Actions Needed to Improve Management of Defense Production Act Loan Program (GAO-22-104511)
Summary
A GAO report to congressional committees, GAO-22-104511, dated November 2021, on the U.S. International Development Finance Corporation (DFC), the U.S. government's international development finance institution, which began operations in December 2019. It describes the Defense Production Act (DPA) Loan Program that DFC and the Department of Defense began in June 2020 to respond to the COVID-19 outbreak and strengthen domestic supply chains. Its title states that actions are needed to improve management of the program.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Full text
United States Government Accountability Office
Report to Congressional Committees
U.S.
November 2021
INTERNATIONAL
DEVELOPMENT
FINANCE
CORPORATION
Actions Needed to
Improve Management
of Defense Production
Act Loan Program
GAO-22-104511
November 2021
U.S. INTERNATIONAL DEVELOPMENT
FINANCE CORPORATION
Actions Needed to Improve Management of Defense
Highlights of GAO-22-104511, a report to Production Act Loan Program
congressional committees
Why GAO Did This Study What GAO Found
DFC, the U.S. government’s The primary mission of the U.S. International Development Finance Corporation
international development finance (DFC) is to partner with the private sector to invest in development projects
institution, began operations in around the world. Since the Defense Production Act (DPA) Loan Program began
December 2019. In June 2020, DFC in June 2020 to respond to the COVID-19 outbreak and strengthen domestic
and DOD started using certain DPA supply chains, DFC and the Department of Defense (DOD) have received 178
authorities to conduct a 2-year applications. As of mid-October 2021, the agencies have completed no loans
domestic loan program to respond to (see figure). DFC officials said factors that slowed the process included more
the COVID-19 pandemic and applications and more complex interagency involvement than DFC expected. To
strengthen relevant U.S. supply chains,
improve efficiency, DFC and DOD have prioritized medical applications and
under the President’s Executive Order
revised procedures, but they lack plans to evaluate the program’s overall
13922. Members of Congress have
expressed concern about DFC’s ability
effectiveness. Such plans could inform decisions about the future use of DPA
to manage DPA activities along with its lending authority and increase congressional and public confidence that program
international development mission. costs and risks are reasonable relative to outcomes.
House of Representatives Report 116- DFC Defense Production Act (DPA) Loan Program Timeline
444 included a provision for GAO to
review DFC’s activities under the DPA.
This report examines the extent to
which DFC has (1) made loans that
contributed to the pandemic response
and planned to assess program
effectiveness; (2) assessed and
responded to the organizational risks
of carrying out DPA activities along
with its international development
responsibilities; and (3) implemented
internal controls to ensure full
accounting of its DPA costs for DOD
reimbursement. GAO reviewed DPA DFC did not fully assess and respond to the risks of carrying out the DPA Loan
Loan Program procedures and Program along with its primary mission in fiscal year 2020 because it was still
documents, analyzed DFC data on developing an agency-wide risk management approach when the program
loan applications, and interviewed DFC started. DFC took some steps to mitigate risks when designing the DPA program,
and DOD officials. such as reducing the use of international development mission resources by
hiring dedicated staff to manage DPA loans. DFC took further steps in fiscal year
What GAO Recommends
2021 to assess risks the agency faces, including developing an agency-wide
GAO is recommending that DFC, in Risk and Opportunity Profile. DFC is on track to complete this profile by October
consultation with DOD, develop a plan 2021. It has also identified the DFC offices that will be responsible for managing
to evaluate the DPA Loan Program’s each risk, including risks related to the DPA Loan Program.
effectiveness; and that DFC complete
its methodologies for accounting for all DFC has developed methodologies to account for most, but not all of the costs to
reimbursable DPA program costs. administer the DPA Loan Program eligible for reimbursement by DOD. As of
DFC did not concur with the first early October 2021, DFC had submitted six partial invoices, totaling about $1.4
recommendation but did concur with million, for reimbursement. The invoices were partial because DFC lacks
the second. GAO continues to believe methodologies to calculate all categories of reimbursable costs called for by
both recommendations are valid. federal cost accounting standards. For example, DFC has a methodology for
allocating labor hours, but not for the DPA program’s portion of office space and
View GAO-22-104511. For more information,
contact Chelsa Kenney at (202) 512-2964 or equipment shared with the rest of DFC. In addition to resulting in incomplete
KenneyC@gao.gov. invoices, DFC’s incomplete cost accounting methodologies mean DFC and DOD
cannot be certain of the full costs of establishing and operating the program.
United States Government Accountability Office
Contents
Letter 1
Background 4
DFC and DOD Did Not Complete Any Loans in the First Year of
the DPA Program and Lack Plans to Evaluate the Program’s
Effectiveness 12
DFC Did Not Fully Assess the Risks That DPA Activities Pose to
Its International Development Mission, but Assessed Risk in
Fiscal Year 2021 21
DFC Has Not Developed Accounting Methodologies to Track All
the Eligible Costs of the DPA Loan Program or Submitted
Timely and Complete Invoices 28
Conclusions 33
Recommendations for Executive Action 34
Agency Comments and Our Response 34
Appendix I Objectives, Scope, and Methodology 36
Appendix II Comments from the U.S. International Development Finance
Corporation 40
Appendix III GAO Contact and Staff Acknowledgments 42
Tables
Table 1: Number and Requested Dollar Amount of Loan
Applications Received by DFC’s Defense Production Act
Loan Program, as of June 30, 2021, by Fiscal Year and
Quarter 14
Table 2: Cost Categories, Methodologies, and Status of
Methodology Development for DFC’s Defense Production
Act (DPA) Loan Program 30
Table 3: DFC Invoices for Defense Production Act (DPA) Loan
Program Costs Submitted to the Department of Defense
(DOD) for Reimbursement, as of October 2021 31
Page i GAO-22-104511 DFC DPA Activities
Figures
Figure 1: DFC’s Defense Production Act (DPA) Loan Program
Timeline 10
Figure 2: Process for Reviewing Defense Production Act Loan
Applications 11
Figure 3: U.S. International Development Finance Corporation
(DFC) Organizational Chart, August 2021 23
Abbreviations
BUILD Act Better Utilization of Investments Leading to Development
Act of 2018
CARES Act Coronavirus Aid, Relief, and Economic Security Act
CEO Chief Executive Officer
COVID-19 Coronavirus Disease 2019
DFC U.S. International Development Finance Corporation
DCA Development Credit Authority
DOD Department of Defense
DPA Defense Production Act
ERM enterprise risk management
FCRA The Federal Credit Reform Act of 1990
HHS Department of Health and Human Services
MOA memorandum of agreement
OMB Office of Management and Budget
OPIC Overseas Private Investment Corporation
USAID U.S. Agency for International Development
This is a work of the U.S. government and is not subject to copyright protection in the
United States. The published product may be reproduced and distributed in its entirety
without further permission from GAO. However, because this work may contain
copyrighted images or other material, permission from the copyright holder may be
necessary if you wish to reproduce this material separately.
Page ii GAO-22-104511 DFC DPA Activities
Letter
441 G St. N.W.
Washington, DC 20548
November 17, 2021
The Honorable Christopher Coons
Chair
The Honorable Lindsey Graham
Ranking Member
Subcommittee on State, Foreign Operations, and Related Programs
Committee on Appropriations
United States Senate
The Honorable Barbara Lee
Chairwoman
The Honorable Hal Rogers
Ranking Member
Subcommittee on State, Foreign Operations, and Related Programs
Committee on Appropriations
House of Representatives
The U.S. International Development Finance Corporation (DFC), the U.S.
government’s development finance institution, partners with the private
sector to invest in development projects around the world. As of June
2021, DFC was managing about $31 billion in international development
investments worldwide. DFC supports development projects in a variety
of areas, including energy, healthcare, and infrastructure by providing
equity and debt financing, political risk insurance, or technical
assistance. 1 DFC began operations in December 2019, consolidating the
functions of the Overseas Private Investment Corporation (OPIC) and the
U.S. Agency for International Development’s (USAID) Development
Credit Authority (DCA). 2
In March 2020, just 3 months after DFC began operations, the President
declared a national emergency concerning the Coronavirus Disease 2019
1DFC’s authorizing legislation notes DFC’s purpose is to mobilize and facilitate the
participation of private sector capital and skills in the economic development of less
developed countries, and countries in transition from nonmarket to market economies; to
complement the development assistance objectives; and to advance the foreign policy
interests of the United States.
2The 2018 Better Utilization of Investments Leading to Development (BUILD) Act of 2018
consolidated OPIC’s and the DCA’s functions into DFC. Pub. L. No.115-254, Div. F, 132
Stat. 3186, 3485-3519 (Oct. 5, 2018).
Page 1 GAO-22-104511 DFC DPA Activities
(COVID-19). The same month, Congress passed and the President
signed into law the CARES Act, which provided over $2 trillion in
emergency assistance and health care response for individuals, families,
and businesses affected by COVID-19. 3 Of this amount, the CARES Act
included $1 billion for the Department of Defense (DOD) to make
purchases to prevent, prepare for, and respond to COVID-19,
domestically or internationally, using Defense Production Act (DPA)
authority.
In May 2020, the President signed Executive Order 13922 delegating
DPA loan-making authority to the Chief Executive Officer (CEO) of DFC
for the domestic production of strategic resources needed to respond to
the COVID-19 outbreak, and to strengthen any relevant domestic supply
chains. 4 In June 2020, DFC’s CEO and DOD’s Under Secretary for
Acquisition and Sustainment signed a memorandum of agreement (MOA)
in which the agencies agreed DFC would originate and underwrite DPA
loans and manage the loan portfolio, while DOD would fund the loans and
reimburse DFC for all expenses related to these activities. DOD allocated
$100 million of its $1 billion in DPA-related CARES Act funds to the new
DPA Loan Program. 5
In the House of Representatives Report accompanying its fiscal year
2021 appropriations bill, the House Appropriations Committee’s
Subcommittee on State, Foreign Operations, and Related Programs
expressed concern about DFC’s ability to balance its international
development mission and new DPA Loan Program responsibilities. 6 This
3Coronavirus Aid, Relief, and Economic Security Act, Pub. L. No. 116-136, 134 Stat. 281,
Mar. 27, 2020.
4See Exec. Order No. 13922 (May 14, 2020). DFC officials told us the executive order, by
delegating the authority to the DFC CEO, bypassed the normal management structure
established by the BUILD Act whereby the DFC Board of Directors has direct authority
over the CEO. According to DFC officials, this delegation means that responsibility for the
DPA Loan Program is thus outside of the normal governance structure for the agency.
