recorded in the accounting system and supported by documentation as part of the\ntraining for both MCC and MCA staff as needed.\n\n2. Material Weakness: Compiling Accruals (Proper Reporting Period)\n\nMCC concurs with the OIG recommendation to \xe2\x80\x9crevise and strengthen its process for determining\naccruals needed at year-end by establishing a comprehensive methodology and/or standard process\nfor obtaining, recording and reporting year-end accruals which cover all MCAs and funds and\ninclude invoiced and rendered services which have not been recorded in the year-end trial balance.\xe2\x80\x9d\nMCC has already implemented a new year-end procedure and will build in further changes and\nnecessary steps to ensure that both quarterly and year-end accruals are complete.\n\nMCC extended its FY 2010 cut-off to 12 days for invoices received but not paid in response to\naccrual related issues raised in the FY 2009 audit. Based on the accrual-related issues raised in the\nFY 2010 audit, MCC\xe2\x80\x99s new procedure to develop quarterly and year-end accruals for financial\nstatement reporting entailed working directly with the Fiscal Agents, Procurement Directors, and\nother staff at the MCAs to obtain quarterly and year-end accrual reporting for: (1) invoices received\nbut not paid, (2) work completed but not billed, (3) retention payments, and (4) country-managed\n609(g) agreements.\n\nIn addition, MCC will be recalculating our FY 2009 expense accrual using the methodology\ndescribed above to correct any errors in the beginning balances on our FY 2010 financial statements.\nFinally, MCC will institute regular communication with MCA staff to ensure that accruals are\ncomprehensive, and reflect all activities that are occurring in country as part of compact\nimplementation.\n\n 20\n\x0cMCC also concurs with the recommendation to \xe2\x80\x9cestablish consistent communication with NBC and\nthe MCAs and establish a process to ensure a clear understanding of process and methodology\ndeveloped.\xe2\x80\x9d Through the Task Force mentioned earlier, MCC will ensure that the methodology for\nobtaining, recording, and reporting accruals is part of the training for both MCC and MCA staff as\nneeded.\n\nMCC also concurs with the recommendation to \xe2\x80\x9cperform quality control procedures over amounts\nobtained and recorded to ensure that amounts posted are properly reviewed for reasonableness,\naccuracy, and completeness.\xe2\x80\x9d A&F also will work with the OIG to modify the existing scope of\nsemi-annual MCA audits to include audit procedures to verify the accuracy and completeness of the\ndata provided by the MCAs to calculate accruals. In conjunction with the semi-annual audits, A&F\nwill also institute a process to sample MCA invoices and other documentation to verify the\ncompleteness and accuracy of accruals.\n\n3. Material Weakness: Monitoring Controls over Mission Activities\n\nMCC concurs with the recommendation to \xe2\x80\x9cimplement a process for coordinating with MCAs, audit\nfirms, and the OIG to ensure all parties are adequately informed of the progress of all audits, and that\nthe audits are completed in accordance with the compact.\xe2\x80\x9d MCC has developed a reporting system to\ntrack the status of all MCA audits. As noted by our auditors, there has been considerable progress on\neliminating the backlog of past due audits. MCC will continue its monitoring of the MCA audit\nprogram, and will work closely with the OIG to implement additional remedial actions or changes\ndesigned to improve the audit program.\n\nIn FY 2010 MCC implemented certain measures to improve timeliness of the MCA audit program;\nhowever, their full effect has not been realized. OIG\xe2\x80\x99s increase in staffing on the MCA audit\nprogram will also assist in alleviating a backlog in the audit report approvals process. MCC\xe2\x80\x99s\nCompliance Officer in conjunction with the Fiscal Accountability Directors in DCO will conduct\nmonthly audit status meetings with OIG to ensure that issues related to the completion of MCA\naudits are addressed timely.\n\nMCC also concurs with the recommendation to \xe2\x80\x9cestablish and implement a process to ensure that\nMCAs prepare and make available for audit the status of advances to contractors, retention balances\nand data necessary for MCC to properly report its accruals.\xe2\x80\x9d A&F will work with the OIG to modify\nthe existing scope of semi-annual MCA audits to include audit procedures to verify the accuracy and\ncompleteness of the data provided by the MCAs to calculate advances, retention payments, and\naccruals.\n\nMCC also concurs with the recommendation to \xe2\x80\x9cestablish and implement a process to ensure that all\npersonnel responsible for QFRs understand how to submit accurately prepared and properly\napproved QFRs and Disbursement Requests in a timely manner.\xe2\x80\x9d Through the Task Force mentioned\nearlier, MCC will\xc2\xa0review\xc2\xa0and\xc2\xa0revise\xc2\xa0existing\xc2\xa0processes\xc2\xa0to\xc2\xa0ensure\xc2\xa0that\xc2\xa0quarterly\xc2\xa0reporting\xc2\xa0\nrequirements\xc2\xa0are\xc2\xa0met.\xc2\xa0\xc2\xa0\xc2\xa0\n\xc2\xa0\n\n\n\n 21\n\x0cIn\xc2\xa0addition,\xc2\xa0A&F\xc2\xa0has\xc2\xa0developed\xc2\xa0a\xc2\xa0QFR\xc2\xa0scorecard\xc2\xa0to\xc2\xa0track\xc2\xa0the\xc2\xa0status\xc2\xa0of\xc2\xa0all\xc2\xa0required\xc2\xa0QFRs\xc2\xa0for\xc2\xa0all\xc2\xa0\nfunds.\xc2\xa0The\xc2\xa0scorecard\xc2\xa0will\xc2\xa0be\xc2\xa0distributed\xc2\xa0weekly\xc2\xa0to\xc2\xa0MCC\xc2\xa0senior\xc2\xa0management\xc2\xa0for\xc2\xa0follow\xe2\x80\x90up\xc2\xa0\nactions\xc2\xa0on\xc2\xa0delinquent\xc2\xa0QFRs.\n\nMCC also concurs with the recommendation to \xe2\x80\x9cestablish and implement a process to ensure that\nfunds are periodically reviewed to determine if MCAs should submit final QFRs to record\ndeobligations for funds no longer needed.\xe2\x80\x9d This\xc2\xa0recommendation\xc2\xa0has\xc2\xa0already\xc2\xa0been\xc2\xa0implemented.\xc2\xa0\nA&F\xc2\xa0performs\xc2\xa0a\xc2\xa0semi\xe2\x80\x90annual\xc2\xa0review\xc2\xa0of\xc2\xa0all\xc2\xa0open\xc2\xa0obligations\xc2\xa0which\xc2\xa0includes\xc2\xa0all\xc2\xa0fund\xc2\xa0types.\xc2\xa0\xc2\xa0This\xc2\xa0\nprocess\xc2\xa0is\xc2\xa0outlined\xc2\xa0in\xc2\xa0the\xc2\xa0Financial\xc2\xa0Management\xc2\xa0Policies\xc2\xa0and\xc2\xa0Procedures\xc2\xa0for\xc2\xa0Authorizing\xc2\xa0and\xc2\xa0\nRecording\xc2\xa0Commitments\xc2\xa0and\xc2\xa0Obligations\xc2\xa0issued\xc2\xa0in\xc2\xa0September\xc2\xa02010.\xc2\xa0\xc2\xa0\n\nMCC also concurs with the recommendation to \xe2\x80\x9cimplement a formal process for administering\n609(g) funds in all countries not managed by MCC or MCA.\xe2\x80\x9d\nMCC has developed operating\xc2\xa0procedures\xc2\xa0regarding\xc2\xa0the\xc2\xa0management\xc2\xa0of\xc2\xa0609(g)\xc2\xa0funds\xc2\xa0when\xc2\xa0the\xc2\xa0\nFiscal\xc2\xa0Agent\xc2\xa0has\xc2\xa0not\xc2\xa0been\xc2\xa0selected\xc2\xa0and\xc2\xa0mobilized.\xc2\xa0These\xc2\xa0procedures\xc2\xa0will\xc2\xa0be\xc2\xa0formalized\xc2\xa0and\xc2\xa0\nincorporated\xc2\xa0in\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0Financial\xc2\xa0Management\xc2\xa0Policies\xc2\xa0and\xc2\xa0Procedures.\xc2\xa0\n\xc2\xa0\nMCC also concurs with the recommendation to \xe2\x80\x9cmonitor on quarterly basis the cumulative\nobligation and disbursements of all countries that have received 609(g) funds and communicate with\nthe MCAs to determine if there is still an immediate need to maintain excess 609(g) funds that have\nnot been disbursed.\xe2\x80\x9d This\xc2\xa0recommendation\xc2\xa0has\xc2\xa0already\xc2\xa0been\xc2\xa0implemented.\xc2\xa0A&F\xc2\xa0performs\xc2\xa0a\xc2\xa0\nsemi\xe2\x80\x90annual\xc2\xa0review\xc2\xa0of\xc2\xa0all\xc2\xa0open\xc2\xa0obligations\xc2\xa0which\xc2\xa0includes\xc2\xa0all\xc2\xa0fund\xc2\xa0types.