This is the accessible text file for GAO report number GAO-15-196 
entitled 'Enterprise Funds: Egypt and Tunisia Funds Are Established; 
Additional Steps Would Strengthen Compliance with USAID Grant 
Agreements and Other Requirements' which was released on February 2, 
2015. 

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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

February 2015: 

Enterprise Funds: 

Egypt and Tunisia Funds Are Established; Additional Steps Would 
Strengthen Compliance with USAID Grant Agreements and Other 
Requirements: 

GAO-15-196: 

GAO Highlights: 

Highlights of GAO-15-196, a report to congressional committees. 

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 sector 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 mission 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' Board of Director 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 (SMEs) 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 into SMEs larger 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 underway. 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. 

Figure: Timeline of Select Key Events for EAEF and TAEF: 

[Refer to PDF for image: timeline] 

EAEF: Egyptian-American Enterprise Fund: 

TAEF: Tunisian-American Enterprise Fund: 

2011: 
Authorizing legislation for EAEF and TAEF signed. 

2012: 
EAEF articles of incorporation signed. 

2013: 
TAEF articles of incorporation signed; USAID signs grant agreement 
with EAEF and obligates first $60 million to EAEF; 
EAEF Performance Monitoring Plan due; USAID signs grant agreement with 
TAEF; obligates first tranche of $20 million to the TAEF; 
USAID obligates second tranche of $20 million to the TAEF; 
TAEF Performance Monitoring Plan due; USAID obligates second tranche 
of $60 million to the EAEF. 

2014: 
TAEF made its first investment; 
USAID obligates third tranche of $20 million. 

Source: GAO analysis of USAID, EAEF, and TAEF information. GAO-15-196. 

[End of figure] 

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, although the Funds are in compliance with grant agreement 
requirements related to vetting, the Funds' corporate policies do not 
include procedures to implement vetting requirements designed to 
prevent illicit use of the funds as 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. 

View [hyperlink, http://www.gao.gov/products/GAO-15-196]. For more 
information, contact David Gootnick at (202) 512-3149 or at 
gootnickd@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

EAEF Has Not Made Any Investments in Egypt While TAEF Has Invested 
$2.4 Million in Tunisia: 

EAEF and TAEF Have Established Key Management Structures, with 
Additional Actions Under Way: 

EAEF and TAEF Have Generally Met Grant Agreement Requirements but Some 
Gaps Remain: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from USAID: 

Appendix III: Comments from TAEF: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: EAEF's and TAEF's Progress on Key Management Structures: 

Table 2: Assessment of EAEF and TAEF Compliance with USAID Grant 
Agreement Requirements, as of December 2014: 

Abbreviations: 

COSO: Committee of Sponsoring Organizations of the Treadway Commission: 

EAEF: Egyptian-American Enterprise Fund: 

SME: small and medium-sized enterprises: 

TAEF: Tunisian-American Enterprise Fund: 

USAID: U.S. Agency for International Development: 

[End of section] 

United States Government Accountability Office: GAO:
441 G St. N.W. 
Washington, DC 20548: 

February 2, 2015: 

Congressional Committees: 

In 2011, in response to the political and economic transitions in the 
Middle East known as the Arab Spring, Congress authorized the 
establishment of enterprise funds to develop the private sector in 
Egypt, Jordan, and Tunisia.[Footnote 1] In 2013, the U.S. Agency for 
International Development (USAID) signed grant agreements with the 
Egyptian-American Enterprise Fund (EAEF) and the Tunisian-American 
Enterprise Fund (TAEF) (the Funds).[Footnote 2] The purpose of the 
Funds is to promote the development of Egyptian and Tunisian private 
sectors through activities such as investments in small and medium-
sized enterprises (SME). USAID has awarded $120 million for EAEF and 
$60 million for TAEF to date. USAID grant agreements with EAEF and 
TAEF, as well as the authorizing legislation, require the Funds to 
fulfill several requirements related to financial management and 
public reporting, among other things. Each Fund has an independent 
board of directors, led by a chairman. USAID is responsible for 
monitoring the Funds' activities. 

Conferees of the fiscal year 2012 Consolidated Appropriations Act, 
Public Law 112-74, requested that we examine the management and 
oversight of the Funds.[Footnote 3] In this report, we examine (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 the requirements of the USAID grant agreements. 

To examine the status of the Funds' investments, we reviewed the 
Funds' strategic planning documents and interviewed the EAEF and TAEF 
Chairmen and senior management. To examine EAEF's and TAEF's progress 
in establishing key management structures to support their missions 
and operations, we reviewed Fund documents, such as their statements 
of corporate policies and procedures (corporate policies), reports to 
external parties, boards of directors meeting minutes, financial and 
personnel information, and organizational charts. We used an internal 
control evaluation tool developed in 2013 by the Committee of 
Sponsoring Organizations of the Treadway Commission (COSO) as a 
framework for obtaining and analyzing information on the Funds' 
progress in establishing key management structures.[Footnote 4] 
Although our analysis included gaining an understanding of EAEF's and 
TAEF's actions related to establishing internal control mechanisms, we 
did not evaluate the implementation of internal control at the Funds. 
To assess the extent of Fund compliance with certain grant agreement 
requirements, we identified 22 requirements established by the 
agreements and then determined the extent to which the Funds had met 
those requirements by reviewing relevant documentation, such as the 
Funds' corporate policies. 

We conducted this performance audit from March 2014 to February 2015 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. Appendix I 
provides a detailed explanation of our objectives, scope, and 
methodology. 

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. The 
U.S. government provides initial capital to an enterprise fund through 
a grant; the fund may then seek additional capital from the private 
sector to invest alongside the enterprise fund. Enterprise funds are 
modeled on investment management in the venture capital industry, in 
which venture capital is invested primarily in small companies during 
early stages of their development with the investors monitoring, 
advising, and following up on operational results. It is expected that 
some investments will fail, but successful ventures are intended to 
offset the losses over the long term.[Footnote 5] 

The U.S. government initially funded enterprise funds in the early 
1990s to promote the development of the private sector in Eastern and 
Central European countries following the breakup of the former Soviet 
Union in December 1991. USAID invested $1.2 billion to establish 10 
enterprise funds, covering 19 countries in Central and Eastern Europe 
and the former Soviet Union. In September 2013, USAID issued a lessons-
learned report that documented the successes and challenges faced by 
the Eastern and Central European enterprise funds.[Footnote 6] The 
report concluded that while enterprise funds have demonstrated that 
they can be a successful tool in achieving positive financial returns 
and developmental objectives, results to date have been mixed, based 
upon the economic and political environment in which they operate 
along with the overall investment strategy and the specific investment 
decisions made by each fund's board and management team. The report 
also stated that, in many cases, the enterprise funds in Europe and 
Eurasia took up to 2 years before they were ready to make their first 
investments. 

