Selected GFO Articles Since Mid-2010 (Updated 12 September 2012)

GLOBAL FUND OBSERVER (GFO) is an independent newsletter about the Global Fund provided to nearly 10,000 subscribers in 170 countries. GFO is a free service of Aidspan (www.aidspan.org), a Kenya-based international NGO that serves as an independent watchdog of the Global Fund, and that provides services that can benefit all countries wishing to obtain and make effective use of Global Fund financing. Aidspan accepts no funding from the Global Fund; it finances its work mostly through grants from donors to the Global Fund.

Following are a selection of GFO’s more important articles since mid-2010. Most of the articles shown below are Commentaries, in which an opinion is expressed. But in fact Commentaries represent only a minority of GFO articles; the majority of GFO articles are News and Analysis articles in which no opinion is expressed.

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CONTENTS

COMMENTARY: Corruption Quiz (Click to be taken to the full article lower down in this document)(From GFO Issue 194: 4 September 2012)

Bernard Rivers asks, are you corrupt? Find out by answering his corruption quiz.

COMMENTARY: 20,000 Kenyan Lives Not Saved (From GFO Issue 187: 5 June 2012)

Sixty-seven million dollars – almost half of the value of three Round 2 grants to Kenya – was never disbursed by the Global Fund because of problems in Kenya with the implementation of the grants, says Bernard Rivers. “[This money] could have saved about 20,000 Kenyan lives…. Every dollar that was wasted in Kenya, and every dollar that never got sent to Kenya, was a dollar that did not provide Kenyans with prevention and treatment services that they deserved and that they had been told they would receive.”

COMMENTARY: Error-Filled Media Stories Are Another Risk the Global Fund Needs to Manage(From GFO Issue 182: 4 May 2012)

“Earlier this week, Reuters published a story about the Global Fund that represented terrible journalism,” says Bernard Rivers. “When, by nineteen hours after the error-filled Reuters story appeared, the Global Fund had done nothing about it, Aidspan contacted Reuters, pointing out the errors. Reuters then issued a corrected version of its story.”

COMMENTARY: The Global Fund at Ten Years: Not a Happy Birthday(From GFO Issue 175: 6 February 2012)

“These past 12 months have been the Fund’s most difficult to date, so the anniversary celebrations were rather muted. Whether the Fund’s eleventh year will be more successful depends on how well the Fund learns from what went wrong during 2011.”

ANALYSIS: Why the Global Fund Cancelled Round 11(From GFO Issue 170: 9 December 2011)

Unlike what some news reports have suggested, the Global Fund has billions of dollars in the bank, with billions more expected to arrive during the next two years. The problem

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is that most of that money will be needed for the current and renewal phases of existing grants. In addition, the Fund has introduced a more cautious methodology for estimating how much funding it will receive in future. These are the two main reasons why the Global Fund now estimates that until 2014, it will have almost no money for new grants, and why the Fund cancelled Round 11. It is not accurate to say that Round 11 was cancelled because of decisions by donors since May 2011 to cancel, reduce or delay their pledges, because that is not happening.

COMMENTARY: A New Funding Opportunity? Huh?(From GFO Issue 170: 9 December 2011)

“The Global Fund is renowned for its almost militant policy of transparency. But when something really important happens, something with enormous consequences for grant applicants, implementers and potential beneficiaries around the world, don’t rely on the Global Fund to tell you about it.”

COMMENTARY: The Most Important and Difficult Global Fund Board Meeting Ever (From GFO Issue 166: 21 November 2011)

“This morning, the Global Fund starts the most important and difficult Board meeting it has ever held. The only options for action involve causing pain. There are five problems that the board needs to deal with. Some must without question be tackled at this meeting. Other could be deferred; but the sooner they are tackled, the better.”

NEWS: UNDP Protests OIG Report on Mauritania (From GFO Issue 166: 21 November 2011)

UNDP has protested both the content of the OIG report on Mauritania and the reporting process, saying that is has “very serious concerns” about the report and that the report makes “highly misleading and unbalanced statements” about UNDP’s audit and investigation work.

COMMENTARY: A Debate Regarding Donor Influence over the Global Fund (From GFO Issue 162: 31 October 2011)

Two supporters of the Global Fund debate what recent developments reveal about donor influence over the Global Fund. The participants are imaginary, but the issues are real.

COMMENTARY: The Report of the High-Level Panel – Strong and Thought-Provoking, but with Worrying Flaws (From GFO Issue 160: 13 October 2011)

The Report of the High-Level Panel is anything but dull. It is easily the most high-profile and frank review that has ever been conducted of the Global Fund. Many of the observations and recommendations are worthy of very serious consideration. However, other observations and recommendations raise as many questions as they answer.

COMMENTARY: Auditing the Auditor(From GFO Issue 147: 24 May 2011)

“If the Fund is to avoid further adverse media coverage and further consequent donor nervousness, it must urgently implement a more effective and fine-tuned approach to the issues of corruption and transparency.”

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COMMENTARY: Corruption by Global Fund Grant Implementers (From GFO Issue 139: 27 January 2011)

Over the last few days, there have been news stories worldwide about corruption in the implementation of Global Fund grants. Bernard Rivers reviews the stories and the underlying facts, and makes some recommendations.

COMMENTARY: Report from Sofia – Good News, Bad News (From GFO Issue 136: 17 December 2010)

"Every Global Fund Board meeting I've attended as an observer has involved one crisis. Nearly always, a solution has been found. The Board meeting in Sofia that ended on Wednesday was unusual because there was not one such crisis, but two. On the more difficult one, agreement was reached. On the easier one, not only did the Board fail to reach agreement, it failed to perform in a mature manner."

COMMENTARY: Is the Global Fund Living Up to Its Principles? (From GFO Issue 127: 24 June 2010)

"The Global Fund's handling of the Zambia case provides further confirmation of a suspicion that has long been forming in my mind, which is that the Fund is very reluctant to report any news that might worry a donor or that might embarrass the government of a country that receives Global Fund grants. But the issue is bigger than that. The Fund is not only reluctant to report on its few 'tough actions'; it has been reluctant, particularly during the past three years, to take those tough actions in the first place."

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ARTICLES

From GFO Issue 194: 4 September 2012

3. COMMENTARY: Corruption Quiz

by Bernard Rivers

Are you corrupt?

Before you answer that question, here’s another: What is corruption?

The OIG Charter states that the role of the OIG is, in part, “to undertake investigations of potential fraud, abuse, misappropriation, corruption and mismanagement.” In principle, that’s fine. But where should the OIG draw the line when deciding what to investigate and report on? And by extension, where should each employer draw its own line when deciding what activities to reprimand or fire its employees for?

These are not trivial questions. Here is a Corruption Quiz to help you think them through.

Consider the following activities by Mr. X, a fictitious person who is employed by a fictitious Global Fund grant implementer:

a. Mr. X stole large amounts of cash from the office safe.

b. Mr. X claimed expenses for an event he didn’t attend.

c. Mr. X went to a conference for work purposes, stayed an extra day to see a friend, and claimed expenses for the extra day.

d. Mr. X booked a plane ticket for a work trip using his favourite airline, which cost more than the cheapest one.

e. Mr. X used his employer’s car for a work trip, in the course of which he diverted to visit a friend.

f. Mr. X helped himself to a few pens from the office supplies cabinet and took them home for his children to use.

g. Mr. X copied a few pages on the office photocopy machine for personal purposes.

h. Mr. X spent the occasional 15 minutes of work time sending personal email and chat-ting with colleagues about non-work issues.

Questions:

1. Have you ever done any of the above activities? (Yes, and so have I.)

2. For which of the above activities, if confirmed, should Mr. X’s employer reprimand him?

3. For which of the above activities, if confirmed, should Mr. X’s employer fire him?

4. Which of the above activities should the OIG look into if a whistle-blower alleges that they have happened?

5. For which of the above activities, if confirmed, should the OIG demand that grant money be refunded to the Global Fund?

Give us your answers through our new Comment feature (see link below).

Bernard Rivers (email) was, until 31 August 2012, Executive Director of Aidspan.

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From GFO Issue 187: 5 June 2012

1. COMMENTARY: 20,000 Kenyan Lives Not Saved

by Bernard Rivers

As reported elsewhere in this issue of GFO, the Global Fund recently published a report by the Office of the Inspector General (OIG) on the Fund’s grants to Kenya. This makes me feel free to write about something I’ve not previously discussed publicly.

I’ve lived in Kenya since 2007, and I plan to live here long after I retire. And because I feel a strong commitment to the country, I’ve always had a particular interest in the Global Fund’s grants to Kenya.

So three years ago I decided to examine all data at the Global Fund’s website regarding the Fund’s three Round 2 grants to Kenya (one each for HIV, TB and malaria) – grants which started in late 2003 and ended in late 2008, just before I did my research. The principal recipient (PR) for these grants was the Ministry of Finance, with much of the work being assigned to the Ministry of Health. The Global Fund’s main web page for Kenya summarised these grants and did not suggest there were any particular problems.

But when I dug deeper, I was stunned to find that 47% of the $143 million that had been specified in the grant agreements for these three grants – namely, $67 million – was never disbursed by the Global Fund. Yes: $67 million that was available for Kenya was never sent; it was eventually made use of by the Fund for grants to other countries. The situation was particularly bad for the Round 2 malaria grant, for which the undisbursed amount came to 83% of the grant and for which there was not a single disbursement during the three-year Phase 2. Having no disbursements throughout Phase 2 was something that, to the best of my knowledge, had never previously happened for any Global Fund grant.

How could this be?, I wondered. The only possible reasons for not sending the money were that the Global Fund Secretariat was in a complete mess, or that the Secretariat deliberately didn’t send the money because it saw that the Kenyan implementers themselves were in a complete mess.

After digging further at the Global Fund website and asking around in Nairobi, I found that the problems with these grants occurred almost entirely within Kenya. (But that does not mean that the Fund was without fault, as I discuss below.)

When the Kenya CCM asked me to speak at a retreat it held in early 2009, I was brutally and undiplomatically candid. The CCM Secretariat subsequently circulated to all CCM members the paper on which my presentation was based. The paper’s section headings included the following: “Kenya’s grant performance is almost the world’s worst”; “Most grants are currently inactive”; “Many problems with mid-level management”; “Audit queries unanswered”; “Poor reporting to the Global Fund”; “Power conflicts between Ministry of Health and Ministry of Finance”; and “Many reports, many retreats, many recommendations, but minimal progress”. The final paragraph was particularly tough:

“No accountability! When Global Fund grants fail, the people of Kenya pay the price. But it appears that nobody on the CCM or at leading levels within the PR or the SRs feels accountable. To editorialize: Some people need to wake up at night sweating; they need to fret that they will lose their jobs, and they need to fret for those who are not being served. There have been multiple instances in Kenya when mid-level managers have moved slowly or not at all, in part because nobody with

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authority over them is applying much pressure on them to move and to get the job done.”

I know that for anyone, particularly a non-Kenyan, to have written in those terms was not politic. But I was angry, and I felt that someone had to say these things.

The following year, 2010, the OIG conducted an audit of these and other grants to Kenya. For some reason, it took nearly two years for the audit report to be published, but it is at last available, here. (See summary elsewhere in this issue.) The OIG report spells out multiple problems that arose with the three Round 2 grants. For instance, the report shows that when $35,000 of grant money was budgeted for a “women’s advocacy meeting,” the amount actually used, supposedly for this meeting, was six times as much – with no evidence that any meeting took place in the intended form. And the report says that a governmental sub-recipient (SR) maintained no proper books of accounts for the grant, yet the company then functioning as local fund agent (LFA) approved various disbursements to that SR.

And the report says that for the malaria grant, $450,000 in expenditure “was not appropriately supported by documentation” and should be returned to the Global Fund. And it adds that a governmental department disbursed $1.7 million of grant money to districts without providing instructions about what activities the funds should be used for and without obtaining documentation to show what the funds were actually used for. And it says that the Ministry of Health disbursed $1.11 million to another governmental department without informing that department that this had been done – as a result of which, the money then sat unused for months because nobody knew the money had arrived. And it says that $1.08 million from the HIV grant was loaned to the malaria grant to purchase commodities, but the loaned money was not used for that purpose and the loan was not repaid. And more of the same.

What was going on in Kenya involved gross mismanagement for sure, mixed in with bits of what smells awfully like fraud.

The $67 million that the Global Fund never sent to Kenya because of these problems could have saved about 20,000 Kenyan lives (see methodology below); further lives could have been saved using the money that did reach Kenya if that money had been better managed.

What also annoyed me was the behaviour of the Global Fund itself. The grants started in late 2003; it is clear from the documentation that by the start of 2005 the Fund was aware of serious problems. Why did the Fund not then insist on drastic action, or terminate the grants? (The Secretariat did want to terminate the TB grant in October 2005, but the Board over-ruled it.) And why has the Global Fund never provided any evidence on the Kenya page of its website that these grants were a disaster? And why do the website and the relevant grant performance reports now incorrectly state for each grant that the grant agreement amount is precisely equal to the amount that ended up being disbursed, thereby implying that the grants were fully disbursed?

