Policy on Prevention, Detection, and Remediation of Fraud and Corruption
Index number: CEO-2009-2.3 | Approved: July 17, 2012
Good governance is a keystone of poverty reduction. A major element of good governance is the control of corruption. For that reason, controlling corruption has been a key indicator for the Millennium Challenge Corporation (MCC) in selecting countries for eligibility for MCC-funded grant programs (“Compacts” or “Threshold Programs”). Fraud and corruption in MCC funded Threshold Programs and Compacts are particularly harmful in that they undermine one of the core principles on which MCC is built. Equally important, MCC’s fiduciary responsibility for protecting taxpayer money makes control of fraud and corruption a vital part of MCC’s oversight responsibility.
MCC’s success in fulfilling its mission of poverty reduction through economic growth requires effective assessment and management of risks through a comprehensive approach to prevent, detect and remediate instances of fraud and corruption in MCC-financed activities. MCC will accomplish this through training of MCC and Accountable Entity, or MCA, staff; oversight of activities; and development of guidelines to identify and address potential cases of fraud and corruption.
This policy outlines the roles, responsibilities and principles which govern the activities of MCC and entities funded by MCC (including other USG or donor entities in receipt of MCC funding) with respect to preventing, detecting and remediating the risk of fraud and corruption in MCC’s Compact and Threshold Programs. Allegations against MCC employees and direct MCC contractors are not covered by this policy and instead are handled pursuant to applicable federal laws and federal regulations.
MCC’s operations are governed by Acts of Congress and MCC’s own policies and procedures. MCC has adopted various policies and guidelines, including those noted below, in order to comply with its Congressional mandate and to ensure basic accountability for MCC staff and Accountable Entities.
- Millennium Challenge Act of 2003 (P.L. No. 108- 199, codified at 22 U.S.C. §7701, et seq.)
- Foreign Corrupt Practices Act of 1977, as amended (15 U.S.C. §78a, et seq.)
Related MCC Policies, Procedures, and Guidelines 1
- MCC Program Procurement Guidelines creates safeguards in an effort to ensure that all MCC-funded contracts are subject to open, fair and competitive procurement processes. The Guidelines have been patterned after World Bank Procurement Guidelines.
- Cost Principles for Government Affiliates Involved in Compact Implementation provides that all costs incurred by the Accountable Entity in the implementation of a particular compact be allowable only if they are necessary for Grant administration, implementation, monitoring and evaluation, or oversight and if they are allocable, reasonable, be accounted for in a manner consistent with accepted international accounting practices or policies, be incurred within the Grant period, be documented, and not be specifically excluded as an unallowable cost.
- Guidelines for Accountable Entities and Implementation Structures dictate certain rules that need to be followed for the corporate governance of all MCC-funded Accountable Entities. The Guidelines cover topics such as Accountable Entity board structure, voting and membership; requirements for transparency of board decisions; parameters to determine which documents and agreements require board approval; the structure and composition of management units; remuneration of management unit and other key staff.
- Character Risk Due Diligence: Screening of MCA Personnel sets forth procedures for conducting security screenings on key Accountable Entity staff and board members.
- General Provisions Annex 2 contains certain contractual provisions regarding fraud and corruption that the Accountable Entity is required to include in each of its contracts.
- Procedures for Responding to Inspector General Audits includes provisions implementing MCC’s responsibility to protect the rights of employees who contact the Inspector General to report an allegation of fraud, waste or abuse.
- Accountable Entity
- the local unit that implements each country’s MCC Compact, sometimes also referred to as MCA.
- coercive practice
- impairing or harming, or threatening to impair or harm, directly or indirectly, any party or the property of the party to influence improperly the actions of a party in connection with the implementation of an MCC Compact or Threshold Program.
- collusive practice
- a tacit or explicit agreement between two or more parties to perform a fraudulent, corrupt, coercive, obstructive or prohibited act, as each is defined herein, with regard to any transaction involving the implementation of an MCC Compact or Threshold program.