EAEF and TAEF: Establishment, Purpose, and Requirements: 

In early 2011, the events characterized as the Arab Spring renewed 
interest in the potential use of the enterprise fund model in the 
Middle East region as well as in other countries undergoing economic 
and political transition. EAEF and TAEF were thus modeled after the 
enterprise funds in Eastern and Central Europe. EAEF was incorporated 
in October 2012 and funded in March 2013, when the grant agreement 
between USAID and EAEF was signed. TAEF was incorporated in February 
2013 and funded in July 2013, when the grant agreement between USAID 
and TAEF was signed. 

The Funds' authorizing legislation allows them to achieve their goals 
through the use of loans, microloans, equity investments, insurance, 
guarantees, grants, feasibility studies, technical assistance, 
training for businesses receiving investment capital, and other 
measures. The Funds have a dual mandate, or "double bottom line," in 
that they are intended to achieve a positive return on investment 
while also achieving a positive development effect. The authority of 
the Funds to provide assistance expires on December 31, 2025. 

EAEF and TAEF: Organizational Structures: 

The Funds are established as nonprofit corporations that do not have 
shareholders and do not distribute dividends. The authorizing 
legislation states that each Fund shall have a board of directors that 
is composed of six private U.S. citizens and three private host-
country citizens. The authorizing legislation further requires that 
board members have international business careers and demonstrated 
expertise in international and emerging markets investment 
activities.[Footnote 7] According to a September 2013 lessons-learned 
report by USAID on past enterprise funds, identifying and recruiting 
the most experienced individuals to serve on the fund's board of 
directors is the single most important element in achieving the fund's 
long-term development goals and financial profitability.[Footnote 8] 

U.S. board members serve on a volunteer basis, while the Egyptian and 
Tunisian citizen board members are permitted to receive compensation 
for their time and services.[Footnote 9] The Funds' boards are 
responsible for establishing their own operating and investment 
policies and directing their corporate affairs in accordance with 
applicable law and the grant agreements. 

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. According to the EAEF 
Chairman, EAEF envisioned that it would have a greater impact on the 
Egyptian economy by making one large investment rather than a series 
of smaller investments. In August 2013, EAEF made plans to purchase a 
small bank in Egypt and subsequently conducted due diligence on the 
bank by hiring a large U.S. accounting firm to review the bank's 
financial situation, among other things. In June 2014, the EAEF Board 
of Directors approved a decision to acquire the bank. However, 
according to the EAEF Chairman, the Egyptian Central Bank rejected 
EAEF's application to purchase the bank. 

As of December 2014, EAEF was considering other investment options. 
According to EAEF officials, the Fund is now conducting due diligence 
on potential investments in the food and beverage, healthcare, and 
consumer finance sectors. The Chairman stated that he anticipates 
investing $60 million to $90 million in these three areas. 
Additionally, the EAEF Chairman told us that EAEF plans to consider 
investments in firms varying in size from SMEs to larger firms. 

USAID has obligated $120 million to EAEF, of which approximately 
$588,000 has been disbursed.[Footnote 10] Costs associated with 
performing the due diligence review constituted the majority of EAEF's 
expenditures through 2014. Specific categories of EAEF's expenditures 
include professional (e.g., legal) fees and travel expenses. Thus far, 
EAEF has spent less on administrative expenses than the approximately 
$3 million estimated for the first year in its preliminary budget. 
[Footnote 11] 

TAEF Has Made a $2.4 Million Investment in Tunisia: 

USAID has obligated $60 million to TAEF, of which TAEF has disbursed 
approximately $1.6 million, for administrative expenses and 
investments.[Footnote 12] 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.[Footnote 13] In 2013, TAEF established a subsidiary 
company in Tunisia--the TAEF Advisory Company--that directly oversees 
TAEF's efforts in these four areas. 

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.[Footnote 14] TAEF is one of several investors in the private 
equity fund; other investors include foreign donors. According to the 
TAEF Chairman, aggregate investments in the Fund from all sources 
total approximately $20 million. TAEF officials told us that the Fund 
will have representation on the equity fund's advisory committee. 

According to TAEF officials, the Fund has not yet made any investments 
in the remaining areas of direct investments in SMEs smaller than 
those targeted by the private equity fund, microfinance institutions, 
and start-ups. According to the TAEF Chairman, TAEF is in the process 
of conducting due diligence on two microfinance entities. Thus far, 
TAEF has spent less on administrative expenses than the approximately 
$900,000 estimated for the first year in its preliminary budget. 
[Footnote 15] 

EAEF and TAEF Have Established Key Management Structures, with 
Additional Actions Under Way: 

Since their inception, EAEF and TAEF have made progress in 
establishing key administrative infrastructures necessary to support 
their investment operations. The Committee of Sponsoring Organizations 
of the Treadway Commission's (COSO) 2013 internal control evaluation 
tool establishes a framework for assessing management 
structures.[Footnote 16] As shown in table 1, EAEF and TAEF have made 
progress in establishing structures for administrative infrastructure, 
corporate governance, internal control, and human capital management 
in line with key elements of the COSO framework. 

Table 1: EAEF's and TAEF's Progress on Key Management Structures: 

Key management structures: Administrative infrastructure; 
Basic infrastructure needed to support program operations; 
Selected actions completed: 
* EAEF and TAEF acquired office space in New York, New York and 
Washington, D.C., respectively; 
* The Funds hired initial staff; 
Actions under way or planned: 
* The Funds plan to hire additional staff (e.g., investment officers). 

Key management structures: Corporate governance; 
Collective policies and mechanisms used by the board to effectively 
oversee management efforts to establish and maintain a sustainable and 
accountable organization; 
Selected actions completed: 
* The Funds adopted bylaws; 
* The Funds established USAID-approved statements of corporate 
policies and procedures; 
* The Funds' board of directors have met regularly; 
Actions under way or planned: 
* EAEF and TAEF each have yet to fill two vacant board positions. 

Key management structures: Internal control; 
Integral component of organization management that provides reasonable 
assurance that key objectives--efficiency and effectiveness of 
operations, reliability of financial reporting, and compliance with 
applicable laws and regulations--are being achieved; 
Selected actions completed: 
* Control environment - The Funds established directives on ethical 
business practices and detailed conflict of interest policies; 
* Risk assessment: The Funds conducted due diligence on their first 
potential investments; 
* Control activities: The Funds established several financial and cash 
management-related controls; 
* Information: The Funds' policies state that they will maintain 
investment databases that list all of the Funds' investments; 
* Communication: The Funds met with several U.S. and foreign 
organizations to discuss their missions and activities; 
* Monitoring: The Funds reported their administrative activities to 
Congress, their financial information to USAID, and summaries of their 
activities on their public websites; 
Actions under way or planned: 
* Monitoring: EAEF and TAEF performance monitoring plans have been 
overdue for approximately18 months and 14 months, respectively. 
According to the Funds, they are in the process of developing them; 
* Monitoring: According to USAID officials, the Funds plan to have 
independent auditing firms express opinions on their 2013 and 2014 
financial statements. 