When I discussed this with the Global Fund Secretariat in 2009, I concluded that the Secretariat had for some years engaged, at least with regard to Kenya, in a mix of wilful blindness, naive optimism, and a desire not to cause offence. Such behaviour is not acceptable. Every dollar that was wasted in Kenya, and every dollar that never got sent to Kenya, was a dollar that did not provide Kenyans with prevention and treatment services that they deserved and that they had been told they would receive. By “not causing offence” to Kenyan officials, the Fund was permitting those officials to take certain actions, and to avoid certain others, as a result of which about 20,000 Kenyan lives went un-saved. The only consolation is that the Fund eventually sent that money to other countries, where it was probably put to more effective use than it would have been in Kenya.

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But this is ancient history. Why am I going on about it now at such length? Is it because these Round 2 Kenya grants were typical of other countries, or of current grants in Kenya? No – I’ve only found four other grants, worldwide, for which such a high percentage of the grant agreement amount went undisbursed; and the situation in Kenya seems to have improved in the last couple of years. The reason I’m telling this story is that it must never be allowed to happen again. Implementers, local watchdogs and the Fund itself must never again permit Global Fund grants to be so badly managed. Remember: if 90% of countries are performing impeccable grant management and 10% are not, the failures of the 10% could cause problems for everyone once the facts emerge. Just look at the fallout caused in 2011 for the entire Global Fund family by findings of fraud in four small countries.

Note 1: Sources: A version of this Commentary with notes showing sources is available here.

Note 2: The estimate of 20,000 lives: The Global Fund says here that by the end of 2010, Global Fund-supported programmes had saved a total of 6.5 million lives. During this period, the total value of Global Fund disbursements was $13.02 billion, which would translate to about $2,000 per life saved. Global Fund-supported programmes, however, also receive funding from other sources. If we use a more conservative estimate of $3,350 of Global Fund spending per life saved, the $67 million from Round 2 that the Global Fund did not disburse to Kenya could have saved about 20,000 Kenyan lives. Between 2003 and 2012, the total amount of money that the Global Fund did disburse to Kenya (via the Round 2 grants and all other grants) is $357 million. Using the same methodology, this money has saved about 107,000 Kenyan lives.

Note 3: Responses from Global Fund and Kenya CCM: GFO sent a draft of this Commentary to the Global Fund and the Kenya CCM on 29 May 2012. Seth Faison, Communications Director of the Global Fund, responded with a one-page statement stating, in part, as follows:

“We recognize that programs in Kenya supported by Global Fund grants experienced challenges and interruptions in the early years. [However], Kenya is now a bright spot on the landscape of fighting AIDS, tuberculosis and malaria, mainly because Kenyan health authorities and political leadership have taken significant steps in recent years that have translated into measurable results.... [R]estructuring of the Kenya Coordinating Mechanism [has] made a critical difference in strengthening the governance of grants.... More and more grants are seeing high disbursement rates, including some that have reached 97 per cent.

“There are many ways to assess and evaluate the effectiveness of grants. Serious disease prevention and treatment is not simply a matter of drugs and money – it depends on a chain of committed health workers and administrators. Making sure that chain is effective remains a constant imperative, and we admire Mr. Rivers for highlighting problems in Kenya from years past. We want readers of the Global Fund Observer to have access to a broader perspective on what has been happening in Kenya more recently.”

And Dr. Peter Cherutich, Coordinator of the Kenya CCM, responded as follows:

“We have noted both the article and the commentary and we would like to state that our position and comment on the same is similar to the reaction you received from the Global Fund. The positive transformation of the management of Global Fund in this country is a story that needs to be told and the Global Fund Audit report should be contextualized within the current environment in which significant steps have been taken to ensure that resources are used appropriately.”

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Bernard Rivers (bernard.rivers@aidspan.org) is Executive Director of Aidspan.

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From GFO Issue 182: 4 May 2012

3. COMMENTARY: Error-Filled Media Stories Are Another Riskthe Global Fund Needs to Manage

by Bernard Rivers

Earlier this week, Reuters published a story about the Global Fund that represented terrible journalism. I won’t take up space here listing the smaller errors. The most serious error was the sentence that represented the heart of the story, in which Reuters in effect accused the Global Fund of corruption:

“[General Manager Gabriel] Jaramillo took over [earlier this year] after an investigation found a ‘grave misuse of funds’ at the fund.” [Emphasis added.]

Not true. The quote “grave misuse of funds” was from a press release issued by the Global Fund itself, a year before Mr Jaramillo arrived. What the Global Fund said in January 2011 was:

“In its report last year, the Global Fund’s Inspector General listed grave misuse of funds in four of the 145 countries which receive grants from the Global Fund.” [Emphasis added.]

That is very different.

The Reuters story went on to say:

“The revelation prompted governments such as Sweden and Germany to freeze their contributions, forcing the fund to scrap new grants until 2014.”

Not true. The freezing of contributions by those governments was temporary, and was lifted after a few months. The freezing was not a factor in the Fund’s decision ten months later to scrap new grants until 2014.

In recent months, the Global Fund has rightly placed a huge emphasis on risk-management. One of the largest risks that the Fund faces is that an error-filled story like the Reuters one will start to spread like wildfire – or at least will be read by some key donors – just as happened with the January 2011 Associated Press (AP) story with its misleading title "Fraud Plagues Global Health Fund."

When, by nineteen hours after the error-filled Reuters story appeared, the Global Fund had done nothing about it – no complaint to Reuters, no press release, nothing – Aidspan contacted Reuters, pointing out the errors. Reuters then issued a corrected version of its story.

Come on, Global Fund. Get your act together. Sure, Reuters did a terrible job, but you let them get away with it. This stuff matters.

Bernard Rivers (bernard.rivers@aidspan.org) is Executive Director of Aidspan.

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From GFO Issue 175: 6 February 2012

1. COMMENTARY: The Global Fund at Ten Years: Not a Happy Birthday

by Bernard Rivers

Last week, the Global Fund celebrated its tenth anniversary. These past 12 months, which ended with the Board persuading the Executive Director to resign, have been the Fund’s most difficult to date, so the anniversary celebrations were rather muted. Whether the Fund’s eleventh year will be more successful depends on how well the Fund learns from what went wrong during 2011.

The annus horribilis

The stage was set for the Global Fund’s problem-filled 2011 when the Fund said in October 2010 that it needed well over $13 billion to meet anticipated demand for 2011–2013 (up from the $9.3 billion it received during 2008–2010), but donors pledged only $11.7 billion.

Then on 23 January 2011, the Associated Press published an article entitled "Fraud Plagues Global Health Fund," based on public reports from the Office of the Inspector General (OIG). The story took off like wildfire. Alarmed, some of the Global Fund’s donors held back on delivering their promised contributions pending clear action by the Fund to deal with fraud.

The OIG’s findings on fraud were obviously important and required action. But the OIG made little distinction between outright fraud and multiple lesser crimes such as documenting expenditure using photocopies rather than originals. These and other instances of OIG rigidity seriously impaired relations between the OIG and Secretariat. (See various GFO articles, including here and here.)

Somewhat shell-shocked by the media and donor response, the already risk-averse Global Fund further tightened its procedures, leading for a while to a slow-down in disbursements. Even when implementers received their disbursements, they were sometimes nervous about spending the money for fear that they would inadvertently violate some rule.

Meanwhile, the Fund set up a High Level Panel to review how the Fund identifies and manages risk in its grant-making. The Panel issued a report in September that was daunting in terms of the number of things it said need fixing.

The downhill trajectory continued when the Global Fund, having launched Round 11 in August 2011, cancelled it three months later because of inadequate funding.

Then came a final nose-dive when the Global Fund Board, after reviewing the events of the past year and conducting an in-depth assessment of the managerial performance of Michel Kazatchkine, the Fund’s Executive Director (ED), informally concluded that Dr Kazatchkine had to go. After Dr Kazatchkine ignored strong suggestions that he resign, the Board resolved to appoint a General Manager to whom all top management would report, leaving behind a role for the ED that was “to be determined.” For two months, the Global Fund floundered almost leaderless. Of the seven members of the Executive Management Team that runs the Secretariat, only three were present and productively engaged during this period.

In the midst of all of this, a French magazine published allegations that the Global Fund had inappropriately made payments to an ally of Carla Bruni-Sarkozy, wife of the President of France, to support Ms Bruni-Sarkozy’s volunteer work as an ambassador for the Global Fund. The Fund defended these payments vigorously, saying no rules had been broken.

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Finally, on 24 January 2012, Dr Kazatchkine announced his intention to resign. On the same day, the Fund announced that the new position of General Manager would be filled by Gabriel Jaramillo, a recently-retired banker who had served on the High Level Panel.

What needs to change

The Global Fund performs vital work affecting millions of lives. The Fund cannot afford to have a second year like 2011, and might be permanently damaged if it did. It recently launched a “Consolidated Transformation Plan.” But some components of that plan point in the wrong direction, and others do not go far enough. Here are five additional changes that need to be implemented.

The Global Fund Board must be made leaner and more effective.

The Global Fund needs a significantly smaller board made up only of members who are competitively chosen, who spend some years in the role, who fully prepare for and attend all board and relevant committee meetings, who become accustomed to working with each other, and who each accept personal accountability for the results. This is how it is done in the corporate world, and it usually works. If this requires some board members to be paid, that option should be considered.

At present, some board members who represent multiple countries are chosen by those countries based on each country’s position in the alphabet. These board members, and certain others, are often insufficiently informed and engaged. This has led to a board that focuses on a mix of putting out fires (which is clearly necessary) and micro-managing the Secretariat (which is not). There is a huge middle area – involving thinking proactively about issues such as are reviewed below – that hardly ever gets discussed. The Board is only rarely a source of strength. It needs to become one, on a permanent basis.

The Global Fund must be more candid when it speaks publicly.

When the Global Fund had to cancel Round 11, the Fund’s press release did not actually say that this was what had happened. Just as bad, the Fund did not make it clear that over the previous year, donors had not been reducing or cancelling their pledges to the Fund. The primary causes of the abrupt reversal regarding Round 11 were, first, that the Fund had belatedly recognised that its forecasts of available funds for 2011–2013 must be reduced from $11–12 billion to about $10 billion in order to take into account uncertainty, particularly regarding whether and when the US pledge would be fully paid; and, secondly, that because nearly all of the remaining $10 billion was needed to keep existing grants going, there was insufficient money left to cover the anticipated $1.5 billion cost of new Round 11 grants. (See GFO article .) This lack of clarity caused much confusion within the Global Fund community.

More recently, the Fund issued another press release that was not so much confusing as misleading. When the Fund announced on 26 January 2012 that the Gates Foundation will give it $750 million over the period 2011–2016, with most of this money being provided as early within that time period as the Fund needs, the press release implied that this was all “new money.” But $500 million of that $750 million had already been announced in October 2010, and ever since then had been included in the Fund’s revenue forecasts. Thus, the Gates Foundation’s contribution does not mean that the Fund now has $750 million more to work with than it did when it cancelled Round 11.

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The Global Fund must re-examine certain aspects of its transparency policy.

Two admirable components of the Global Fund model – an OIG that is determined to root out fraud, and a world-class transparency policy – have produced, when combined, some unanticipated consequences. The OIG discovered fraud among certain grant implementers; the Global Fund posted the findings at its website rather than hiding them in a safe as most aid agencies do; the press went wild; Global Fund donors worried about how their taxpayers would feel about funding grants for corrupt implementers; donor pledges were put on hold; and Global Fund growth stalled. This cycle will repeat itself unless the Board is able to devise a policy that permits the Fund to better manage the repercussions of transparency without sacrificing the underlying principle .

The Global Fund must recognise that if it is to turn its vision into reality, it must install first-class management.

The ED’s managerial misjudgements started several years ago, when his approach led to several highly-capable department heads leaving the Fund, and when some of the new department heads he recruited were disappointingly weak. This led, over time, to serious reductions in morale and effectiveness lower down in the organisation.

But the Board, too, made at least one major managerial misjudgement. At the December 2010 board meeting in Addis Ababa, the Board had to decide whether to renew Dr Kazatchkine’s contract as ED. He was coming to the end of his first four-year term, and subject to Board approval, was eligible for a final three-year term. The Global Fund’s formal procedures clearly stated at that time that the Board should “normally” invite the incumbent ED to compete against other candidates for the position. However, the Board chose not to follow its own guidance; instead, it renewed the contract without opening it up to competition, even though many board members had already expressed serious concerns regarding the ED’s managerial performance. The Board had the right to decide as it did, but the decision was not wise, and the Fund has since paid the price for it.

In fact, both of the Executive Directors that the Global Fund has hired over its first decade were charismatic leaders who had little interest or natural skill in the art of management. The Global Fund is not an entrepreneurial start-up or a university department or a think tank. It is a vast meat-grinder that disburses $3 billion annually, employing 600 staff and working its way through an administrative budget of $370 million. It needs to be led by managerial heavy-hitters.

The Global Fund must become less bureaucratic.

As one observer has aptly said, the Global Fund needs to shift from being a cashier demanding receipts to being an investor demanding results. The cashier/receipt mentality, triggered primarily by the work of the OIG, leads to excessive bureaucracy and minimal trust. The investor/results mentality leads to greater trust and more impact. Of course, excessive trust can be abused; there must be verification. But a strong case can be made that what should be verified is the number of people with improved health, not bean-counter items like the number of bed nets distributed and the number of people attending workshops. If the Fund can succeed in making this shift, it might eventually be able to return to the long-lost vision that it promoted in 2002 – “simplified, rapid, innovative and efficient.”