However, for the purposes of this report we refer to DFC as the agency responsible for the
program given the DFC CEO and DFC staff’s role in implementing the program and DFC’s
own characterization of its role, as an agency, in the materials it has produced related to
the DPA Loan Program. The executive order also requires that the DFC CEO exercise the
DPA loan-making authority in consultation with the Secretaries of Defense, Health and
Human Services, and Homeland Security, and any other appropriate heads of agencies.
5As of May 31, 2021, six COVID-19 relief laws had been enacted to assist the COVID-19
response, but only the CARES Act funds have been allocated to the DFC DPA Loan
Program.
6H.R. Rep. No. 116-444 (2020).
Page 2 GAO-22-104511 DFC DPA Activities
report included a provision for GAO to assess aspects of DFC’s activities
conducted under the DPA Loan Program pursuant to the executive order
and its continued implementation of its international development mission.
The Joint Explanatory Statement accompanying the Consolidated
Appropriations Act, 2021, confirmed Congress’s interest in this work.
This report examines the extent to which DFC has (1) made loans that
contributed to the pandemic response and planned to assess program
effectiveness, (2) assessed and responded to the organizational risks of
carrying out DPA activities along with its international development
responsibilities, and (3) implemented internal controls to ensure full
accounting of the DPA Loan Program costs for DOD reimbursement.
To assess the extent to which DFC made loans that contributed to the
pandemic response and planned to assess program effectiveness, we
reviewed DFC guidance documents for the DPA Loan Program. In
addition, we analyzed DFC data on DPA Loan Program applications. We
found these data to be sufficiently reliable for the purposes of describing
and summarizing loan application data DFC has collected for the DPA
Loan Program. We also reviewed DFC documents describing how DFC
plans to measure the impact of the loans when assessing a loan
application and over the life of the loan. We reviewed documents DFC
used to prioritize individual loans based on their potential to contribute to
the pandemic response. We also reviewed DOD assessments of the
program, including process improvement recommendations. We
interviewed DFC and DOD officials about their plans to assess the
effectiveness of individual loans and of the program as a whole in
responding to the pandemic. We compared DFC and DOD’s plans to
GAO-identified lessons learned from the initial COVID-19 response to
determine the extent to which DFC and DOD had incorporated these
lessons into their plans. 7 In addition, we compared their plans to GAO-
identified lessons on the use of data and evidence to improve federal
programs. 8
7GAO, COVID-19: Opportunities to Improve Federal Response and Recovery Efforts,
GAO-20-625 (Washington, D.C.: Jun. 25, 2020).
8See GAO, Using Data and Evidence to Improve Federal Programs; this compilation of
products (or issue area) includes reports such as GAO, Program Evaluation: Annual
Agency-Wide Plans Could Enhance Leadership Support for Program Evaluations,
GAO-17-743 (Washington, D.C.: Sept. 29, 2017).
Page 3 GAO-22-104511 DFC DPA Activities
To examine how DFC assessed and responded to organizational risks,
we reviewed DFC documentation about how it assessed organizational
risks for the agency as a whole. We also interviewed knowledgeable DFC
officials about their plans for assessing risks related to the DPA Loan
Program. In addition, we evaluated whether these plans are consistent
with Office of Management and Budget (OMB) requirements for agencies
regarding Enterprise Risk Management (ERM). 9 We reviewed DFC
documentation and interviewed DFC officials regarding the steps the
agency had taken to informally identify and mitigate risks the DPA Loan
Program posed to the international development mission.
To assess the extent to which DFC has implemented internal controls to
ensure full accounting of its DPA costs for DOD reimbursement, we
reviewed DFC’s July 2020 budget estimating costs of the DPA Loan
Program over a 10-year period, guidance for calculating costs, and six
invoices submitted to DOD from the beginning of the program until early
October 2021. We also interviewed DFC and DOD officials to determine
the steps DFC had taken to track and calculate its costs from
administering the DPA Loan Program. We compared DFC’s cost
accounting practices to federal financial accounting standards and GAO-
identified standards for internal controls. See appendix I for more
information about our objectives, scope, and methodology.
We conducted this performance audit from September 2020 to November
2021 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
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Background
DFC Mission, Authorities, In October 2018, Congress passed the BUILD Act of 2018. 10 The Act
and Approach created DFC by combining functions from OPIC and USAID’s DCA into a
9Office of Management and Budget Circular A-123, Management’s Responsibility for
Enterprise Risk Management and Internal Control (Washington, D.C.: Jul. 15, 2016).
10Pub. L. No. 115-254, Div. F, Title I, § 1412.
Page 4 GAO-22-104511 DFC DPA Activities
single organization. 11 Like its predecessor organizations, DFC is a U.S.
government agency that promotes development and U.S. foreign policy
goals by supporting U.S. investment overseas. To achieve this mission,
DFC activities include
1. making direct loans and loan guarantees of up to $1 billion with terms
up to 25 years;
2. issuing political risk insurance with coverage up to $1 billion against
losses due to political risks such as terrorism and currency
inconvertibility;
3. financing projects and investment funds with equity as a minority
investor; and
4. conducting feasibility studies and technical assistance to support
project identification and preparation.
DFC officially began operations in December 2019. In response to BUILD
Act guidelines, DFC’s inaugural 5-year development strategy identifies
three strategic objectives: (1) promote economic growth and stability,
particularly in countries struggling with lower incomes, conflict, terrorism,
or high migration flows; (2) counter predatory state-directed investment
and other malign influence, while preserving country sovereignty and self-
reliance; and (3) support countries undergoing market transformation and
democratic reform.
Congress sets DFC’s maximum spending levels for administrative and
program expenses annually through appropriations laws. In fiscal year
2021, Congress appropriated $119 million for DFC’s administrative
expenses and $450 million for its program expenses. 12 DFC can incur by
law up to $60 billion in maximum contingent liability—the amount DFC
11Between 1971 and 2019, OPIC was the development finance institution for the United
States, using financial tools to promote economic growth in developing economies.
Specifically, OPIC provided loans, loan guarantees, and political risk insurance. Between
1999 and 2019, DCA provided loan guarantees to provide an incentive to development
lending. Typically, DCA would guarantee up to half of each loan in case of default, with
private banks lending the remainder.
12Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, 134 Stat. 1182, 1716 (Dec.
27, 2020).
Page 5 GAO-22-104511 DFC DPA Activities
would owe if claims were made on all insurance contracts and borrowers
defaulted on all loans. 13
Status of DFC’s As of June 2021, DFC was managing about $31 billion worldwide in
International Development active commitments, including investments made by its predecessors and
by DFC since it began operations. The agency’s new commitments in its
Portfolio
first 2 years of operation are similar in total value and number to new
investments OPIC made in its final year of operation. Specifically, in fiscal
year 2019, OPIC reported investing about $5.3 billion in more than 90
global development projects. 14 In fiscal year 2020, DFC reported making
about $4.8 billion in new investments in 80 global development projects. 15
In fiscal year 2021, DFC reported that it had committed to 55 projects
totaling $4.1 billion, as of July 13, 2021. 16
Overview of the DPA Loan During the Korean War, Congress enacted the DPA of 1950 to ensure the
Authority and Its Use in availability of industrial resources to meet DOD’s needs. 17 In 1994,
the COVID-19 Response Congress amended the DPA to broaden its definition of “national
defense” to include emergency preparedness activities. DPA has three
major authorities currently in effect: Titles I, III, and VII. 18 Title III
authorizes the President to take various actions, including: (1) providing
loans to private businesses to reduce shortfalls of industrial resources,
critical technologies, and materials essential for national defense, and (2)
making provision for other purchases or developments to create,
maintain, protect, expand, or restore domestic industrial base capabilities
13According to DFC’s annual management report, DFC’s contingent liability at the end of
fiscal year 2020 was $3.6 billion.
14These data do not include the value of loan guarantees made by DFC’s other
predecessor, USAID’s DCA in 2019. USAID reported that in fiscal year 2019, DCA
disbursed about $127 million in new guaranteed loans.
15DFC’s new investments included direct loans, loan guarantees, limited equity
investments, and political risk insurance.
16OPIC reported having operated at no net cost to the taxpayer from its opening in 1977
to its closing in 2019. Similarly, DFC reported making a positive return on its investments
during its first year of operation and identified generating returns for the American
taxpayer as one of its key areas of focus.
1750 U.S.C. § 4501 et seq., as amended. In 2018, Congress reauthorized the DPA
through September 30, 2025 (see 50 U.S.C. § 4564(a)).
18For more information about agencies’ use of Titles I and VII in response to the COVID-
19 pandemic, see GAO, COVID-19: Sustained Federal Action is Crucial as Pandemic
Enters Its Second Year, GAO-21-387 (Washington, D.C.: Mar. 31, 2021).
Page 6 GAO-22-104511 DFC DPA Activities
essential for the national defense. According to DOD officials, DOD has
not used the loan-making part of the authority since the 1950s. The
President delegated authority for these Title III actions to DFC’s CEO in
May 2020 through Executive Order 13922, for the domestic production of
strategic resources needed to respond to the COVID-19 outbreak, and to
strengthen any relevant domestic supply chains. 19 The President stated in
the executive order that he was delegating the authority because it is
important to use all resources available to the United States, including
executive departments and agencies with expertise in loan support for
private institutions.
DFC and DOD have established criteria for the types of loans that they
may consider, pursuant to the legal requirements of the DPA Title III
provisions and Executive Order 13922. The loans have to support
projects (1) primarily conducted in the U.S. and Canada; (2) that address
current or anticipated industrial shortfalls; (3) for which no private capital
exists or only exists on unreasonable terms; and (4) for which a loan is
the fastest and most cost-effective method of developing the industrial
capability that U.S. industry cannot otherwise be expected to provide
within a reasonable period timeframe.
The March 2020 CARES Act provided DOD with $1 billion for DPA
purchases to prevent, prepare for, and respond to the coronavirus,
domestically or internationally. 20 In response to the executive order
delegating DPA Title III loan-making authority to DFC’s CEO, DOD
allocated $100 million of this amount to the DPA Loan Program. DOD and
19The DFC CEO position was filled from September 2019 through January 20, 2021; an
acting CEO has filled the position since then and, as of August 2021, the White House has
nominated someone to fill the position.
20The CARES Act also provided funds that the Department of Health and Human Services
(HHS) designated to buy supplies for the COVID-19 response and Strategic National
Stockpile replenishment. As of February 2021, HHS and DOD had used these funds to
make about $2.3 billion of awards for domestic production expansion projects—such as
for vaccine supplies—through DPA Title III and similar actions. GAO-21-387. In March
2021, Congress also passed the American Rescue Plan Act of 2021, which appropriated
an additional $10 billion to conduct DPA activities to address emergency medical supplies
for COVID-19 response. According to DOD officials, HHS will conduct these activities,
which are separate from the DFC DPA loan program. Pub. L. No. 117-2, § 3101. 135 Stat.