- corrupt practice
- the offering, giving, receiving, or soliciting, directly or indirectly, of anything of value to influence improperly the actions of a public official, MCA staff, MCC staff, consultants, or employees of other organizations engaged in work on MCA projects or Threshold Program projects.
- fraud and corruption
- collectively, any corrupt practice, fraudulent practice, collusive practice, coercive practice, obstructive practice, or prohibited practice, as each is defined herein. Examples include collusion on bid prices, favoritism in procurement, manipulation of project implementation strategies for fraudulent purposes, and intentional failure, based on the totality of circumstances, to perform on contracts.
- fraudulent practice
- any act or omission, including any misrepresentation, that knowingly misleads or attempts to mislead a party in order to obtain a financial or other benefit in connection with an MCC Compact, or to avoid or attempt to avoid an obligation in connection with an MCC compact or Threshold Program.
- Implementing Entity
- any affiliate, ministry, bureau, department, agency, government, corporation or any other entity chartered or established by the Government that is engaged by the Accountable Entity to implement and carry out any project, project activity (or a component thereof) or any other activities to be carried out in furtherance of the Compact.
- obstructive practice
- in connection with the implementation of an MCC Compact of Threshold Program: (a) any act that results in the destroying, falsifying, altering or concealing of evidence or making false statements to investigators or any official in order to impede an investigation into allegations of a corrupt, fraudulent, collusive, coercive, or prohibited practice; (b) any act that threatens, harasses, or intimidates any party to prevent him or her from either disclosing his or her knowledge of matters relevant to an investigation or pursuing the investigation; or (c) any acts intended to impede the conduct of an inspection and/or the exercise of audit rights of MCC and/or the OIG.
- prohibited practice
- any action that violates Section E (Compliance with Anti-Corruption Legislation), Section F (Compliance with Anti-Money Laundering Legislation) or Section G (Compliance with Terrorist Financing Statutes and Other Restrictions) of the “General Provisions Annex” found on the MCC website at www.mcc.gov/documents/legal/general_provisions.pdf.
Roles and Responsibilities
MCC’s anti-fraud and corruption activities are managed in the first instance through the Investment and Risk Management (IRM) Division in the Office of the Chief Executive Officer (OCEO). The Senior Investment and Risk Officer (SIRO) serves as the chief intake officer for the Fraud and Corruption Allegation Intake Team (F&C Intake Team), which includes representatives from IRM, OGC, and A&F. An Anti-Fraud and Corruption Working Group, which includes representatives from all MCC departments, advises the F&C Allegation Intake Team and acts as a resource base for communicating both to and from the F&C Allegation Intake Team on issues of importance to good anti-fraud and corruption practice. All Departments are responsible for supporting implementation of appropriate anti-fraud and corruption practices, for assisting in oversight of operations, for notifying the F&C Allegation Intake Team as necessary about suspected patterns of violation of MCC’s policies and practices, and for promoting good practices with country counter-parts in the field. IRM is responsible for preparing periodic reports to the CEO, and as agreed to the Board of MCC, on the incidence of fraud and corruption in MCC operations.
Failure by MCC and/or its country counter-parts to take all reasonable steps to adequately prevent, detect, or remediate incidents of fraud and corruption is acknowledged as constituting a serious risk to MCC’s credibility as an agency granting taxpayer funds for development, and accordingly monitoring the efficacy of MCC’s risk management in this area is the responsibility of the Office of the Chief Executive and the Office of the General Counsel.
Guiding Principles for Preventing, Detecting and Remediating Fraud and Corruption in MCC Operations
Fraud and corruption diminish benefits to intended recipients, impede economic growth and poverty reduction, and violate the legal and ethical principles to which MCC is committed and the responsibility MCC has to safeguard taxpayer funds. MCC’s approach to the prevention, detection and remediation of fraud and corruption is founded on the following points:
- Taking all reasonable steps to prevent, detect, and effectively and promptly remediate fraud and corruption issues affecting MCC funding, directly or indirectly, is a first order priority for MCC and the basis for a critical component of MCC’s risk management strategy. All MCC and MCA staff (and all those working with MCC funding) are expected to adhere to the highest standards of ethics and to comply with relevant law, regulation, and MCC policies in areas such as Procurement, Financial Management, , and Contract Management.
