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Africa: Penalizing Transparency

AfricaFocus Bulletin
Feb 7, 2011 (110207)
(Reposted from sources cited below)

Editor's Note

"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. ... Another thing that distinguishes the Global Fund from other donors is its willingness to publish the details of the corruption that it has unearthed." - Global Fund Observer, January 27, 2011

Ironically, the Global Fund to Fight AIDS, Tuberculosis and Malaria now seems to be being penalized for its own vigilance, as the reports of corruption it has identified and taken action on lead to negative publicity and suspension of funds by nervous donors.

This AfricaFocus Bulletin contains two articles on these recent developments from the independent Global Fund Observer, which provides ongoing coverage and background analysis of the Global Fund, and an op-ed on the same topic by Michael Gerson in the Washington Post (February 4, 2011).

For the Global Fund Observer and other rich information sources on the Global Fund, see http://www.aidspan.org The Fund's own website is http://www.theglobalfund.org

For previous AfricaFocus Bulletins on health issues, see http://www.africafocus.org/healthexp.php

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Many thanks to those subscribers who have sent in a voluntary subscription payment this year to support AfricaFocus Bulletin. If you haven't recently sent in such a payment and are able to do so, please help AfricaFocus reach more people with reliable information on Africa. Send in a check or pay on-line by credit card. See http://www.africafocus.org/support.php for details.

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Corruption by Global Fund Grant Implementers

Bernard Rivers

GFO Issue 139 - 27 January 2011

http://www.aidspan.org

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

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.

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. 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 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 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 received 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 approaching 1%. If I'm correct, that's still a worrying figure. But it also means that the great majority of grants don't involve corruption and are funding programmes that save huge numbers of lives.

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 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.


Donor Timidity

Bernard Rivers

Global Fund Observer
Issue 140 - 3 February 2011

http://www.aidspan.org

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

"The last ten days have shown how timid some of the Global Fund's donors can be when the going gets tough. Clearly, the task of detecting fraud is more challenging than the Fund recognised until last year. But at least the Fund is tackling the issue forcefully and openly. Yet the Fund has been severely penalised, by the media and some of its donors, for doing what similar institutions have not had the courage to do."

In June 2002, Richard Feachem, who had just been appointed as the Global Fund's first Executive Director, painted an unconventional vision for the Fund in a speech he made in Washington DC. "We will take risks. We will fail. We will make mistakes. We will learn, and we will move ahead."

A few months later, Feachem told the Global Fund board that the Fund's work could be defined by three priorities: "Raise it, Spend it, Prove it." At that time, a lot of people, including me, thought that "Raise it" would be the hardest part, and "Spend it" would be the easiest part. We were wrong. Spending billions of dollars transparently, accountably, effectively, and in ways that allow grant planning and implementation to be "country led", is very hard - which is the main reason why the Fund currently has six hundred staff rather than the fifty that it originally anticipated.

The last ten days have shown not only how hard it is to be the flexible innovative institution that Feachem envisioned, but also how timid some of the Fund's donors can be when the going gets tough.

To illustrate why "Spend it" is not a simple matter, let's take a look at the Fund's grants to Mauritania, where, as reported in GFO 107, 125 and 139, there was extensive fraud lasting several years. With the wisdom of hindsight, we can see that those particular grants represented a "perfect storm" of risk factors. First, by Global Fund standards, the grants were small, so they were originally overseen in Geneva by a fund portfolio manager (FPM) who was relatively junior and who was also responsible for two other countries. Second, a different FPM was then assigned almost every year since then. Third, much of the funding was, quite legitimately, forwarded by the principal recipients (PRs) to sub-recipients (SRs) and sub-sub-recipients (SSRs), thereby putting the management of that money at one or two steps removed from the people who were assigned to oversee the PRs. Fourth, many of the approved grant activities involved transient things like training sessions conducted by the SRs and SSRs, which made it relatively easy for them to invoice the PRs, with fabricated backup documentation, for fictitious events that never took place - which is what happened, to an astonishing degree. (For some examples of fraudulent documentation, see "Fraud and Abuse in Global Fund grants" here.) Fifth, the grants focussed almost entirely on the supposed delivery of services, and did not devote any meaningful amounts of money to strengthening managerial skills within the PRs. (If they had, the corruption might have been avoided, or detected at an early stage.) Finally, the Fund did not spell out clearly how the responsibility for detecting possible fraud by SRs and SSRs was supposed to be divided between the PRs, the FPM, and the local fund agent (LFA), not to mention the CCM.

Of course, the Global Fund spotlight is now shining hard on Mauritania, where the Fund has suspended one grant and closed two others at the end of Phase 1, where people have been arrested for corruption, and where the government has been required to return money to the Fund.

Clearly, the task of detecting fraud is more challenging, and the cost of doing so is greater, than the Fund recognised until last year. But at least the Fund is tackling the issue forcefully and openly. As I asked in my Commentary on this topic last week, how many grant-making institutions 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 an Inspector General who has the freedom to investigate grant recipients at will? I have yet to find one who has.

The plain fact is that the Global Fund has been severely penalised, by the media and some of its donors, for doing what similar institutions have not had the courage to do.

Let's go through the sequence. First, the Global Fund's Office of the Inspector General (OIG), as per its mandate, conducted in-depth audits and investigations in multiple countries and, when it encountered fraud, the Fund published the OIG's reports at the Fund's website. Then the Global Fund board discussed these findings extensively at its meeting in December. Then, on January 23, the Associated Press published an article entitled "Fraud Plagues Global Health Fund" (which contained no data beyond those already-public findings). The story was picked up by 250 media outlets around the world. On witnessing the enormous press coverage, Germany and Ireland immediately expressed great concerns and put their contributions to the Fund on hold. (Sweden had already done so, upon reading the OIG's reports.) "We have initiated a special enquiry and stopped all German payments into this fund until further notice," a spokesperson for Dirk Niebel, the German development minister, said. Niebel's press office told Nature that the media's corruption reports had come as a surprise.