4, 53 (Mar. 11, 2021).
Page 7 GAO-22-104511 DFC DPA Activities
DFC plan to use these funds to finance the loan subsidy costs as well as
the costs of administering the program. 21
In 2021, the President and federal agencies began considering new
approaches to using the DPA to address the COVID-19 pandemic. 22
Specifically, on January 21, 2021, the President issued an executive
order for DOD and other agencies to take immediate actions to secure
the supplies necessary for responding to the pandemic using the DPA
authorities. 23 One of the documents produced in response to this order
was the July 2021 National Strategy for a Resilient Public Health Supply
Chain. 24 DOD and the Departments of Health and Human Services
(HHS), Homeland Security, and Veterans Affairs wrote the strategy in
collaboration with the Departments of Commerce and State and the White
House Office of the COVID-19 Response. The strategy’s stated aim is to
design, build, and sustain a long-term capability in the United States to
manufacture supplies for future pandemics and biological threats. The
strategy emphasizes the importance of DPA as a tool for addressing
pandemic response and preparedness supply chain issues, but did not
specifically discuss the DPA Loan Program DFC administers.
On February 24, 2021, the President also issued an executive order for
DOD and other agencies to report on a number of topics related to
21The Federal Credit Reform Act of 1990 (FCRA) requires agencies to estimate the cost to
the government of extending or guaranteeing credit, referred to as subsidy cost. The $100
million would be used for subsidy costs, if any, and administrative costs. Pursuant to
FCRA, subsidy costs can be reduced to the extent the government charges interest or
fees. Where the government’s income exceeds estimated cost, the budgetary cost could
be negative, referred to as a negative subsidy income. If DFC negotiates terms of the
transaction that produce a net estimated return, the government can extend lending for
that transaction without drawing down the $100 million in allocated funds. If the present
value of estimated cash outflows exceeds cash inflows, then a positive subsidy cost
exists. According to DOD officials, any subsidy income from a DPA loan will go to the U.S.
Treasury and cannot be used to offset costs of any other loans. 2 U.S.C. §§ 661 et seq.
22For additional information on agencies’ use of this authority, see GAO, Defense
Production Act: Opportunities Exist to Increase Transparency and Identify Future Actions
to Mitigate Medical Supply Chain Issues, GAO-21-108 (Washington, D.C.: Nov. 19, 2020).
23See Exec. Order No. 14001 (Jan. 21, 2021).
24DOD, HHS, and the Departments of Homeland Security and Veterans Affairs, National
Strategy for a Resilient Public Health Supply Chain (Washington, D.C.: Jul. 13, 2021).
Page 8 GAO-22-104511 DFC DPA Activities
strengthening the resiliency of America’s supply chain. 25 The resulting
June 2021 report recommended that DOD and other agencies use DPA
Title III incentives—including grants and loans—to support research and
development concepts and emerging technologies, among other things. It
also recommended that DFC expand international investments in projects
that will increase production capacity for critical products, including critical
minerals, to support supply-chain resilience.
DOD is also finalizing a review of the future of DPA loan making in
response to a November 2020 request from OMB. According to DOD
officials, the review will identify the resources DOD would require to
establish a DPA loan-making program within DOD. As of August 2021,
DOD officials stated they had drafted the review findings but were waiting
for the appointment of a new Under Secretary of Defense for Acquisition
and Sustainment before completing the review. 26
Timeline of DFC and DFC established and began administering the DPA Loan Program in
DOD’s Efforts to Establish June 2020, 6 months after it began operations. Executive Order 13922
gave the DFC CEO until March 26, 2022, to originate loans to finance
the DPA Loan Program
projects to respond to the COVID-19 pandemic and prepare the U.S. for
future pandemics.
Following the signing of the MOA with DOD in June 2020, DFC
established a U.S. Operations office to administer the program and
published a request for DPA loan proposals. The request for proposals
stated that eligible projects would help increase the U.S.-based
production or distribution of (1) personal protective equipment, (2)
medical testing supplies, (3) vaccines, (4) pharmaceuticals, (5)
ventilators, or (6) relevant ancillary materials and technologies. DFC’s
DPA Loan Program allows the loans to last up to 25 years. DFC accepted
the first loan applications shortly after issuing the request for proposals.
25See Exec. Order No. 14017 (Feb. 24, 2021) and White House, DOD, HHS, and the
Departments of Commerce, Energy, Building Resilient Supply Chains, Revitalizing
American Manufacturing, and Fostering Broad-Based Growth: 100-Day Reviews under
Executive Order 14017 (Washington, D.C.: June 4, 2021). In addition to the June 2021
Resilient Supply Chain report, this order required a report on sectoral supply chain
assessments due in February 2022.
26The administration nominated someone for the position in April 2021. However, that
person withdrew from the nomination in July, and as of August 2021, the Administration
has not identified a new nominee.
Page 9 GAO-22-104511 DFC DPA Activities
According to DFC and DOD officials, as of October 2021, with the
authority set to expire in March 2022, the agencies are in the process of
determining when to stop accepting new applications for the DPA Loan
Program. See figure 1 below for a timeline of key milestones in DFC’s
and DOD’s establishment of the DPA Loan Program.
Figure 1: DFC’s Defense Production Act (DPA) Loan Program Timeline
Note: According to DFC and DOD officials, as of October 2021 the agencies are in the process of
determining when to stop accepting new applications for the DPA Loan Program.
Procedures for Approving As agreed upon in the agencies’ MOA, DFC, in coordination with DOD,
DPA Program Loans designed a process (see fig. 2) for reviewing DPA loan applications based
on its experience with international development loan making.
Page 10 GAO-22-104511 DFC DPA Activities
Figure 2: Process for Reviewing Defense Production Act Loan Applications
Note: According to DFC and DOD officials, the two agencies discuss DPA Loan Program activity
weekly, in addition to the formal process outlined in the figure. Following step nine, the loan is
monitored. As of mid-October 2021, officials told us DFC and DOD were in the process of deciding
which agency should conduct loan monitoring.
From pre-screening until the signing of a finance agreement (steps 1
through 8), DFC collects information about the loan applicant’s proposed
Page 11 GAO-22-104511 DFC DPA Activities
project and conducts various levels of due diligence on the applicant. In
most steps of the process, DFC receives formal comments from other
agencies, specifically, DOD and HHS. 27 For example, DOD provides an
action memo, a formal letter determining the project’s eligibility, at step 4.
In addition, DFC and DOD officials told us that when reviewing loan
application details involving subjects beyond their expertise, such as for
medical-related projects, they consult these agency partners.
DFC and DOD Did
Not Complete Any
Loans in the First
Year of the DPA
Program and Lack
Plans to Evaluate the
Program’s
Effectiveness
DFC and DOD Did Not DFC and DOD had not completed any DPA program loans as of mid-
Complete Any Loans in October 2021, meaning that no loans completed the final loan review of
step 9 (see fig. 2) leading to disbursement. 28 The agencies signed one
the First Year of the 2-Year
loan finance agreement (see step 8 in fig. 2), but no other loans have
Program, but DFC reached this stage. Prior to August 2021, three other loan applications
Continues to Receive and had made it to step 6 in the process. DFC officials, however, told us these
Review Applications three loans were no longer active because either the proposed projects
did not meet the new administration policies focused on prioritizing
medical needs or the borrowers had decided to restructure their
companies.
As of August 2021, DFC officials said the DPA Loan Program was in the
process of reviewing seven additional loans for about $954 million and
27When the DPA loan program began, DFC officials told us that the White House Office of
Trade and Manufacturing Policy also provided formal and informal comments at some
steps in the process. However, DFC officials said this office was no longer involved after
January 2021.
28For the purposes of this report, we use complete to mean the loan has completed all
nine steps of the DPA loan application review process, concluding with the disbursement
of funds to the borrower.
Page 12 GAO-22-104511 DFC DPA Activities
hoped to move these to the Credit Committee phase (step 5) of the
review process by November 2021. DOD officials told us that since it can
take a long time to move loans from step 5 to the final step, DOD and
DFC are conducting a legal review to determine how to handle projects
that are partway through the DPA Loan Program review when the
program’s authority expires.
The loan that is the furthest along in the review process (step 8) relates to
the COVID-19 pandemic response and preparedness, according to DFC
and DOD officials. It is a loan to ApiJect Systems for the construction of a
new manufacturing facility in North Carolina. The agencies and ApiJect
signed the loan finance agreement (step 8) on May 14, 2021. DFC first
publicly announced this $590 million project in November 2020, when it
received approval from DFC’s CEO (step 6). The plan outlined in the loan
announcement is for the facility to manufacture prefilled injectors, initially
for administering COVID-19 vaccines and eventually for other vaccines
and injectable pharmaceuticals. 29
After the loan’s approval by the DFC CEO, DFC and DOD had to
complete additional steps before they could complete the loan. According
to DFC officials, DFC had to complete more advanced levels of due
diligence review for the loan to comply with loan approval conditions. DFC
officials said they customarily complete such reviews after loan approval,
leading up to the completion of the finance agreement step in the
process. DFC officials said these reviews and interagency coordination
involved in drafting the finance agreement accounted for the time
between the November 2020 loan approval and the signed finance
agreement in May 2021. 30
In addition, according to the finance agreement the project must meet
certain conditions precedent before DFC and DOD can complete the loan
and DOD can disburse the funds. In the case of the ApiJect loan, as of
October 2021, DFC officials said they were still working with ApiJect for
29ApiJect has previously received federal funding from DOD and HHS for a smaller-scale
production facility of the same nature in South Carolina. As of November 19, 2020,
ApiJect press materials indicated the company planned to produce prefilled injectors at
the South Carolina site. As of August 2021, DOD officials said the company was still
waiting for the U.S. Food and Drug Administration to approve the injectors for distribution
in the United States.
30According to DFC officials, DFC revised the loan review process in February 2021, after
DFC’s CEO approved the ApiJect loan in November 2020. DFC officials said this change
is intended to shorten the length of time between loan approval (step 6) and disbursement
(step 9) for future loans. See page 16 for additional information.
Page 13 GAO-22-104511 DFC DPA Activities
the company to meet the conditions precedent outlined in the finance
agreement. For example, DFC officials said that ApiJect has encountered
delays securing the necessary property rights for the project site, one of
several conditions that the finance agreement required. Until DFC verifies
ApiJect has completed this and other conditions outlined in the finance
agreement, such as submitting various administrative, financial, and legal
documents, DFC cannot approve the first loan disbursement. DFC
officials said large project transactions such as this one commonly
encounter similar issues. As a result, DFC is working with ApiJect to
determine when, and if, they can complete the final stage of the loan
review process for the project (step 9). DFC officials also noted DFC and
DOD will not approve any disbursements to ApiJect if the company fails
to fulfill the terms of the finance agreement.