- In order to require compliance with the highest standards of ethics in the area of avoidance of fraud and corruption, it is critical that all those required to meet such standards understand what is expected and why. Accordingly, MCC is committed to the training and education of both MCC and MCA staff, to the periodic production of guidance on good practices, to prompt reporting of all suspected incidents of fraud and corruption both internally and to the Office of the Inspector General responsible for MCC, and to periodic reporting on MCC’s experience with fraud and corruption to MCC’s senior management and to the Board of MCC.
- MCC is responsible for developing and following a comprehensive and consistent approach to preventing, detecting and remediating incidents of fraud and corruption in its programs.
- MCC has a responsibility to assist counter-parts in partner countries (including Accountable Entities, boards thereof, and implementing entities) to develop and implement their own anti-fraud and corruption programs, based on relevant best practices, and the Accountable Entities and similar entities are subject to a corresponding responsibility to act in accordance with such programs.
- MCC is committed to taking all reasonable steps to promote the highest standards of integrity and ethical behavior in its staff and that of its country counterparts, including providing training and guidelines on effective anti-fraud and corruption principles and practices, and requires its country counter-parts to do the same.
- Any U.S. government agency, donor, NGO, or other party (including from the private sector) involved in developing and/or administering an MCC-funded program is considered to have first-line responsibility to safeguard against fraud and corruption in the program that it administers, to take all reasonable measures to discharge this responsibility, and to report issues and problems to MCC promptly upon their identification, even though MCC retains responsibility for taking all reasonable efforts to ensure that MCC funds are used for their intended purposes.
- MCC, through its implementing partners, will require that companies and entities receiving MCC funds (including contractors) acknowledge notice of MCC’s AFC Policy and certify that they have acceptable commitments and procedures in place to address the potential for fraudulent and corrupt practices in their MCC-funded work.
- During Compact development and implementation, MCC will periodically assess the risk of fraud and corruption in its partner countries (drawing where possible on diagnostic assessments of the risks of fraud and corruption in potential partner countries from the partner government, the private sector, non-governmental organizations, and other bilateral and multilateral donors) and the effectiveness of detection, mitigation, and remediation strategies in order to ensure that MCC’s risk management strategy remains dynamic and responsive to patterns of behavior in each country with which MCC works.
- MCC will identify and adopt lessons learned and best practices based on both its own experience and that of institutions, donors, governments and civil society in order to ensure that MCC practices accord with international standards as well as governing law and regulation.
- As part of its role in promoting systemic changes in patterns of fraud and corruption which undermine economic growth and development, MCC will share information about its experience with fraud and corruption and emerging best practices with governments in partner countries, other donors, and with civil society, consistent with its responsibilities as a U.S. government agency.
- MCC management recognizes that effective implementation of this policy requires clear delineation of roles and responsibilities, provision of adequate resources and training to MCC and MCA staff, promotion of continuous analysis of experience with the objective of improving performance in addressing problems and reducing risks, and prompt remediation where necessary.
MCC operates in risky environments, where fraud and corruption can be endemic, and there can be no guarantees that incidents will not occur. However, MCC must take timely and effective action to minimize and, if possible, preclude fraud and corruption from successfully diverting MCC’s objectives of transparency, fair and equitable treatment of all counter-parts and beneficiaries, value for money, and integrity in all operations.
MCC’s existing policies and current practices related to contracting, administrative procedures, reporting, procurement, financial management, technical due diligence, monitoring and evaluation, and the structure of legal agreements governing its grants provide for systems, controls and transparency that contribute to MCC’s ability to exercise its fiduciary responsibilities. The measures MCC and Accountable Entities are expected to undertake to reinforce their respective capacities to prevent, detect and remediate instances of fraud and corruption include, but are not limited to, the following:
Prevention and Detection
- Joint Compact-Specific Fraud and Corruption Risk Assessments, to identify specific risks of fraud and corruption which cannot be addressed solely by MCC safeguards and which could affect the implementation of a particular Compact, Project or Activity by the Accountable Entity. These assessments will be used by MCC and the Accountable Entity to reasonably address identified risks; to design and structure relevant aspects of the Compact and related agreements; and, in implementation, to establish an Accountable Entity Action Plan for managing anticipated vulnerabilities. The Compact-Specific Fraud and Corruption Risk Assessment, including the Accountable Entity Action Plan described below, and the training that precedes the assessment, will be required of each Accountable Entity that has signed an MCC Compact after September 30, 2007.
