U.S. International Development Finance Corporation: Steps Needed to Improve Management of the Defense Production Act Loan Program

What the GAO found

The primary mission of the US International Development Finance Corporation (DFC) is to partner with the private sector to invest in development projects around the world. Since the launch of the Defense Production Act (DPA) Loan Program in June 2020 to respond to the COVID-19 outbreak and strengthen domestic supply chains, DFC and the Department of Defense (DOD) received 178 applications. As of mid-October 2021, the agencies had not concluded any loans (see figure). DFC officials said factors that slowed the process included more requests and more complex inter-agency involvement than the DFC anticipated. To improve efficiency, DFC and DOD have prioritized medical applications and revised procedures, but they lack plans to evaluate the overall effectiveness of the program. Such plans could inform decisions about future use of DPA lending authority and increase congressional and public confidence that program costs and risks are reasonable relative to outcomes.

DFC Defense Production Act (DPA) Loan Program Schedule

DFC did not fully assess and respond to the risks associated with the implementation of the DPA loan program as well as its core mission in fiscal year 2020, as it was still in the process of developing a risk management approach. agency-wide risks when the program started. DFC has taken certain steps to mitigate risk when designing the DPA program, such as reducing the use of international development mission resources by hiring dedicated staff to manage DPA loans. DFC took further steps in fiscal 2021 to assess the risks facing the agency, including developing an agency-wide risk and opportunity profile. DFC is on track to complete this profile by October 2021. It has also identified DFC offices that will be responsible for managing each risk, including DPA Loan Program risks.

DFC has developed methodologies to account for most, but not all, of the DPA loan program administration costs eligible for DOD reimbursement. By early October 2021, DFC had submitted six partial invoices, totaling approximately $1.4 million, for reimbursement. The invoices were partial because DFC did not have methodologies to calculate all reimbursable cost categories required by federal cost accounting standards. For example, DFC has a methodology for allocating working hours, but not for the portion of office space and equipment of the DPA program shared with the rest of DFC. In addition to resulting in incomplete invoices, DFC’s incomplete cost accounting methodologies mean that DFC and DOD cannot be certain of the total program establishment and operating costs.

Why GAO Did This Study

DFC, the U.S. government’s international development finance institution, began operations in December 2019. In June 2020, DFC and DOD began using select DPA authorities to conduct a 2-year National Loan Program to to respond to the COVID-19 pandemic and strengthen relevant US sourcing. chains, under Executive Order 13922. Members of Congress have expressed concern about DFC’s ability to manage DPA activities alongside its international development mission.

House Report 116-444 included a provision for the GAO to review DFC activities under the DPA. This report examines the extent to which DFC has (1) provided loans that have contributed to the pandemic response and planned to evaluate program effectiveness; (2) assessed and responded to organizational risks related to carrying out the DPA’s activities as well as its international development responsibilities; and (3) implemented internal controls to ensure full accounting of its DPA costs for DOD reimbursement. GAO reviewed DPA loan program procedures and documents, analyzed DFC loan application data, and interviewed DFC and DOD officials.

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