DFC plans to continue processing loans through the end of the program
in March 2022 and is still receiving and reviewing applications as of
October 2021, according to DFC officials. According to DFC data as of
June 30, 2021, the agency had received 178 applications for DPA loans.
See table 1 for details on the loan applications DFC received through the
third quarter of fiscal year 2021.
Table 1: Number and Requested Dollar Amount of Loan Applications Received by
DFC’s Defense Production Act Loan Program, as of June 30, 2021, by Fiscal Year
and Quarter
Sum of loan
Number of applications amounts requested
Fiscal year and quarter received (Dollars in billions)
2020
Third and fourth quartersa 71 10
2021
First quarter 61 12
Second quarter 29 4
Third quarter 17 1
Total 178 27
Source: GAO analysis of U.S. International Development Finance Corporation (DFC) data. | GAO-22-104511
Note: in the third quarter of fiscal year 2021, the administration narrowed the focus of the program to
prioritize medical projects, which, according to DFC officials, may account for the decrease in
applications received that quarter.
a
We do not report data for these two quarters separately because DFC data do not distinguish
between applications received in the third and fourth quarters of fiscal year 2020.
Page 14 GAO-22-104511 DFC DPA Activities
In addition, in June 2021, DFC officials told us that DFC and its federal
partners continue to conduct outreach to encourage companies to submit
applications for the program. However, the administration and the
agencies involved in the DPA Loan Program are in the process of
deciding when to stop these outreach efforts in advance of the program’s
end in March 2022. According to DFC officials, DFC’s outreach activities
include presentations to industry groups and trade associations, working
with state-level economic development offices, and participating in events
organized by the Small Business Administration.
DOD has made similar efforts related to its areas of expertise, according
to DFC and DOD officials. For example, DOD officials reported that they
shared information about the program with companies involved in some
of DOD’s existing industry outreach, including sending a link to the
application when companies expressed interest. 31 DFC officials told us
that the outreach with other federal agencies has been helpful in
identifying companies for the program, and the outreach with state
agencies has led to a number of referrals of companies to the program.
DFC Has Required More
Time Than Anticipated to
Complete DPA Loans, but
DFC and DOD Have
Prioritized Reviewing
Medical Applications and
Revised the Review
Process
DFC Has Revised Its Projected The process of reviewing applications and concluding finance
Timeframes for Closing DPA agreements with companies has taken longer than DFC anticipated. As a
Loans result, DFC has revised its projected timeframes for closing loans to be
about three times as long as it initially estimated. For example, in a
presentation DFC gave to industry groups in fall 2020 to encourage
companies to apply for the DPA loans, the agency estimated that it would
31Specifically, DOD officials said they shared this information with the Joint Industrial Base
Working Group and the Defense Industrial Base Council. The council is an executive-level
forum, composed of senior military leaders, established to ensure industrial base
readiness and resilience. DOD’s Office of Industrial Policy and the Defense Contract
Management Agency chair the council’s Joint Industrial Base Working Group, which
oversees the flow of information from subject matter experts concerning critical industry
sectors such as aviation and electronics.
Page 15 GAO-22-104511 DFC DPA Activities
take 3 to 4 months to complete a loan application from date of receipt to
closing. 32 By contrast, in updated marketing materials from January 2021,
DFC advertised that the loan review process would take 6 to 12 months.
Then in April 2021, DFC officials told us the process would take 9 to 15
months.
DFC and DOD officials identified several factors contributing to the longer
than anticipated timeframes for closing loans. DFC officials acknowledged
they were aware of a number of these factors at the outset of the DPA
Loan Program, but did not fully account for them when developing their
original projections. According to DFC officials, key factors that DFC did
not fully account for at the outset of the program included:
• Interagency review. According to DFC officials, the application
process involves significant interagency review at several stages (see
fig. 2), and partner agencies required more time to provide their input
and clearance than DFC officials originally expected. The DPA loan
process also requires specific interagency deliverables to advance
applications to the next stage of the process. For example, DFC is
required to review and incorporate into the loan file a DOD-issued
memo that states the initial technical and legal findings on the loan’s
eligibility.
• Financing new projects. DFC officials said DPA loans generally
finance new projects, such as constructing a new facility, which
require in-depth financial and technical reviews involving multiple
agencies. Given these types of projects, DFC officials said they did
not account for the time needed to conduct due diligence to establish
a reasonable assurance of repayment of the loan.
• Regulatory process. DFC officials said projects funded by DPA
loans generally involve regulatory process documents, such as
environmental assessments for construction and approvals for
medical products, that DFC and its agency partners must review, as
part of the due diligence process.
• Hiring staff for the new office. The DPA Loan Program was a new
operation, for which DFC had to hire staff and establish procedures.
DFC officials told us that they faced challenges finding qualified
applicants to hire for the program. DFC’s initial plans were to hire 13
staff to support this program and, as of August 2021, seven of these
positions remained vacant, according to DFC officials. While DFC
32DFC officials told us they informed industry groups that this timeline would be possible
only if the companies provided complete information at each step.
Page 16 GAO-22-104511 DFC DPA Activities
officials said the agency no longer intended to fill all those positions,
they did identify two positions—an economist and accountant—they
were still seeking to fill in order to support the DPA Loan Program.
• Volume of loan applications. DFC received more loan applications
in the early months of the program than anticipated. Specifically, DFC
officials expected to receive about 100 applications over the 2 years
of the program, but had already received 178 applications by June
2021, 1 year after DFC announced the program was ready to receive
applications.
DFC and DOD Have Prioritized DFC and DOD have taken two key steps to improve the efficiency of the
Medical Applications and DPA loan process. First, according to DFC officials, DFC and DOD
Revised Processes agreed to focus on, and have been using, a list of approximately 10
priority projects since the first quarter of calendar year 2021. DFC officials
intend for this list to reflect the projects that DFC and DOD will review for
a period of 90 days before moving on to review other applications
received. The list does not include loans that DFC’s CEO already
approved to move to the finance agreement step (step 8), such as
ApiJect, but focuses on projects in the early stages of the loan review
process that DFC believes have the greatest potential to advance to the
Credit Committee. DFC officials told us that to respond to the COVID-19
pandemic, DFC and DOD would only include applications on the priority
list if the project relates to a medical need, and is likely to be financially
sustainable.
DFC officials also told us they initially began using the list as a way to
manage interagency workflow, but shortly afterwards, in April 2021, the
administration announced a policy prioritizing COVID-19 and medical
related loan applications. 33 The policy stated that with only a little more
than a year left before the program expired, the Administration needed to
prioritize projects under consideration to ensure DFC was appropriately
meeting the intent of the executive order while advancing administration
priorities. According to DFC officials, DFC and DOD then communicated
this change to the companies whose applications they would no longer
consider. 34 Due to these prioritization efforts, between April and August
33OMB, Prioritization Policy For Executive Order 13922, “Delegating Authority Under the
Defense Production Act of 1950 to the Chief Executive Officer of the United States
International Development Finance Corporation To Respond to the COVID-19 Outbreak
(Washington, D.C.: Apr. 22, 2021).
34For example, DFC had previously been reviewing loan applications for non-medical,
defense-related projects from companies negatively affected by the COVID-19 pandemic.
Page 17 GAO-22-104511 DFC DPA Activities
2021, DFC narrowed its focus from 45 projects totaling about $8.8 billion
to 8 projects totaling about $1.5 billion for medical-related projects
(including ApiJect).
Second, DFC and DOD have jointly undertaken an ongoing effort to
review and revise the DPA loan process, according to officials. For
example, the agencies carried out a detailed review of the loan process to
identify significant gaps in the process or opportunities to improve
efficiency. From this review, the two agencies determined they needed to
complete more of the due diligence review of loan applications before the
Credit Committee meets to reduce delays caused by having to request
more information before the committee can make its decision. 35 To
address this concern, DFC and DOD officials told us they revised the
process in February 2021 to provide companies a list of the required due
diligence information earlier—after prescreening rather than after
screening. Additional process revisions included the introduction of
templates DFC created to improve information-sharing among DFC,
DOD, HHS, and other agencies involved in reviewing applications.
According to DFC officials, while process revisions like this add some
time, these templates should help the agencies in their efforts to
determine whether applications are suitable for financing during the pre-
screening and screening stages. DFC identified other improvements for
the loan review process as well. For example, DFC determined it needed
to better track the information DOD and HHS required for their reviews of
loan applications. To do so, DFC created a spreadsheet to track the
status of reports needed before an application can proceed to the next
step in the review process.
DFC and DOD Are DFC and DOD have some procedures to assess the likely effect of
Developing Procedures to individual DPA loans as they review applications, and are developing
other tools for assessing effects over the life of the loans as part of loan
Assess the Effect of
monitoring. They lack plans, however, for evaluating how effectively the
Individual DPA Loans, but program as a whole is achieving its goals of increasing U.S. capability to
Have No Plans to manufacture supplies to respond to COVID-19 and future pandemics.
Evaluate the Overall
Effectiveness of the During the application review process, DFC works with interagency
partners to assess the likely effect of loans. Specifically, DFC seeks
Program subject-matter expertise of its partners at DOD, HHS, and other federal
agencies. These agencies document their review of applications in action
35DOD officials emphasized that they did not have concerns about the quality of DFC’s
due diligence reviews, but only wanted to change the timing of them to improve the overall
efficiency of the loan review process.
Page 18 GAO-22-104511 DFC DPA Activities
memos, including descriptions of their assessment of how the
applications may contribute to program goals. For example, the memos
can contain information about the agency’s strategic assessment of the
project’s potential benefits; identification of statutory, policy, or technical
risks; and a recommendation for action. The action memos form part of
the application package the program’s Credit Committee considers during
the loan review process. DFC will generally not advance a DPA loan
application beyond the due diligence stage (step 4) unless DOD issues
an action memo attesting to the application’s compliance with statutory
and policy requirements. 36
DFC also had plans to use a tool to formalize these reviews, and to
assess effects of projects over the life of the loans, but DFC does not
have staff qualified to use the tool. DFC has developed a tool called the
DPA Quotient, which it designed to use metrics to assess the projects
proposed in loan applications for their potential contributions toward
program goals. 37 For example, the DPA Quotient estimates the number of
jobs the project would create and the number of COVID-19 patients it
would support during the course of the pandemic. DFC officials said their
goal is to use the tool eventually during the loan review process to help
evaluate loan applications, but to date they have not done so. They also
hope to use it during the monitoring phase to assess the extent to which
funded projects contribute to program goals over the life of the loans.