Key management structures: Human capital management; 
Leadership, strategic human capital planning, developing and retaining 
talent, and results-oriented culture are the cornerstones of strategic 
human capital management; 
Selected actions completed: 
* The Funds created job descriptions for their management positions; 
* The Funds established guidelines for providing compensation to their 
employees. EAEF hired companies to do an executive compensation study 
and to administer its human capital policies, including terms of 
recruitment, hiring, and employee benefits; 
Actions under way or planned: 
* EAEF is considering a decision to enter into an agreement with a 
firm to manage its investments. 

Legend: EAEF = Egyptian-American Enterprise Fund; TAEF= Tunisian-
American Enterprise Fund; USAID = U.S. Agency for International 
Development. 

Source: GAO analysis of EAEF and TAEF documents and interviews. 

[End of table] 

Administrative Infrastructures: 

Since being funded in 2013, EAEF and TAEF have focused on establishing 
essential administrative infrastructures. EAEF set up its headquarters 
in New York City, New York. In July 2014, EAEF hired its first 
employee to occupy the position of Chief of Staff and Director of 
Policy Planning. According to the EAEF Chairman, EAEF plans to hire an 
investment manager and a chief financial officer in the future. 

TAEF has a U.S. office located in Washington, D.C., and a Tunisian 
office located in Tunis, Tunisia, both of which are led by a managing 
director. TAEF plans to hire two investment officers in the future. 
EAEF and TAEF administrative expenses thus far have mostly consisted 
of professional fees (e.g., expenses for legal and consulting 
services), travel expenses, and so forth.[Footnote 17] 

Side bar: 

Administrative infrastructure: 

Administrative infrastructure refers to the basic systems and 
resources needed to set up and support organizations' operations--
which also contribute to developing a culture of accountability and 
control. 

Source: GAO. GAO-15-196. 

[End of side bar] 

Corporate Governance: 

The Funds have established bylaws and other rules for corporate 
governance. The bylaws cover the purpose of the Funds, voting rules, 
and the duties and responsibilities of corporate officers. 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. In November 2014, the EAEF Board of Directors 
established several committees, including an investment committee, a 
governance and nominating committee, an external relations committee, 
and an audit committee. EAEF and TAEF each have to fill two vacant 
board member positions, one for a U.S. citizen and the other for a 
host country citizen. EAEF and TAEF are currently considering 
potential candidates to fill the vacant positions. 

Side bar: 

Corporate governance: 

Corporate governance can be viewed as the formation and execution of 
collective policies and oversight mechanisms to establish and maintain 
a sustainable and accountable organization while achieving its mission 
and demonstrating stewardship over its resources. Generally, an 
organization's board of directors has a key role in corporate 
governance through its oversight of executive management; corporate 
strategies; and risk management, audit, and assurance processes. 

Source: GAO. GAO-15-196. 

[End of side bar] 

Internal Controls: 

Side bar: 

Internal control: 

Internal control provides reasonable assurance that key management 
objectives--efficiency and effectiveness of operations, reliability of 
financial reporting, and compliance with applicable laws and 
regulations--are being achieved. Areas of internal control include 
control environment, risk assessment, control activities, information 
and communication, and monitoring. 

Source: GAO. GAO-15-328. 

[End of side bar] 

EAEF and TAEF have established a variety of internal controls in the 
areas of control environment, risk assessment, control activities, 
information and communication, and monitoring, with additional actions 
under way. 

* Control environment. The Funds have established directives on 
ethical business practices and detailed conflict-of-interest policies. 
In addition, each Fund has a policy on disciplinary sanctions that 
states that any violation of the Fund's laws or ethical guidelines 
could subject an individual to potential disciplinary sanctions, such 
as probation or reduction in pay. 

* Risk assessment. EAEF conducted a due diligence review for its first 
potential investment, the purchase of a bank. Among other things, EAEF 
hired a large accounting firm to review a sample of the bank's loans. 
TAEF established due diligence procedures in which it examined the 
governance, financial, operations, and legal status of its first 
investment. Before funding its first investment, TAEF carried out its 
due diligence procedures and determined that there were no significant 
issues (e.g., financial or legal issues) that would impede TAEF from 
making the investment. The meeting minutes of the board investment 
committee indicate that the board discussed the results of the due 
diligence assessment, including the extent of risk involved, and that 
the board unanimously approved the fund's first investment. 

* Control activities. EAEF and TAEF have established several financial 
and cash management-related controls, including the following: 

- Financial statements will be prepared on a quarterly basis and sent 
to the audit committees of the board of directors to review the 
performance of the Funds on a timely basis. 

- Each Fund will, to the extent practicable, prepare an annual budget 
detailing its estimated operational requirements. The budget will be 
approved by the president and audit committee of the board of 
directors before the beginning of the Fund's fiscal year (January 1). 
[Footnote 18] Quarterly, the board of directors will receive financial 
reports that compare the actual results to the budgeted amounts. 

- Expenses in excess of a certain amount must be approved in advance 
by the Chairman of the Board or the President (or their designees) and 
one other Director. 

- All available periodic financial statements and (if prepared) audits 
for all entities in which the Fund has invested shall also be 
maintained for audit review and project monitoring. 

* Information and communication. EAEF and TAEF corporate policies 
state that each Fund will maintain an investment database that lists 
all of its investments and will include information such as company 
name, amount of investment, and industry. The Funds have met with 
several external organizations to discuss their mission and 
activities, including U.S. government agencies, foreign governments, 
international organizations, and host country businesses. 

* Monitoring. EAEF and TAEF have reported to external parties, 
including Congress, USAID, and the public, on their use of resources, 
with additional accountability actions under way. For example, both 
Funds submitted reports to Congress that detailed their administrative 
expenses for 2013, and both Funds have submitted quarterly financial 
reports to USAID for its review. With regard to performance planning 
and reporting, EAEF officials said that the Fund is in the process of 
developing its required performance monitoring plan. In November 2014, 
TAEF developed a solicitation for firms based in Tunisia to develop 
its performance monitoring plan. In terms of audits, the Funds are 
responsible for appointing independent certified or licensed public 
accountants, approved by USAID, to complete annual audits of the 
Fund's financial statements. According to the grant agreements, the 
audits will be conducted within the scope of U.S. generally accepted 
auditing standards. According to USAID officials, the Funds plan to 
have their 2013 and 2014 financial statements audited. 