\xc2\xa0\xc2\xa0This\xc2\xa0process\xc2\xa0is\xc2\xa0\noutlined\xc2\xa0in\xc2\xa0the\xc2\xa0Financial\xc2\xa0Management\xc2\xa0Policies\xc2\xa0and\xc2\xa0Procedures\xc2\xa0for\xc2\xa0Authorizing\xc2\xa0and\xc2\xa0Recording\xc2\xa0\nCommitments\xc2\xa0and\xc2\xa0Obligations\xc2\xa0issued\xc2\xa0in\xc2\xa0September\xc2\xa02010.\xc2\xa0\xc2\xa0\n\nMCC also concurs with the recommendation to \xe2\x80\x9cstrengthen its Common Payment System (CPS)\nSignature Card process to include an MCC authorizing signature, effective and termination dates,\nand annual or other periodic review process for MCC, its financial service provider, and the MCAs\nto ensure that signature cards are kept on file for only active users of the CPS system.\xe2\x80\x9d A&F,\xc2\xa0in\xc2\xa0\ncoordination\xc2\xa0with\xc2\xa0DCO,\xc2\xa0will\xc2\xa0strengthen\xc2\xa0the\xc2\xa0CPS\xc2\xa0Signature\xc2\xa0Card\xc2\xa0process\xc2\xa0to\xc2\xa0include\xc2\xa0a\xc2\xa0MCC\xc2\xa0\nauthorizing\xc2\xa0signature,\xc2\xa0effective\xc2\xa0and\xc2\xa0termination\xc2\xa0dates,\xc2\xa0and\xc2\xa0include\xc2\xa0at\xc2\xa0a\xc2\xa0minimum,\xc2\xa0a\xc2\xa0quarterly\xc2\xa0\nreview\xc2\xa0of\xc2\xa0the\xc2\xa0CPS\xc2\xa0process\xc2\xa0and\xc2\xa0update\xc2\xa0the\xc2\xa0CPS\xc2\xa0manual\xc2\xa0to\xc2\xa0include\xc2\xa0the\xc2\xa0revised\xc2\xa0controls.\xc2\xa0\n\nMCC also concurs with the recommendation to \xe2\x80\x9cdevelop policies and procedures for Program\nClosure of Compacts that have been suspended or terminated to ensure that programs, activities, and\nassets are properly accounted for, and final disposition is reported to MCC.\xe2\x80\x9d A&F\xc2\xa0and\xc2\xa0the\xc2\xa0DCO\xc2\xa0will\xc2\xa0\nreview\xc2\xa0the\xc2\xa0existing\xc2\xa0\xe2\x80\x9cGuidelines\xc2\xa0for\xc2\xa0the\xc2\xa0Program\xc2\xa0Closure\xc2\xa0of\xc2\xa0MCC\xc2\xa0Compacts\xe2\x80\x9d\xc2\xa0to\xc2\xa0ensure\xc2\xa0that\xc2\xa0it\xc2\xa0is\xc2\xa0\ninclusive\xc2\xa0of\xc2\xa0policies\xc2\xa0and\xc2\xa0procedures\xc2\xa0for\xc2\xa0suspended\xc2\xa0and/or\xc2\xa0terminated\xc2\xa0compacts.\n\nMCC also concurs with the recommendation to \xe2\x80\x9cestablish guidelines for Fiscal Accountability\nDirectors, Fiscal Agents, as well as personnel in the Division of Finance and MCC\xe2\x80\x99s financial\nservices providers to make them fully aware of any restrictions to process payments made during a\nprogram or compact close-out period.\xe2\x80\x9d A&F\xc2\xa0and\xc2\xa0the\xc2\xa0DCO\xc2\xa0will\xc2\xa0review\xc2\xa0the\xc2\xa0existing\xc2\xa0\xe2\x80\x9cGuidelines\xc2\xa0for\xc2\xa0\nthe\xc2\xa0Program\xc2\xa0Closure\xc2\xa0of\xc2\xa0MCC\xc2\xa0Compacts\xe2\x80\x9d\xc2\xa0to\xc2\xa0ensure\xc2\xa0that\xc2\xa0it\xc2\xa0is\xc2\xa0inclusive\xc2\xa0of\xc2\xa0policies\xc2\xa0and\xc2\xa0procedures\xc2\xa0\nrelated\xc2\xa0to\xc2\xa0budget\xc2\xa0authority\xc2\xa0and\xc2\xa0required\xc2\xa0authorizations\xc2\xa0for\xc2\xa0the\xc2\xa0expenditure\xc2\xa0of\xc2\xa0funds\xc2\xa0during\xc2\xa0\n\n 22\n\x0cand\xc2\xa0after\xc2\xa0the\xc2\xa0compact\xc2\xa0close\xe2\x80\x90out\xc2\xa0period.\xc2\xa0\xc2\xa0The\xc2\xa0Guidelines\xc2\xa0will\xc2\xa0be\xc2\xa0communicated\xc2\xa0to\xc2\xa0all\xc2\xa0\nresponsible\xc2\xa0parties.\xc2\xa0\n\n1. Significant Deficiency: Reporting Fund Balance with Treasury\n\nMCC\xc2\xa0concurs\xc2\xa0with\xc2\xa0the\xc2\xa0recommendation\xc2\xa0to\xc2\xa0\xe2\x80\x9ccontinue to follow USAID\xe2\x80\x99s progress toward\nelimination of cash balance differences between USAID and Treasury and timely clearing of\nsuspense account items in order to monitor MCC\xe2\x80\x99s risk of potential misstatements.\xe2\x80\x9d A&F will\ncontinue\xc2\xa0to\xc2\xa0inquire\xc2\xa0each\xc2\xa0quarter\xc2\xa0(in\xc2\xa0conjunction\xc2\xa0with\xc2\xa0USAIDs\xc2\xa0preparation\xc2\xa0and\xc2\xa0delivery\xc2\xa0of\xc2\xa0MCC\xc2\xa0\nThreshold\xc2\xa0trial\xc2\xa0balances)\xc2\xa0of\xc2\xa0USAID\xe2\x80\x99s\xc2\xa0progress\xc2\xa0towards\xc2\xa0elimination\xc2\xa0of\xc2\xa0cash\xc2\xa0balance\xc2\xa0differences\xc2\xa0\nbetween\xc2\xa0USAID\xc2\xa0and\xc2\xa0Treasury\xc2\xa0and\xc2\xa0timely\xc2\xa0clearing\xc2\xa0of\xc2\xa0suspense\xc2\xa0account\xc2\xa0items\xc2\xa0in\xc2\xa0order\xc2\xa0to\xc2\xa0\nmonitor\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0risk\xc2\xa0of\xc2\xa0potential\xc2\xa0misstatements.\xc2\xa0\n\nUSAID Response: USAID has control over current transactions but was not able to eliminate the\nbacklog of old differences. USAID expects that the improvements we made in our systems for\ncontrolling cash, especially for DHHS, and suspense will enable us to keep current transactions\nunder control for 2011 and give us time to clear up a substantial portion of our old differences.\n \xc2\xa0\n2. Significant Deficiency: Controls Over Financial Reporting\n\nMCC concurs with the recommendation to \xe2\x80\x9ccontinue to strengthen its quality control reviews over\nfinancial statements to ensure that information presented is accurate, complete, and complies with\naccounting standards and reporting guidance.\xe2\x80\x9d MCC\xc2\xa0implemented\xc2\xa0a\xc2\xa0further\xc2\xa0refinement\xc2\xa0to\xc2\xa0its\xc2\xa0\nquality\xc2\xa0control\xc2\xa0reviews\xc2\xa0over\xc2\xa0financial\xc2\xa0reporting\xe2\x80\x90\xe2\x80\x90the\xc2\xa0Division\xc2\xa0of\xc2\xa0Finance\xc2\xa0Budget\xc2\xa0Officer\xc2\xa0and\xc2\xa0\nstaff\xc2\xa0now\xc2\xa0review\xc2\xa0the\xc2\xa0Trial\xc2\xa0Balances\xc2\xa0and\xc2\xa0the\xc2\xa0Statement\xc2\xa0of\xc2\xa0Budgetary\xc2\xa0Resources.\xc2\xa0\xc2\xa0This\xc2\xa0additional\xc2\xa0\nlayer\xc2\xa0of\xc2\xa0review\xc2\xa0compliments\xc2\xa0the\xc2\xa0reviews\xc2\xa0being\xc2\xa0conducted\xc2\xa0by\xc2\xa0the\xc2\xa0Division\xc2\xa0of\xc2\xa0Finance\xc2\xa0\nmanagement\xc2\xa0team.\xc2\xa0\xc2\xa0\n\nMCC also concurs with the recommendation to \xe2\x80\x9cestablish quality control procedures to document\nduring the review process any discrepancies, errors, and other anomalies that have occurred to\nprovide an audit trail of issues that may require on-top adjustments.\xe2\x80\x9d The\xc2\xa0errors\xc2\xa0noted\xc2\xa0in\xc2\xa0the\xc2\xa0audit\xc2\xa0\nreport\xc2\xa0stemmed\xc2\xa0from\xc2\xa0a\xc2\xa0miscommunication\xc2\xa0regarding\xc2\xa0an\xc2\xa0FY\xc2\xa02009\xc2\xa0Financial\xc2\xa0Statement\xc2\xa0Audit\xc2\xa0\nadjustment\xc2\xa0processed\xc2\xa0during\xc2\xa0the\xc2\xa0FY\xc2\xa02009\xc2\xa0annual\xc2\xa0close\xc2\xa0process.\xc2\xa0The\xc2\xa0miscommunication\xc2\xa0\nresulted\xc2\xa0in\xc2\xa0the\xc2\xa0need\xc2\xa0for\xc2\xa0an\xc2\xa0\xe2\x80\x9con\xe2\x80\x90top\xc2\xa0\xe2\x80\x9cadjustment\xc2\xa0to\xc2\xa0the\xc2\xa0final\xc2\xa0financial\xc2\xa0statements.\xc2\xa0\xc2\xa0In\xc2\xa0order\xc2\xa0to\xc2\xa0\nalleviate\xc2\xa0scenarios\xc2\xa0like\xc2\xa0this\xc2\xa0in\xc2\xa0the\xc2\xa0future\xc2\xa0MCC\xc2\xa0will\xc2\xa0request\xc2\xa0auditors\xc2\xa0timely\xc2\xa0submit\xc2\xa0adjustments\xc2\xa0\nusing\xc2\xa0the\xc2\xa0MCC\xc2\xa0Journal\xc2\xa0Voucher\xc2\xa0template.\xc2\xa0\xc2\xa0\xc2\xa0MCC\xc2\xa0will\xc2\xa0continue\xc2\xa0to\xc2\xa0improve\xc2\xa0its\xc2\xa0quality\xc2\xa0control\xc2\xa0\nprocedures\xc2\xa0by\xc2\xa0developing\xc2\xa0and\xc2\xa0adding\xc2\xa0an\xc2\xa0additional\xc2\xa0Excel\xc2\xa0spreadsheet\xc2\xa0worksheet\xc2\xa0to\xc2\xa0its\xc2\xa0\nfinancial\xc2\xa0statements\xc2\xa0workbook\xc2\xa0to\xc2\xa0be\xc2\xa0used\xc2\xa0to\xc2\xa0document\xc2\xa0systematic\xc2\xa0issues\xc2\xa0that\xc2\xa0may\xc2\xa0require\xc2\xa0\xe2\x80\x9con\xe2\x80\x90\ntop\xe2\x80\x9d\xc2\xa0adjustments\xc2\xa0be\xc2\xa0made.