- Accountable Entity Action Plans, to articulate how the Accountable Entity can supplement MCC-mandated controls and introduce additional methods to prevent fraud and corruption specific to its operating environment. These Action Plans will be based on the findings of the Compact-Specific Fraud and Corruption Risk Assessments and will be drafted and implemented by the applicable Accountable Entity. MCC will approve the Action Plans, monitor their implementation and refine its oversight strategy in relation to the Action Plans, when necessary. The Compact-Specific Fraud and Corruption Risk Assessment, including the Accountable Entity Action Plan which addresses the identified risks, and the training that precedes the assessment will be required of each Accountable Entity. The Accountable Entities will be expected to update their Action Plans periodically.
- Formalizing Lines of Internal MCC Reporting, to ensure that allegations are adequately and consistently addressed internally by MCC staff and referred to the Office of the Inspector General for investigation.
In addition to the measures outlined above, MCC and Accountable Entities are expected to refer to MCC’s Tools and Techniques to Prevent Fraud and Corruption 3 , for guidance and information about methods and strategies for preventing, detecting and remediating fraud and corruption. This “tool kit” is revised from time to time to reflect evolving experience and the identification of best practices. Much of the material in the “toolkit” has been drawn from the Compact Specific Fraud and Corruption Risk Assessments and Action Plans. MCC and Accountable Entities will continue to contribute and update this information periodically.
MCC recognizes that effective risk management requires flexible, responsive, continuous learning and adaptation of its practices, incentives, and skills. As a result, management will (i) update as relevant the specific objectives of the above-listed measures; and (ii) introduce such additional measures as may become relevant.
MCC may utilize one or more of the following tools to remediate fraud and/or corruption:
Use of administrative interventions, in the event that fraud and/or corruption are detected, may include:
- Declaration of mis-procurements for procurements over which MCC has an oversight role;
- Heightened oversight of particular transactions determined to be most at-risk, by assigning MCC staff or procurement of MCC consulting services for outside expertise;
- Performance of additional audits, or focusing existing audit requirements on areas of concern; and
- Imposition of a modification of thresholds for MCC approvals at stages of the contracting or contract administration process.
Sanctions, in the event that fraud and/or corruption are detected, may include:
- Annotating a contractor’s performance evaluation information to indicate that the contractor was excluded from an MCC or MCA procurement because of a fraud and/or corruption problem;
- Administrative measures such as temporary or permanent ineligibility, removal from competition in a procurement activity, assignment of an adverse performance rating, withholding of MCC disbursements for payments on affected contracts, and other similar actions;
- In the event an Accountable Entity employee commits an act of fraud and/or corruption, recommendation to the Accountable Entity or other appropriate government official to take administrative action; and
- Termination of the Threshold program or Compact if the government or the Accountable Entity commits the fraud and/or corruption.
- Use of administrative interventions, in the event that fraud and/or corruption are detected, may include:
MCC does not impose legal sanctions such as fines, imprisonment, or payment of damages, which may be imposed by the appropriate federal or local authorities.
Details regarding the further development and implementation of these preventative matters will be set forth in separate guidance for implementation of this policy.
This policy shall become effective on the day it is approved by the Chief Executive Officer, and supersedes all previous versions.
- 1. Most of these MCC Policies, Procedures, and Guidelines, which are revised from time to time, are available at http://www.mcc.gov/pages/countrytools/tools/compact-implementation
- 2. General Provisions Annex available at http://www.mcc.gov/documents/legal/general_provisions.pdf.
- 3. Available on http://www.mcc.gov/pages/countrytools/tools/compact-implementation