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Looking forward

So where now? The Board has asked Gabriel Jaramillo to serve not only as General Manager for up to a year, but also as the Global Fund’s interim leader until a global search for a new ED is launched and completed. If Mr Jaramillo can quickly determine which Global Fund activities are led by competent managers, and then focus his energy on other areas, he should be able to get the currently somewhat dysfunctional Secretariat rapidly up to speed.

But Mr Jaramillo’s arrival will involve a huge culture clash. He is a smooth US-educated banker who is accustomed to the certainties and the relatively formal hierarchies of the corporate world. The Global Fund Secretariat represents a very different and rather NGO-like environment, accustomed to managing grants rather than investments, with opinions being articulated in a somewhat informal manner, and with some decisions delayed until everyone involved agrees. Mr Jaramillo and the staff both need to understand where each other is coming from, and to give each other credit for their expertise. The one thing that can’t be allowed to happen is for decisions to be frozen for several months while Mr Jaramillo evaluates the situation and attempts to develop a master plan. The ship has to keep sailing, adjusting course as necessary, even if the ride is a little erratic.

"There is nothing broken that can't be fixed, but there's a lot of fixing to do," Mr. Jaramillo said in an interview with the Wall Street Journal. He added that the Fund’s launching of Round 11 and then cancelling it when it had second thoughts about its forecasts should never have happened. “Uncertainty is a reality,” he said. “You have to project the most likely scenario and the most horrible scenario. That's what we do in business every day."

There’s a real chance that the difficulties of the past year will end up being seen as the darkness before the dawn. If the Global Fund can push out its ED, hopefully it is also willing to make other important though less dramatic changes. The Fund could take inspiration from the GAVI Alliance (formerly, the Global Alliance for Vaccines and Immunisation). In mid-2010, GAVI went through a major management overhaul, which included the departure of its CEO and the appointment of a new one six months later. Then GAVI announced in early 2011 that it had suspended grants to four countries because of suspected fraud. Yet in mid-2011, donors committed 15% more funding than GAVI had asked for. It can happen.

Finally, a postscript. I’ve known, admired and liked Michel Kazatchkine for nine years. He is a brilliant and dedicated man who has spent the past 25 years fighting AIDS as a leading physician, researcher, policy maker, diplomat and advocate. I wish him the very best in whatever he turns to next.

Bernard Rivers (bernard.rivers@aidspan.org) is Executive Director of Aidspan and Editor of GFO.

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From GFO Issue 170: 9 December 2011

1. ANALYSIS: Why the Global Fund Cancelled Round 11

by Bernard Rivers and David Garmaise

At its meeting in December 2010, the Global Fund Board approved the launching of Round 11. At its meeting in May 2011, the Board discussed but did not change this decision. Therefore, in August 2011, Round 11 was launched, and many CCMs devoted enormous amounts of work to preparing their proposals. Then last month, in November 2011, the Board cancelled Round 11.

Why was Round 11 launched and then cancelled? And what does the decision to cancel Round 11 tell us about the Global Fund’s financial condition?

In a nutshell, the answer is…

Unlike what some news reports have suggested, the Global Fund has billions of dollars in the bank, with billions more expected to arrive during the next two years. The problem is that most of that money is needed for the current and renewal phases of existing grants. In addition, the Fund has introduced a more cautious methodology for estimating how much funding it will receive in future. Primarily because of these two factors, the Global Fund now estimates that until 2014, it will have almost no money for new grants. Hence, the need to cancel Round 11. It is not accurate to say that Round 11 was cancelled because of decisions by donors since May to cancel, reduce or delay their pledges, because that is not happening.

In somewhat more detail, the answer is….

As Simon Bland, Global Fund Chair, said recently, the Global Fund disbursed $8 billion during the three-year period 2008–2010, and the Fund forecasts that it will have enough money to be able to disburse $10 billion during 2011–2013. This is a 25% increase from one period to the next.

Unfortunately, however, the $10 billion that the Global Fund expects to be able to disburse in 2011–2013 is about $1 billion less than the Fund had forecast in May 2011. Almost all of the $10 billion will be needed to fund existing grants and the renewals of existing grants. Grants are normally approved for a two-year Phase 1 followed by a three-year Phase 2. The Global Fund’s policies require that priority be given to Phase 2 renewals of existing grants, over the funding of new grants.

In May 2011, when the Global Fund was forecasting that it would be able to disburse about $11 billion in 2011–2013, the Fund estimated that $1.55 billion of that would be available for Round 11 grants. By the time of the Board meeting in November, that estimate went down to minus $0.6 billion. That meant that not only was there no money for Round 11, but also the Global Fund was short of money to pay for grant renewals and probably also for some unsigned Round 10 grants.

The decisions that were made during the Board meeting – decisions that achieved savings by reducing the amount of money required for future grant renewals – increased the estimate of available money from minus $0.6 billion to plus $0.6 billion. However, this amount was not deemed to be enough to permit the launching of Round 11 before 2014. Rather, the money has to be used primarily for funding those Round 10 grants for which grant agreements have not yet been signed, and for funding transitional arrangements (i.e., essential services) for grants that will end soon.

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Thus, new grants now cannot be approved until 2014, though the Fund may decide to invite applicants to start preparing proposals during 2013.

In the last few years, the Global Fund has had some serious problems with certain donors, particularly the following:

Italy has not yet pledged any money for 2011–2013, and has not delivered any of the $347 million it pledged for 2009–2010.

Spain has not yet pledged any money for 2011–2013, and has not delivered $116 million of the $250 million it pledged for 2010.

Ireland has not yet pledged any money for 2011–2013, and has not delivered $35 million of the $46 million it pledged for 2010.

Netherlands has not paid $37 million of the $119 million it pledged for 2010.

However, those problems were all known when the Board agreed in May 2011 to launch Round 11. They are not new. The main factors that last month caused the Global Fund to reduce its revenue projections from the May 2011 levels, and therefore to cancel Round 11, were as follows:

Many donors make their pledges in Euros and other non-dollar currencies. Between May and November, those currencies, on average, weakened against the dollar, so the anticipated dollar value of those pledges decreased by about $100 million.

Some of the $4.0 billion that the U.S. announced last year for 2011–2013 will not be received until 2014, because U.S. legislation specifies that not all of each year’s money can be handed over until the U.S. government can certify to Congress that a number of conditions have been met.

There has been a reduction in estimated interest earnings from the Fund’s money in the bank.

Most significant by far: The Global Fund has developed a new and more cautious forecasting methodology regarding future income from donors. (The Global Fund refers to this as producing “risk-adjusted” forecasts.) The new methodology was introduced because the negative economic situation and the challenging political environment create uncertainties that are difficult to reflect in a multi-year forecast. In its new risk-adjusted forecasts, the Global Fund no longer automatically assumes that all countries will give the exact amount they pledged or that the funds will arrive equally distributed across the years to which the pledge applied. For example, the amount announced by the U.S. for the fiscal years 2011–2013 ($4.0 billion) is subject to Congressional approval each year. The Global Fund hopes – but cannot be certain – that the U.S. Congress will approve the full amount each year.

It is important to point out that only one country has formally cancelled or reduced the pledge that it originally made for 2011–2013. This is Denmark, which reduced its pledge by approximately $10 million; this represents well under one percent of what would have been needed for Round 11.

At the Accra Board meeting, the Executive Director said that the problems which then led the Board to cancel Round 11 represented a “perfect storm” of factors. Some participants privately blamed the Secretariat for not taking the possibility of those factors into consideration when it launched Round 11. Others blamed the Board for accepting the Secretariat’s May projections.

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From GFO Issue 170: 9 December 2011

2. COMMENTARY: A New Funding Opportunity? Huh?

by Bernard Rivers

The Global Fund is renowned for its almost militant policy of transparency. Do you want to know the most recent rating the Fund gave a particular grant? Click here. Do you want to know the precise details of a fraudulent act uncovered by the Office of the Inspector General? Click here. Do you want to read Annex 7 of a Board paper on the Fund’s financial situation? Click here.

But when something really important happens, something with enormous consequences for grant applicants, implementers and potential beneficiaries around the world, don’t rely on the Global Fund to tell you about it. Three linked incidents at the Fund’s recent Board meeting in Accra illustrate this.

The first incident was when the Board – after anguished and at times heated discussion – agreed to cancel Round 11, yet chose wording for the resolution that did not include the word “cancel” or anything implying it. Instead, the Board resolved “to convert Round 11 into a new funding opportunity in 2014.” That’s roughly equivalent to my calling my hungry children to the dinner table, placing a tasty meal before them, and then, before they can eat, yanking away the meal and replacing it with a couple of raw potatoes, telling the kids that this represents “a new feeding opportunity.”

The second incident happened the following morning. Just as we were sending out GFO to 9,000 people with a lead story saying “Board cancels Round 11...”, the Global Fund sent out a press release reporting what had happened at the meeting. And amazingly, even though the Board had just made its most difficult decision in ten years, the press release engaged in ever greater avoidance than the Board, because it didn’t even contain the words “Round 11.” The nearest the release came to this was when it said that as a result of “a revised resource forecast,” the Board had “adopted measures ... making savings in the existing grant portfolio ... [in order] to finance essential services for on-going programs that come to their conclusion before 2014.” Crystal clear, right?

The third incident occurred later the same day. Twenty-four hours after the Board had made its momentous decision to cancel Round 11 (or, if you prefer, to provide a new funding opportunity), the Fund’s website still said nothing about this decision, despite the numerous people who must have been visiting the site to find out more details about what they had been hearing.

This whole approach represents timidity and evasiveness in the extreme. This is not how things should be done. Yes, true, it is how most other large organisations handle such situations. But the Global Fund was supposed to be different, and the Global Fund community deserves better.

Bernard Rivers (bernard. rivers@aidspan.org ) is Executive Director of Aidspan and Editor of GFO.

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From GFO Issue 166: 21 November 2011.

1. COMMENTARY: The Most Important and Difficult Global Fund Board Meeting Ever

by Bernard Rivers

Snapshot from 2002: The Global Fund’s Framework Document describes the Fund as “simplified,” “rapid,” “innovative” and “efficient.” The goal is to raise billions of dollars and then disburse it rapidly to implementers, telling them, in effect, “OK, get on with the job.”

Fast forward to 2011: The Fund’s bureaucracy is far from “simplified” and “efficient.” The Fund’s image has been tarnished by findings of corruption among grant implementers. And the Fund’s donors have become alarmed by significant weaknesses in Global Fund systems and among senior Global Fund management – and, of course, have been suffering from their own economic problems. The net result is that some donor pledges have been cut and the delivery of others has been delayed. Money is tight. Round 11 is in danger of being cancelled.

This morning, the Global Fund starts the most important and difficult Board meeting it has ever held. The only options for action involve causing pain. And the “no action” option will merely compound the problems.

There are five problems that the board needs to deal with. Some must without question be tackled at this meeting. Others could be deferred; but the sooner they are tackled, the better.

The first problem is that some donor countries have cancelled or delayed their disbursements to the Global Fund, partly because of their own economic problems, but also because of the corruption that the Fund’s Office of the Inspector General (OIG) has identified and that the Fund’s transparency policy has caused to become public. The situation is dire. Donors used to honour 100% of their pledges to the Fund. In 2010 this went down to below 80%. This year, the figure is lower still. The “confirmed pledges” that donors had said they would deliver during 2011 through 2013 have gone down from $9.7 billion to $8.2 billion, as a result of about $1 billion having been “un-confirmed” and about $0.5 billion now projected to arrive after 2013.

As a result, estimated funds available for Round 11 have declined from $1.6 billion (in May 2011), to $0.8 billion (in September), to negative $0.6 billion today. Yes, negative. This means that the current prediction is that there will be no money to pay for Round 11, and possibly not enough to pay for some as-yet unsigned Round 10 grants.

The second problem is that two admirable components of the Global Fund model – an OIG that is determined to root out corruption, and a world-class transparency policy – have produced, when combined, some unanticipated consequences. The OIG discovered fraud among certain grant implementers; the Global Fund posted the findings at its website rather than hiding them in a safe; the press went wild; donors worried about how their taxpayers would feel about funding grants for corrupt implementers; donor pledges were reduced or delayed; and Global Fund growth suddenly stalled.

The third problem is that the OIG got carried away, chasing down not only corruption, but also anything else that could be defined as “loss,” and then demanding that the loss be returned to the Fund. These “loss” determinations included, for instance, that a principal recipient (PR) in Swaziland must return over $1 million to the Global Fund because the PR, when asked to document how the money was used, could only produce photocopies of invoices rather than originals. Quick, all of you – raise your hands if you have ever been guilty of this “crime.” I have.

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Thus far, the OIG has identified $17 million in fraud across all grants that it has audited and investigated. But it has identified almost three times as much – $48 million – in other forms of “loss” that must be refunded, including that $1 million in Swaziland.

This has been bad enough for the PRs who are required to return the money – money which they often no longer have because it was long ago passed to sub-recipients who were responsible for the loss. But, again, there has been an unanticipated consequence. PRs are now nervous to pass money to sub-recipients (SRs), and SRs are nervous to spend the money when they receive it, for fear that some determination of loss will be made, possibly years in the future. This paranoia has led, if not to paralysis, at least to a slowing down and disruption of grant implementation. This represents a huge cost for the people that the grants are supposed to benefit.