\xc2\xa0\xc2\xa0\n\n \xc2\xa0\n \xc2\xa0\n \xc2\xa0\n\n\n\n\n 23\n\x0c \xc2\xa0\nInspector\xc2\xa0General\xc2\xa0\xc2\xa0\nUnited\xc2\xa0States\xc2\xa0Agency\xc2\xa0for\xc2\xa0International\xc2\xa0Development\xc2\xa0\n\xc2\xa0\xc2\xa0\nBoard\xc2\xa0of\xc2\xa0Directors\xc2\xa0\nMillennium\xc2\xa0Challenge\xc2\xa0Corporation\xc2\xa0\n \xc2\xa0\n INDEPENDENT\xc2\xa0AUDITOR\xe2\x80\x99S\xc2\xa0REPORT\xc2\xa0ON\xc2\xa0\xc2\xa0\n COMPLIANCE\xc2\xa0WITH\xc2\xa0LAWS\xc2\xa0AND\xc2\xa0REGULATIONS\xc2\xa0\n\xc2\xa0\nWe\xc2\xa0have\xc2\xa0audited\xc2\xa0the\xc2\xa0Balance\xc2\xa0Sheets\xc2\xa0of\xc2\xa0the\xc2\xa0Millennium\xc2\xa0Challenge\xc2\xa0Corporation\xc2\xa0(MCC)\xc2\xa0as\xc2\xa0of\xc2\xa0September\xc2\xa0\n30,\xc2\xa02010\xc2\xa0and\xc2\xa02009,\xc2\xa0and\xc2\xa0the\xc2\xa0related\xc2\xa0Statements\xc2\xa0of\xc2\xa0Net\xc2\xa0Cost,\xc2\xa0Changes\xc2\xa0in\xc2\xa0Net\xc2\xa0Position,\xc2\xa0and\xc2\xa0Budgetary\xc2\xa0\nResources\xc2\xa0for\xc2\xa0the\xc2\xa0years\xc2\xa0then\xc2\xa0ended.\xc2\xa0We\xc2\xa0have\xc2\xa0issued\xc2\xa0our\xc2\xa0report\xc2\xa0thereon\xc2\xa0dated\xc2\xa0November\xc2\xa015,\xc2\xa02010.\xc2\xa0We\xc2\xa0\nconducted\xc2\xa0our\xc2\xa0audits\xc2\xa0in\xc2\xa0accordance\xc2\xa0with\xc2\xa0auditing\xc2\xa0standards\xc2\xa0generally\xc2\xa0accepted\xc2\xa0in\xc2\xa0the\xc2\xa0United\xc2\xa0States\xc2\xa0of\xc2\xa0\nAmerica;\xc2\xa0standards\xc2\xa0applicable\xc2\xa0to\xc2\xa0financial\xc2\xa0audits\xc2\xa0contained\xc2\xa0in\xc2\xa0Government\xc2\xa0Auditing\xc2\xa0Standards,\xc2\xa0issued\xc2\xa0by\xc2\xa0\nthe\xc2\xa0Comptroller\xc2\xa0General\xc2\xa0of\xc2\xa0the\xc2\xa0United\xc2\xa0States;\xc2\xa0and\xc2\xa0Office\xc2\xa0of\xc2\xa0Management\xc2\xa0and\xc2\xa0Budget\xc2\xa0(OMB)\xc2\xa0audit\xc2\xa0\nguidance.\xc2\xa0\n\xc2\xa0 \xc2\xa0\nMCC\xc2\xa0management\xc2\xa0is\xc2\xa0responsible\xc2\xa0for\xc2\xa0complying\xc2\xa0with\xc2\xa0laws\xc2\xa0and\xc2\xa0regulations\xc2\xa0applicable\xc2\xa0to\xc2\xa0the\xc2\xa0agency.\xc2\xa0As\xc2\xa0\npart\xc2\xa0of\xc2\xa0obtaining\xc2\xa0reasonable\xc2\xa0assurance\xc2\xa0about\xc2\xa0whether\xc2\xa0MCC\xe2\x80\x99s\xc2\xa0financial\xc2\xa0statements\xc2\xa0are\xc2\xa0free\xc2\xa0of\xc2\xa0material\xc2\xa0\nmisstatement,\xc2\xa0we\xc2\xa0performed\xc2\xa0tests\xc2\xa0of\xc2\xa0its\xc2\xa0compliance\xc2\xa0with\xc2\xa0certain\xc2\xa0provisions\xc2\xa0of\xc2\xa0laws\xc2\xa0and\xc2\xa0regulations,\xc2\xa0\nnoncompliance\xc2\xa0with\xc2\xa0which\xc2\xa0could\xc2\xa0have\xc2\xa0a\xc2\xa0direct\xc2\xa0and\xc2\xa0material\xc2\xa0effect\xc2\xa0on\xc2\xa0the\xc2\xa0determination\xc2\xa0of\xc2\xa0financial\xc2\xa0\nstatement\xc2\xa0amounts,\xc2\xa0and\xc2\xa0certain\xc2\xa0other\xc2\xa0laws\xc2\xa0and\xc2\xa0regulations\xc2\xa0specified\xc2\xa0in\xc2\xa0OMB\xc2\xa0audit\xc2\xa0guidance.\xc2\xa0We\xc2\xa0\ncaution\xc2\xa0that\xc2\xa0noncompliance\xc2\xa0may\xc2\xa0have\xc2\xa0occurred\xc2\xa0and\xc2\xa0may\xc2\xa0not\xc2\xa0have\xc2\xa0been\xc2\xa0detected\xc2\xa0by\xc2\xa0these\xc2\xa0tests,\xc2\xa0and\xc2\xa0\nthat\xc2\xa0such\xc2\xa0testing\xc2\xa0may\xc2\xa0not\xc2\xa0be\xc2\xa0sufficient\xc2\xa0for\xc2\xa0other\xc2\xa0purposes.\xc2\xa0\n\xc2\xa0\nThe\xc2\xa0results\xc2\xa0of\xc2\xa0our\xc2\xa0tests\xc2\xa0of\xc2\xa0compliance\xc2\xa0disclosed\xc2\xa0no\xc2\xa0instances\xc2\xa0of\xc2\xa0noncompliance\xc2\xa0that\xc2\xa0we\xc2\xa0are\xc2\xa0required\xc2\xa0to\xc2\xa0\nreport\xc2\xa0under\xc2\xa0Government\xc2\xa0Auditing\xc2\xa0Standards\xc2\xa0and\xc2\xa0OMB\xc2\xa0Bulletin\xc2\xa0audit\xc2\xa0guidance.\xc2\xa0Providing\xc2\xa0an\xc2\xa0opinion\xc2\xa0on\xc2\xa0\ncompliance\xc2\xa0with\xc2\xa0those\xc2\xa0provisions\xc2\xa0was\xc2\xa0not,\xc2\xa0however,\xc2\xa0an\xc2\xa0objective\xc2\xa0of\xc2\xa0our\xc2\xa0audits,\xc2\xa0and\xc2\xa0accordingly,\xc2\xa0we\xc2\xa0do\xc2\xa0\nnot\xc2\xa0express\xc2\xa0such\xc2\xa0an\xc2\xa0opinion.\xc2\xa0\xc2\xa0\xc2\xa0\n\xc2\xa0\nThis\xc2\xa0report\xc2\xa0is\xc2\xa0intended\xc2\xa0solely\xc2\xa0for\xc2\xa0the\xc2\xa0information\xc2\xa0and\xc2\xa0use\xc2\xa0of\xc2\xa0United\xc2\xa0States\xc2\xa0Agency\xc2\xa0for\xc2\xa0International\xc2\xa0\nDevelopment\xc2\xa0(USAID),\xc2\xa0MCC\xc2\xa0management,\xc2\xa0and\xc2\xa0others\xc2\xa0within\xc2\xa0MCC\xc2\xa0and\xc2\xa0USAID,\xc2\xa0OMB,\xc2\xa0and\xc2\xa0Congress.\xc2\xa0It\xc2\xa0is\xc2\xa0\nnot\xc2\xa0intended\xc2\xa0to\xc2\xa0be\xc2\xa0and\xc2\xa0should\xc2\xa0not\xc2\xa0be\xc2\xa0used\xc2\xa0by\xc2\xa0anyone\xc2\xa0other\xc2\xa0than\xc2\xa0these\xc2\xa0specified\xc2\xa0parties.\xc2\xa0\xc2\xa0\n\xc2\xa0\n\xc2\xa0 \xc2\xa0\nCOTTON\xc2\xa0&\xc2\xa0COMPANY\xc2\xa0LLP\xc2\xa0\n\xc2\xa0\nColette\xc2\xa0Y.\xc2\xa0Wilson,\xc2\xa0CPA\xc2\xa0\nPartner\xc2\xa0\n\n\n\n\n 24\n\x0cNovember\xc2\xa015,\xc2\xa02010\xc2\xa0\nAlexandria,\xc2\xa0Virginia\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\n\n\n 25\n\x0c Appendix A\n\nFollowing is the disposition of prior year (2009) findings, recommendations, and MCC\nManagement\xe2\x80\x99s action.\n\nFinding:\n\n1. Control over Mission Activities and Support \xe2\x80\x93 Repeat Material Weakness\n\nStatus: Overall finding still exists in FY 2010, although some of the components were closed.\nFinding was a material weakness in FY 2009, and is again in FY 2010.\n\n 1.1 Untimely Performance and Lack of Monitoring of MCA Audits\n\nRecommendations: We recommend that the MCC Department of Compact Implementation\nand Division of Finance:\n\n \xe2\x80\xa2 Strengthen the monitoring of the MCA audit process, from submission of the audit plan\n through issuance of the audit report to ensure timely completion and sufficient time for\n OIG review, prior to issuing the report to MCC for management comment.\n\n \xe2\x80\xa2 Increase communication between the MCAs, the audit firms, and the OIG to ensure all\n parties are adequately informed of the progress of all audits in a timely manner. Ensure\n that the MCAs understand the impact of these audits and how they affect MCC\xe2\x80\x99s\n assessment of overall controls and its financial statement audit.\n\nStatus: Open.\n\n 1.2 Lack of Adequate Documentation to Support Transactions\n\nRecommendation: We recommend that MCC management, in coordination with the U.S.\nAgency for International Development (USAID), establish effective and periodic communication\nwith MCA and Threshold mission personnel, to emphasize the need for proper documentation to\nbe maintained in the MCA files, and that these documents be readily available and promptly\nsubmitted for inspection when requested.\n\nStatus: Closed\n\n 1.3 Improper Reporting of Re-disbursements\n\nRecommendations: We recommend that MCC Department of Compact Implementation and\nDivision of Finance:\n\n \xe2\x80\xa2 Develop training for MCA Fiscal Agents to ensure proper reporting of re-disbursements\n on the QFRs to ensure the MCA is only requesting advances for immediate funding\n needs.\n\n \xe2\x80\xa2 Develop a tracking mechanism to monitor prepayments and to ensure that MCC and\n NBC personnel are properly reviewing the quarterly submitted QFRs for proper reporting\n of both the projected needs for advancement of funds and actual re-disbursements of\n previously advanced funds.\n\n\n\n 26\n\x0cStatus: Closed.\n\n2. Quality Control over Financial Reporting (Repeat Significant Deficiency)\n\nRecommendations: We recommend that the MCC Division of Finance:\n\n \xe2\x80\xa2 Strengthen its quality control reviews over financial statements, notes, and other\n information presented, to ensure that information presented for audit is accurate,\n complete, and complies with accounting standards and reporting guidance.\n\nStatus: Open.\n\n \xe2\x80\xa2 Increase communication with USAID to ensure information received has been reviewed\n and is reliable, in order for MCC to prepare complete and accurate financial statements\n in accordance with accounting standards and reporting guidance.\n\nStatus: Closed.\n\n3. Controls over Payroll Processes\n\n 3.1 Untimely and Incomplete Processing of Separated Employees\n\nStatus: Closed.\n\n 3.2 Improper and/or Lack of Certification on the SF-52 and SF-50\n\nStatus: Closed.\n\n 3.3 Lack of Support for Employee Selected Benefit Deductions\n\nStatus: Closed.