Human Capital Management: 

Side bar: 

Human capital management: 

Cornerstones of human capital management include leadership; 
acquiring, developing, and retaining talent; and building a results-
oriented culture. 

Source: GAO. GAO-15-196. 

[End of side bar] 

The Funds are meeting their initial human capital needs through hiring 
of a limited number of personnel to occupy key positions, such as a 
managing director. According to the EAEF and TAEF Chairmen, they 
envision their organizations as having a small number of personnel. 
Accordingly, both Funds have recruited a limited number of employees 
to support their administrative operations and initial investment 
planning. Specifically, EAEF has hired one employee as its Chief of 
Staff and Director of Policy Planning. TAEF has hired three employees 
to include a Managing Director based in Washington, D.C.; a Chief 
Operating Officer and Managing Director based in Tunis, Tunisia; and 
an Executive Assistant based in Tunis. The Funds took steps to recruit 
and hire their initial staff, such as by interviewing potential 
candidates and reviewing their resumes. The Funds have generally 
outsourced their accounting and legal functions. Both Funds have 
created job descriptions for their employees. 

To build a results-oriented culture, the Funds have established 
guidelines for providing compensation to their employees. For example, 
contingent upon USAID approval of a compensation framework, the Funds 
may enter into bonus or incentive compensation arrangements with their 
employees. The EAEF and TAEF grant agreements state that the salaries 
and other compensation of any of the directors, officers, and 
employees of the Funds shall be set at reasonable levels consistent 
with the nonprofit and public interest nature of the Funds. EAEF hired 
companies to do an executive compensation study and to administer its 
human capital policies, including terms of recruitment, hiring, and 
employee benefits. 

EAEF and TAEF Have Generally Met Grant Agreement Requirements but Some 
Gaps Remain: 

While the Funds have generally met their obligations under the grant 
agreements, neither Fund has submitted the performance monitoring 
plans required under the grant agreements. 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. Further, 
EAEF has not implemented those provisions under the grant agreement 
related to marking and public communications.[Footnote 19] 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 Generally Met the Requirements in the Grant 
Agreements: 

EAEF and TAEF have to date generally complied with the requirements in 
the grant agreements. The grant agreements contain 22 discrete 
requirements with which each of the Funds must comply, such as 
submission of quarterly financial reports to USAID and annual reports 
to Congress on administrative expenses.[Footnote 20] As of December 
2014, TAEF had fully complied with 21 of the 22 requirements, and EAEF 
had fully complied with 17 of the 22, as shown in table 2.[Footnote 
21] For example, the Funds submitted the required annual reports on 
administrative expenses. Additionally, both Funds submitted the 
required quarterly financial statements. 

Table 2: Assessment of EAEF and TAEF Compliance with USAID Grant 
Agreement Requirements, as of December 2014: 

Requirements: (1) The Fund will develop a performance monitoring plan 
to include a goal statement; 
EAEF: partially addressed; 
TAEF: partially addressed. 

Requirements: (2) The grantee will request payment for anticipated 
expenditures no more than 90 days in advance. Absent an approved 
justification indicating otherwise, unexpended cash on hand should be 
counted against current payment requests; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (3) The grantee agrees to develop and use a unique 
identity logo and brandmark for the Fund to identify all program or 
communications materials; 
EAEF: not addressed; 
TAEF: fully addressed. 

Requirements: (4) The grantee must use the USAID logo and brandmark in 
any of its program or communications materials unless otherwise 
approved by USAID; 
EAEF: not addressed; 
TAEF: fully addressed. 

Requirements: (5) Press releases or other public notices should 
include a statement substantially as follows: "The U.S. Agency for 
International Development administers the U.S. foreign assistance 
program providing economic and humanitarian assistance in more than 
100 countries worldwide;" 
EAEF: not addressed; 
TAEF: fully addressed. 

Requirements: (6) The grantee shall include a disclaimer in any 
"public communication" in which the content has not been approved by 
USAID; 
EAEF: not addressed; 
TAEF: fully addressed. 

Requirements: (7) The Fund has been established in the United States 
as a not-for-profit corporation; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (8) The Fund has adopted environmental management 
principles, as part of its corporate policies; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (9) The Fund has established investment selection and 
diligence procedures reasonably designed to ensure consideration of 
the following factors when making investments: internationally 
recognized worker rights, gender, environmental factors, U.S. economic 
and employment effects, and the likelihood of commercial viability of 
the activity receiving assistance from the Fund; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (10) By December 23, 2013 and annually thereafter, the 
Funds shall submit to U.S. congressional committees a report detailing 
the administrative expenses of each Fund; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (11) As part of USAID's oversight of the grant 
activities, the grantee agrees to provide information to USAID, such 
as its rate of commitment and utilization of grant funds, and the 
status of the investment portfolio; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (12) The grantee shall have annual audits of the Fund 
performed in accordance with U.S. generally accepted audit standards 
by independent auditors who are approved by USAID.[A]; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (13) The grantee will establish audit requirements for 
each investee; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (14) In order to obtain initial advance of funding, the 
grantee must request an advance for the initial 90-day period of 
projected cash disbursement needs immediately upon signing the 
agreement; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (15) When advances are provided under this award, the 
grantee must deposit such funds in a U.S. federally insured bank and 
be able to account for the receipt and expenditure of funds; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (16) The grantee shall submit an initial quarterly 
financial report to USAID and shall provide subsequent financial 
reports at quarterly intervals thereafter; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (17) The grantee will include in its due diligence 
procedures the requirement to collect information to determine whether 
a potential investment or activity by the grantee is likely to result 
in activities that are inconsistent with Section 7028 of the 
authorizing legislation.[B]; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (18) The grantee shall include in its due diligence 
procedures the requirement that each investee certify that such funds 
or other assistance will not be utilized for any prohibited purposes; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (19) The grantee has established as part of its 
corporate policies, and shall maintain investment procedures that are 
designed to prevent the contribution of grant funding to: (1) any 
political parties or organizations which are not committed to respect 
for the democratic process; 
(2) the defense or security forces of any country; 
or (3) other prohibited transactions, such as those resulting in grant 
funds being used for the manufacture of abortion equipment or 
activities that significantly degrade national parks or similar 
protected areas; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (20) The grantee shall produce an annual report, on a 
public website, which shall include a description of the Fund's 
operations, activities, financial condition, and accomplishments; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (21) The grantee shall use best efforts to promptly 
obtain tax exempt status under Section 501(c)(3) of the U.S. Code; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: (22) The grantee shall provide USAID with two copies of 
its program and communications materials; 
EAEF: fully addressed; 
TAEF: fully addressed. 