The impact of this second problem upon the entire Global Fund system, from Geneva headquarters to sub-sub-recipients, is roughly what the impact would be upon your family or mine if government officials, anxious to ensure that we don’t mistreat our children or engage in tax-evasion, placed video cameras in every room of our homes, and issued press releases from time to time based on the worst things that those cameras revealed. Not many families would survive the tensions that this would engender.

The Fund has rightly recognised, after a very difficult year, that it must identify, mitigate and manage risk. But it hasn’t done enough thinking about the way in which its risk management policies are, at least at present, slowing down the delivery of services and thus the saving of lives.

The fourth problem is that John Parsons, the Inspector General, head of the OIG, has shown, on a number of occasions over a prolonged period of time, a remarkable ability to shoot himself – and therefore the Fund – in the foot. As discussed in Article 4, below, UNDP, the largest implementer of Global Fund grants, is now essentially refusing to work with him; and many other PRs have also expressed serious criticisms. (See the GFO Commentary “Auditing the Auditor,” and subsequent letters to the editor here and here.) The Global Fund Board, to whom John Parsons reports, will discuss this evening the year-end evaluation of his work performance that it has just completed.

The fifth problem is that the Fund has some serious management weaknesses at the senior level. This has led to some unpleasant in-fighting, with allegations floating around that range from the worrying to the ridiculous. A year ago, the Board renewed the employment contract of Michel Kazatchkine, the Executive Director, giving him a final three-year term (following his initial term of four years). But, as with the Inspector General, the Board specified that Kazatchkine must undergo an annual evaluation. The first such evaluation has just been completed, and the findings will be discussed by the Board this evening. (Both this evaluation and that of John Parsons were “360 degree reviews” conducted by external professionals under the guidance of the Chair and Vice-Chair. Structured feedback was obtained from dozens of people in each case.)

So: The Fund’s growth has stalled. Over the past ten years, Global Fund financing has contributed to the saving of 7.7 million lives. Every one percent increase or reduction in funding or effectiveness will lead to multiple further lives saved or not saved. The Board’s decisions today and tomorrow will be crucial; they will ultimately determine the up or down curve in money, effectiveness and lives.

Bernard Rivers (bernard. rivers@aidspan.org ) is Executive Director of Aidspan and Editor of GFO.

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From GFO Issue 166: 21 November 2011.

4. NEWS: UNDP Protests OIG Report on Mauritania

Is unhappy with both the content of the reportand the reporting process

by David Garmaise and Bernard Rivers

Editor’s Note:

On 19 September 2011, the High Level Panel (HLP) released a report with far-ranging implications for the Global Fund (see coverage in GFO 158). One week later, the Global Fund Board held a special meeting at which it accepted the great majority of the HLP’s recommendations. One of the accepted recommendations was that each report by the Fund’s Office of the Inspector General (OIG) should incorporate responses, by the principal recipient (PR) that had been audited or investigated, to what the report said. The Inspector General told that Board meeting that he accepted all of the OIG-related HLP recommendations, and that he intended to act swiftly to implement them. He added, “I also intend to reflect carefully, with immediate effect, on the tone of all reports...”

Five weeks later, when the OIG released twelve audit and investigation reports, it appeared that the OIG had acted according to his promise. In a cover note to each of the reports, the Chair of the Global Fund said that the OIG reports “include comments from the Principal Recipients,” and that “increased attention has been paid by the Office of the Inspector General to the tone of the Reports.”

But there was one case where the OIG report did not contain responses from PRs. The OIG’s 180-page report on Mauritania, which described an investigation of fraud by sub-recipients of two PRs, SENLS and UNDP, contained no responses by the PRs to the report’s determinations. In light of this omission, GFO invited SENLS and UNDP to provide their comments on the OIG’s Mauritania report. SENLS declined. UNDP accepted. The following article results.

On 31 October 2011, the Global Fund’s Office of the Inspector General (OIG) released the final report on its investigations into Global Fund grants to Mauritania. UNDP was PR for four grants, two malaria and two TB. (See separate article in this issue of GFO for a summary of what was contained in the OIG report.) Because the OIG report did not contain any comments from UNDP, GFO invited UNDP to provide such comments for this article.

In an interview with GFO, a senior UNDP official protested both the content of the OIG report and the reporting process. He said that UNDP has “very serious concerns” about the report because the report makes “highly misleading and unbalanced statements” about UNDP’s audit and investigation work, and because the report gives a “seriously inaccurate account of the co-operation which took place between the OIG and UNDP” in the course of the audits and investigations undertaken by both parties in Mauritania. The senior UNDP official added, “This does not detract from the fact that serious irregularities took place in the grants managed by both the Government and UNDP in Mauritania, as confirmed by the extensive audits and investigations undertaken by both OAI and OIG. UNDP has taken firm action to respond to the audit findings in close collaboration with the Global Fund Secretariat and the Government of Mauritania.”

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Subsequent to the interview, on 16 November 2011, Egbert Kaltenbach, Director of the UNDP’s Office of Audit and Investigation (OAI), UNDP’s equivalent to the OIG, wrote a letter of complaint to Simon Bland, Chair of the Global Fund Board. GFO has obtained a copy of the letter. In the letter, Kaltenbach said, “The [OIG] report in many instances misrepresents facts, often by deliberate omission, disregards the existing legal framework between the Global Fund and UNDP and depicts UNDP as an unreliable and uncooperative partner, which it certainly is not.”

Kaltenbach added that the OIG report misrepresents the interaction and cooperation between the OIG and the OAI during the initial stages of the investigation, which was based on the clear understanding that the OAI would conduct investigations within UNDP, while the OIG, with support from the OAI, would conduct investigations of UNDP’s sub-recipients (SRs) and sub-SRs (SSRs).

Concerning the statement in the OIG report that “throughout the two years of this investigation, the OIG was also not given access to any of the OAI’s reviews of Global Fund funds,” Kaltenbach said in his letter that the OIG “fails to mention that from the very beginning, when OAI started to conduct Global Fund specific audits, OAI has shared with OIG a summary of the audit results, in a spirit of cooperation between two audit offices and without awaiting a formal authorization by the UNDP Executive Board.” He added that when the OIG was subsequently permitted to study the full UNDP Mauritania audit report, the OIG did not raise any concerns. Yet the OIG then publicly raised doubts “as to the integrity and health” of the UNDP’s Global Fund grant operations in Mauritania. Kaltenbach concluded that the Inspector General “is not acting in good faith on these points,” as a result of which Kaltenbach said he had decided to temporarily suspend the OIG’s access to UNDP audit reports.

Referring to the fact that the OIG investigation report did not include comments from UNDP on the investigation’s findings, Kaltenbach complained to the Global Fund Chair that “basic due process requirements have not been observed.” Kaltenbach said that the OIG had sent him excerpts of the draft report, giving him ten days to comment; and that he wrote to the OIG on 16 September pointing out “numerous inaccuracies in the draft report.” But, he said, the OIG “chose to simply dismiss most of the comments and the information provided. While the final report mentions that ‘relevant sections of this Report have been provided to UNDP’s OAI,’ it fails to acknowledge the fact that comments were received from OAI. Good practice would have required that such dissenting comments would be attached in full to the final and public report so that lay readers could draw their own conclusions.”

At the end of his letter to Bland, Kaltenbach said, “It has become almost impossible to work with and trust a counterpart that has an increasingly hostile attitude towards UNDP and in particular towards OAI and has demonstrated, in more than one instance, a less than professional conduct.”

In its investigation report, the OIG said that “UNDP has performed its own calculation of loss, and has estimated it to be US$1.06 million” (less than half of the $2.4 million in losses identified by the OIG). But the senior UNDP official told GFO that this was in fact only the UNDP’s initial estimate. Subsequently, UNDP concluded that the amount of fraudulent or otherwise ineligible expenditures was significantly higher than UNDP’s initial $1.06 million estimate, though still significantly lower than the amount estimated by the OIG. He added that the OIG was informed of this in writing six weeks before the OIG published its report.

Meanwhile, the senior UNDP official said, as of 20 October 2011, UNDP had obtained full reimbursement from the government of Mauritania for the $1.06 million loss initially estimated by UNDP. UNDP has issued a transfer order for this amount to the Global Fund, and will, in the weeks ahead, continue to reach out to the Global Fund to reach agreement on the exact level of further funds to be reimbursed.

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The OIG report stated that “the OIG offered to conduct a joint investigation of the allegations with OAI. However, OAI declined the OIG offer and has also declined to share the outcome of whatever investigative efforts they may have undertaken.” The senior UNDP official disputed this statement, saying that both OIG and OAI conducted an investigation mission in 2009, with OAI investigating UNDP staff and OIG investigating UNDP SRs. In that context, UNDP provided OIG investigators with copies of all relevant SR and SSR documents in the possession of UNDP.

Postscript: On 17 November, GFO sent a draft of this article to John Parsons, the Inspector General, inviting comment. On 18 November Parsons replied “It is inappropriate for me to comment on the contents of a 'Confidential' letter to the Global Fund Board Chair which has somehow come into your possession, other than to say that it contains material inaccuracies and omissions.” Then, on 20 November, Parsons wrote to Egbert Kaltenbach of UNDP, cc GFO and others, saying “Please be advised that the OIG will append and post your response to the OIG investigation report on the Global Fund grants to Mauritania, along with an evaluation of it. I can assure you that it was a genuine oversight on my part that this had not happened previously.”

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From GFO Issue 162: 31 October 2011.

2. COMMENTARY: A Debate RegardingDonor Influence over the Global Fund

by Bernard Rivers

Yesterday, two supporters of the Global Fund, old friends with differing perspectives, participated in a debate about some recent developments.

Moderator: What did you think of the recent comments about the Global Fund by the Swedish Minister for International Development Cooperation?

Ms. X: I was pleased, of course, because the minister said that the Global Fund is doing a better job of handling risk, which means that her government will now commit to financing the Fund during 2011–2013.

Mr. Y: Sure, the decision was good. But the tone of the minister’s letter really annoyed me. One minute she praised the Global Fund, and the next minute she said, “I am concerned over the Secretariat’s capacity to manage and prioritise the necessary change processes. My view is that the Global Fund’s business model is in need of additional fundamental changes.” This sounded like a strict headmistress saying to a student, “OK, I’m letting you go this time, but from now on you’d better behave – or else!”

Ms. X: You’re being too sensitive. If a donor gives money, the donor has a right to say whether it likes how the money is being handled. There’s nothing inappropriate or unethical in a donor saying, or at least implying, that its contributions will end if the Fund can’t prove that the money is used effectively.

Mr. Y: Maybe so. But I think some of the donors are doing more than that: I think they’re attempting to get the Global Fund to change course. They don’t have the courage to do it openly, so they’re doing it covertly. For instance, when the AP story came out in January with its completely unsubstantiated headline, “Fraud Plagues Global Health Fund,” the

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donors didn’t defend the Fund. Instead, they quietly lobbied for the High Level Panel to be set up, and they permitted the Panel – or maybe pushed for it – to have members and support staff that almost entirely saw things from a donor perspective. The imbalance in the support staff was particularly blatant: All ten of them were from donor countries, and the person who coordinated most of the Panel’s work had been the U.S. government member of the Global Fund Board from 2006 to 2008. So guess what? We ended up with recommendations that will make the Fund look much more like other aid agencies.

Ms. X: Hang on! The setting up of the Panel, and the composition of the Panel, were both approved by the Global Fund Board. And the Board’s voting procedures are such that no resolution can be passed unless it is supported by two-thirds of both blocs, donor and implementer.

Mr. Y: Yes, but let’s get real. The board members representing implementer countries are frantically over-worked carrying out their “day jobs” as Ministers of Health and the like, and they don’t have the support staff that board members from donor countries have. And there’s also a broader issue: What Sweden is saying openly, and what I suspect other donors are saying privately, is a clear violation of the spirit of the Global Fund. Remember why the Global Fund was set up in the first place: donors didn’t want to give new money to the World Bank or the U.N. system because those systems were too bureaucratic and not sufficiently concerned with actually saving lives. The Global Fund is supposed to be about doing things in a new and more effective way, based on partnership. Donors should either commit to this – and until early this year, I thought they had – or they should withdraw. What kind of a partnership is it if you say, "You are my partner, as long as you do what I want"?

Ms. X: This is realpolitik. He who pays the piper calls the tune. You’re being naively idealistic if you assume that donors will behave in any other way.

Mr. Y: What’s wrong with being idealistic? I’ve been a supporter of the Global Fund for ten years precisely because it is an idealistic yet effective institution that seeks a governance model that is radically different from that of most multilateral institutions. For me, much of the High Level Panel’s report had the smell of a donor-driven attempt to shrink the future ambitions of the Fund (thereby reducing pressure on the donors to give more money) and to make the Fund more of a traditional top-down funding agency – after which, people can always say, “Who needs the Global Fund? We can use existing bilateral and multilateral agencies for this.” I can't prove all of this – but I can tell you that my nose is twitching!

Ms. X: No, no, now you’re being melodramatic! You’re seeing conspiracies under every bed. The Global Fund is relatively young. It made some mistakes, and now it’s trying to develop a “version 2.0” that can be more effective, that’s all.