However, according to DFC officials, the economist who developed the
DPA quotient is no longer with DFC and they must hire a new economist
to implement the tool. DFC officials said DFC is seeking to hire an
economist, but as of August 2021, the position remains unfilled.
DFC and DOD do not have plans to evaluate the overall effectiveness of
the DPA Loan Program in achieving its objectives. 38 DFC and DOD
officials told us that they considered the loan program to be urgent, and
36However, for a time-sensitive need to move a project forward to the DPA credit
committee, DFC may do so prior to receiving an action memo.
37DFC based the DPA Quotient on the Impact Quotient tool it uses to assess loan
applications as part of its international development mission. DFC announced the
introduction of the Impact Quotient in June 2020. According to DFC, this responded to a
requirement in the BUILD Act for DFC to create a modern tool for development impact
measurement.
38According to Executive Order 13922, DFC received its expanded authority for the
program to create, maintain, protect, expand, and restore the domestic industrial base
capabilities, including supply chains within the United States and its territories, needed to
respond to the COVID–19 outbreak. See Exec. Order No. 13922 (May 14, 2020).
Page 19 GAO-22-104511 DFC DPA Activities
prioritized developing procedures for reviewing and processing loan
applications over program evaluation. DOD officials also told us that they
are collecting lessons learned on an ongoing basis, but did not identify
any documented evaluation plan.
Our past work found it is important for agencies to ensure they are
employing program resources effectively to achieve intended results by
using data and evidence to understand and improve program
performance, even in the midst of national emergencies. For example, in
a previous report, we identified key lessons learned from the early
COVID-19 and past emergency responses, including the importance of
using adequate data and establishing transparency and accountability
mechanisms. 39 In particular, we found that data collection and analysis
efforts during a pandemic could inform decision-making and future
preparedness. We also found that program evaluations using
performance data and other evidence could provide agencies important
insights into progress towards goals. 40 In this case, DFC could improve
the DPA Loan Program by establishing an evaluation plan in consultation
with DOD that would allow them to assess the extent to which the
program has achieved its intended objectives.
Without an evaluation of the DPA Loan Program’s effectiveness, DFC will
not understand how the program supported pandemic response and
supply chain policy. An evaluation will also enable DFC to provide key
performance information to decision-makers engaged in these areas. In
particular, DFC could evaluate program operations to make them more
responsive to future emergencies such as by identifying further process
improvements and clarifying overall timelines. Finally, an evaluation could
increase congressional and public confidence that the projected
outcomes are worth the costs and financial risks involved.
39GAO-20-625.
40See GAO, Using Data and Evidence to Improve Federal Programs; this compilation of
products (or issue area) includes reports such as GAO-17-743. GAO-17-743 notes, for
example, that OMB has encouraged agencies to use program evaluations and other forms
of evidence to learn what does and does not work, and how to improve results. Our
findings in that report also showed the majority of agency managers who reported having
evaluations also reported that they contributed to improving program performance.
Page 20 GAO-22-104511 DFC DPA Activities
DFC Did Not Fully
Assess the Risks
That DPA Activities
Pose to Its
International
Development
Mission, but
Assessed Risk in
Fiscal Year 2021
DFC Did Not Fully Assess DFC did not formally assess the risks to its international development
the Risks of the DPA mission from the DPA Loan Program because DFC’s efforts to establish
an ERM approach were in the early stages when the President signed
Program to Its Primary
Executive Order 13922 and DFC initiated work on the DPA Loan
Mission in Fiscal Year Program. However, DFC officials said they designed the DPA Loan
2020 Because It Was Still Program to mitigate risks posed to DFC’s international development
Developing a Risk mission.
Management Approach
ERM helps agencies balance all the risks involved in achieving their
missions. OMB Circular No. A-123 provides agencies with the
requirements for ERM implementation. 41 Specifically, it requires agencies
to identify, assess, respond, and report on risks. In addition, the circular
states that risk management practices must be forward-looking and
designed to help leaders make better decisions, alleviate threats, and
identify previously unknown opportunities to improve the efficiency and
effectiveness of government operations. Developing an ERM is a multi-
year process and agencies are to report on their ERM approaches, as
well as on internal control effectiveness, each year. The BUILD Act
required DFC to appoint a Chief Risk Officer to develop, implement, and
manage a comprehensive process for identifying, assessing, monitoring,
and limiting risks to DFC, including the overall portfolio diversification of
41Office of Management and Budget Circular No. A-123, Management’s Responsibility for
Enterprise Risk Management and Internal Control (Washington, D.C.: July 15, 2016).
Page 21 GAO-22-104511 DFC DPA Activities
the DFC, in coordination with DFC’s audit committee. 42 DFC appointed its
first Chief Risk Officer in April 2020.
DFC did not assess the risks the DPA Loan Program posed to its
international development program as part of its ERM efforts in fiscal year
2020. According to DFC officials, DFC made this decision because it was
in the first year of an ongoing process to develop its ERM approach when
the DPA Loan Program became operational in June 2020. 43 DFC officials
also noted that even if the agency had considered the DPA Loan Program
as part of its ERM efforts in fiscal year 2020, this might not have resulted
in a detailed assessment of the program’s risks. However, agency
officials described some steps they took to identify and respond to some
risks they thought the DPA Loan Program might pose to the international
development program. For example, DFC officials said they took steps to
mitigate risks by creating a separate office, the U.S. Operations Office, to
lead the DPA Loan Program. DFC officials explained that congressional
stakeholders had been concerned that implementing the DPA Loan
Program might come at the expense of the agency’s international
development efforts. Officials said they established this separate office,
with dedicated DPA Loan Program staff, to manage this risk. See figure 3
below for the organizational structure showing DFC offices working full-
time or providing staff part-time for the DPA Loan Program. In addition,
DFC officials noted they sought to mitigate risks by modeling the DPA
Loan Program’s procedures on those used in the international
development mission and by using existing agency tools for assessing
loan applications.
4222 U.S.C. § 9613(f).
43In December 2020, DFC reported on its first ERM assessment in its fiscal year 2020
annual management report, in response to the OMB Circular No. A-123 requirement for
an annual report.
Page 22 GAO-22-104511 DFC DPA Activities
Figure 3: U.S. International Development Finance Corporation (DFC) Organizational Chart, August 2021
Notes: DFC had about 365 staff as of December 2020. As of August 2021, the U.S. Operations
Office, which manages the Defense Production Act (DPA) Loan Program, had six staff and seven
unfilled positions according to DFC officials. For the purposes of focusing on the DPA Loan Program,
this figure shows the subdivisions of the Office of U.S. Operations. Not shown are the 16 subdivisions
of the four offices of Financial and Portfolio Management, Development Policy, Administration, and
External Affairs.
Though DFC has taken steps to identify and mitigate some risks, it did not
fully consider the risks that it faced, including a number of key risks
described in OMB Circular No. A-123. For example, DFC officials said
Page 23 GAO-22-104511 DFC DPA Activities
that they planned early on to use DFC’s international lending experience
by borrowing processes for the DPA Loan Program. However, DFC did
not fully account for the differences in the size, market dynamics, and
other characteristics of DPA loans compared with international loans. As
a result, DFC did not assess various risks it potentially faced in
implementing the DPA Loan Program, including operational, reporting, or
reputational risks.
• General operational risk. DFC did not assess operational risk, which
is the risk associated with effective and efficient use of the agency’s
resources in administrative and major program operations, including
financial and fraud objectives. For example, DFC did not fully consider
the potential operational risks posed by applying its existing
international development procedures and tools to the DPA Loan
Program. The loan-review process that the DPA Loan Program
borrowed from the core mission did not provide sufficient time for
extensive interagency review. That extensive review contributed to
timeframes for closing loans being longer than DFC had initially
anticipated and communicated to stakeholders and loan applicants.
• Operational risk related to fraud. DFC did not assess fraud risks
specific to the DPA Loan Program, another operational risk. 44 Instead,
DFC reported assessing certain agency-wide fraud risks in 2020 as
part of its annual management reporting requirements. 45 However,
due to their differing characteristics from international development
loans and generally larger amounts, DPA loan applications have the
possibility of unique fraud risks that DFC did not fully consider as part
44According to DFC’s 2020 annual management report, because the agency was focused
on establishing itself, it conducted a limited internal control review of various activities
designed to enhance and strengthen DFC’s ability to identify and respond to risk, including
fraud risk profiles. DFC did not identify any material weaknesses. According to DFC
officials, the agency’s 2020 fraud risk profiles involved a comprehensive assessment of
fraud risk to internal control over financial reporting. This assessment identified the
following key areas of risk for the agency: property, human resources, and acquisitions.
DFC officials said DFC is monitoring these risks through its risk register process.
However, DFC officials told us that 10 years have passed since DFC’s predecessor,
OPIC, conducted an assessment of its internal control design and operation. DFC plans to
conduct the first baseline assessment of these three risks, as well as fraud, for inclusion in
its 2021 annual management report.
45DFC officials said DFC took some steps to mitigate fraud in the DPA Loan Program. For
example, they said DFC uses standard government practices for identifying fraud, such as
a know-your-customer approach. Such an approach aims to help financial institutions like
DFC to understand the kind of transactions in which a particular customer is likely to
engage, to identify unusual or suspicious transactions, and to report such transactions as
required by the Bank Secrecy Act.
Page 24 GAO-22-104511 DFC DPA Activities
of its agency-wide fraud risk assessment. Any fraud in the program
could thus affect the agency’s capacity to carry out its overall mission
by raising questions about its ability to evaluate loan applications and
potential partners effectively.
• Reporting risk. DFC did not assess reporting risk, which is the risk
associated with the accuracy and timeliness of agency information
reported—internally to support decision-making and performance
evaluation and externally to meet standards, regulations, and
stakeholder expectations. For example, DFC did not consider the
risks related to its public communications about potential DPA loans.
In the case of the ApiJect loan, DFC publicly announced the loan
when its CEO approved the loan. However, such approval is only the
sixth step in a nine-step loan process (see fig. 2). Though the
announcement included the caveat that closing the loan required the
completion of finance agreements, it did not make clear that the due
diligence process could take many months. After publicly announcing
the loan, DFC took 6 months to sign a finance agreement, and several
months after that DFC and DOD were still working with the applicant
to complete the final step of the loan review process. DFC officials
said this timeline was consistent with the one for international loans.
However, the announcement led to confusion about the status of the
loan in media reports and among members of Congress who
contacted DFC’s Inspector General to clarify whether DFC had
completed the loan. By not clearly communicating public information
about the details of the DPA Loan Program, DFC risks damaging its
credibility as a loan-making agency and hindering its ability to carry
out its international development mission.
