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

The U.S. Agency for International Development (USAID) signed grant agreements with EAEF and TAEF in 2013, awarding $120 million for EAEF and $60 million for TAEF to date. The purpose of the Funds is to promote the development of Egyptian and Tunisian private sectors through activities such as investments in SMEs. EAEF has not yet made any investments in Egypt, while TAEF has made an over $2.4 million investment in Tunisia. EAEF's initial investment did not proceed as planned, and the Fund is now considering other options, such as investments in the food and beverage sector. TAEF's investment strategy is to invest in four different areas: a private equity fund investing in SMEs, direct investments in SMEs smaller than those targeted by the private equity fund, microfinance institutions, and start-ups. Both EAEF and TAEF have made progress in establishing key management structures to support their mission and operations. They have hired initial staff, established boards of directors that have met regularly, adopted by-laws, and developed corporate policies and procedures. However, both Funds have not yet submitted their performance monitoring plans as required by the grant agreements, and EAEF has not implemented the provisions related to public communications. Additionally, the Funds' corporate policies do not include procedures to implement vetting requirements designed to prevent illicit use of the funds. USAID has awarded funds to EAEF and TAEF to support their activities, and the Funds are required to fulfill several requirements related to financial management and public reporting. Each Fund has an independent board of directors, led by a chairman, and USAID is responsible for monitoring the Funds' activities. To examine the status of the Funds' investments, USAID reviewed the Funds' strategic planning documents and interviewed the EAEF and TAEF Chairmen and senior management. The Funds' progress in establishing key management structures has been evaluated using an internal control evaluation tool developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The evaluation tool was used to obtain and analyze information on the Funds' progress in establishing key management structures. The evaluation found that both EAEF and TAEF have made progress in establishing key management structures, but additional actions are under way to further develop and implement these structures. The evaluation also found that EAEF and TAEF have generally fulfilled the requirements of the grant agreements, but some gaps remain. The Funds have not yet submitted their performance monitoring plans, and EAEF has not implemented the provisions related to public communications. Additionally, the Funds' corporate policies do not include procedures to implement vetting requirements designed to prevent illicit use of the funds. USAID has also not tracked the Funds' use of cash in a way that allows the agency to monitor whether EAEF and TAEF are spending it in a timely manner. The evaluation recommends that USAID take steps to further enhance its oversight of the Funds' compliance with the grant agreements and other requirements. The recommendations include establishing a process to better manage cash advances to the Funds, ensuring that the Funds comply with the grant agreement requirements related to performance monitoring and public communications, and ensuring that the Funds' corporate policies include vetting requirements. USAID concurred with the recommendations.