Mr. Y: You haven’t convinced me. I agree that the Global Fund isn’t perfect, and I agree that a number of the recommendations of the High-Level Panel were valid. But I feel there’s some hypocrisy here. Why is the Global Fund being subjected to a far higher level of scrutiny than are other funders such as the World Bank, PEPFAR, DFID and the Gates Foundation? Representatives of these institutions are all members of the Global Fund Board. And there they are, sitting in Global Fund Board meetings, saying in effect, “These incidents of fraud by grant implementers are shocking. Implementers must now focus primarily on compliance rather than impact. But please don’t ask me whether my institution has similar problems; that’s confidential.”

Ms. X: Listen, I agree with you – there is some hypocrisy here. But that doesn’t invalidate some of the points made by the donors. And these points are being made by others, also. Look at Mali – every one of its eight Global Fund grants, managed by three PRs, involved some serious misuse of grant funds. How can donors be expected to justify to their taxpayers giving increasing amounts of money to the Fund when such things happen?

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Please spare me your liberal rhetoric. Don’t talk about “partnership” and “weak systems” here. Fraud involves bad things being done by bad people, with no consideration of the impact that this will have on the people whom the grants are supposed to benefit. The Global Fund is a terrific institution, not least because, unlike other funders, it shines the spotlight on cases where its grant implementers misuse funds. To do so was its own admirable choice. But having done so, it has to show the taxpayers in donor countries that the problems are being addressed. Only then can we expect the donors to increase their pledges – as I hope they will.

Mr. Y: OK; but the point you’re missing here is...

Moderator: Sorry, we’ve run out of time!

Bernard Rivers (rivers@aidspan.org) is Executive Director of Aidspan and Editor of GFO. Ms. X and Mr. Y are imaginary people, but the issues are real enough. We encourage you to join the debate. Send your opinions to debate@aidspan.org.

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From GFO Issue 160: 13 October 2011.

1. COMMENTARY: The Report of the High-Level Panel –Strong and Thought-Provoking, but with Worrying Flaws

by Bernard Rivers, David McCoy, and David Garmaise

The Report of the High-Level Independent Review Panel that the Global Fund released on 19 September is anything but dull. It is easily the most high-profile and frank review that has ever been conducted of the Global Fund. Indeed, it represents, to the best of our knowledge, the first time that any global-level funding institution has commissioned and published such a candid look at itself.

Many of the observations and recommendations in the report of the High-Level Panel (HLP) are worthy of very serious consideration. However, other observations and recommendations raise as many questions as they answer: Some appear to be based on insufficient analysis, and some suggest an incomplete understanding of how the Fund has to operate in partnership with many other players, or of how the Fund was always intended to be different from traditional funding agencies.

And surprisingly, the HLP Report provides no opinions on how serious or widespread fraud is among Global Fund grant implementers, or whether the Global Fund has a greater or lesser problem in this regard than do other major donors.

WHAT WE LIKE CONCERNING THE PANEL’S OBSERVATIONS

The Panel correctly recognised that the Global Fund is a vital part of health improvement efforts in many countries, and that its failure would bring tragic consequences.

The Panel went on to point out that while “country ownership” is a founding principle highlighted in the Global Fund’s 2002 Framework Document, there does not appear to be a shared perception about what the term means in practice. And it noted that in some countries, the Country Coordinating Mechanism (CCM) has asked for and received more money than the country could use efficiently, thereby creating an incentive for the government to shift its own resources away from the three diseases.

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We also agree with the Panel that the group of Global Fund board members representing implementing country governments has little institutional memory and a muted presence; and that the Board should reconsider whether large, quickly growing and powerful economies – such as China, India, Brazil, Russia and Mexico – should be eligible for funding.

The Panel was right to say that there are serious flaws in the LFA system. The Panel pointed out, for example, that the Global Fund has not assigned the greatest amount of LFA effort to the countries with the greatest problems; and that the Fund has generally treated the LFAs as contractors rather than partners. We support the Panel’s conclusion that the Global Fund needs to use the LFAs more effectively.

And we think that the Panel was accurate in its assessment of CCMs – correctly acknowledging the accomplishments of the “CCM model,” while recognising the model’s limitations. Thus, the Panel said that with CCMs, the Global Fund has made ordinary and expected what was unthinkable in dozens of nations ten years ago. On the other hand, it points out that CCMs range from highly functional to completely ineffective; and that in many countries, the real decision-making over what goes into a Global Fund proposal is restricted to governments and insiders on the CCM.

WHAT WE LIKE CONCERNING THE PANEL’S RECOMMENDATIONS

We like the Panel’s recommendations to increase the number and responsibility of fund portfolio managers, to assign the most-experienced of these to work on the most difficult and risky countries, and to reinforce the “country team approach” (although more work is needed on this last point, because the country team approach appears at times to have slowed down, rather than speeded up, decision-making).

Among the other recommendations that we support are that the OIG should continue its vigorous targeting of fraudulent use of grant funds, but that it should produce its reports more quickly and behave with greater sensitivity and diplomacy when conducting audits; that the OIG should primarily focus on grants from Round 6 (2007) onwards; and that the OIG, the Secretariat and the Board need to work together more effectively.

We also like the recommendation that the Global Fund should introduce a more iterative grant application process. The Panel proposed a detailed two-stage process. The concept is good (and is one that the Secretariat had been working on for some time). The details, as suggested by the Panel, require more discussion. Whatever process is implemented should not become overly bureaucratic and cumbersome.

WHAT WORRIES US CONCERNING THE PANEL’S OBSERVATIONS

Perhaps our most serious concern with the general approach of the HLP Report is the fact that different options for reform are not discussed. We would have expected to see, at least for the most important issues discussed, some options presented and explored (i.e., pros and cons for each), and then a considered view on which of these the Panel recommends.

At the outset of the HLP Report, the Panel observed, first, that austerity among the donors makes the Global Fund more vulnerable now than at any time in its history, and second, that “the halcyon days of ever-increasing budgets for global health are over.” We agree with the first observation. However, with regard to the second, the fact that donors are not currently increasing how much money they give for aid in general, or for health in particular, does not automatically rule out their increasing their pledges to the Global Fund.

The Panel developed and made extensive use of a matrix that classified every country according to “risk” and “burden.” Unfortunately, the Panel made a rather basic error in its formula for computing burden, as a result of which the HLP Report showed that Namibia is

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the country with the greatest burden in the world and that Lesotho has a lower burden than Malaysia. This error involved mistakenly assuming that as a country’s poverty level goes up, its “burden” goes down rather than up.

We question the Panel’s view that the Voluntary Pooled Procurement (VPP) process is effective. We have heard reports that the VPP is getting slower and slower; and that small countries with small orders do not get good service and have a very hard time communicating with the VPP.

We also question the Panel’s view that an insufficiently rigorous scrutiny of budgets in proposals allows for padding, easily exploited post-approval. This may have been true in the earlier years; but we suspect that now it is rarely, if ever, true.

WHAT WORRIES US CONCERNING THE PANEL’S RECOMMENDATIONS

We have concerns about several of the recommendations in the HLP Report. Below, we describe our major worries. (Note: Aidspan has also prepared a more detailed critique of the recommendations in the HLP Report, available here.)

The Panel significantly exceeded its mandate and, in the process, spread itself too thin.

Oddly, even though the HLP Report and its 19 annexes cover 154 pages, nowhere does the Report include, even in summary form, the three-page Terms of Reference (TORs) that the Fund’s Board specified. Those TORs gave the Panel a relatively constrained mandate, which was to review the Fund’s “risk management, financial and fiduciary control and oversight mechanisms.” (The TOR’s are available in Annex 1 of the Board’s decision to establish the panel.)

But the Panel went considerably further, and ended up making recommendations on everything from how the Board’s committees and their work should be completely reconstructed to how mobile phones should be used by grant implementers for data-tracking. The Panel has not made a convincing case that the Global Fund needs to redesign such a broad range of its procedures at the same time as it is fixing problems related to financial controls and oversight. Many of the Fund’s grant implementers are getting tired of the constant changes in Global Fund procedures.

As a result of exceeding its mandate, the Panel did not do as good a job as it could have in the core areas specified in its TORs, and it made many recommendations in areas where it appeared to lack expertise. In some areas, it failed to show the evidence on which it based its recommendations.

As a further consequence, some of the Panel’s recommendations do not appear to have been fully thought through. For example, the Panel suggested that fund portfolio managers should spend 40% to 50% of their time visiting the countries for which they are responsible. This suggestion appears to have been a last-minute effort by the Panel to come up with a compromise between those who supported the idea of the Global Fund developing a staffing presence at the regional or country level and those who opposed it.

Another example is the recommendation that when national drug procurement, storage and delivery systems do not meet “international standards,” the handling of these tasks should always be outsourced to non-national – which almost inevitably means, Western – institutions. This recommendation was much criticised because it would result in establishing parallel systems instead of building the capacity of national systems. (To its credit, the Panel backtracked on this, but only after the report was released.)

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Yet another example of something not fully thought through is the recommendation to place a small team of full-time professional employees in the Chair’s home-country office, reporting to him or her and serving as the main channel of communication between the Board and the Fund Secretariat. This recommendation means that the professionals in question would change countries every two years with the change of the Board Chair. There would also be a risk of tensions between those professionals and senior staff in the Secretariat.

The Panel was not clear about whether and how risk should influence grant amounts.

The recommendations in the HLP Report are very unclear regarding whether and how risk should be a factor in determining how much funding each country should receive. The Report said that “based on [risk]..., the Global Fund’s Board [should] establish an allocation of funding according to categories of programs and/or countries and/or interventions.” This is very vague. If it means that high-risk countries not only should be subjected to higher levels of oversight, but also should be eligible for less money than other countries, we have a problem with that – particularly in cases where high risk countries also suffer from a high disease burden and have limited other sources of funding, and thus could achieve a high impact with Global Fund grants.

Some of the Panel’s recommendations could result in the Fund becoming more of a traditional, top-down donor agency.

The Global Fund was set up to promote “country ownership,” in which countries use partnership-based CCMs to determine priorities and to oversee grant implementation. The Fund has always chosen not to base its staff in the countries where the grants are being implemented, in part because of a fear that this would increase costs and negatively impact the spirit of country ownership.

By contrast, traditional donors operate in a relatively directive and top-down manner – deciding how much money they will spend in which countries on what issues, and then, within each country, how the money should be administered and by whom.

The Panel’s primary focus was on how to reduce the risk that grant funds will be mis-used. As a result, and perhaps inevitably, the Panel proposed that the Global Fund become much more assertive. There are certainly times when this could be appropriate in the context of oversight and of enforcing performance-based funding. But the Panel also proposed a more assertive role in other contexts. For instance, the Panel recommended that, for each group of countries, the Global Fund specify a maximum amount of funding even before proposals have been submitted by those countries. (This is essentially how the World Bank divides up allocations from its International Development Association funds.) The Panel also suggested that the Fund set budget ceilings for individual components of individual grants after concept papers have been submitted and before proposals are finalised. These actions would move the Global Fund away from having grants that are country-led and demand-driven, and could cause the Fund to become more of a traditional, top-down donor agency.

Some of the Panel’s recommendations could result in the Fund becoming less effective.

We are concerned that the Global Fund’s new-found obsession with risk, and some of the Panel’s consequent recommendations, will lead to Global Fund procedures becoming too rigid, and to Secretariat staff becoming micro-managers as they nervously attempt to minimise and even to eliminate risk. This process has already started. For instance, before PRs or their SRs can carry out any Global Fund-financed training sessions, they now have to create, and obtain approval from the Secretariat for, training plans that are sometimes hundreds of pages long. This makes a mockery of the statement in the Fund’s Framework Document that the Fund should use a “simplified, rapid, innovative process with efficient and effective disbursement mechanisms, minimizing transaction costs.”

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This year, PR and SR staff have often told us that they find the Global Fund more difficult to deal with than most other funding agencies. They complained that they find themselves devoting more attention to compliance than to implementation and impact. We worry that this will lead to increasing numbers of frustrated PRs, SRs and partner agencies, and their employees, withdrawing from, or declining to offer themselves for, Global Fund-related work. All this will reduce the Global Fund’s effectiveness.

WHAT WE THINK IS MISSING

Even the most careful reader of the HLP Report is unable to conclude how serious or widespread fraud is among Global Fund grant implementers, or whether the Global Fund has a greater or lesser problem in this regard than do other major donors.

The whole sequence of events that ended with publication of the HLP Report started with an Associated Press story on 23 January 2011 that, despite being based only on OIG findings in a small number of countries, had the dramatic and unproven headline “Fraud Plagues Global Health Fund.” As a result, when the Panel was established, we assumed that it would be asked to estimate the extent to which fraud does indeed exist among implementers of Global Fund grants.

In fact, the TORs asked for something less ambitious, which was for the Panel to “assess the risk of fraud and misappropriation in the current Global Fund portfolio.” But in our opinion, the Panel did not achieve even this. The Panel limited itself to specifying some factors that might suggest that a country is at risk of fraud, and based on those factors, to ranking countries in a range from “lower risk” to “extreme risk.”

Nor did the Panel assess the extent to which the OIG’s findings represent, on the one hand, intentional fraud, and on the other hand, weak record-keeping which was in violation of grant requirements but from which nobody personally profited.