• Reputational risk. DFC did not assess the reputational risk
associated with loan making under the DPA Loan Program. Though
DFC separated the DPA Loan Program from its international
development mission, it cannot separate the agency from negative or
incorrect news about the program. For example, DFC suspended its
work on a loan with Kodak shortly after announcing the potential deal
due to a number of risks related to the loan and congressional and
media inquiries about insider trading. This situation posed potential
Page 25 GAO-22-104511 DFC DPA Activities
reputational risks for DFC. 46 While the DPA loans are part of an
emergency program, DFC relies on private, domestic companies to
support its everyday international development work. If DFC suffers
damage to its credibility due to the DPA Loan Program, domestic
investors could decline future international development investment
opportunities. 47
DFC Completed a Draft of DFC developed a plan to identify and assess all risks to the agency,
Its Required Risk including those posed by the DPA Loan Program, in its ERM review for
fiscal year 2021. Specifically, DFC assessed the program as part of the
Assessment and Plans to
development of the first risk profile for the agency. The risk profile is an
Finalize it in Fiscal Year ERM tool to identify the spectrum of an organization’s external and
2022 internal risks and to assess their effects on each other. The risk profile
also serves to inform an agency’s plan for achieving its mission. OMB
Circular No. A-123 requires agencies to develop a risk profile annually
and to identify appropriate options for addressing any significant risks
identified in the profile. DFC did not complete a risk profile in fiscal year
2020. However, DFC developed one in fiscal year 2021 and plans to
finalize it in early fiscal year 2022.
In January 2021, DFC conducted the first maturity model assessment of
its ERM approach in order to identify areas that were working well, and
areas that needed additional attention in order to integrate ERM principles
46In July 28, 2020, DFC announced its consideration of a loan to Kodak to support the
launch of Kodak Pharmaceuticals, a new unit that would produce critical pharmaceutical
components. DFC made this announcement when it signed a Letter of Interest. The Letter
of Interest is a non-binding agreement and only the third step in the nine-step loan review
process. DFC suspended its credit underwriting process indefinitely on the loan on August
7, 2020, once the reported allegations of improper conduct appeared.
47The DFC Inspector General wrote a letter in response to Senator Elizabeth Warren’s
request to investigate DFC’s decision to issue a Letter of Interest and award a loan to
Kodak. In the response, the Inspector General said the investigation found no evidence of
misconduct on the part of DFC Officials. See DFC Office of the Inspector General, Letter
to Senator Warren, (Washington, D.C.: Dec 2, 2020).
Page 26 GAO-22-104511 DFC DPA Activities
and approaches throughout the agency. 48 DFC’s assessment
acknowledged that OMB Circular No. A-123 requires agencies to improve
their ERM approach continuously to identify new, emerging, or changing
risks. The Chief Risk Officer outlined some broad areas of focus as DFC
continues to develop its approach to risk. These areas include connecting
the agency’s ERM to strategic planning and resource allocation and
integrating risk management into everyday decision-making.
DFC developed a plan in May 2021 to identify and assess agency-wide
risks in order to develop its risk profile by the end of fiscal year 2021. 49
Through this process, DFC developed a draft Risk and Opportunity Profile
in September 2021 and it plans to finalize the profile in early fiscal year
2022. 50 To develop the risk profile, DFC’s Chief Risk Officer identified
risks by gathering relevant information, conducting interviews with
leadership, and creating a draft list of risks known as a risk register. This
list was then refined resulting in a list of 18 risks and opportunities. The
risks posed by the DPA Loan Program to the international development
mission were included as part of a broader risk in the draft list of 18 risks
and opportunities.
Once DFC identified the 18 risks and opportunities, it assessed them by
developing criteria to measure each one and prioritizing them through
consultations with key stakeholders. As a result of this process, DFC
identified seven risks and two opportunities for inclusion in its fiscal year
2021 draft Risk and Opportunity Profile. The DPA Loan Program risks
were ultimately not in the final fiscal year 2021 risk and opportunity profile
48A maturity model has five levels from an ad hoc ERM structure to an optimized ERM
structure. Agencies can use this model to determine actions needed to integrate ERM
continuously into their governance structures. As an agency matures through this process,
it will be able to move toward being able to react to risks as they arise as well as
predicting future risks and developing strategies to avoid those risks. DFC reported using
an OMB-sponsored maturity model that will be included in a revised version of the
Playbook: Enterprise Risk Management for the U.S. Federal Government, published by
the Chief Financial Officers Council and Performance Improvement Council. The current
edition is from 2016.
49In addition to developing a risk profile, DFC officials stated that they plan to assess the
DPA Loan Program’s risks by assessing the internal controls for the program in fiscal year
2021. Specifically, they stated that DFC has begun assessing its internal control design
and operating effectiveness, including controls for fraud.
50DFC calls its risk profile a risk and opportunity profile in recognition of the fact that, while
Circular A-123 states the primary purposes of a risk profile is to provide thoughtful
analysis of risks and options for addressing significant risks to achieving an agency’s
mission, the profile must also identify opportunities to better achieve the agencies
objectives.
Page 27 GAO-22-104511 DFC DPA Activities
list of nine items. However, DFC assigned offices to monitor each of the
18 risks and opportunities identified in the earlier list, which included the
DPA Loan Program risks. These offices will report their observations to
management at least once a year. In October 2021, DFC plans to share
the results of this process with the DFC Board Risk Committee. Following
discussion with the Risk Committee, DFC will consider its fiscal year 2021
Risk and Opportunity Profile complete.
DFC Has Not
Developed
Accounting
Methodologies to
Track All the Eligible
Costs of the DPA
Loan Program or
Submitted Timely and
Complete Invoices
DFC Has Not Developed DFC has developed methodologies to account for most, but not all of the
Accounting Methodologies costs to administer the DPA Loan Program eligible for reimbursement by
DOD. Federal financial accounting standards call for agencies to assign
to Track All DPA Loan
costs to program activities through methodologies that directly or
Program Costs Eligible for indirectly link costs to the activities. 51 Because DFC has not developed
DOD Reimbursement methodologies for all eligible costs, it has been unable to submit complete
and timely invoices to DOD for their reimbursement.
In July 2020, DFC developed a 10-year, approximately $20 million budget
that had categories for estimated costs of the DPA Loan Program eligible
for reimbursement in accordance with its MOA with DOD. 52 In October
2020, DFC and DOD officials agreed on the budget for DFC’s
administrative expenses for the 2 years of the DFC DPA Loan Program
51The Federal Accounting Standards Advisory Board, Statement of Federal Financial
Accounting Standards 4: Managerial Cost Accounting Standards and Concepts,
Managerial Cost Accounting Standards Number 10. (Washington, D.C.: Jun. 30, 2020).
52DFC subsequently revised the initial list of categories of eligible costs that it had
included in the July 2020 DPA Loan Program budget, adding additional categories for
information technology-related costs and removing a category for timekeeping.
Page 28 GAO-22-104511 DFC DPA Activities
and subsequent loan monitoring, which will come out of the $100 million
in appropriations DOD allocated for the DPA Loan Program. The budget
includes categories for both direct and indirect costs to administer the
DPA Loan Program. According to DFC officials, direct costs are those
directly linked to the program, such as payroll for DFC staff that work full-
time on the DPA Loan Program and costs for information technology
systems and program support. Indirect costs are those for services and
facilities that the DPA Loan Program shares with DFC’s international
development mission, such as operating costs for office space, facilities,
equipment, and utilities.
While the MOA between DFC and DOD and the budget define broad
categories of eligible costs, they do not provide details on the specific
costs included under each category or guidance for how to calculate
those costs. The nine of 12 cost categories for which DFC has developed
accounting methodologies include such ones as full-time and part-time
labor costs, loan-subsidy model development, and information technology
services and equipment. For example, DFC officials told us they calculate
labor costs for full-time DFC staff processing DPA loans based on the
number of staff in the U.S. operations office, which manages the loan
program. DFC also developed a methodology to calculate costs for its
staff working part-time on the DPA Loan Program. International
development staff in DFC who work part-time on DPA loan activities track
their time spent on those activities and then record it in a centralized
spreadsheet. Payroll staff then multiply the number of hours by hourly
rates for salary and benefits for each international development staff
member that submitted hours spent on the DPA Loan Program.
In addition, DFC developed a methodology to calculate costs for creating
its model to assess DPA loan subsidies, as well as costs for information
technology services for the DPA Loan Program. For example, DFC
officials told us that they have reimbursable agreements for the vendors
that provide information technology services to the loan program. Officials
also told us that they have travel authorizations and vouchers for travel
expenses associated with the program.
However, DFC has not developed methodologies to calculate three of its
12 eligible cost categories (see table 2). Specifically, it lacks
methodologies to calculate operating costs for the DPA Loan Program.
Generally, operating costs include expenses for office space, facilities,
equipment, and utilities. DFC has not defined which specific costs it would
include in the operating cost category or how to calculate them. DFC has
also not developed a methodology for some of its other costs. These
Page 29 GAO-22-104511 DFC DPA Activities
include costs for information technology licenses, equipment, and
program support for new full-time DPA staff and for recurring information
technology services.
Table 2: Cost Categories, Methodologies, and Status of Methodology Development for DFC’s Defense Production Act (DPA)
Loan Program
Methodology
Type of cost Cost category description Methodology developed
Direct Payroll for full-time DPA staff Calculation based on staff payroll salary and Yes
benefits
Direct Payroll for part-time DFC staff supporting DPA Calculation based on staff hours and assigned Yes
Loan Program hourly rates for individual salary and benefitsa
Direct Project management including financial and Contract and related invoices Yes
systems integration
Direct Loan application form and website modification Contract and related invoices Yes
Direct Software development for DPA and DFC Contract and related invoices Yes
system integration
Direct Loan subsidy model development and Contract and related invoices Yes
execution
Direct Software security Contract and related invoices Yes
Direct DPA risk management score card development Contract and related invoices Yes
and execution
Direct Travel for DPA staff Travel authorizations and vouchers Yes
Direct Information technology licenses, equipment, To be determined No
and program support for new full-time DPA staff
Indirect DFC operating costs to support DPA Loan To be determined No
Program
Indirect Information technology recurring costs To be determined No
Source: GAO analysis of U.S. International Development Finance Corporation (DFC) documentation. | GAO-22-104511
a
DFC staff uses a centralized spreadsheet to track staff hours to support DPA Loan Program-related
activities.