"We are surprised that Germany is surprised," tartly responded the Global Fund's spokesperson Jon Liden. Germany is represented on the Global Fund board, had received the OIG's reports last year, and had participated in the Board's December discussions about all this several weeks before the AP ran its story.

Certainly, and deservedly, the Global Fund Secretariat is a bit shell-shocked, having learned some sharp lessons about the need to be constantly on the watch for corruption (and about the unpredictability of the press). What annoys me is the inconsistent position taken by some of the donors on the Global Fund board. A responsible board for any organisation should devote considerable energy to checking whether it has solid confidence in the Executive Director and the Secretariat that he/she leads. If any board members do not have this confidence, they should say so, and they should be willing to resign if things don't improve. Otherwise, board members should firmly back the organisation and its Executive Director. No board members resigned when this matter was fully discussed at the December board meeting, and no resolution was passed criticising how things had been handled. But I've only found two donor board members (namely, the Global Business Coalition, representing the private sector, and the Gates Foundation) that, since the AP story, have issued statements backing the Fund.

One problem with the Global Fund board is that the representation is, in many cases, not senior enough. Mid-level bureaucrats represent their countries on the board, where they discuss issues in mind-numbing detail. But then when things get hot, some of their ministers take new positions in order to satisfy their own constituencies.

The Global Fund is far from perfect. But it is doing a credible and improving job on corruption - and on being open about its methods and findings. It deserves better support from its donors as it continues to implement the vision of flexible innovation that Richard Feachem first enunciated in 2002.


Putting fraud in global health spending in context

By Michael Gerson

Washington Post, February 4, 2011

http://www.washingtonpost.com

Digging in the garden of a health official in Mali, investigators discover more than 30 counterfeit "stamps" used to validate fraudulent invoices to the Global Fund to Fight AIDS, Tuberculosis and Malaria. The inspector general of the fund reports serious corruption in the programs of four countries - Mali, Mauritania, Zambia and Djibouti. A breathless Associated Press story concludes that "as much as two-thirds" of some Global Fund expenditures are being misspent. Germany and Sweden suspend their support. Some conservatives run with the story, which reinforces their preconceptions about foreign aid and fits the need for budget cuts. After all, in this view, two-thirds of Global Fund money is thrown down a rathole of corruption.

When scandals fit preexisting ideological narratives, they assume a life of their own. This particular narrative - the story of useless, wasted aid - is durable. It is also misleading and might be deadly.

The Global Fund controversy illustrates the point. The two-thirds figure applies to one element of one country's grant - the single most extreme example in the world. Investigations are ongoing, but the $34 million in fraud that has been exposed represents about three-tenths of 1 percent of the money the fund has distributed. The targeting of these particular cases was not random; they were the most obviously problematic, not the most typical. One might as well judge every member of Congress by the cases currently before the ethics committee.

The irony here is thick. These cases of corruption were not exposed by an enterprising journalist. They were revealed by the fund itself. The inspector general's office reviewed 59,000 documents in the case of Mali alone, then provided the findings to prosecutors in that country. Fifteen officials in Mali have been arrested and imprisoned. The outrage at corruption in foreign aid is justified. But this is what accountability and transparency in foreign aid look like. The true scandal is decades of assistance in which such corruption was assumed instead of investigated and exposed.

The Global Fund has a difficult challenge. It gathers resources from governments, foundations and individuals but relies on local partners to implement programs. When providing relatively expensive commodities - anti-retroviral treatments or combination drugs for malaria - through relatively unsophisticated structures, there are opportunities for corruption. So the fund audits every grant it makes, requires measured outcomes, cuts off ineffective programs and encourages whistleblowers. It was the United States - the fund's largest supporter - that pushed in 2005 for the appointment of a strong inspector general to fight fraud. He is now doing his job. It would be difficult to make similar claims of accountability for most domestic programs in America.

The response of the fund to these cases of corruption has been, so far, serious. With fraud concentrated in training programs, all training activity has been suspended. Tighter expensing procedures are being implemented. The fund is double-checking expenditures in high-risk countries. It is also proposing an independent review of its financial-control mechanisms. The corruption in places such as Mali is not representative, but it is also not unique. There will, no doubt, be more cases exposed and more reforms needed.

But American policymakers should keep two things in mind. First, the fund is not expendable. It supports about two-thirds of the global effort against malaria and tuberculosis, and about a quarter of the fight against HIV/AIDS. Since 2002, it has helped detect and treat 7.7 million cases of TB, distribute 160 million insecticide-treated nets and put millions of people on AIDS treatment. These are not the results of a fundamentally dysfunctional program.

Second, the fund is the primary method by which America spreads the burden of encouraging global health to other nations. About a third of its funding comes from the United States. The rest is raised elsewhere. If the fund was diminished or discontinued, American health commitments around the world would need to dramatically increase - at least if we want to avoid complicity in a global tragedy.

In a scandal, the first response is anger. In global health, corruption kills. The most important response, however, is to make sure the right people get punished - not an African child who needs a bed net, or the victim of a cruel and wasting disease. They had no part in the controversies surrounding the Global Fund, but depend, unknowingly, on their outcome. An overreaction to corruption can also cost lives.


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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