More significantly, the Panel did not attempt to assess whether the Global Fund suffers any more from fraud on the part of its grant implementers than do other major funders. As a result of this omission, people who have only read the press reports might conclude that, among donors, the Global Fund is especially negligent when it comes to detecting or responding to fraud. Yet, the reality is quite different. In many ways, the Global Fund is an exemplar of transparency and of determination to tackle fraud head-on. The donor countries know this, but they may still be tempted to use the HLP Report as an excuse to cut back on their pledges to the Global Fund.

The Panel paid scant attention to the whole aid effectiveness agenda and the Global Fund’s role within that.

The Global Fund is fully committed to the principles of the Paris Declaration (as are all donor countries and almost all developing countries), and is a signatory to the International Health Partnership initiative. Both of these initiatives are designed to maximise aid effectiveness. The agreed principles include that donors should harmonise among themselves their policies and practices, and that donors should align their programmes with those of implementing countries. Yet there was nothing about aid effectiveness, harmonisation or alignment in the HLP Report.

Many of the problems that implementing countries experience regarding data quality, procurement systems, and financial management and oversight can only be reasonably addressed through a systemic approach involving multiple players from inside and outside the country; they cannot be addressed by each donor insisting on the country putting in place systems just to satisfy that particular donor. The lack of reference to the problem of fragmented (often donor-driven) systems is a serious omission by the Panel, and the Panel’s go-it-alone prescriptions will not help the Fund maximise lives saved.

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CONCLUSION

The HLP Report was produced at a time when the Board and a rather shell-shocked Secretariat were desperate for a plan that everyone could coalesce around. Furthermore, the Board was under great pressure to act, because some donors were delaying the release of their 2011 contributions until they saw the Report and how the Global Fund reacted to it.

After a few days’ thought and one day’s discussion on 26 September, the Board agreed that almost every recommendation in the HLP Report represented an appropriate path forward. The simplistic nature of that decision was unfortunate, although it is understandable under the circumstances.

The Board also resolved that by 31 October, the Chair and Vice-Chair, the Secretariat, and the OIG must agree on and send to the Board a draft “Consolidated Transformation Plan” (CTP), with a final draft to follow by 10 November. And the Board said that the CTP must reflect not only that large portion of the HLP Report's recommendations that the Board had just endorsed, but also the Plan for Comprehensive Reform (which the Board endorsed in May 2011) and the results of some other reform initiatives.

This is an extremely aggressive timeline. Furthermore, the task will be technically daunting, because these various initiatives look at the issues through very different lenses and make recommendations that at times conflict with each other.

For all these reasons, blind adherence to the HLP Report’s recommendations would be a mistake. Instead, the CTP should implicitly propose accepting some of the recommendations in these various documents, modifying or fleshing out others, and rejecting or replacing yet others. During the five weeks until the CTP is voted on at the 21-22 November Board meeting, the Global Fund will sorely need firm and insightful leadership from the Chair and the Executive Director.

2011 has not been a happy year for the Global Fund. Nevertheless, the Global Fund should be grateful to the High Level Panel for delivering a report that provided a wake-up call that could not be ignored.

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This Commentary was jointly written by Aidspan’s Bernard Rivers, David McCoy, and David Garmaise. Comments should be addressed to bernard.rivers@aidspan.org. The Commentary is based, in part, on a detailed critique of the Panel’s recommendations, available here.

The High Level Panel’s report, “Turning the Page from Emergency to Sustainability,” was described in GFO Issue 158. The Global Fund Board met on 26 September 2011 to decide how to proceed with the report’s recommendations (see GFO Issue 159).

The Panel was led by Festus Mogae, former minister of finance and then head of state of Botswana, and Michael Leavitt, former U.S. Secretary of Health and Human Services. The other five members were two from developing countries (a former senior official in the African Development Bank, and a former senior official with Citibank and Banco Santander Brasil), and three from Western countries (the Chair of the Panel of External Auditors of the U.N., the Chair of Interpol’s International Group of Experts on Corruption, and the Inspector General of Finance in a French government ministry). The Panel’s support team has eight members from the U.S., one from Canada and one from the U.K.

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From GFO Issue 147: 24 May 2011

COMMENTARY: Auditing the Auditor

by Bernard Rivers

At the Global Fund Board meeting on May 11-12 there were animated conversations in the hallways regarding the recent Associated Press stories on corruption by some Global Fund grant implementers, and regarding some outspoken complaints about the Secretariat that the Fund’s Office of the Inspector General had just made in a progress report to the Board.

Underlying these conversations were two core questions: How should the Office of the Inspector General (OIG) fulfil its role in identifying financial management problems and potential corruption by grant implementers? And is the Fund’s commitment to almost total transparency always appropriate?

At the meeting, the Board reiterated that it has zero tolerance for corruption and that it is fully committed to transparency. But, unfortunately, the Board was unable to fully resolve the more complex aspects of these issues, and chose instead to wait for the new Chair and Vice Chair and the newly-established High Level Review Panel (both reported on in GFO #146) to recommend a path forward.

If the Fund is to avoid further adverse media coverage and further consequent donor nervousness, it must urgently implement a more effective and fine-tuned approach to the issues of corruption and transparency.

There are two main problem areas where action is required. The first relates to the OIG’s working methods; the second relates to tensions between the OIG and the Secretariat.

Problem area 1: The OIG’s approach to conducting audits and investigations is overly zealous

The OIG works ferociously hard and has done a terrific job ferreting out the corruption that inevitably exists when an organisation disburses billions of dollars of grant money. This energy is admirable, and GFO has published over 40 articles describing the work.

But as I have written before, the OIG tends to see things in black and white, and seems unable to recognise shades of grey. For instance, OIG audit reports often contain an almost random mix of negative findings, ranging from extremely serious to relatively minor, followed by a statement along the lines of “the OIG is therefore unable to provide assurance that the grant programs managed by this PR were operating fully effectively at the time of the audit.”

Of course the OIG can’t provide such assurances. First, no organisation operates “fully effectively.” But second, the health systems of poor countries all suffer from varying weaknesses that make it very difficult for them to institute gold plated systems of financial control. The OIG’s role, in my view, is not to identify all problems; it is to identify the serious ones, particularly those that involve fraud.

One of the results of the OIG’s overzealousness is that it gets bogged down in detail and, sometimes, in post-audit disagreements with the parties who have been audited. As a result, the OIG appears to be falling behind its scheduled workplan. In the October 2010 version of its twice-yearly progress report, the OIG stated that it was “on track to deliver” all of the 20 country audits planned for 2010. But of these 20, only four (Haiti, Cambodia, Cameroon and Zambia) had their audit reports published during 2010. One (Rwanda) had its audit report published during 2011; ten (Djibouti, Kenya, Kyrgyzstan, Malawi, Mali, Nigeria, PSI

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Madagascar, Sri Lanka, Swaziland and Uzbekistan) completed their field work but have not yet had their audit reports published, perhaps because post-audit investigations are taking place; and five (Dominican Republic, Laos, PSI South Sudan, PSI Togo and PSI Headquarters) completed their field work but have not yet had their audit reports published even though there are no known post-audit investigations taking place. (PSI – Populations Services International – is a PR working in several countries.)

Furthermore, four promised 2010 business process reviews have not yet been delivered. (These reviews look at Global Fund-wide programmes and processes such as Voluntary Pooled Procurement.) Compounding the problem, the OIG Investigations Unit had 134 cases in its inventory as of late April, with new referrals coming in at the rate of one every two business days.

As a result of its pursuit of problems both large and small, the OIG has made an average of nearly 70 recommendations per audit report. Dealing with these recommendations has created a substantial burden for the Secretariat and implementers.

A further problem is that the OIG employs or sub-contracts auditors who sometimes have an inappropriately aggressive or arrogant manner. Certainly the OIG cannot and should not be “Mr. Nice Guy” at all times. But the OIG would be more effective if it was smarter in how it handled people. The people who have complained to me about this have so far not been willing to go on the record, usually because their audits have not yet been completed and they don’t want to risk making things any worse. But an employee of one PR, regarding which no fraud was identified by the OIG, said with a bitter laugh, “I sometimes wish we had stolen some money, because then at least the pain would have been justified!”

In the absence of more substantive quotes, let me describe one small firsthand example. Last year I offered to introduce the OIG to a witness of possible fraud. When an OIG investigator phoned me to discuss the matter, I started to explain the witness’s role and to suggest how best to persuade the witness to be forthcoming. The investigator interrupted with a brusque “I know how to do my job Mr. Rivers, I can assure you of that.” I brought the conversation to a rapid close without sharing with the investigator my potentially useful information.

The problem of auditors causing offence may sometimes be the result of the fact that the OIG frequently uses sub-contractors. The OIG in Country A (Switzerland), conducting an audit in Country B, sometimes sub-contracts much of the work to an audit firm in Country C, which sub-sub-contracts to a smaller audit firm in Country D. The sub-contracted staff are sometimes perceived by those being audited as being poorly briefed and trained; and the OIG appears to provide limited oversight concerning how they carry out their work.

In addition, the OIG is at times worryingly lax about respecting the rights of the organisations it audits. For instance, at the conclusion of the OIG’s field work for each in-country audit, the OIG holds “exit meetings” not only with the principal recipient (PR) that was being audited, but also with CCM members and, sometimes, with donors. At these meetings the OIG discusses its provisional findings, but provides nothing in writing. The PR then has to wait a considerable time, sometimes over a year, to see a draft report. This long delay places the PR in an intolerable position – allegations about the PR have been made by the OIG in front of others, possibly including the PR’s other donors, and the PR’s reputation has potentially been harmed; yet all this has happened before the PR has seen or had a chance to respond to anything in writing.

A more appropriate process, more in line with standard audit practice, would be as follows: (a) The OIG meets privately with the PR and verbally presents the OIG’s provisional audit findings. (b) Based on the PR’s response and its own further research, the OIG determines whether any of the provisional findings need to be modified. (c) The OIG submits to the PR a

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confidential draft version of its forthcoming audit report. (d) The PR is given a reasonable period of time to submit a written response to the OIG. (e) The OIG makes any changes it deems necessary. (f) If the PR has protested certain findings but the OIG has decided not to modify them, the OIG writes to the PR stating this and explaining why. (g) The OIG then returns to the country to conduct, for the first time, a briefing for the CCM, thereby giving the CCM a chance to prepare for public release of the final audit report.

Another way in which the rights of those being audited have not been adequately respected is that even now, several years after the establishment of the OIG, the Fund has not put in place a process whereby those being audited can lodge with an independent ombudsman or panel their protests or appeals regarding the methods or draft findings of the OIG.

Problem area 2. There are serious tensions between the OIG and the Secretariat

Over the past year and a half, relations between the OIG and the Secretariat have been like a bad marriage, with various rows, some “kiss and make up” sessions, and a mutual attempt to hide the problems from the neighbours except when things get really bad.

The situation was sufficiently serious earlier this year that the Board Chair and Vice-Chair had to organise a series of in-person meetings and teleconferences involving the Secretariat’s Executive Director and the OIG’s Inspector General. I understand that by the end of a session in Paris in mid-April, working relations appeared to have improved notably. But then, less than two weeks later, the Inspector General sent the Board an OIG progress report which included complaints about the Secretariat whose tone angered every one of the many Board and Secretariat leaders with whom I talked. Indeed, the Executive Director informed the Board that he found this part of the OIG report to be “inflammatory and irresponsible.”

My experience with the OIG investigator with whom I talked last year, and the actions of the Inspector General with respect to the latest OIG progress report, illustrate that the OIG, at all levels, seems to have difficulty anticipating how its tone and, sometimes, its expressions of opinion may come across to others. As a result, the OIG has made too many enemies and lost too many friends, including on the Board to which it reports.

Another cause of the tensions is that the OIG sometimes objects to certain forms of PR expenditure that have previously been approved by the Secretariat. Sometimes the OIG not only objects to the expenditure, but also says that the money in question should be refunded. This puts both the PR and the Secretariat in an impossible position, particularly because there is an ambiguity regarding whether the OIG’s word on everything is final. If the OIG determines that a PR should not have spent Global Fund money on a specific activity, but the Secretariat believes that the expenditure did not involve corruption and was contractually acceptable, even if unwise, the Secretariat should not be required to force the PR to return the money.

Also contributing to the tensions is the fact that some of the OIG’s recommendations are completely outside the OIG’s area of expertise. For instance, in one country, the OIG made a “high priority” recommendation that a sub-recipient “should establish a system and procedures to continuously monitor the insecticidal effectiveness of bed-nets available in the country.”

A final source of the tension relates to confidentiality. The Fund’s policies make it clear that staff from the Secretariat and the OIG are not permitted to publicly disclose information regarding the OIG’s work beyond what the Board has received and published. Yet an Associated Press (AP) story on 13 May 2011 said that the AP had “obtained” an “internal chart” showing that across 12 countries, “investigations [by the OIG] reviewed almost $576 million in spending.” This internal chart, as reported, appears to contain data that was known

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only to the OIG and the Secretariat. Both the OIG and the Secretariat have denied to GFO that they provided the AP with such a document, or with any other non-public document. The Secretariat also told GFO that it has never seen a document mentioning this amount (i.e., $576 million).

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Transparency has always been a core principle of the Global Fund. Rightly so. But in the specific context of the OIG, to call for transparency regarding everything the OIG writes is simplistic and possibly dangerous.