DFC officials told us they plan to complete a methodology to calculate
operating and other costs for the DPA Loan Program once they hire a
cost accountant. The accountant, officials told us, would help ensure that
the methodology for each of the three cost categories is sound and
consistent with applicable guidance. DFC officials told us in January 2021
that they planned to hire this accountant. DFC posted an announcement
for the position in June 2021, but as of August 2021, the position remains
unfilled.
Page 30 GAO-22-104511 DFC DPA Activities
DFC Has Not Submitted DFC has not submitted timely and complete invoices to DOD for
Timely and Complete reimbursement of the eligible costs associated with the loan program, in
part because it has not developed methodologies for all its eligible costs.
Invoices to DOD for
The MOA between DFC and DOD calls for DFC to submit monthly
Reimbursement of DPA invoices no later than 15 days after the end of a given month.
Loan Program Costs
As of early October 2021, DFC had submitted only six partial invoices to
DOD for reimbursement, for a total of $1,388,445 (see table 3). 53
Table 3: DFC Invoices for Defense Production Act (DPA) Loan Program Costs Submitted to the Department of Defense (DOD)
for Reimbursement, as of October 2021
Date DFC Amounts submitted to
submitted Period in which costs DOD for reimbursement
invoice Cost description were incurred (in Dollars)
March 2021 DPA Loan Program dedicated full-time staff payroll July 2020-January 2021 351,050
April 2021 DPA Loan Program dedicated full-time staff payroll January-March 2021 521,862
Other costs, such as for information technology services and September 2020-March
DFC international development staff working part-time on the 2021
program
May 2021 DPA Loan Program dedicated full-time staff payroll and loan- March-April 2021 106,189
subsidy model development and execution
June 2021 DFC international development staff working part-time on the December 2020-May 2021 119,942
program
DPA Loan Program dedicated full-time staff payroll April-May 2021
Other costs associated with DPA activities, such as for loan- May 2021
subsidy model development and execution
July 2021 DPA Loan Program dedicated full-time staff payroll May-June 2021 123,437
Other costs associated with DPA activities, such as for June 2021
information technology services and loan-subsidy model
development and execution
53These invoices covered the following five cost categories and amounts: (1) labor costs
for DPA Loan Program dedicated full-time staff payroll for $1,095,766; (2) information
technology license, equipment, and program support costs dedicated to the DPA Loan
Program for $217,238; (3) DPA loan-subsidy model development and execution costs for
$26,129; (4) travel for DPA Loan Program staff costs for $8,321; and (5) labor costs for
DFC international development staff payroll to support DPA loans for $40,990.
Page 31 GAO-22-104511 DFC DPA Activities
Date DFC Amounts submitted to
submitted Period in which costs DOD for reimbursement
invoice Cost description were incurred (in Dollars)
August 2021 DFC international development staff working part-time on the June-July 2021 165,965
program
DPA Loan Program dedicated full-time staff payroll June-July 2021
Other costs associated with DPA activities, such as for loan- July 2021
subsidy model development and execution
September No invoices submitted this month Not applicable Not applicable
2021
Total 1,388,445a
Source: GAO analysis of U.S. International Development Finance Corporation (DFC) documentation. | GAO-22-104511
Note: We have rounded amounts to the nearest dollar.
a
As of early October 2021, amounts submitted for reimbursement to DOD have been 22 percent of
the DPA Loan Program budget developed in July 2020 that had estimated costs through fiscal year
2021. DOD has reimbursed DFC for costs in all six invoices.
The six invoices submitted to DOD represent about 22 percent of the
DPA Loan Program budget of estimated costs through fiscal year 2021.
DFC officials stated that DPA Loan Program costs have been significantly
lower than the $6,236,826 DOD obligated for DFC’s administrative
expenses for fiscal years 2020 and 2021. 54 According to DFC officials, the
agency overestimated some costs, largely expecting that they would hire
more full-time employees to process the DPA loans than they actually did.
DFC officials also acknowledged that all six of their invoices reflected an
incomplete accounting of the total costs of administering the program up
to that date since they cover costs only for which DFC has cost
methodologies. Officials said they would invoice the operating and some
other costs for reimbursement at a future date because they were still
developing a methodology to calculate these costs and wanted to account
for them accurately.
Even in those cases for which it had a methodology for calculating costs,
DFC submitted invoices months after actually incurring the costs. For
example, DFC submitted the first invoice in March 2021 for costs that
covered staff working full-time on the DPA Loan Program from July 2020
54DOD obligated an amount from the CARES Act DPA Purchases appropriation to cover
expected DPA loan program costs through fiscal year 2021. As of October 2021, DOD
had $4,848,381 available for DFC out of the $6,236,826 DOD obligated for the program.
This amount is after DFC invoiced DOD for $1,388,445 to cover DPA Loan Program costs.
Page 32 GAO-22-104511 DFC DPA Activities
through January 2021. After submitting the first invoice in March 2021,
DFC officials told us that they planned to continue submitting monthly
invoices, although such invoices would not include all costs until they
finalized the methodology for calculating operating and other costs.
Subsequently, DFC submitted invoices in April, May, June, July, and
August 2021, but did not submit an invoice in September 2021. DOD and
DFC officials told us that since DOD has obligated funds from the CARES
Act DPA Purchases appropriation for DPA Loan Program costs, DFC can
submit invoices for reimbursement until it expends those funds. 55
Until DFC develops a methodology to calculate its operating and other
costs for the DPA Loan Program, the agency will be unable to ensure
they will submit timely and complete invoices to DOD for reimbursement
of all eligible costs. Without such a methodology, DFC and DOD will also
not know the full costs of establishing and operating the program. That
information could help inform future decisions about whether the DPA
Loan Program is a cost-effective method to address future national
emergencies. Thus, it is important that DFC develop an accounting
methodology that provides details about and a calculation method for its
operating and other costs to administer the DPA Loan Program.
The President delegated authorities to the DFC CEO to make DPA loans
Conclusions in consultation with DOD and other agencies for the domestic production
of strategic resources to respond to the COVID-19 outbreak, and to
strengthen domestic supply chains. DFC had not made any loans as of
mid-October 2021, with the loan authority set to expire in March 2022. As
a new agency focused on international development finance, DFC did not
have all the necessary processes in place to operate the DPA Loan
Program. It also did not have an accurate estimate for how long it would
take to complete DPA loans. DFC worked with DOD to revise these
processes and improve the efficiency of the loan program. However, as
the federal government makes decisions about how to continue investing
in pandemic-related supply chains and to respond to future emergencies,
it is important for DFC to have information about the effectiveness of its
DPA Loan Program. DFC and DOD will need a plan to evaluate the
program’s overall effectiveness, taking into account lessons learned from
its operation so far.
55The CARES Act DPA Purchases appropriation makes these funds available until
expended.
Page 33 GAO-22-104511 DFC DPA Activities
In addition, DFC has yet to develop accounting methodologies for all the
DPA Loan Program costs eligible for reimbursement by DOD. These
methodologies have not all been developed or implemented after over a
year of loan program operations. DFC cannot submit timely and complete
invoices to DOD for reimbursement and have confidence it has accounted
for all DPA Loan Program costs until it completes development of all its
cost accounting methodologies.
We are making two recommendations to the CEO of DFC.
Recommendations for
Executive Action The CEO of DFC, in consultation with the Under Secretary of Defense for
Acquisition and Sustainment, should develop a plan to evaluate the
overall effectiveness of the DPA Loan Program in achieving the
program’s goals, taking into account lessons learned from its operation so
far. (Recommendation 1)
The CEO of DFC should develop cost accounting methodologies for
those operating and other costs to administer the DPA Loan Program that
the agency has not yet established and include details of these costs and
how they are calculated. (Recommendation 2)
We provided a draft of this report to DFC and DOD for review and
Agency Comments comment. In written comments, reprinted in appendix II, DFC concurred
and Our Response with one of our recommendations and did not concur with the other. DFC
and DOD separately provided technical comments, which we
incorporated as appropriate.
DFC concurred with our recommendation that the CEO of DFC develop
cost accounting methodologies for those costs to administer the DPA
Loan Program that the agency has not yet established and include details
of these costs and how they are calculated (Recommendation 2). DFC
noted that it is already taking steps to develop these methodologies and
plans to have them completed before it submits its final invoice to DOD.
DFC did not concur with our recommendation that the CEO of DFC, in
consultation with the Under Secretary of Defense for Acquisition and
Sustainment, should develop a plan to evaluate the overall effectiveness
of the DPA Loan Program in achieving the program’s goals, taking into
account lessons learned from its operation so far (Recommendation 1).
DFC agreed that the DPA Loan Program’s effectiveness should be
evaluated but contends that the evaluation should be done by DOD and
HHS as the agencies with budgetary and programmatic authority.
Page 34 GAO-22-104511 DFC DPA Activities
We continue to believe our recommendation is valid and that it is
appropriately directed to DFC’s CEO, in consultation with the Under
Secretary of Defense for Acquisition and Sustainment. Executive Order
13922 specifically delegated the legal authority for making DPA loans
under the program to DFC’s CEO given DFC’s expertise in loan support
for private institutions. DFC has also been the lead agency responsible
for designing and implementing the key features of the program. Finally,
key public materials related to the program have identified DFC as the
lead agency. Given DFC’s expertise in loan making more broadly and its
role leading the administration of the DPA Loan Program, it is best-
positioned to lead the effort to evaluate the effectiveness of the DPA Loan
Program and identify relevant lessons learned from its operation so far.
DFC’s letter notes that it is already providing feedback and lessons
learned to its interagency partners and it can build on these efforts in
developing its plans for evaluating the program. Further, we agree with
DFC’s observation in its letter that DOD plays a key role in the DPA Loan
Program, including providing its budget authority and providing approval
for proposed loans at key points in the process. It is for that reason that
we directed DFC’s CEO to consult with the Under Secretary of Defense
for Acquisition and Sustainment in implementing the recommendation.
We also recognize that other agencies, such as HHS, may be able to
provide valuable input and we would welcome DFC’s efforts to coordinate
with these agencies, as it sees fit, as part of its efforts.
We are sending copies of this report to appropriate congressional
committees; the CEO of DFC; the Secretary of Defense; and other
interested parties. In addition, the report is available at no charge on the
GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact
me at (202) 512-2964 or KenneyC@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 who made contributions to this
report are listed in appendix III.
Chelsa Kenney
Director, International Affairs and Trade
Page 35 GAO-22-104511 DFC DPA Activities
Appendix I: Objectives, Scope, and
Appendix I: Objectives, Scope, and
Methodology
Methodology
House of Representatives Report 116-444 provided for GAO to review
the U.S. International Development Finance Corporation’s (DFC)
activities under the Defense Production Act (DPA). This report examines
the extent to which the DFC has (1) made loans that contributed to the
pandemic response and planned to assess program effectiveness, (2)
assessed and responded to the organizational risks of carrying out DPA
activities along with its international development responsibilities, and (3)
implemented internal controls to ensure full accounting of its DPA Loan
Program costs for Department of Defense (DOD) reimbursement.