Requirements: Total 22; 
EAEF: 17; 
TAEF: 21. 

EAEF = Egyptian-American Enterprise Fund; TAEF= Tunisian-American 
Enterprise Fund: 

Source: GAO analysis of grant agreements and USAID, TAEF, and EAEF 
data. GAO-15-196. 

Notes: 

[A] While the EAEF and TAEF grant agreements state that the audits 
will be conducted in accordance with U.S. generally accepted audit 
standards, the Funds' corporate policies state that their audits will 
be conducted in accordance with U.S. generally accepted government 
auditing standards. 

[B] Pub. L. No. 112-74, Div. I, §7028 states that funds appropriated 
pursuant to Titles III through VI, including Economic Support Funds, 
may not be obligated or expended to provide any financial incentive to 
a business currently located in the United States for the purpose of 
inducing the enterprise to relocate outside of the United States or to 
provide assistance for any program that contributes to the violation 
of internationally recognized workers rights. 

[End of table] 

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. Specifically, the grant agreements 
require the Funds to develop performance monitoring plans in 
consultation with USAID within 120 days after the grant agreement 
enters into force.[Footnote 22] However, as of February 2015, EAEF and 
TAEF performance monitoring plans were approximately 19 months and 15 
months overdue, respectively. 

The performance monitoring plans are intended to allow external 
stakeholders and, for the purposes of oversight, USAID to monitor the 
Funds' progress toward meeting their goals. The grant agreements also 
require that the performance monitoring plans include performance 
indicators, which must include return on investment for U.S. capital 
invested in Egypt and Tunisia through the Funds and the number of SMEs 
in Egypt and Tunisia benefiting from Fund activities. USAID and the 
Funds are to review the performance monitoring plans and associated 
indicators during the semiannual meetings with USAID to assess 
progress. Without performance monitoring plans, USAID and other 
stakeholders cannot assess progress toward agreed-upon goals and 
indicators during the semiannual reviews.[Footnote 23] 

USAID referred the Funds to monitoring and evaluation experts to 
assist the Funds in developing their performance monitoring plans, 
according to USAID officials. The EAEF and TAEF Chairmen told us that 
it would have been premature to submit a performance monitoring plan 
before finalizing investment strategies. TAEF and EAEF officials told 
us that they are currently seeking contractors to develop and 
implement performance monitoring plans. In November 2014, TAEF issued 
a scope of work that envisioned a performance monitoring plan being 
presented to USAID 60 days after the Fund had selected and engaged a 
contractor. According to EAEF officials, EAEF plans to submit a 
performance monitoring plan to USAID in early 2015. 

USAID's Financial Management Office Has Not Been Tracking Funds' Cash 
Management Practices: 

USAID's grant agreements with EAEF and TAEF state that they may 
request funds for anticipated expenditures for up to a 90-day period 
from the date of the request.[Footnote 24] In addition, USAID guidance 
on advance payments states that, generally, advance payments or any 
portion of an advance payment not liquidated within 150 days is 
considered delinquent.[Footnote 25] Any exception to this general rule 
must be supported by a documented rationale from the agreement officer 
and approved by USAID's financial management office. EAEF and TAEF 
have not liquidated some of their advances within 150 days of payment, 
and the advances were therefore delinquent. After we shared our 
preliminary findings with USAID, program officials sought and obtained 
the necessary approvals. As of November 2014, EAEF had an outstanding 
balance of approximately $247,000, and TAEF had an outstanding advance 
balance of approximately $477,000. The Funds reported their 
liquidation of their advance payments through quarterly financial 
reports that are sent only to the USAID program representative. 
However, USAID's financial management office is responsible for 
monitoring whether the Funds' advances are outstanding. Because 
USAID's financial management office was not receiving the quarterly 
financial reports, it was unable to ensure that the Funds were not 
maintaining USAID funds in excess of their immediate disbursement 
needs. In commenting on a draft of this report, USAID stated that 
although not strictly required by agency policy, the program 
representative is now sharing all quarterly financial information with 
the financial management office to facilitate oversight. 

EAEF Has Not Implemented Provisions Related to Marking and Public 
Communications: 

EAEF has not implemented the provisions in its grant agreement related 
to marking and public communications. Those provisions require the 
Fund to develop a logo in addition to using the USAID logo, to 
acknowledge USAID's role in the provision of foreign assistance, and 
to use a general disclaimer in those instances where it is unable to 
obtain USAID's approval in advance of a public communication. We have 
reported in the past that marking can raise awareness about the source 
of assistance with individuals who come into contact with the 
assistance sites or materials.[Footnote 26] According to USAID and 
EAEF officials, the two organizations are working together to see that 
the Fund implements these provisions. 

EAEF and TAEF Corporate Policies Do Not Include Key Vetting Procedures 
to Prevent Illicit Use of Funds: 

The grant agreements aim to prevent the contribution of U.S. funds (1) 
to certain individuals (e.g., individuals and organizations associated 
with terrorism) by conducting appropriate vetting, (2) for certain 
purposes (e.g., funds may not be used toward the purchase of gambling 
equipment), (3) to political organizations not committed to democracy, 
and (4) to the military of another government.[Footnote 27] Internal 
control standards direct organizations to establish control activities 
such as policies and procedures that enforce management directives and 
help ensure that actions are taken to address risks. We found that the 
Funds have accounted in their corporate policies for three out of the 
four prohibitions related to preventing the contribution of EAEF or 
TAEF funds to illicit transactions or purposes. While USAID grant 
agreements with the funds establish procedures designed to prevent 
transactions with individuals and organizations associated with 
terrorism, and the Chairmen of both Funds have committed to mitigate 
any risk of illicit use of U.S. funds, neither Funds' corporate 
policies contain specific vetting provisions. Specifically, they lack 
provisions related to vetting potential investees and the requirement 
that any investee planning to lend U.S. funds in excess of $25,000 
onward to another business or invest in another entity certify to the 
Funds that it will conduct certain due diligence activities to prevent 
their illicit use. While USAID approved the Funds' corporate policies, 
USAID officials subsequently indicated that they expected this 
prohibition related to vetting potential investees and onward lending 
to be included in the Funds' corporate policies. 

Since the Funds have made only one investment to date--TAEF's $2.4 
million investment--there has been only one instance where vetting was 
necessary. In commenting on a draft of this report, the TAEF Chairman 
emphasized that the Fund carried out all required due diligence with 
respect to vetting and assured itself of the appropriateness of the 
investee's procedures. For example, TAEF provided us with 
documentation of TAEF's efforts to screen the investee's primary 
officials against the required vetting lists as well as the investee's 
policy for verifying the credentials of individuals and firms. In 
addition, in November 2014, TAEF signed a side letter with the 
investee in which the investee agreed to screen all future recipients 
against lists of proscribed parties. 