At its recent meeting, the Board approved a nice-sounding Global Fund Commitment to Transparency (see Decision Point 24). But when, as part of that, the Board reaffirmed “the Global Fund’s commitment to a fully independent and transparent Office of the Inspector General,” it did not specify what this means in practice.

Certainly, everybody agrees that the Fund should be “transparent” about the OIG’s finalised audit and investigation reports (meaning that the Fund should publish these reports). But should the Fund also be transparent about progress reports that contain OIG opinions about how the OIG has been handled by the Secretariat or Board? (Example of such an opinion: The OIG has been “hampered” by the Secretariat in its ability to report fully and completely to the Board.) Should the Fund be transparent about progress reports that contain interim OIG findings that are not yet backed up by publishable evidence? (Example of an interim finding: The OIG is “addressing allegations” about “pervasive” fraud involving fabricated expense claims in Country X.) And should the Fund be transparent about progress reports that contain sweeping but non-specific claims by the OIG, with no backup evidence? (Example of such a claim: The OIG is investigating 17 cases of drug theft in 13 [un-named] countries in Africa; a number of the thefts have been well in excess of $1 million in value.) All of these examples are from OIG progress reports that have been published because of the Fund’s transparency rules.

Even with respect to its final reports, the OIG should give the Secretariat and Board an opportunity to comment, before publication, on the report’s wording or tone (but not the right to insist on changes), and should give the Secretariat the right to add a cover note providing context. Such actions could save a lot of difficulty. For instance, the first AP article on the Global Fund on 23 January 2011 (discussed in GFO here) achieved an enormous impact partly because of its dramatic headline: “Fraud Plagues the Global Fund.” That headline was seriously misleading. The total amount of fraud (as against lesser problems) that the OIG identified in the 15 countries about which it had reported to the Board at that time was $11 million (or 0.28%) of the nearly $4 billion that the Fund had disbursed to those countries. The $11 million was 1.9% of the $576 million in expenditure in those countries for which (according to the AP) the OIG has examined all the paperwork. The AP has twice had to issue corrections about its Global Fund stories. Such errors, and the misleading headline to the first story, might have been less likely if the Secretariat had been permitted to include a cover note providing context.

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The Global Fund Board has had the courage to put in place two things that almost no other large funding agency has, namely a vigorous OIG and a strong transparency policy. For this, it deserves congratulations. But the Board has to accept that these two things can quickly turn into an explosive mix if one adds a few more ingredients – such as a Board that is unable or unwilling to provide effective oversight of the OIG; interested media; and, in some countries, political forces that dislike foreign aid and multilateral agencies. Even though this explosive mix is, in part, the perverse result of the Fund’s own courageous policies, it may lead to reductions in support from the Fund’s more timid donors.

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Equally important, the currently over-zealous approach to audit runs the risk of disillusioning thousands of honest and committed implementers and, thereby, of harming vital programmes. While nobody doubts the need to optimise financial management systems and to take a zero tolerance approach to corruption, the results can be counter-productive if this is not handled sensitively and intelligently.

At the recent Board meeting, several speakers made the important point that even though the Fund rightly has zero tolerance for corruption, this does not mean that the Fund should have zero tolerance for risk. As one of them put it, zero risk is only possible if you have zero disbursements which, in turn, means you have zero results.

The Fund cannot eliminate the risk that money will be mis-used; it can merely reduce it. The key question is: how far can the Fund go in trying to reduce this risk before it unduly increases costs or reduces impact? Two examples of perhaps going too far are as follows. First, after the OIG found that some Global Fund money had been used in Mali for “training events” that never took place, the Fund told PRs across the entire portfolio of grants that all training events needed to be pre-approved by the Fund. As a result, the Fund is now sitting on multiple un-approved training plans. Second, the OIG objected to a $200 item being charged by one PR to a Global Fund grant because of the possibility that the item in question had been used not only in connection with a project financed by the Fund but also in connection with a non-Fund project conducted by the same implementer.

In brief: The Fund needs to assess and manage the trade-off between risk and impact. And the OIG should focus primarily on rooting out corruption, not on criticising marginally imperfect management and accounting practices.

The last few months have not been easy ones for the Global Fund. With a new Chair and Vice-Chair in place, this is a good time to take a cool hard look at the issues.

Author’s note: I encourage GFO readers, particularly CCM members, grant implementers, and other Global Fund stakeholders, to email me (bernard.rivers@aidspan.org) by 31 May with a short “letter to the editor” responding to this article. We will publish selected letters, edited for length as necessary, in early June. If you don’t want your name or country to be revealed in the published letter, please make that clear.

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From GFO Issue 139: 27 January 2011

COMMENTARY: Corruption by Global Fund Grant Implementers

by Bernard Rivers

On January 23, the Associated Press (AP) ran a long story about the Global Fund entitled "Fraud Plagues Global Health Fund." The story was picked up by nearly 200 media outlets in the U.S. and 50 in other parts of the world. (See, for instance, here.) This led to Germany putting on hold its 2011 contribution to the Fund pending a full investigation.

The story stated that in Mali, the Fund's Office of the Inspector General (OIG) found that $4 million in funding was misappropriated. Half of Mali's TB and malaria grant money went to supposed "training events," for which signatures were forged on receipts for per diem payments and travel expense claims. Mali has arrested 15 people suspected of committing fraud, and its health minister resigned without explanation two days before the audit was

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made public. (Note: GFO, in one of its 30 articles on the OIG over the past year, reported on the Mali developments in December.)

The AP story added that in Mauritania, the OIG found "pervasive fraud," with $4.1 million – 67 percent of an HIV grant – lost to faked documents and other fraud. And in Djibouti, the OIG found that about 30 percent of grant funding they examined was lost, unaccounted for or misused. Much of this money went to buy motor vehicles. Almost $750,000 was transferred out of one account with no explanation.

The AP story was quickly seized upon by the Fund's critics in some donor countries. For instance, Fox News ran an interview with Nile Gardiner, director of The Heritage Foundation's Margaret Thatcher Center for Freedom, in which he said, "Potentially, we could be looking at billions of dollars here in terms of missing funds. If that is the case, we are looking at the biggest financial scandal of the 21st Century.”

Hmm. Let's take a deep breath. First, the corruption is nothing like as extensive as a fast reader of the AP story would conclude. Second, the story shows that the Global Fund takes corruption seriously and tackles it forcefully – which suggests that the Fund deserves greater, not lesser, donor support. Third, the funding from the Global Fund saves 4,400 lives a day, and the Fund's expenditure on this still represents remarkable value. But fourth, there are some things that the Fund should have done long ago to better tackle corruption. Let's review these points in more detail.

When any entity gives multi-million dollar grants, there will always be corruption. The key issue is what is being done to unearth the corruption and minimise losses. The Global Fund is far better at investigating allegations of corruption and at recovering stolen monies than most or all other major aid donors. Roger Bate of the American Enterprise Institute, a conservative think tank, who has criticised the Fund on some matters, says, "All the focus on the Global Fund is a shame – [the Fund] has done far more than any other multilateral agency to be transparent and expose corruption." Bobby Shriver, founder of (Product) RED, adds, "The Fund was set up to find the bad guys early. Many other international organizations do not have the aggressive tools used by the Fund. Others find bad guys late in the game."

Another thing that distinguishes the Global Fund from other donors is its willingness to publish the details of the corruption that it has unearthed. How many donors such as Pepfar, DFID, USAID, UNDP, Gates Foundation, Norad, SIDA and the World Bank have committed to publish at their website, unedited, the findings of their Inspector General (assuming they even have one)? I'll ask them, and I'll let you know what I learn. Right now, the Fund is paying a price for its toughness and transparency.

Corruption is not unique to developing countries. Defence contractors in the U.S. are notorious for fraud that runs in the billions. Government bureaucracies in all parts of the world exhibit inefficiency, patronage, and occasional graft and corruption. Bobby Shriver asks, "Does anyone think banks [in the US and Europe] have less corruption than the Fund? Not a chance."

The information on corruption in the AP story was not new; it was obtained from OIG reports that were posted at the Global Fund website in December and earlier, and from press releases issued by the Fund.

Well before the AP story was published, the Global Fund had taken steps to recover the mis-used funds that were the subject of the AP story. In addition, the Global Fund was working with the relevant authorities to ensure that those committing fraud are brought to justice; criminal proceedings were launched in Mali, Mauritania and Zambia; the Fund terminated one grant to Mali and suspended others; and the Fund imposed "special safeguards" on

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other grants in Djibouti, Mauritania and Mali. Furthermore, the Global Fund Secretariat is devoting additional specialist staff to monitor higher risk countries and to improve the capacity of local fund agents to detect potential fraud. 

Reacting to the AP story, one headline writer said that the Global Fund was “rife with fraud.” This emotive headline appeared in several blogs and online newsletters. In fact, the total amount of funding that the Global Fund has asked grant recipients to refund because of mis-use is $39 million, of which $5 m. has been received thus far. That $39 m. is 0.3% of the $13 billion that the Fund has disbursed in all of its grants worldwide.

But of course, the real percentage must be worse than 0.3%, because the OIG has thus far only audited 25 of the 145 countries to which the Fund gives grants, and in some of those countries it has not audited all grants. (Preliminary work has also been conducted in a further eight countries.) The 25 audited countries have received grant disbursements of $4.8 billion. The $39 million that the fund says has been mis-used in these countries represents 0.8% of the funding they have received. In reviewing that figure, we have to bear in mind that not all the OIG's audits have been completed; that the OIG may have missed some things; and that the OIG has focussed primarily on countries that are "high risk" or regarding which it has re-ceived input from whistle-blowers.

Based on all this, my guess is that the total percentage of money that has been mis-used across the entire Global Fund portfolio, including what the OIG has missed, is something ap-proaching 1%. If I'm correct, that's still a worrying figure. But it also means that the great ma-jority of grants don't involve corruption and are funding programmes that save huge numbers of lives. (For some insightful discussions on all this, see here, here and here.)

Another factor to bear in mind is that only part of the $39 million claimed by the Fund was used fraudulently. Another part relates to legitimate expenditure for which the principal recipients (PRs) have been unable to provide receipts. And a final part relates to documented expenditure on programme activities that were not in the approved budget. These latter two errors by the PRs or their sub-recipients caused the PRs to be in breach of contract, so the Fund is perfectly entitled to ask for the money back.

Still, while there are reasons to think the problems at the Fund are not nearly as serious as painted, there is ample room for improvement.

For instance, although I fully support a tough OIG, there is a major imbalance of power between the OIG and the PRs it investigates. For some of the smaller PRs, the OIG's published findings could ruin the PR's reputation, and the Fund's consequent demands for restitution from the PR could render the PR insolvent. What if, hypothetically speaking, the OIG's conclusions regarding a particular PR were in error? Because of the Fund's "privileges and immunities" in Switzerland and its lack of legal presence elsewhere, such a development could make it impossible for an unfairly harmed PR to obtain adequate damages through a lawsuit.

Moreover, corruption is not the only factor that can reduce the Fund's impact. Sometimes, incompetence or laziness come into play. In what to me is a shocking instance of this, there was so little activity by grant implementers in one particular country that two grants to that country went through the entire three-year Phase 2 without the Fund being prepared to send a single disbursement. How many lives were saved during that period? None. And what did the Fund do to highlight this problem on the website pages for the relevant country? Nothing. And for that matter, what has the Fund done to highlight, on the web pages for Mauritania, Mali and Djibouti, the OIG's findings regarding corruption? Again, nothing.

And what about the Local Fund Agents (LFAs), those in-country employees of companies like KPMG and PWC who are supposed to be the "eyes and ears" of the Global Fund? Many

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of the cases investigated by the OIG had been missed by the LFAs, or were found really late. The Fund recently started training LFAs to look for corruption. It should have been doing so since Day 1.

What else could the Global Fund do? First, the Secretariat could thoroughly analyse what happened in the countries where corruption has been detected; it could work out how these problems could have been detected earlier, and how they could have been prevented in the first place; and it could apply, across its entire grant portfolio, the lessons learned.

Second, the Fund's Executive Director could send an email to every CCM member, every PR and every sub-recipient, explaining clearly the actions that the Fund will take if corruption or inadequate documentation is identified. And the Fund could create a DVD of the ED making the same statement in English, French and Russian (he is fluent in all three), and send it to each CCM with a request that it be played at the next CCM meeting.

Third, the Fund could develop a way that PRs can "self-report" past violations of Global Fund contractual requirements (such as the requirement that all expenditures are fully documented), and it could permit these PRs to request reduced penalties if they report these cases of being "fools but not thieves" prior to the OIG discovering them.

Finally, the Fund's board could confront head-on, and resolve, the following problems:

Most CCMs, which are supposed to exercise grant oversight, have multiple members who have conflicts of interest, because they are, or want to become, grant implementers.

Tightening grant oversight using external parties will conflict with the Fund's desire to maximise "country ownership."

If the Fund avoids all risk, it can't get its job done.

The Global Fund says that it has a “zero tolerance” policy with respect to corruption. That's the right approach to take. Every stolen Global Fund dollar is a dollar that can't be spent on saving lives.