To assess the extent to which DFC made loans that contributed to the
pandemic response and planned to assess program effectiveness, we
reviewed legal and guidance documents for the DPA Loan Program.
These documents include Title III of the DPA, Executive Order 13922, the
Memorandum of Agreement (MOA) between DFC and DOD, and the
loan-review process guide agreed upon by both agencies. 1 In addition,
we reviewed documentation related to the loan that has made it furthest
along in the loan review process, analyzed DFC data on DPA Loan
Program applications, and interviewed DFC and DOD officials about their
process for reviewing and approving DPA loans. To assess the reliability
of the data for DPA Loan Program applications, we performed electronic
testing of the data and asked data reliability questions. We found these
data to be sufficiently reliable for our purposes of describing and
summarizing loan application data DFC was collecting for the DPA Loan
Program. We also reviewed DOD assessments of the program, including
process improvement recommendations, and documentation of DFC and
DOD’s policy to prioritize individual loans based on their potential to
contribute to the pandemic response.
In addition, we reviewed DFC documents, particularly the draft DPA
Quotient tool, describing how DFC plans to measure the impact of the
loans when assessing a loan application and over the life of the loan. We
also interviewed DFC officials and DOD officials about the agencies’
plans to assess the effectiveness of individual loans and of the program
as a whole in responding to the pandemic. Finally, we compared DFC’s
and DOD’s plans to GAO-identified lessons learned from the initial
pandemic response and previous emergencies to determine the extent to
150 U.S.C. § 4531 et seq; Exec. Order No. 13922 (May 14, 2020).Department of Defense
and U.S. International Development Finance Corporation, Memorandum of Agreement
Between the U.S. International Development Finance Corporation and the U.S.
Department of Defense (Washington, D.C.: June 22, 2020).
Page 36 GAO-22-104511 DFC DPA Activities
Appendix I: Objectives, Scope, and
Methodology
which DFC and DOD had incorporated lessons-learned into their plans. 2
In addition, we compared their plans to GAO-identified lessons on the use
of data and evidence to improve federal programs. 3
To examine how DFC assessed and responded to organizational risks,
we reviewed DFC documentation about how it assessed organizational
risks, including fraud, for the agency as a whole. In addition, we
interviewed knowledgeable DFC officials about their plans for assessing
risks related to the DPA Loan Program and evaluated whether these
plans are consistent with relevant Office of Management and Budget
(OMB) requirements for agencies regarding Enterprise Risk Management
(ERM), such as the requirement to annually create a risk profile and
assess internal controls. 4 We reviewed DFC documentation of processes
and steps the agency took to develop its risk profile in addition to DFC’s
baseline assessment of its ERM approach. We also reviewed guidance
identifying best practices and key concepts for agencies to consider when
establishing a comprehensive and effective ERM approach. 5
We also reviewed DFC documentation and interviewed DFC officials
regarding the steps the agency had taken to informally identify and
mitigate risks the DPA Loan Program posed to the international
2GAO, Covid-19: Opportunities to Improve Federal Response and Recovery Efforts,
GAO-20-625 (Washington, D.C.: Jun. 25, 2020).
3See GAO, Using Data and Evidence to Improve Federal Programs; this compilation of
products (or issue area) includes reports such as GAO, Program Evaluation: Annual
Agency-Wide Plans Could Enhance Leadership Support for Program Evaluations,
GAO-17-743 (Washington, D.C.: Sept. 29, 2017).
4Office of Management and Budget Circular No. A-123, Management’s Responsibility for
Enterprise Risk Management and Internal Control (Washington, D.C.: Jul. 15, 2016).
Circular. No. A-123 refers to GAO, Standards for Internal Controls in the Federal
Government, GAO-14-704G (Washington, D.C.: Sep. 10, 2014). Specifically, we
considered the following internal controls principles when reviewing DFC’s ERM
approach: (1) component A2 on risk assessment; (2) principles 7 and 9 on management’s
responsibility to identify, analyze, and respond to risks and respond to significant changes;
and (3) component C on fraud risk. We had also planned to compare DFC’s ERM
approach to GAO’s ERM report, Enterprise Risk Management: Selected Agencies’
Experiences Illustrate Good Practices in Managing Risk, GAO-17-63. However, since
DFC was still in the early stages of developing its ERM and therefore it was too soon to
compare it to best practices, we instead examined the extent to which DFC’s ERM met the
criteria in the circular.
5United States Chief Financial Officers Council and Performance Improvement Council,
Playbook: Enterprise Risk Management for the U.S. Federal Government (Washington,
D.C.: Jul. 29, 2016).
Page 37 GAO-22-104511 DFC DPA Activities
Appendix I: Objectives, Scope, and
Methodology
development mission. Finally, we reviewed DFC’s workforce planning
documents and interviewed DFC officials concerning the allocation of
resources for the DPA Loan Program.
To assess the extent to which DFC has implemented internal controls to
ensure full accounting of its DPA costs for DOD reimbursement, we
reviewed the MOA between DFC and DOD that broadly states all
administrative costs to implement the DPA Loan Program that are eligible
for reimbursement. We also reviewed DFC’s July 2020 budget for the
DPA Loan Program that estimated program costs over a 10-year period,
including specific categories of direct and indirect costs eligible for
reimbursement. We reviewed DFC’s internal policies and procedures for
tracking costs, such as direct and indirect labor costs and vendor costs,
as well as DFC’s guidance for calculating those costs. We interviewed
DFC and DOD officials regarding their policies and procedures in
developing and implementing DFC’s cost accounting system for DPA
Loan Program costs, including cost accounting methodologies and how
DFC calculates those costs for each category. We then assessed DFC’s
cost accounting methodologies against relevant federal financial
accounting standards and internal control standards. 6
In addition, we reviewed aggregate data on costs for DFC’s DPA Loan
Program to assess whether the data contained the information DFC
required under its cost accounting methodology and policies and
procedures. We also reviewed all the reimbursement invoices DFC
submitted to DOD between the DPA Loan Program’s inception in June
2020 and early October 2021. DFC submitted six invoices during this
period for costs incurred since June 2020. Finally, we interviewed DFC
and DOD officials on matters related to the submitted invoices.
We conducted this performance audit from September 2020 to November
2021 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
6The Federal Accounting Standards Advisory Board, Statement of Federal Financial
Accounting Standards 4: Managerial Cost Accounting Standards and Concepts
(Washington, D.C.: Jun. 30, 2020). See GAO-14-704G for the two principles we
considered in reviewing DFC’s cost accounting methodologies: (1) principle 10.01,
management should design control activities to achieve objectives and respond to risks;
and (2) principle 12.01, management should implement control activities through policies.
Page 38 GAO-22-104511 DFC DPA Activities
Appendix I: Objectives, Scope, and
Methodology
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Page 39 GAO-22-104511 DFC DPA Activities
Appendix II: Comments from the U.S.
Appendix II: Comments from the U.S.
International Development Finance
International Development Finance
Corporation
Corporation
Page 40 GAO-22-104511 DFC DPA Activities
Appendix II: Comments from the U.S.
International Development Finance
Corporation
Page 41 GAO-22-104511 DFC DPA Activities
Appendix III: GAO Contact and Staff
Appendix III: GAO Contact and Staff
Acknowledgments
Acknowledgments
Chelsa Kenney, (202) 512-2964 or kenneyc@gao.gov
GAO Contact
In addition to the individual named above, Ryan Vaughan (Assistant
Staff Director), Katherine Forsyth (Analyst-in-Charge), Maureen Luna-Long,
Acknowledgments Dan Dye, Rachel Whitaker, Ashley Alley, Justin Fisher, Christopher
Keblitis, Aldo Salerno, and Roger Stoltz made key contributions to this
report. Cheryl Andrew, Deirdre Brown, Miriam Carroll-Fenton, Daniel
Glickstein, Julia Jebo Grant, William Hadley, Tom McCabe, Jodie Sandel,
and Emily Weisenberger provided additional assistance.
(104511)
Page 42 GAO-22-104511 DFC DPA Activities
The Government Accountability Office, the audit, evaluation, and investigative
GAO’s Mission arm of Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability of the
federal government for the American people. GAO examines the use of public
funds; evaluates federal programs and policies; and provides analyses,
recommendations, and other assistance to help Congress make informed
oversight, policy, and funding decisions. GAO’s commitment to good government
is reflected in its core values of accountability, integrity, and reliability.
The fastest and easiest way to obtain copies of GAO documents at no cost is
Obtaining Copies of through our website. Each weekday afternoon, GAO posts on its website newly
GAO Reports and released reports, testimony, and correspondence. You can also subscribe to
GAO’s email updates to receive notification of newly posted products.
Testimony
Order by Phone The price of each GAO publication reflects GAO’s actual cost of production and
distribution and depends on the number of pages in the publication and whether
the publication is printed in color or black and white. Pricing and ordering
information is posted on GAO’s website, https://www.gao.gov/ordering.htm.
Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537.
Orders may be paid for using American Express, Discover Card, MasterCard,
Visa, check, or money order. Call for additional information.
Connect with GAO on Facebook, Flickr, Twitter, and YouTube.
Connect with GAO Subscribe to our RSS Feeds or Email Updates. Listen to our Podcasts.
Visit GAO on the web at https://www.gao.gov.
Contact FraudNet:
To Report Fraud,
Website: https://www.gao.gov/about/what-gao-does/fraudnet
Waste, and Abuse in
Automated answering system: (800) 424-5454 or (202) 512-7700
Federal Programs
A. Nicole Clowers, Managing Director, ClowersA@gao.gov, (202) 512-4400, U.S.
Congressional Government Accountability Office, 441 G Street NW, Room 7125, Washington,
Relations DC 20548
Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800
Public Affairs U.S. Government Accountability Office, 441 G Street NW, Room 7149
Washington, DC 20548
Stephen J. Sanford, Managing Director, spel@gao.gov, (202) 512-4707
Strategic Planning and U.S. Government Accountability Office, 441 G Street NW, Room 7814,
External Liaison Washington, DC 20548
Please Print on Recycled Paper.
File and source
- File
- gao-22-104511.pdf
- Size
- 1,411,446 bytes
- SHA-256
- fa9099eb9b54c9981f8b7ab3fb270a9deec4db8b75d4213a41570a84fc3c649a
- Our copy
- gao-22-104511.pdf
- Original
- www.gao.gov