Conclusions: 

Since their inception in 2013, EAEF and TAEF have been awarded $180 
million by USAID and have made progress in establishing their 
administrative infrastructures, internal controls, corporate 
governance mechanisms, and investment strategies. To date, the Funds 
have disbursed approximately $2 million of the $180 million awarded to 
them and thus have a significant amount of U.S. funding available for 
future investments. The Funds have generally complied with the 
requirements in their grant agreements with USAID. For example, the 
Funds have submitted required financial reports to USAID and Congress. 
In addition, USAID and the Funds continue to take steps to improve 
oversight and compliance with the grant agreements. However, they have 
not yet completed actions to further strengthen oversight and 
compliance in several areas. In the area of cash management, USAID is 
exploring ways to ensure that it has all necessary financial 
information from the Funds, but it has not yet ensured that the Funds 
liquidate cash advances in a timely manner. In addition, while both 
Funds are hiring contractors to develop performance monitoring plans--
for which both Funds required an extension of the original submission 
deadline--neither Fund has completed its performance monitoring plan. 
Further, EAEF has not yet complied with the provisions in the grant 
agreement related to public communications, such as those requiring 
EAEF to acknowledge the U.S. government's financial contribution. 
While both Funds have demonstrated their commitment to ensuring that 
U.S. funds are not used for prohibited purposes, neither Fund has 
incorporated vetting requirements for individuals and organizations 
into its corporate policies. Taking steps to address these remaining 
items would strengthen USAID oversight and the Funds' compliance with 
the grant agreements, which will be particularly important as the 
Funds' investments grow in number and size. 

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. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to USAID, the Department of State 
(State), EAEF, and TAEF for review and comment. USAID and TAEF 
provided written comments, which we have reprinted in appendixes II 
and III, respectively. State provided technical comments, which we 
incorporated as appropriate. In its written comments, reprinted in 
appendix II, USAID concurred with our four recommendations and 
indicated the steps it was taking to implement each of them. 
Specifically, regarding our recommendation to establish a process to 
better manage cash advances, USAID stated that going forward the 
program representative would share Fund quarterly financial reports 
with the office of the Chief Financial Officer. In response to our 
recommendation pertaining to performance monitoring, USAID stated that 
it would work with each Fund to meet a revised deadline of the first 
quarter of 2015 to submit a completed performance monitoring plan. 
With regard to our recommendation pertaining to public communications, 
EAEF confirmed to USAID that it would meet all related requirements 
going forward, including proposing a logo in the first quarter of 
2015. Lastly, the Chairmen of both Funds confirmed to USAID that they 
would propose amendments to their corporate policies to include the 
vetting procedures to their respective Boards. 

In its written comments, reprinted in appendix III, TAEF agreed with 
our findings and provided some additional information. For example, 
TAEF stated that the delay it requested to implement its performance 
monitoring plan would result in more timely and better program 
evaluation going forward. 

We are sending copies of this report to the appropriate congressional 
committees, State, USAID, and EAEF and TAEF. In addition, the report 
is available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact David Gootnick at (202) 512-3149 or GootnickD@gao.gov. Contact 
points for our Offices of Congressional Relations and Public Affairs 
may be found on the last page of this report. GAO staff members who 
made key contributions to this report are listed in appendix IV. 

Signed by: 

David Gootnick: 
Director, International Affairs and Trade: 

List of Congressional Committees: 

The Honorable Lindsey Graham: 
Chairman: 
The Honorable Patrick J. Leahy: 
Ranking Member: 
Subcommittee on State, Foreign Operations, and Related Programs: 
Committee on Appropriations: 
United States Senate: 

The Honorable Kay Granger: 
Chairwoman: 
The Honorable Nita Lowey: 
Ranking Member: 
Subcommittee on State, Foreign Operations, and Related Programs: 
Committee on Appropriations: 
United States House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Conferees for the bill that would become the Consolidated 
Appropriations Act, 2012 (Pub.L. No. 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.[Footnote 28] 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 assess the extent to which the Funds have made investments, we 
reviewed the Funds' strategic planning documents and their due 
diligence reports. We obtained budget data from the U.S. Agency for 
International Development (USAID) on its obligations and disbursements 
to the Funds from fiscal years 2013 to 2014. We conducted an 
assessment of the reliability of the data by reviewing USAID's 
responses to a set of data reliability questions and by interviewing 
USAID budget officials. We found the data to be sufficiently reliable 
for our purposes. In addition, we interviewed the Chairmen and senior 
management of EAEF and TAEF to discuss their investment strategies, 
plans, and investment efforts thus far. 

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. We used the Committee 
of Sponsoring Organizations of the Treadway Commission's (COSO) 
Internal Control - 2013 Integrated Framework evaluation tool as a 
framework for gathering information on the Funds' management 
structures and assessing the extent to which they had established such 
structures.[Footnote 29] Although our analysis included gaining an 
understanding of EAEF's and TAEF's actions related to establishing 
internal control mechanisms, we did not evaluate the implementation of 
internal control at the Funds. We also interviewed EAEF and TAEF 
Chairmen and senior management to obtain information on the management 
structures the Funds had already established or planned to establish. 

To assess the extent of Fund compliance with certain grant agreement 
requirements, we used the EAEF and TAEF grant agreements as our 
primary criteria for identifying the requirements to which the Funds 
are subject. We identified 22 requirements that the Funds are subject 
to and then determined whether the Funds had met these requirements by 
collecting relevant USAID and Fund documentation, such as the Funds' 
reports to Congress on administrative expenses. We also reviewed the 
Funds' statement of corporate policies and procedures and 
documentation related to the Funds' efforts to develop performance 
monitoring plans. 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. We also examined the process that USAID 
used to develop the EAEF and TAEF grant agreements, which entailed 
reviewing its agency policies, procedures for deviating from those 
policies, and the grant agreements themselves. 

We conducted this performance audit from March 2014 to February 2015 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from USAID: 

USAID: 
From The American People: 

David Gootnick: 
Director, International Affairs and Trade: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Gootnick: 

I am pleased to provide USAID's formal response to the Government 
Accountability Office (GAO) draft report entitled: Enterprise Funds 
Egypt and Tunisia Funds Are Established; Additional Steps Would 
Strengthen Compliance with US AID Grant Agreements and Other
Requirements (GAO-15-196). 

This letter, together with the enclosed USAID comments, is provided 
for incorporation as an appendix to the final report. 

Thank you for the opportunity to respond to the GAO draft report and 
for the courtesies extended by your staff in the conduct of this audit 
review. 