+ + + + + + + + + + + + + + + + + + +

From GFO Issue 136: 17 December 2010

COMMENTARY: Report from Sofia – Good News, Bad News

by Bernard Rivers

There was much discussion [at the just-completed Global Fund Board meeting] about the Office of the Inspector General (OIG), which is led by John Parsons. Parsons’ strength is that he is fiercely determined to uncover corruption. His weakness is that he appears to know only two colours, black and white.

Parsons has published numerous reports in which he has exposed corruption in the use of Global Fund money. Good for him. The Global Fund is unusual not in that there is some corruption among recipients of its grants; it is unusual in that it seeks to identify such corruption, and to be open about its findings.

Unfortunately, Parsons comes down almost equally hard on cases of undocumented expenditure. If I pretend to incur an expense and I fraudulently claim "reimbursement,"

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there's no question that I'm a thief. Whereas if I genuinely do incur that expense but I fail to obtain documentary proof, I'm not a thief, though I am a fool. Parsons makes insufficient distinction between the thief and the fool. Furthermore, he demands that PRs reimburse such money to the Fund even when the fool was not the principal recipient (PR), but one of its sub-recipients (SRs). Maybe, legally, that's valid. But it puts modest-sized PRs in a very difficult position.

Parsons and his staff have caused great distress among employees of PRs and SRs, who have told me that they were treated like criminals long before the OIG had any idea whether they had done anything wrong. My fear is that as the OIG's working methods, and the consequences of its zealous behaviour, become more widely known, some organisations will decide that it's not worth serving as PR or SR.

Parsons said at one informational session just before the Board meeting started that there is a complaints procedure whereby PRs who feel they have been badly treated by the OIG can lodge a protest that will be reviewed not just by the Inspector General, but also by the chair and vice-chair of the Board. But when asked whether that process has been posted at the Fund's website or has been otherwise made known to those who might need to know about it, he acknowledged that the answer was “no.”

<Subsequent non-OIG-related text removed.>

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From GFO Issue 127: 24 June 2010

COMMENTARY: Is the Global Fund Living Up to Its Principles?

by Bernard Rivers

Ten months ago, the Global Fund put on hold about $95 million in potential disbursements under four grants to the Zambia Ministry of Health, because of fraud within the ministry that was first reported by a whistleblower. Seven current or former ministry employees were charged by the Zambian government in relation to the fraudulent appropriation of about $350,000 from one of the grants. The funding is still on hold except for payments for life-saving drugs, which are now bypassing the ministry and being sent direct to procurement agents or suppliers.

The Fund later decided that the role of principal recipient (PR) for these grants would be taken away from the Ministry of Health and handed over to UNDP, and the ministry was asked to return $8 million in unspent funds. Grants with non-governmental PRs were not affected.

The Global Fund Board was informed of these developments. But the public was told nothing; no press release was issued, and no information was placed on the Zambia pages of the Fund's website.

Recently, an Aidspan colleague of mine came across a single sentence buried deep in a report by the Fund's Inspector General that revealed the freezing of disbursements to the ministry. We reported the news in GFO on June 14. (See Issue 126, at www.aidspan.org/gfo.) We didn't specify when the action took place, because we didn't then have that information (though we could see that it was some time during 2009, which we should have mentioned).

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The GFO story was picked up (and some incorrect information added) by Reuters. Within three days of the GFO story, there were 14,000 news stories and related articles about this on the Internet, from New Zealand to Saudi Arabia, and the Global Fund had to issue a press release providing additional information.

Why was the Global Fund silent on this matter for nearly a year?

When I put this to the Fund, the response was, "There was no suspension of the grants to the Ministry of Health in Zambia. There was only a delay in the disbursements." Thus, according to the Fund, there was no cause for a press release. But the "delay" in disbursements has thus far lasted nearly a year, and the Ministry of Health has been removed as a PR. The world's news media seem to have found that pretty newsworthy.

I've been a close observer of the Global Fund since it started in 2002. And the Fund's handling of the Zambia case provides further confirmation of a suspicion that has long been forming in my mind, which is that the Fund is very reluctant to report, via press release or its website, any news that might worry a donor or that might embarrass the government of a country that receives Global Fund grants.

But the issue is bigger than that. The Fund is not only reluctant to report on its few "tough actions"; it has been reluctant, particularly during the past three years, to take those tough actions in the first place.

In my view, the Global Fund can only claim that it is truly transparent if it gives easy access to both the good news and the bad. And the Fund can only claim it is truly using performance-based funding if it is willing to terminate a grant or to switch to a new PR in cases where the PR persistently and significantly fails to deliver on its promises, or where the PR reveals clear corruption.

Transparency

In many ways, the Global Fund is remarkable in its transparency. Impressive amounts of information are publicly available regarding Board decisions, grant contracts, disbursement data, etc. It would be wonderful if other funding agencies were this open. But the Fund's transparency has some lamentable and persistent gaps.

The obvious place where the Fund should reveal cases where it has suspended a grant or issued a "No Go" or some similar decision is on the Fund's web pages that deal with the grant and country in question. But this almost never happens. In Table 1 below, I list all cases where the Fund has taken such actions. Compiling this table took a substantial amount of research, and it would not have been possible without access to non-public communications from the Global Fund Secretariat to Board members and their delegations. With the exception of the three Myanmar grants, none of the information under "Action taken" in the table is revealed at the relevant grant and country web pages. A reader of those web pages would conclude that everything is fine, and always has been, with each of these grants.

When I asked the Global Fund why its web pages for individual countries and grants don't reveal these bits of bad news, a spokesman agreed that it would be a "good idea" to show suspensions. But he added that No Go grants "will be shown solely as closed grants," and that this could take some time to show up because a grant is not formally closed until all grant activities have ended. But that's missing the point. The great majority of closed grants are ones that simply came to the end of their natural lives.

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Performance-based funding

The Fund's website explains that performance-based funding lies at the heart of the Global Fund's operating model; that in order to raise additional funding from donors, the Fund must prove that the original funding led to proven results against performance targets that had originally been proposed by the country receiving the grant; and that when there are non-performing grants, the money from those grants is re-assigned to other grants where results can be achieved. (See www.theglobalfund.org/en/performancebasedfunding).

It's an admirable "tough love" model. But in my view, it has not been adequately implemented during the past three years.

Between mid-2004 and mid-2007, the Global Fund considered, by my calculation, 264 applications from Country Coordinating Mechanisms (CCMs) for "Phase 2 renewal" (that is, applications to have funding extended from the first two years of the grant into years 3 through 5). The Fund approved 254 of these applications. But for the other 10 (3.6%), it denied the application by issuing what it calls a "No Go" decision, which meant that the grant was being brought to an end three years earlier than originally anticipated.

I'm not sure that the Fund was being sufficiently tough by taking such action in only 3.6% of cases. But it was a good start. (The Minister of Health for one country whose grant received a "No Go" decision told me long afterwards that although he had been upset at the time, he had come to realise that it was the best thing that could have happened. The decision led to the CCM being reformed and to new PRs being chosen, and things are now going much better.)

But when we examine what has happened between mid-2007 and now, we see a very different picture. During this period, my calculations show that the Fund has received 215 Phase 2 renewal applications – and it has approved every one of them. Not a single No Go decision has been issued. (When I asked whether this reflects a change of policy, the Fund said that it does not.)

Under performance-based funding, the grants that are the most obvious candidates for a "No Go" decision are the ones that have previously received an "unacceptable" rating from the Global Fund. (The Fund issues a rating for each grant once per disbursement – which means, on average, once every six to nine months. The ratings range from A1 – "exceeded expectations" – to C – "unacceptable.")

Of the CCM applications for Phase 2 renewal that were received between mid-2004 and mid-2007, four were for grants that had at some previous point received an "unacceptable" rating. The Fund did not approve any of them.

Of the CCM applications for Phase 2 renewal that were received between mid-2007 and now, seven were for grants that had at some previous point received an "unacceptable" rating. All seven were approved.

It may well be that some of these "formerly C-rated grants" were doing better by the time they were reviewed for Phase 2, and deserved to be approved. But still, these numbers don't give the impression that performance-based funding is a concept that is being actively pursued by the Global Fund.

New procedures needed

The Global Fund should establish a committee whose role is to review what action to take regarding each severely underperforming grant. If no action is taken, the committee should specify why.

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Whenever a grant is issued a "C" rating, or the grant has had only "B2" or "C" ratings for twelve months, the grant should automatically be referred to the committee. (The grants that currently meet those conditions are shown in Table 2.)

The committee's decision and report on each such grant should be sent to each CCM member. A summary of the actions taken, and a link to the report, should be prominently and permanently placed on the web pages for that grant and country. And once a year, the committee should issue a report, and an accompanying press release, documenting all such actions over the past year.

The purpose of such actions would not be to be vindictive; it would be to encourage all grant implementers to do their best to ensure that their grants continue to be funded, and to show the donors that this is being done. I believe that if these actions are taken rapidly, they will increase, rather than decrease, the funding that donors commit to the Fund for the next three years at the replenishment meeting this October. Furthermore, if these actions lead to an increase in the number of grants that are closed down, money which is currently not producing results will be freed up for grants that otherwise may not be funded in Rounds 10 and 11.

When the Global Fund was established in 2002, it rapidly obtained substantial and broad-based support. This was partly because the need for its grants was obviously so great. But it was also because people looked forward to straight talk and tough logic-based decisions, in contrast – forgive me – to the UN approach of attempting not to upset anyone. Some of us are still waiting.

Table 1: GFO compilation of grants where the Global Fund has taken firm action (in date order)

Month Country Disease Round Principal recipient PR sector Action taken Reported

in GFO #Feb. 2005 Senegal Malaria 1 Ministry of Health Gov't "No Go" – GF refused to

finance years 3-5 of grant GFO #56

Aug. 2005 Myanmar

TB 2UNDP UN Grants terminated due to

political problems GFO #49HIV 3Malaria 3

Aug. 2005 Uganda

HIV 1

Ministry of Finance Gov't Grants suspended; un-suspended after 4 months GFO #49

Malaria 2TB 2HIV 3Malaria 4

Dec. 2005

South Africa HIV/TB 1 Ministry of Health Gov't "No Go" – GF refused to

finance years 3-5 of grant GFO #54

April 2006 Nigeria

HIV 1 National Action Committee on AIDS Gov't "No Go" – GF refused to

finance years 3-5 of grants GFO #57HIV 1

April 2006 Pakistan Malaria 2 NACP (MoH) Gov't "No Go" – GF refused to

finance years 3-5 of grant GFO #73

Nov. 2006 Chad

TB 2FOSAP Gov't Grants suspended for

unknown period GFO #69HIV 3

Jan. 2007 Bolivia Malaria 3 UNDP UN "No Go" – GF refused to

finance years 3-5 of grantNot reported

Jan. 2007 Uganda

Malaria 2Ministry of Finance Gov't "No Go" – GF refused to

finance years 3-5 of grants GFO #73TB 2

March 2007

Timor Leste TB 3 Ministry of Health Gov't "No Go" – GF refused to

finance years 3-5 of grantNot reported

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Month Country Disease Round Principal recipient PR sector Action taken Reported

in GFO #June 2007

Sierra Leone Malaria 4 SL Red Cross Society NGO "No Go" – GF refused to

finance years 3-5 of grantNot reported

Aug. 2009 Zambia

HIV 4

Ministry of Health Gov'tDisbursements put on hold, then grants handed over to new PR

GFO #126Malaria 4Malaria 7TB 7

Sept. 2009 Mauritania HIV 5 SENLS Gov't Grant suspended for

unknown period GFO #107

Sept. 2009 Philippines

Malaria 2

Tropical Disease Foundation

Private sector

Grants suspended, then handed over to new PR GFO #107

HIV 3HIV 5TB 5Malaria 6

May 2010 Zambia HIV 4 Ministry of Finance Gov't Funding cancelled for final

two years GFO #126

Table 2: GFO compilation of currently-active grants apparently in trouble, based on Global Fund ratings as of 17 June 2010

Country Disease Round Principal recipient PR sector Latest rating = C

Rating has been B2 or C since at least one year ago

Angola HIV 4 UNDP UN X

Cameroon Malaria 5 Ministry of Health Gov't X

Côte d'Ivoire Malaria 6 CARE NGO X

Equatorial Guinea HIV 4 UNDP UN X

Gabon Malaria 5 Ministry of Health Gov't X

Guinea Malaria 6 Ministry of Health Gov't X X

Haiti HIV 7 Fondation SOGEBANK Private sector X

Kenya Malaria 4 Ministry of Finance Gov't X

Madagascar Malaria 4 Population Services International NGO X

Malawi Malaria 7 Ministry of Health Gov't X

Mozambique HIV 2 Ministry of Health Gov't X

Mozambique TB 2 Ministry of Health Gov't X

Sri Lanka TB 6 Lanka Jatika Sarvodaya Shramadana Sangamaya NGO X

Sudan Malaria 7 UNDP UN X

Tanzania Malaria 7 Ministry of Finance Gov't X

Thailand Malaria 7 Ministry of Health Gov't X

Uganda Malaria 4 Ministry of Finance Gov't X

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Note: As of 17 June 2010, there were (according to data at www.theglobalfund.org/en/commitmentsdisbursements) 218 currently-active grants that have been rated by the Global Fund. Of these, 17 (6%) have a latest rating of "C" or have had a rating of "B2" or "C" since at least one year ago, and thus qualify to feature in the above table.

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