1. 4. After compacts enter into force, MCC may begin the disbursement of funds  and countries may begin implementing projects. For the six countries whose compacts  had entered into force as of the end of May 2006, completing the steps  necessary for entry into force after compact signing took approximately 3  to 4 months for Madagascar, Cape Verde, and Honduras; approximately 7  months for Georgia; 2 months for Vanuatu; and about 10½ months for  Nicaragua. MCC Assessed Five Key Aspects of Proposals While Developing Guidance, but Limitations Affected the Accuracy of Economic Analyses

MCC undertook a wide range of activities in its due diligence of the  Madagascar, Cape Verde, and Honduras proposals, while at the same time  developing guidance on key aspects of the countries’ proposals. Finally, MCC conducted economic analyses to assess the projects’ likely  impact on economic growth. Limitations in Assumptions and Data, as Well as Country Involvement, Affected the Accuracy of Economic Analyses

During its due diligence reviews for Madagascar, Cape Verde, and  Honduras, MCC analyzed proposed projects’ probable impact on the  country’s economic growth and poverty reduction. Some of the assumptions and data that MCC  used in its analyses do not fully reflect the countries’ socioeconomic  environment. In the two countries we visited, country  representatives were not closely involved in MCC’s economic analyses  of the proposed projects. The countries also have  established structures for ensuring fiscal accountability and for managing  procurements that appear to be effective; however, implementation is still  at a very early stage, and some required elements of these structures are  not yet in place. These weaknesses may limit  MCC’s ability to track and account for program results. Weaknesses in Monitoring and Evaluation Frameworks May Limit MCC’s Ability to Measure Results

In reviewing the frameworks for monitoring and evaluation in the three  countries, we identified several challenges that MCC faces in ensuring  accountability for results. Furthermore, holding countries accountable  for results requires, to the extent practical and cost-effective: collecting  reliable and accurate baseline data, linking economic analyses to  monitoring plans, addressing the uncertainty associated with program  results, and ensuring the timely development of the research design for  randomized controlled trials. A  formal ethics program has also been established for MCC headquarters. Specifically, our work focused on  (1) the key areas that MCC examined in its due diligence assessments of  proposals for Madagascar, Cape Verde, and Honduras, and the criteria that  MCC used in these assessments, and (2) the form and adequacy of the  implementation structures that MCC and compact countries have put in  place for governance, procurement, fiscal accountability, and monitoring  and evaluation. To evaluate MCC’s assessments of proposals’ consultative process, project  coherence, environmental and social impact, and institutional and financial  sustainability, we relied primarily on MCC’s data and analysis contained in  the due diligence books and, to some extent, in the investment memos. Comments from the Millennium Challenge Corporation

The following are GAO’s comments on the Millennium Challenge  Corporation letter dated July 7, 2006. 2. 4. 5.
Why GAO Did This Study

In January 2004, Congress established the Millennium Challenge Corporation (MCC) to administer the Millennium Challenge Account. MCC's mission is to reduce poverty by supporting sustainable, transformative economic growth in developing countries that create and maintain sound policy environments. MCC has received more than $4.2 billion in appropriations, and, as of May 2006, it had disbursed $22.4 million to four countries whose signed MCC compacts have entered into force. For the first three countries with compact entry into force--Madagascar, Cape Verde, and Honduras--GAO was requested to examine (1) key aspects that MCC reviewed, and the criteria it used, in its due diligence assessments; and (2) the structures that have been established for implementing the compacts.

What GAO Found

MCC undertook a wide range of activities in its due diligence, including five key aspects of the Madagascar, Cape Verde, and Honduras proposals: (1) countries' consultation with local groups in developing compact proposals, (2) projects' coherence with compact goals, (3) environmental and social impacts, (4) institutional and financial sustainability, and (5) impact on economic growth and poverty reduction. MCC based its assessments on an evolving set of criteria: early, general guidance to the countries followed by later, more specific guidance. MCC's analyses of the projects' economic impact were limited in that some of the assumptions and data used may not reflect country conditions. As a result, the projects selected on the basis of the analyses may not achieve compact goals. In the two countries we visited, Madagascar and Cape Verde, MCC conducted the analyses with limited country participation, which resulted in countries' having little understanding of the process. MCC and the three countries have made progress in establishing compact country structures for oversight and management, procurement, fiscal accountability, and monitoring and evaluation, although some of these structures are not yet complete. The oversight structures allow for country management with MCC review, but some organizations were not fully staffed for months after the compacts entered into force. Madagascar and Cape Verde have implemented fiscal accountability structures for MCC-funded projects, and established procurement structures with effective characteristics; however, these structures are still largely untested and some are still under development. Finally, MCC and the countries have established monitoring and evaluation frameworks to track and account for program results. However, limitations in the baseline data collected, linkage to economic analyses, methods of addressing uncertainty associated with program results, and the timely design of randomized controlled trials may constrain MCC's ability to monitor and evaluate program results.