Sincerely, 

Signed by: 

Angelique M. Crumbly: 
Assistant Administrator: 
Bureau of Management: 
U.S. Agency for International Development: 

Enclosure: a/s: 

USAID Comments On GAO Draft Report: 
No. GAO-1S-196: 

Recommendation 1: Establish a process to better manage cash advances 
to the Funds. 

USAID Response: USAID concurs with this recommendation. Consistent 
with Automated Directives System (ADS) 636, the USAID Agreement 
Officer's Representative (AOR) for each grant agreement has submitted 
a justification to USAID's Bureau of Management, Office of the Chief 
Financial Officer (MlCFO) covering advance payments that have 
currently been outstanding for more than 150 days. In the future, the 
Agreement Officer or the AOR will provide a similar justification to 
MlCFO for any advance payment to a Fund that is not liquidated within 
150 days. In addition, to ensure CFO has the necessary information for 
cash management, the AOR for each fund will share Fund quarterly 
reports with USAID's CFO. USAID notes that the Funds have complied 
with the financial reporting and cash management requirements in the
grant agreements to date. 

Recommendation 2: Make certain that the Funds comply with grant 
agreement requirements related to performance monitoring. 

USAID Response: USAID concurs with this recommendation. Both Funds 
have committed to providing USAID with a completed Performance 
Monitoring Plan (PMP) by the end of the first quarter of 2015. USAID 
will work with the Funds to ensure this timeline is met. USAID 
emphasizes that the reason for the delay in each Fund's preparation of 
a PMP was to enable the Fund to develop an investment strategy prior 
to a PMP. This allows the Fund to prepare a meaningful PMP - one that 
measures progress against the Fund's strategy. Each Fund requested
a delay, and USAID granted each Fund's request. 

Recommendation 3: Ensure that the Funds comply with grant agreement 
requirements related to public communications. 

USAID Response: USAID concurs with this recommendation. The Chairman 
of the Board of the Egyptian-American Enterprise Fund (EAEF) has 
confirmed that the EAEF will meet all public communications 
requirements going forward. This includes proposing a logo for USAID
approval in the first quarter of2015, and meeting all other marking 
and public communications requirements of the grant agreement, General 
Provisions, section 19. 

Recommendation 4: Ensure that tl1e Funds' corporate policies reflect 
grant agreement provisions regarding vetting requirements designed to 
prevent transactions with prohibited individuals and organizations. 

USAID Response: USAID concurs with this recommendation. The Chairman 
of the Board of each Fund has confirmed to USAID that at its next 
board meeting it will request that the Board of Directors vote to 
amend its corporate policies to include vetting procedures as required 
by the grant agreements, General Provisions, Section 11. 

[End of section] 

Appendix III: Comments from TAEF: 

Tunisian American Enterprise Fund: 
TAEF - US Office: 
1200 18th Street, NW - Suite 839: 
Washington, DC 20036 
USA Tel: +202-765-2383: 
Cell: +202-441-8913: 
[hyperlink, http://www.taefund.org] 

January 14, 2015: 

David Gootnick: 
GAO: 
gootnickd@gao.gov: 

Re: Enterprise Funds: Egypt and Tunisia Funds Are Established; 
Additional Steps Would Strengthen Compliance with USAID Grant 
Agreement and Other Requirements. Draft January 2015. GAO-15-196. 

Dear David, 

Thank you for the chance to review your draft findings on your audit 
of TAEF and EAEF. My brief comments focused on TAEF are outlined below. 
The report focuses on four areas where it suggests ways of improving 
our approach. Three of those relate to the TAEF. I will comment on 
those. 

#1: EAEF and TAEF Have Not Submitted Performance Monitoring Plans 
Required by the Grants I have no disagreement with the report's 
comments but want to add that the TAEF specifically requested a delay 
in implementing our M&E responsibilities because we did not believe our
strategy was sufficiently well formed to enable us to have a 
constructive discussion. USAID granted this request. Subsequently, we 
have completed a strategy, requested proposals for the development of 
an M&E process based on the strategy and selected a firm. I believe 
that our request for a delay was responsible and appropriate and that 
the actual evaluations will be better and more timely because of how 
we have approached this. I would not want any implication that the 
TAEF, or I, as chair, do not take seriously our commitment to 
undertake a careful external evaluation. 

#2: USAID's Financial Management Office Has Not Been Tracking Funds' 
Cash Management Practices: 

I understand that this issue relates to USAID's processes and is not a 
comment on TAEF processes or practices. We follow a rigorous process 
in which we request funds on the basis of our operating budget and 
anticipated investments. We have designed and maintained strong 
financial controls. I should also note that AID has been extremely 
rigorous in its day to day relations with the TAEF. 

#3: EAEF and TAEF Corporate Policies Do Not Include Key Vetting 
Procedures to Prevent Illicit Use of Funds. (Specifically, they lack 
provisions related to vetting potential investees and the requirement 
that any investee planning to lend U.S. funds in excess of $25,000 
onward to another business or invest in another entity certify to the 
Funds that it will conduct certain due diligence activities to prevent 
their illicit use.) 

I concur with the GAO's comments but not with what might be its 
implications. I will propose to the TAEF Board at the January Board 
meeting that we add the specific provisions mentioned in the GAO 
report to our corporate policies and procedures. But I wish to be 
explicit on two matters. First, it has been our assumption that we are 
committed to observe all of the provisions of the original USAID grant 
agreement, and that there was no need to enumerate each provision 
separately. Second, and more importantly as a matter of actual policy 
and practice the TAEF's due diligence processes specifically include 
in writing all required compliance matters; and in our first 
investment we carried out all required due diligence with respect to 
these matters, assured ourselves that the investee firm also carried 
out appropriate compliance processes, and obtained a letter from the 
investee firm committing to continuing to carry out these processes. I 
would hope the GAO report acknowledges this; I would not want any 
misunderstanding regarding our commitment to fulfill these important 
compliance requirements. 

It is my hope that the GAO would make revisions in this draft report 
to take into account my comments. 

Thank you for this opportunity to comment. 

Regards, 

Signed by: 

W. Bowman Cutter: 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David Gootnick, (202) 512-3149 or GootnickD@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Jason Bair (Assistant 
Director), R. Gifford Howland (Analyst-in-Charge), Debbie Chung, Emily 
Gupta, and Jeffrey Isaacs made key contributions to this report. Mark 
Dowling, Etana Finkler, Paul Kinney, and Steven Putansu provided 
additional support. 

[End of section] 

Footnotes: 

[1] Consolidated Appropriations Act, 2012, Pub. L. No. 112-74, Div. I, 
§ 7041(b). 

[2] USAID, in consultation with the Jordanian government, decided not 
to establish an enterprise fund in that country, according to USAID 
officials. 

[3] H. Rept. No. 112-331. 

