MCC Economic Rate of Return: More Guidance Would Mitigate Risks That Could Lead to Uninformed Investment Decisions

Audit Report
Report Number
M-000-22-001-P

Why We Did This Audit

MCC uses Economic Rate of Return (ERR), an estimate produced from cost-benefit analysis, to measure whether the rate of return of a project’s economic benefits exceeds its costs by the agency’s required 10 percent threshold over 20 years. The agency says ERRs also help ensure accountability and transparency in its investment decisions. According to MCC’s 2020 enterprise risk management profile, not mitigating risks to ERR analyses could result in the agency making uninformed or untimely decisions that could compromise operational effectiveness and efficiency.

We assessed to what extent (1) MCC’s guidance and procedures for developing and reviewing ERR analyses address identified risks and (2) MCC used the peer review process to inform investment decisions in select compacts. We judgmentally selected the four compacts (Senegal II, Cote d’Ivoire, Morocco II, and Niger) with the highest dollar investment for which MCC had completed the peer review process since 2014.

Key Findings

We found that MCC has not developed cost-benefit analysis guidance for three sectors (agriculture, health, and education) and has not finalized guidance for one sector (energy). In addition, although MCC created a peer review repository to capture institutional knowledge when reviewing ERRs, the agency does not have guidance for the use of the repository.

We also found that none of the four compacts in our study had documentary evidence that peer reviewers were assigned or that all ERR models were peer reviewed before investment decision meetings. By not following the Peer Review Guidelines, MCC management and staff cannot ensure that ERRs presented to investment decision makers are objective and reliable.

We made six recommendations to ensure that MCC can address identified risks to developing and reviewing ERRs and to improve the implementation of the peer review process. MCC agreed with all six recommendations.

Recommendations

Recommendation
1

Complete "Sector Cost-Benefit Analysis Guidance" for the energy sector

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0
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Close Date
Recommendation
2

Develop and complete "Sector Cost-Benefit Analysis Guidance" for the agriculture sector

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0
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0
Recommendation
3

Develop and complete "Sector Cost-Benefit Analysis Guidance" for the education sector

Questioned Cost
0
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0
Recommendation
4

Develop and complete "Sector Cost-Benefit Analysis Guidance" for the health sector

Questioned Cost
0
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0
Recommendation
5

Develop guidance to include peer reviews in the Economic Analysis Division's peer review repository

Questioned Cost
0
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Recommendation
6

Update "Guidelines for Country Team and Peer Review of Cost-Benefit Analysis" to create and include documentation such as templates to aid in implementing the peer review guidance.

Questioned Cost
0
Funds for Better Use
0