\n\n\n4. Proper Reporting Period (FY 2009 Significant Deficiently, FY 2010 Material\n Weakness)\n\nRecommendations: We recommend that MCC Division of Finance:\n\n \xe2\x80\xa2 Continue to strengthen, and revise as necessary, policies and procedures for yearend\n accruals to ensure that all countries, types of funding, and programs are considered\n when recording estimates for future expenses, and that accruals are reasonably\n sufficient to cover anticipated costs.\n\nStatus: Open.\n\n\n \xe2\x80\xa2 Establish and communicate procedures for the MCAs to require the submission of\n estimates or payment requests for current period expenses that have not, or will not be\n recorded until the subsequent year, for each fund type.\n\n\n\n\n 27\n\x0cStatus: Open.\n\n \xe2\x80\xa2 Ensure that the accrual amount is adequately and reasonably calculated, clearly\n documented and supported, and properly reviewed for completeness and accuracy prior\n to and subsequently after posting to the GL.\n\nStatus: Open.\n\n \xe2\x80\xa2 Ensure that USAID has procedures to resolve incorrect accruals and to make certain\n that quarterly and yearend amounts for the Threshold program are complete and\n accurate.\n\nSTATUS: Closed.\n\n5. Fund Balance with Treasury (FBWT) Reconciliation\n\nRecommendations: We recommend that the MCC Division of Finance:\n\n \xe2\x80\xa2 Inquire of USAID\xe2\x80\x99s procedures to resolve the issue of incomplete SF 224 reporting.\n\nStatus: Open.\n\n \xe2\x80\xa2 Consider revisions to the Memorandum of Agreement (MOA) with USAID to require\n timely responses upon inquiry by MCC management regarding financial statement audit\n findings related to Threshold Program transactions. Open\n\nStatus: Open.\n\n\n\n\n 28\n\x0c Appendix B\n\n\n We received and evaluated MCC\xe2\x80\x99s management comments to the\nManagement recommendations made in this report. Management comments have been\nComments and Our included in its entirety in Appendix C.\nEvaluation\n Based on MCC\xe2\x80\x99s comments, we acknowledge that management decisions have\n been reached on all of the recommendations. MCC should report to the OIG\n when final action has been taken on the recommendations. The following is a\n brief summary of MCC\xe2\x80\x99s management comments on the 17 recommendations\n included in this report and our evaluation of those comments.\n\n Recommendation No. 1\n MCC concurs with the recommendation to modify Payment Request Form (PFR)\n to identify requests for advance payments to vendors.\n\n Auditor Evaluation:\n We conclude that management has adequately addressed this issue, and\n acknowledge that a management decision has been reached.\n\n Recommendation No. 2\n MCC concurs with the recommendation to provide training to Fiscal Agents and\n other in-country personnel to explain how to properly record each line of the\n PRF.\n\n Auditor Evaluation:\n We conclude that management has adequately addressed this recommendation,\n and acknowledge that a management decision has been reached.\n\n Compiling Accruals (Proper Reporting Period)\n\n Recommendation No. 3 MCC concurs with this recommendation to establish a\n comprehensive methodology and/or standard process for obtaining, recording,\n and reporting yearend accruals which covers all MCAs and funds and include\n invoiced and rendered services which have not been recorded in the yearend\n trial balance.\n\n Auditor Evaluation:\n We conclude that management has adequately addressed this issue, and\n acknowledge that a management decision has been reached.\n\n Recommendation No. 4\n MCC concurs with this recommendation to establish consistent communication\n with NBC and the MCAs for understanding the process and methodology\n developed.\n\n . Auditor Evaluation:\n We conclude that management has adequately addressed this issue, and\n acknowledge that a management decision has been reached.\n\n\n\n\n 29\n\x0cRecommendation No. 5\nMCC agrees with the recommendation to perform quality control procedures over\namounts obtained and recorded to ensure that amounts posted are properly\nreviewed for reasonableness, accuracy, and completeness.\n\nAuditor Evaluation:\nWe conclude that management has adequately addressed this issue, and\nacknowledge that a management decision has been reached.\n\nMonitor Controls over MCAs Activities\n\nRecommendation No. 6\nMCC agrees with the recommendation to implement a process for coordinating\nwith MCAs, audit firms, and the OIG to ensure all parties are adequately\ninformed of the progress of all audits, and that the audits are completed in\naccordance with the compact.\n\nAuditor Evaluation:\nWe conclude that management has addressed this issue, and acknowledge that\na management decision has been reached and final action taken.\n\nRecommendation No. 7\nMCC concurs with the recommendation to establish and implement a process to\nensure that MCAs prepare and make available for audit the status of advances to\ncontractors, retention balances and data necessary for MCC to properly report its\naccruals.\n\nAuditor Evaluation:\nWe conclude that management has adequately addressed this issue, and\nacknowledge that a management decision has been reached.\n\nRecommendation No. 8\nMCC concurs with the recommendation to establish and implement a process to\nensure that all personnel responsible for QFRs understand how to submit\naccurately prepared and properly approved QFRs and Disbursement Requests in\na timely manner.\n\nAuditor Evaluation:\nWe conclude that management has adequately addressed this issue, and\nacknowledge that a management decision has been reached.\n\n\nRecommendation No. 9\nMCC agrees with the recommendation to establish and implement a process to\nensure that funds are periodically reviewed to determine if MCAs should submit\nfinal QFRs to record deobligations for funds no longer needed.\n\n\n\n\n 30\n\x0cAuditor Evaluation:\nWe conclude that management has adequately addressed this issue, and\nacknowledge that a management decision has been reached.\n\n\nRecommendation No. 10\nMCC concurs with the recommendation to implement a formal process for\nadministering 609(g) funds in all countries not managed by either MCC or an\nMCA.\n\nAuditor Evaluation:\nMCC has developed operating procedures regarding the management of 609(g)\nfunds when the Fiscal Agent has not been selected and mobilized. MCC will\nformalized and incorporate in MCC\xe2\x80\x99s Financial Management Policies and\nProcedures. We conclude that management has adequately addressed this\nissue, and acknowledge that a management decision has been reached.\n\nRecommendation No. 11\nMCC concurs with this recommendation. A&F currently performs a semi-annual\nreview of all open obligations on a quarterly basis which includes all fund types.\nThis process is outlined in the Financial Management Policies and Procedures\nfor Authorizing and Recording Commitments and Obligations issued in\nSeptember 2010.\n\nAuditor Evaluation:\nWe conclude that management has adequately addressed this issue, and\nacknowledge that a management decision has been reached.\n\nRecommendation No. 12\nMCC agrees with the recommendation to strengthen its CPS Signature Card\nprocess. A&F, in coordination with DCO, will strengthen the CPS Signature Card\nprocess.\n\nAuditor Evaluation:\nWe conclude that management has adequately addressed this issue, and\nacknowledge that a management decision has been reached.\n\nRecommendation No. 13\nMCC agrees to develop policies and procedures for Program Closure of\nCompacts that have been suspended or terminated to ensure that programs,\nactivities, and assets are properly accounted for, and final disposition is reported\nto MCC.\n\nAuditor Evaluation:\nWe conclude that management has adequately addressed this issue, and\nacknowledge that a management decision has been reached.