[4] COSO is a joint initiative of five private sector organizations 
that develops frameworks and provides guidance on enterprise risk 
management, internal control, and fraud deterrence. COSO's internal 
control framework has been recognized by regulatory standard setters 
and others as a comprehensive framework for evaluating private sector 
organizations' systems of internal control. 

[5] GAO, Foreign Assistance: Enterprise Funds' Contributions to 
Private Sector Development Vary, [hyperlink, 
http://www.gao.gov/products/GAO/NSIAD-99-221] (Washington, D.C.: Sept. 
14, 1999). 

[6] USAID, The Enterprise Funds in Europe and Eurasia: Successes and 
Lessons Learned, Washington, D.C., Sept. 12, 2013. 

[7] The 2012 legislation authorizing enterprise funds in Egypt and 
Tunisia outlines other requirements for the Funds to fulfill. For 
example, not more than 5 percent of the Funds' annual budgets shall be 
available for administrative expenses, and each Fund is required to 
submit an annual report to the U.S. Congressional Committees on 
Appropriations detailing the administrative expenses of each Fund. In 
addition, each Fund is required to make available to the public on an 
Internet website administrated by the Fund, a detailed report on the 
Fund's activities during the previous year. 

[8] USAID, Enterprise Funds in Europe and Eurasia. 

[9] According to EAEF and TAEF officials, neither Fund is currently 
compensating its host country board members. 

[10] EAEF obligations were drawn from amounts appropriated to the 
Economic Support Fund for fiscal years 2012 and 2013. The Consolidated 
Appropriations Act, 2012 (Pub. L. No. 112-74) made available up to $60 
million to establish and operate an enterprise fund for Egypt. Section 
7075(b) of that act required that funds made available for enterprise 
funds shall be expended at the minimum rate necessary to make timely 
payment for projects and activities. Title VII of the Full Year 
Continuing Appropriations Act, 2013 (Pub. L. No. 113-6, Div. F) 
carried forward these provisions. The Consolidated Appropriations Act, 
2014 (Pub. L. No. 113-76) authorizes the use of the Economic Support 
Fund to operate enterprise funds, but does not set a ceiling on the 
amount that may be made available for this purpose. USAID has not yet 
obligated funds from the 2014 appropriation to support EAEF. 

[11] The EAEF grant agreement includes a preliminary 3-year budget 
that anticipates a total allocation of $180 million to the Fund. 

[12] TAEF obligations were drawn from amounts appropriated to the 
Economic Support Fund designated for Overseas Contingency Operations/ 
Global War on Terrorism by Title VIII of Div. I of the Consolidated 
Appropriations Act, 2012 (Pub. L. No. 112-74). The Consolidated 
Appropriations Act, 2012 made available up to $20 million of funds 
appropriated to the Economic Support Fund by that act or by prior acts 
to establish and operate an enterprise fund in Tunisia. Title VII of 
the Full Year Continuing Appropriations Act, 2013 (Pub. L. No. 113-6, 
Div. F) carried forward this provision. The Consolidated 
Appropriations Act, 2014 (Pub. L. No. 113-76) authorizes the use of 
the Economic Support Fund to operate enterprise funds, but does not 
set a ceiling on the amount that may be made available for this 
purpose. 

[13] Microfinance is a source of financial services for entrepreneurs 
and small businesses lacking access to banking and related services. 

[14] TAEF has invested a first tranche of approximately $1 million in 
the private equity fund, with subsequent tranches to follow. 

[15] The TAEF grant agreement includes a preliminary 5-year budget 
that anticipates a total allocation of $100 million to the Fund. 

[16] As noted earlier, COSO is a joint initiative of five private 
sector organizations that develops frameworks and provides guidance on 
enterprise risk management, internal control, and fraud deterrence. 
COSO's internal control framework has been recognized by regulatory 
standards setters and others as a comprehensive framework for 
evaluating private sector organizations' systems of internal control. 

[17] Administrative expenses also include payments for rent/lease, 
furniture, operating expenses, and salaries. 

[18] The Funds' bylaws allow for the board of directors to elect a 
president. According to the TAEF Chairman, TAEF plans to establish an 
audit committee in the future. 

[19] Marking of foreign assistance refers to using methods such as 
applying graphic identities or logos to program materials or project 
signage to visibly acknowledge contributors and identify organizations 
supporting the work. 

[20] We excluded those requirements that have not yet come due as a 
result of timing or circumstance. For example, we did not assess 
compliance with the provision of the grant agreements requiring the 
Funds to require recipients of technical assistance to keep separate 
accounts with respect to such assistance. 

[21] USAID policy requires grant agreements with nonprofit 
organizations to include a standard set of provisions. However, the 
EAEF and TAEF grant agreements do not address standard provisions 
relating to "limitations on construction activities" and a "drug-free 
work place." A USAID official told us in August 2014 that the agency 
would either incorporate the two missing standard provisions when it 
next amended the grant agreements or that it would seek approval to 
waive those provisions. However, when USAID amended the TAEF grant 
agreement in November 2014, it did not include the two provisions. 

[22] The performance monitoring plans were due on July 11, 2013 and 
November 6, 2013, for EAEF and TAEF, respectively. 

[23] USAID and the Funds also use the semiannual meetings to review 
financial information such as rate of commitment and utilization of 
grant funds. 

[24] Should a fund have unexpended cash on hand carried over from a 
previous advance request, it must provide a brief justification to the 
USAID program representative for why such cash on hand should not be 
counted against subsequent advance payment requests. 

[25] USAID's Automated Directives System Chapter 636, "Program Funded 
Advances," outlines policy directives regarding advances made to 
program-funded contracts and assistance awards. A mandatory reference 
to Chapter 636 entitled "Advance Payment, Liquidation/Reimbursement, 
and Reporting Assistance Agreements: A Mandatory Reference for ADS 
Chapter 636" states that exceptions to the general 150-day rule are 
approved by either the Controller for Missions or by the Chief of the 
Cash Managements and Payments Division with the USAID CFO's Bureau for 
Management. 

[26] GAO, Foreign Assistance: Actions Needed to Better Assess the 
Impact of Agencies' Marking and Publicizing Efforts, [hyperlink, 
http://www.gao.gov/products/GAO-07-277] (Washington, D.C.: Mar. 12, 
2007). 

[27] The guidelines entail procedures for the selection of 
investments, the conduct of due diligence and the monitoring of 
investments once they are made. 

[28] H. Rept . No. 112-331. 

[29] COSO is a joint initiative of five private sector organizations 
that develops frameworks and provides guidance on enterprise risk 
management, internal control, and fraud deterrence. COSO's internal 
control framework has been recognized by regulatory standard setters 
and others as a comprehensive framework for evaluating private sector 
organizations' systems of internal control. 

[End of section] 

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