	Background

		Enterprise Funds: Definition and History

A U.S. government–funded enterprise fund is an organization that is  designed to promote the expansion of the private sector in developing  and transitioning countries by providing financing and technical  assistance to locally owned small and medium-sized enterprises. EAEF Has Not Made Any Investments in Egypt While TAEF Has Invested $2.4 Million in Tunisia

		EAEF Has Not Made Any Investments in Egypt as Its Initial Investment Did Not Proceed as Planned

EAEF has not made any investments in Egypt, as its first investment, to  purchase an Egyptian bank, did not come to fruition. EAEF’s investment  strategy had been to purchase a bank that would lend money to small  and medium-sized enterprises in Egypt. The Chairman stated that he anticipates  investing $60 million to $90 million in these three areas. TAEF plans to promote private sector development in  Tunisia by investing in (1) a private equity fund that supports SMEs, (2)  direct investments in SMEs smaller than those targeted by the private  equity fund, (3) microfinance institutions, and (4) start-ups. In June 2014, TAEF committed to its first investment of over $2.4 million  in a private equity fund that invests in SMEs in a variety of industries,  such as telecommunications, agribusiness, and renewable energy. The boards of  both Funds have met regularly since their inceptions. In addition, the  Funds have established corporate policies and procedures, which USAID  has approved. Information and communication. According to USAID officials, the Funds plan to  have their 2013 and 2014 financial statements audited. USAID has also not tracked  the Funds’ use of cash in a way that allows the agency to monitor  whether EAEF and TAEF are spending it in a timely manner. Last, the Funds’  corporate policies do not include key vetting procedures to prevent the  illicit use of funds, the presence of which was expected by USAID. EAEF and TAEF Have Not Submitted Performance Monitoring Plans Required by the Grants

EAEF and TAEF have not yet submitted performance monitoring plans as  required by the grant agreements. The Funds have generally complied with the requirements in  their grant agreements with USAID. Recommendations for Executive Action

To further enhance USAID’s oversight of the Funds and to ensure the  Funds fully implement the grant agreements, we recommend that the  Administrator of USAID take the following four steps:  1.  establish a process to better manage cash advances to the Funds,  2.  make certain that the Funds comply with grant agreement  requirements related to performance monitoring,  3.  ensure that the Funds comply with grant agreement requirements  related to public communications, and  4.  ensure that the Funds’ corporate policies reflect grant agreement  provisions regarding vetting requirements designed to prevent  transactions with prohibited individuals and organizations. 112-74) requested that we examine the  management and oversight of the Egyptian-American Enterprise Fund  (EAEF) and the Tunisian-American Enterprise Fund (TAEF) (the Funds)  to determine if appropriate and sufficient safeguards exist against  financial misconduct. In this report, we examined (1) the status of  EAEF’s and TAEF’s investments, (2) EAEF’s and TAEF’s progress in  establishing key management structures to support their missions and  operations, and (3) the extent to which EAEF and TAEF have complied  with certain requirements of the USAID grant agreements. To examine what progress the Funds have made in establishing key  management structures, we reviewed EAEF and TAEF documents,  including the Funds’ statements of corporate policies and procedures,  bylaws, employee job descriptions, organization charts, financial and  annual reports, and board of director meeting minutes. In addition, we interviewed the EAEF and TAEF  Chairmen and senior management about their efforts to comply with the  terms and conditions of the grant agreements as well as USAID officials  regarding their efforts to oversee the Funds’ compliance with the grant  agreements.
Why GAO Did This Study

In the wake of the economic and political transitions associated with the “Arab Spring,” Congress authorized the creation of enterprise funds for Egypt and Tunisia in 2011. EAEF and TAEF aim to develop the private sectors in these countries, particularly SMEs, through instruments such as loans, equity investments, and technical assistance. USAID signed grant agreements with both Funds in 2013 and has thus far obligated $120 million to EAEF and $60 million to TAEF. In this report, GAO examines (1) the status of the Funds' investments, (2) the Funds' progress in establishing key management structures to support their missions and operations, and (3) the extent to which the Funds have complied with requirements in the grant agreements. To address these objectives, GAO reviewed USAID and Fund documents, such as EAEF and TAEF grant agreements, policies and procedures, and the Funds' boards of directors meeting minutes. GAO also interviewed USAID and Fund officials.

What GAO Found

The Egyptian-American Enterprise Fund (EAEF) has not yet made any investments in Egypt, and the Tunisian-American Enterprise Fund (TAEF) has made an over $2.4 million investment in Tunisia. EAEF has not made any investments in Egypt as its initial investment did not proceed as planned. EAEF's attempt to purchase a bank in Egypt that would lend money to small and medium-sized enterprises (SME) was rejected by the Egyptian Central Bank. EAEF is now considering other options, such as investments in the food and beverage sector. TAEF's investment strategy is to invest in four different areas: (1) a private equity fund investing in SMEs, (2) direct investments in SMEs smaller than those targeted by the private equity fund, (3) microfinance institutions, and (4) start-ups. In June 2014, TAEF made an over $2.4 million investment in a private equity fund that invests in and finances Tunisian SMEs.
EAEF and TAEF (the Funds) have made progress in establishing key management structures to support their mission and operations, with additional actions under way. In terms of administrative structures, both Funds have hired initial staff. Regarding their corporate governance, EAEF and TAEF both have boards of directors that have met regularly, adopted by-laws, and developed corporate policies and procedures. Both Funds plan to develop and implement additional management structures in the future, such as audits of their 2013 and 2014 financial statements.
While TAEF and EAEF have generally fulfilled the requirements of the grant agreements, GAO found three gaps in the Funds' implementation and one gap in the U.S. Agency for International Development's (USAID) implementation. First, the Funds have not yet submitted their performance monitoring plans as required by the grant agreements. Second, EAEF has not implemented the provisions in its grant agreement related to public communications, such as development of its own logo. Third, the Funds' corporate policies do not include procedures to implement vetting requirements designed to prevent illicit use of the funds, the presence of which was expected by USAID. USAID has also not tracked the Funds' use of cash in a way that allows the agency to monitor whether EAEF and TAEF are spending it in a timely manner. Collectively, these gaps in implementation pose challenges for USAID's oversight of the Funds.

What GAO Recommends

GAO recommends that USAID take steps to further enhance its oversight of the Funds' compliance with the grant agreements and other requirements by establishing a process to better manage cash advances to the Funds; ensuring that the Funds comply with the grant agreement requirements related to performance monitoring and public communications; and ensuring that the Funds' corporate policies include vetting requirements. USAID concurred with our recommendations.