\n\nRecommendation No. 14\nMCC concurs with this recommendation to establish guidelines for Fiscal\nAccountability Directors, Fiscal Agents, as well as personnel in the Division of\nFinance and MCC\xe2\x80\x99s financial services provider to make them fully aware of any\n\n\n\n 31\n\x0c restrictions to process payments made during a program or compact close-out\n period.\n\n Auditor Evaluation:\n We conclude that management has adequately addressed this issue, and\n acknowledge that a management decision has been reached.\n\n Significant Deficiencies\n\n Recommendation No. 15\n MCC concurs with the recommendation to continue to follow USAID\xe2\x80\x99s progress\n toward elimination of cash balance differences between USAID and Treasury\n and timely clearing of suspense account items in order to monitor MCC\xe2\x80\x99s risk of\n potential misstatements.\n\n Auditor Evaluation:\n We conclude that management has adequately addressed this issue, and\n acknowledge that a management decision has been reached.\n\n Recommendation No. 16\n MCC concurs with the recommendation to continue to strengthen its quality\n reviews over financial statements to ensure that information presented is\n accurate, complete, and complies with accounting standards and reporting\n guidance.\n\n Auditor Evaluation:\n We conclude that management has adequately addressed this issue, and\n acknowledge that a management decision has been reached.\n\n Recommendation No. 17 MCC also concurs with the recommendation to\n establish quality control procedures to document during the review process any\n discrepancies, errors, and other anomalies that have occurred to provide an audit\n trail of issues that may require on-top adjustments.\n\n Auditor Evaluation:\n We conclude that management has adequately addressed this issue, and\n acknowledge that a management decision has been reached.\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\xc2\xa0\n\n\n\n 32\n\x0cFINANCIAL SECTION\n In accordance with the OMB Circular A-136, Financial Reporting Requirements, MCC is\n presenting its financial statements in the appropriate form and content for Fiscal Year 2010. The\n tables below outline the following financial statements:\n ` Balance Sheets\n ` Statements of Budgetary Resources\n ` Statements of Net Cost\n ` Statements of Changes in Net Position\n ` Audit the Millennium Challenge Corporation\xe2\x80\x99s Financial Statements, Internal Controls, and\n Compliance for the Period Ending September 30, 2010 and 2009\n ` Notes to Financial Statements\n\n\n\n\n 33\n\x0cBALANCE SHEETS\n\n RESTATED\n FY 2010 FY 2009\n Assets\n Intra-Governmental\n Fund Balance with Treasury (Note 2) $6,554,088,712 $6,655,511,983\n Advances \xe2\x80\x93 Federal (Note 5) 8,778,900 6,474,444\n Total Intra-Governmental 6,562,867,612 6,661,986,427\n Accounts Receivable (Note 3) 49,408 90,363\n General Property, Plant, and Equipment (Note 4) 5,857,213 6,953,153\n Advances \xe2\x80\x93 Public (Note 5) 182,343,189 103,874,266\n Total Assets $6,751,117,423 $6,772,904,210\n\n\n Liabilities\n Intra-Governmental\n Accounts Payable \xe2\x80\x93 Federal (Note 1F) $5,055,266 $229,546\n Contributions and Payroll Taxes Payable 476,667 467,304\n Total Intra-Governmental 5,531,933 696,850\n Federal Employee and Veteran Benefits Payable 12,444 35,751\n Accounts Payable \xe2\x80\x93 Public (Note 1F) 208,104,353 65,665,061\n Accrued Funded Payroll Liabilities 9,279,041 7,196,040\n Total Liabilities $222,927,770 $73,593,702\n\n\n Net Position\n Unexpended Appropriations \xe2\x80\x93 Other Funds $6,522,071,077 $6,694,361,386\n Cumulative Results of Operations \xe2\x80\x93 Other Funds 6,118,576 4,949,121\n Total Net Position $6,528,189,653 $6,699,310,507\n\n\n Total Liabilities and Net Position $6,751,117,423 $6,772,904,210\n\n\n\n\nThe notes are an integral part of these financial statements.\n\n\n\n\n 34\n\x0cSTATEMENTS OF BUDGETARY RESOURCES\n\n RESTATED\n FY 2010 FY 2009\n Budgetary Resources\n Unobligated Balance \xe2\x80\x93 Beginning of Period $787,102,593 $962,304,024\n Recoveries of Prior Years Obligations 4,045,794 1,029,114\n Budget Authority:\n Appropriations (Note 1C) 1,105,000,000 875,000,000\n Non expenditure Transfers, Net, Anticipated and Actual (2,377,922) (679,000)\n Permanently Not Available (50,000,000) 0\n Total Budgetary Resources $1,843,770,465 $1,837,654,138\n\n\n Status of Budgetary Resources\n Obligations Incurred\n Direct $899,566,345 $1,050,551,545\n Unobligated Balance Available 451,137,424 56,176,028\n Unobligated Balance Not Available 493,066,696 730,926,565\n Total Status of Budgetary Resources $1,843,770,465 $1,837,654,138\n\n\n Change in Obligated Balance\n Obligated Balance, Net \xe2\x80\x93 as of October 1, 2009\n Unpaid Obligations, Brought Forward, October 1 $5,868,196,304 $5,583,344,174\n Obligations Incurred 899,566,345 1,050,551,545\n Gross Outlays (1,154,208,950) (764,670,301)\n Recoveries of Prior Year Unpaid Obligations, Actual (4,045,794) (1,029,114)\n Obligated Balance, Net \xe2\x80\x93 End of Period\n Unpaid obligations $5,609,507,905 $5,868,196,304\n Net Outlays\n Gross Outlays $1,154,208,950 $764,670,301\n\n\n\n\nThe notes are an integral part of these financial statements.\n\n\n\n\n 35\n\x0cSTATEMENTS OF NET COSTS\n\n RESTATED\n Program FY 2010 FY 2009\n Program Costs (Note 7)\n Compact\n Gross Costs $1,020,176,345 $490,084,277\n Less: Earned Revenue 0 0\n Net Program Costs 1,020,176,345 490,084,277\n 609 (g) Programs\n Gross Costs 19,551,450 15,693,976\n Less: Earned Revenue 0 0\n Net Program Costs 19,551,450 15,693,976\n Threshold Programs\n Gross Costs 58,985,525 120,372,199\n Less: Earned Revenue 0 0\n Net Program Costs 58,985,525 120,372,199\n Due Diligence Programs\n Gross Costs 28,555,929 28,922,102\n Less: Earned Revenue 0 0\n Net Program Costs 28,555,929 28,922,102\n Audit\n Gross Costs 3,517,852 3,792,544\n Less: Earned Revenue 0 0\n Net Program Costs 3,517,852 3,792,544\n Administrative\n Gross Costs 95,580,731 91,746,536\n Less: Earned Revenue 0 0\n Net Program Costs 95,580,731 91,746,536\n Program Costs \xe2\x80\x93 Net of All Programs $1,226,367,832 $750,611,635\n Net Costs of Operations $1,226,367,832 $750,611,635\n\n\n\n\nThe notes are an integral part of these financial statements.\n\n\n\n\n 36\n\x0cSTATEMENTS OF CHANGES IN NET POSITION\n\n RESTATED\n FY 2010 FY 2009\n Cumulative Results of Operations\n Beginning Balances $4,949,121 $6,839,070\n Adjustments\n Beginning Balance, as Adjusted 4,949,121 6,839,070\n Budgetary Financing Sources\n Appropriations Used $1,224,912,387 $746,726,904\n Other Financing Sources\n Donations and Forfeitures of Property (Note 1P) $269,513 $205,267\n Imputed Financing 2,355,386 1,789,515\n Total Financing Sources 1,277,537,287 748,721,686\n Net Cost of Operations (1,226,367,832) (750,611,635)\n Net Change 1,169,455 (1,889,949)\n Cumulative Results of Operations $6,118,576 $4,949,121\n\n\n Unexpended Appropriations\n Beginning Balance $6,694,361,386 $6,548,610,190\n Adjustments 0\n Correction of errors 18,157,101\n Beginning Balance, as Adjusted $6,694,361,386 $6,566,767,291\n Budgetary Financing Sources\n Appropriations Received $1,105,000,000 $875,000,000\n Appropriations Transferred In/Out (2,377,922) (679,000)\n Other adjustments (50,000,000) 0\n Appropriations Used (1,124,912,387) (746,726,904)\n Total Budgetary Financing Sources (172,290,309) 127,594,096\n Total Unexpended Appropriations $6,522,071,077 $6,694,361,386\n Net Position $6,528,189,653 $6,699,310,507\n\nThe notes are an integral part of these financial statements.\n\n\n\n\n 37\n\x0cNOTES TO FINANCIAL STATEMENTS (AS OF SEPTEMBER 30, 2010)\n\n NOTE 1\xe2\x80\x94SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES\n A. BASIS OF PRESENTATION\n The accompanying financial statements have been prepared to report the financial\n position, results of operations and budgetary resources for MCC as required by OMB\n Circular A-136, Financial Reporting Requirements, for form and content and in\n accordance with Section 613 of the Millennium Challenge Act of 2003, as amended, and\n the Government Corporation Control Act (31 U.S.C. \xc2\xa79106). These financial statements\n have been prepared from MCC\xe2\x80\x99s books and records and are presented in accordance with\n the applicable requirements of OMB, the Secretary of the Treasury, and the Government\n Management and Reform Act of 1994.\n\n MCC\xe2\x80\x99s accounting policies conform to and are consistent with Generally Accepted\n Accounting Principles for the Federal Government, as promulgated by OMB and\n prescribed by the Federal Accounting Standards Advisory Board.\n\n MCC\xe2\x80\x99s principle financial statements are:\n\n ` Balance Sheet;\n ` Statement of Net Cost;\n ` Statement of Budgetary Resources; and\n ` Statement of Changes in Net Position.\n\n Financial statement footnotes are also included and considered an integral part of the\n financial statements.\n\n B. REPORTING ENTITY\n MCC was formed in January 2004 pursuant to the Millennium Challenge Act of 2003, as\n amended, (Public Law 108-199). MCC\xe2\x80\x99s mission is to reduce poverty by supporting\n sustainable, transformative economic growth in developing countries that create and\n maintain sound policy environments. Assistance is intended to provide economic growth\n and alleviate extreme poverty, strengthen good governance, encourage economic\n freedom, and promote investments in people.\n\n C. BUDGETS AND BUDGETARY ACCOUNTING\n MCC\xe2\x80\x99s programs and activities are funded through no-year appropriations. Such funds\n are available for obligation without fiscal year limitation and remain available until\n expended. MCC has attained total appropriations of $1.105 billion and $875 million in\n Fiscal Year 2010 and Fiscal Year 2009, respectively. OMB apportions MCC\n administrative funds on an annual basis pursuant to statutory limitations in the\n appropriations bill. In addition, MCC receives from OMB a separate apportionment of\n\n\n 38\n\x0c funds for administrative and audit oversight, compact programs, due diligence programs,\n 609(g) programs and threshold programs. MCC does not have any earmarked funds.\n Because of the no-year status of MCC appropriations, unobligated administrative, audit,\n and due diligence funds (apportioned on annual bases) are not returned to the Treasury;\n however, unobligated balances as of September 30 for these three categories of funds are\n transferred to the program fund category at the beginning of the subsequent fiscal year.\n\nD. BASIS OF ACCOUNTING\n Financial transactions are recorded on accrual and budgetary bases in accordance with\n pertinent federal accounting and financial reporting requirements. Under the accrual\n method of accounting, financing sources are recognized when used and expenses are\n recognized when incurred, without regard to receipt or payment of cash. Budgetary\n accounting facilitates MCC\xe2\x80\x99s compliance with legal constraints and controls over the use\n of Federal funds.\n The accompanying Balance Sheet, Statement of Net Cost, and Statement of Changes in\n Net Position are prepared on the accrual basis. The Statement of Budgetary Resources is\n prepared in accordance with budgetary accounting rules.\n\nE. FUND BALANCE WITH TREASURY\n MCC does not maintain cash in commercial bank accounts. Rather, MCC\xe2\x80\x99s funds are\n maintained in Treasury accounts. The Department of the Treasury processes all cash\n receipts and disbursements for MCC. The fund balances with Treasury represent no-year\n funds, which are maintained in appropriated funds that are available to pay current and\n future commitments.\n\nF. ACCOUNTS PAYABLE\n MCC records as liabilities all amounts due to others as a direct result of transactions or\n events that have occurred. Accounts payable represent amounts due to Federal and non-\n Federal entities for goods and services received by MCC, but not paid at the end of the\n accounting period. Accounts payable reported at the end of Fiscal Year 2010 were $208\n million (non-Federal) and $5.1 million (Federal) and at the end of Fiscal Year 2009 were\n $65.7 million (non-Federal) and $230 thousand (Federal).\n\nG. ACTUARIAL FECA LIABILITY\n The Federal Employees\xe2\x80\x99 Compensation Act (FECA) provides income and medical cost\n protection to covered Federal civilian employees injured on the job, employees who have\n incurred a work-related occupational disease, and beneficiaries of employees whose\n deaths are attributable to a job-related injury or occupational disease.\n\n Claims incurred for benefits for MCC employees under FECA are administered by the\n Department of Labor (DOL) and later billed to MCC. MCC\xe2\x80\x99s actuarial liability for\n workers\xe2\x80\x99 compensation includes any costs incurred but unbilled as of year-end, as\n calculated by DOL, and is not funded by current appropriations.\n\n\n\n 39\n\x0c MCC incurred no FECA liabilities during Fiscal Year 2010 and Fiscal Year 2009.\n\nH. ACCRUED ANNUAL LEAVE\n The value of employees\xe2\x80\x99 unused annual leave at the end of each fiscal quarter is accrued\n as a liability. At the end of each fiscal quarter, the balance in the accrued annual leave\n account is adjusted to reflect current pay rates and leave balances. Annual leave is funded\n from current appropriations. Sick leave and other types of non-vested leave are expensed\n when used and, in accordance with Federal requirements, no accruals are recorded for\n unused sick leave.\n\nI. NET POSITION\n Net position is composed of unexpended appropriations and cumulative results of\n operations. Unexpended appropriations are funds appropriated by Congress to MCC that\n are still available for expenditure at the end of the fiscal year. Cumulative results of\n operations represent the net differences between financing sources and expenses since\n MCC\xe2\x80\x99s inception.\n\nJ. FINANCING SOURCES\n Per note 1C, MCC funds its program and operating expenses through no-year\n appropriations. Appropriations are recognized as an accrual-based financing source at\n the time they are used to pay program or administrative expenses, except for expenses to\n be funded by future appropriations.\n\nK. RETIREMENT BENEFITS\n MCC\xe2\x80\x99s employees participate in either the Civil Service Retirement System (CSRS) or\n the Federal Employees Retirement System (FERS). FERS was established by Public\n Law 99-335. Pursuant to this law, most U.S. Government employees hired after\n December 31, 1983, are covered by FERS and Social Security. Federal employees hired\n prior to January 1, 1984, were allowed to elect whether they desired to participate in\n FERS (with Social Security coverage) or remain in CSRS. For employees covered by\n CSRS, MCC contributes seven percent of their gross pay toward their retirement benefits.\n For those employees covered by FERS, MCC contributes 11 percent of their gross pay\n toward retirement. Employees are also allowed to participate in the Federal Thrift\n Savings Plan (TSP). For employees under FERS, MCC contributes an automatic one\n percent of basic pay to TSP and matches employee contributions up to an additional four\n percent of pay, for a maximum MCC contribution amounting to five percent of pay.\n Employees under CSRS may participate in the TSP, but will not receive either MCC\xe2\x80\x99s\n automatic or matching contributions.\n\n As of the end of Fiscal Year 2010, MCC made retirement contributions of $104 thousand\n to CSRS, $2.8 million to FERS, and $1.1 million to TSP.\n\nL. USE OF ESTIMATES\n The preparation of financial statements requires management to make estimates and\n assumptions that affect the reported amounts of assets and liabilities, the disclosure of\n\n\n 40\n\x0c contingent assets and liabilities at the date of the financial statements, and the reported\n amounts of financing sources and expenses during the reporting period. Actual results\n could differ from such estimates.\n\nM. CONTINGENCIES\n MCC can be a party to various routine administrative proceedings, legal actions, and\n claims brought by or against it, including threatened or pending litigation involving labor\n relations claims, some of which may ultimately result in settlements or decisions against\n MCC. In the opinion of MCC\xe2\x80\x99s management and legal counsel, there are no proceedings,\n actions, or claims outstanding or threatened that would materially impact MCC\xe2\x80\x99s\n financial statements.\n\nN. JUDGMENT FUND\n Certain legal matters to which MCC can be named as a party may be administered and, in\n some instances, litigated and paid by other Federal agencies. In general, amounts paid in\n excess of $2,500 for Federal Tort Claims Act settlements or awards pertaining to these\n litigations are funded from a special appropriation administered by the Department of the\n Treasury, called the Judgment Fund. Although the ultimate disposition of any potential\n Judgment Fund proceedings cannot be determined, management expects that any liability\n or expense that might ensue would not be material to MCC\xe2\x80\x99s financial statements.\n\nO. CUSTODIAL LIABILITIES\n Under current policy and procedures, MCC disburses funds for Compact and pre-\n Compact projects and activities upon the presentation of a valid invoice. However, under\n certain conditions, MCC will fund countries by advancing funds on an as-needed basis to\n cover basic needs. Such funds provided to the countries are required to be deposited in\n interest-bearing accounts, if legally feasible, until disbursed. The interest earned on these\n accounts is remitted to MCC by the MCA and is then returned to the Treasury\xe2\x80\x99s general\n funds. MCC received and deposited $377 thousand and $213 thousand in interest\n remittances as of September 30, 2010 and 2009, respectively.\n\nP. DONATED SERVICES\n MCC may on occasion utilize donated services from other Federal agencies, individuals\n and private firms in the course of business operations. The approximate fair market value\n of donated services for Fiscal Year 2010 was $270 thousand and Fiscal Year 2009 was\n $205 thousand.\n\nQ. TRANSFERS WITH OTHER FEDERAL AGENCIES\n MCC is a party to allocation transfers with another Federal agency as a transferring\n entity. Allocation transfers are legal delegations by one department of its authority to\n obligate budget authority and outlay funds to another department. A separate fund\n account (allocation account) is created in the U.S. Treasury as a subset of the parent fund\n account for tracking and reporting purposes. All allocation transfers of balances are\n\n\n\n 41\n\x0c credited to this account, and subsequent obligations and outlays that are incurred by the\n child entity are charged to this allocation account, as they execute the delegated activity\n on behalf of the parent entity. Generally, all financial activity related to these allocation\n transfers (e.g., budget authority, obligations, outlays) is reported in the financial\n statements of the parent entity, from which the underlying legislative authority,\n appropriations, apportionments are derived.\n\n MCC allocates funds, as the parent, to USAID. In Fiscal Year 2010 and Fiscal Year\n 2009, MCC transferred budgetary authority of $25 million and $33 million, respectively,\n to USAID to administer Threshold and Compact programs. USAID receives these\n allocations as transfers-in and reports quarterly to MCC as the child. MCC also transfers\n an administrative fee to USAID for the purposes of administering the Threshold and\n Compact programs. Since Fiscal Year 2008, these administrative fee transfers are not\n reported back to MCC.\n\nNOTE 2\xe2\x80\x94FUND BALANCE WITH TREASURY\n The U.S. Treasury accounts for all U.S. Government cash on an overall consolidated\n basis. MCC is appropriated \xe2\x80\x9cgeneral\xe2\x80\x9d funds only and maintains theses balances in the\n Fund Balance with Treasury. The general fund line items on the Balance Sheet for\n September 30, 2010 and 2009 consisted of the amounts presented in Exhibit 13. The\n status of the general fund balances is summarized by obligated, unobligated and Non-\n Budgetary fund balances in Exhibit 14.\n\n Exhibit 13: Fund Balance with Treasury as of September 30\n\n September 30, 2010 RESTATED\n (in thousands) September 30, 2009\n (in thousands)\n Fund Balances\n General Funds $6,554,089 $6,655,512\n Total $6,554,089 $6,655,512\n\n\n Exhibit 14: Status of Fund Balance with Treasury as of September 30\n\n September 30, 2010 RESTATED\n (in thousands) September 30, 2009\n (in thousands)\n Status of Fund Balance with Treasury\n Unobligated Balance\n Available $451,137 $56,176\n Unavailable 493,067 730,927\n Obligated Balance $5,609,508 $5,868,196\n Non-Budgetary FBWT 377 213\n Total $6,554,089 $6,655,512\n\n\n\n\n 42\n\x0cNOTE 3\xe2\x80\x94ACCOUNTS RECEIVABLE, NET\n Accounts receivable reflect overpayments of payroll, travel and other MCC current and\n former employee expenses. It also reflects substantiated disallowed MCA expenditures.\n MCC does not record an allowance for doubtful accounts as these expenses are deemed\n wholly collectible. Total receivables as of the end of Fiscal Year 2010 and Fiscal Year\n 2009 were approximately $49 thousand and $90 thousand, respectively.\n\nNOTE 4\xe2\x80\x94GENERAL PROPERTY, PLANT AND EQUIPMENT (PP&E), NET\n MCC\xe2\x80\x99s PP&E costs are the associated leasehold improvements made to its leased office\n space. MCC has made significant leasehold improvements to its office space and\n amortizes the improvements based on the in-service (invoice) date of the improvement.\n Amortization on that in-service improvement is calculated on a quarterly basis. The cost\n of these improvements for both Fiscal Years 2010 and 2009 was $10.9 million.\n Accumulated amortization was approximately $5.2 million and $4.0 million,\n respectively. The current book value is $5.7 million and $7.0 million for the periods\n ending September 30, 2010 and 2009, respectively. The useful life of the improvements\n is based on the lease terms: ten years for the Bowen building lease and eight years for the\n City Center building lease.\n\n MCC\xe2\x80\x99s capitalization threshold for all other general property, plant and equipment must\n have an original cost of $50,000 or more and an estimated useful life of five or more\n years. For Fiscal Year 2010, equipment was valued at approximately $139 thousand.\n Accumulated depreciation was approximately $20 thousand for Fiscal Year 2010. MCC\n did not have any equipment assets for Fiscal Year 2009.\n\n MCC\xe2\x80\x99s software capitalization threshold defines a capitalized asset that has an original\n cost of $200,000 or more and an estimated useful life of five years or more and the\n information technology infrastructure capitalization threshold defines a capitalized asset\n as having an original cost of $200,000 or more and an estimated useful life of three years\n or more. These Thresholds reduce MCC\xe2\x80\x99s administrative costs associated with\n accounting for PP&E, and result in increased operational efficiency.\n\nNOTE 5\xe2\x80\x94ADVANCES\n Advances reflect amounts provided to Compact countries and other Federal agencies in\n accordance with formal Compacts or inter-agency agreements. MCC reported $191.1\n million ($8.8 million, Federal and $182.3 million, non Federal) and $110.4 million ($6.5\n million, Federal and $103.9 million, non-Federal) in advances as of September 30, 2010\n and 2009, respectively.\n\nNOTE 6\xe2\x80\x94LEASES\n MCC leases office space in two adjacent locations in Washington, D.C. These operating\n leases are on ten-year (Bowen Building) and eight-year (City Center Building) lease\n terms that terminate on May 25 and May 26, 2015, respectively. The Bowen building\n\n\n\n 43\n\x0c lease increases approximately one percent each year of the lease term. The City Center\n building lease increases at a fixed level every three years until the termination of the\n lease.\n\n MCC also has short term leases for one (1) corporate vehicle (through June 28, 2015) and\n for eighteen (18) office copier machines (through January 31, 2012) utilized in both\n buildings. The future lease payments due are depicted in Exhibit 15 below.\n\n Exhibit 15: Operating Leases\n\n Future Lease Payments Due (in dollars)\n Fiscal Year Bowen City Center Total\n FY 2011 5,613,117 1,942,376 7,555,493\n FY 2012 5,669,249 1,942,376 7,611,625\n FY 2013 5,725,941 1,942,376 7,668,317\n FY 2014 5,783,201 1,995,229 7,778,430\n FY 2015 5,841,033 1,995,229 7,836,262\n Total Future Lease Payments $28,632,541 $9,817,586 $38,450,127\n Future Lease Payments Due (in dollars)\n Fiscal Year MCC Vehicle MCC Copiers Total\n FY 2011 10,980 55,821 66,801\n FY 2012 10,980 55,821 66,801\n FY 2013 10,980 10,980\n FY 2014 10,980 10,980\n FY 2015 8,235 8,235\n Total Future Lease Payments $52,155 $111,642 $163,797\n\n\n\nNOTE 7\xe2\x80\x94INTRAGOVERNMENTAL COSTS AND EXCHANGE REVENUE\n The Statement of Net Cost reports the MCC\xe2\x80\x99s gross cost less earned revenues to arrive at\n net cost of operations. Costs have been illustrated by MCC funded programs. Exhibit\n 16 shows the value of exchange transactions between MCC and other Federal entities, as\n well as non-Federal entities. Intra-governmental costs relate to transactions between the\n MCC and other Federal entities. Public costs relate to transactions between the MCC and\n non-Federal entities. MCC does not have any exchange revenues.\n\n\n\n\n 44\n\x0c Exhibit 16: Intra-governmental Costs and Exchange Revenue (in thousands)\n\n\n\n\n Administrative\n Due Diligence\n RESTATED\n FY 2010 FY 2009\n\n\n\n\n Threshold\n Compact\n\n\n Total Total\n 609(g)\n\n\n\n\n Audit\n (in (in\n thousands) thousands)\nIntra-\n 35 5 16,281 5,151 3,246 17,510 42,228 27,537\nGovernmental\nPublic 1,017,189 19,547 43,407 23,467 272 80,258 1,184,140 723,075\nTotal -\nProgram 1,017,224 19,552 59,688 28,618 3,518 97,768 1,226,368 $750,612\n\n\n\n\n NOTE 8\xe2\x80\x94UNDELIVERED ORDERS AT THE END OF THE PERIOD\n Exhibit 17 presents Undelivered Orders, paid and unpaid, as of September 30, 2010 and\n 2009.\n\n Exhibit 17: Undelivered Orders\n\n RESTATED\n Undelivered Orders 2010 2009\n Administrative $28,539,653 $27,268,537\n Audit 1,031,296 1,131,689\n 609(g) 37,167,213 42,422,624\n Due Diligence 65,060,507 60,123,947\n Program 5,334,343,971 5,625,698,055\n Threshold 111,935,476 148,518,787\n Total $5,578,078,116 $5,905,163,639\n\n NOTE 9\xe2\x80\x94EXPLANATION OF DIFFERENCES BETWEEN THE STATEMENT OF BUDGETARY\n RESOURCES AND THE BUDGET OF THE U.S. GOVERNMENT\n MCC ensures that the information reported in its books is reflected within the Budget of\n the U.S. Government. Since MCC\xe2\x80\x99s financial statements are published before the\n President\xe2\x80\x99s Budget, this reconciliation is based on the Statement of Budgetary Resources\n column for Fiscal Year 2009 and the Fiscal Year 2009 actual data reported in the Fiscal\n Year 2011 budget submission. Fiscal year 2010 actual data will be published within the\n 2012 Budget of the United States to be published in February 2011. No material\n differences were noted.\n\n\n\n\n 45\n\x0cNOTE 10\xe2\x80\x94RESTATEMENTS\n During Fiscal Years 2008 and 2009, MCA\xe2\x80\x99s erroneously reported vendor disbursements\n as expenses that should have been reported as advances for goods and services. MCA\xe2\x80\x99s\n also did not report to MCC any retention payments being withheld for services rendered\n during Fiscal Year 2009. Those amounts should have been accrued during Fiscal Year\n 2009 to capture those expenses when incurred. This restatement is being presented in the\n Fiscal Year 2009 column of these comparative financial statements. The Balance Sheet,\n Statement of Net Cost and Statement of Changes in Net Position are all affected by this\n restatement. The original reported amount, effect of the restatement and the restated\n amount are all summarized in Exhibit 18 below.\n\n MCC has developed a revised accrual methodology to communicate directly with each\n country to determine a more accurate estimate of the value of goods and services\n received; both invoiced and unbilled. MCC believes that direct communication with each\n MCA will allow for the proper treatment of expense accruals within the proper reporting\n period.\n\n MCC has analyzed the issue surrounding the proper reporting of advances to vendors within\n country to perform services but reported to MCC as expenses. MCC is revising its Payment\n Request Form to ensure MCA\xe2\x80\x99s are accurately designating funds being disbursed to a vendor so\n that an advance or expense disbursed is recorded in the MCC financial system accurately. MCC\n will also be performing a reconciliation of those advances erroneously reported as an expense\n within each country to ensure the financial records within the MCC financial system is consistent\n with financial records within each country.\n\n Exhibit 18: Restatement of Fiscal Year 2009 Financial Statement Material Amounts\n 2009 Effect of 2009\n Reported Restatement Restated\n Balance Sheet\n Advances to Others $32,422,386 $71,451,880 $103,874,266\n\n Total Assets $6,701,452,32 $71,451,880 $6,772,904,210\n 9\n Accounts Payable $56,026,101 $9,638,960 $65,665,061\n Total Liabilities $63,954,742 $9,638,960 $73,593,702\n Unexpended $6,632,548,46 $61,812,920 $6,694,361,386\n Appropriations \xe2\x80\x93 other 6\n funds\n Total Net Position $6,637,497,58 $61,812,920 $6,699,310,507\n 7\n Statement of Net Costs\n Compact \xe2\x80\x93 Gross Costs $533,740,058 ($43,655,781) $490,084,277\n Net Cost of Operations $794,267,415 ($43,655,781) $750,611,635\n\n\n\n 46\n\x0c Statement of Changes\n in Net Position\n Budgetary Financing $790,382,685 ($43,655,781)\n Sources \xe2\x80\x93 Appropriations $746,726,904\n Used\n Total Financing Sources $792,377,466 ($43,655,781) $748,721,686\n Net Cost of Operations ($794,267,415 ($43,655,781) ($750,611,635)\n )\n Corrections of Errors (39) $18,157,140 $18,157,101\n Unexpended $6,548,610,15 $18,157,140 $6,566,767,290\n Appropriations \xe2\x80\x93 1\n Beginning Balance, as\n adjusted\n Budgetary Financing ($790,382,685 $43,655,781 ($746,726,904)\n Sources \xe2\x80\x93 Appropriations )\n Used\n Total Budgetary $83,938,315 $43,655,781 $127,594,096\n Financing Resources\n Total Unexpended $6,632,548,46 $61,812,920 $6,694,361,386\n Appropriations 6\n Net Position $6,637,497,58 $61,812,920 $6,699,310,507\n 7\n\nNOTE 11\xe2\x80\x94RECONCILIATION OF NET COST OF OPERATIONS TO BUDGET\n Exhibit 19 reconciles the resources available to MCC to finance operations with the net\n cost of operating MCC\xe2\x80\x99s programs. Some operating costs, such as depreciation, do not\n require direct financing sources. This exhibit illustrates the reconciliation of Net Cost of\n Operations to Budget.\n\n Exhibit 19: Reconciliation of Net Cost of Operations to Budget\n\n Resources Used to Finance\n Activities Program Costs\n Budgetary Resources Obligated\nObligations Incurred $899,566,345 Gross Costs $1,226,367,832\nRecoveries of prior year unpaid (4,045,794)\nobligations\nOther financing resources 2,624,899\nTotal resources used to finance 898,145,451\nactivities\nTotal resources used to finance items 326,986,011 Less: Earned Revenue -\nnot part of the net cost of operations\nTotal components of net cost of 1,236,370\noperations that will not require or\ngenerate resources\n Net Cost of Operations $1,226,367,832 Net Cost of Operations $1,226,367,832\n\n\n\n 47\n\x0c"