Acting Director of Country Programs at the Global Fund from May 2010 through May 2011.
Fraud at the Global Fund? A viewpoint†
Article first published online: 13 DEC 2012
Copyright © 2012 John Wiley & Sons, Ltd.
The International Journal of Health Planning and Management
Volume 28, Issue 1, pages 138–143, January/March 2013
How to Cite
Brown, J. C. and Griekspoor, W. (2013), Fraud at the Global Fund? A viewpoint. Int. J. Health Plann. Mgmt., 28: 138–143. doi: 10.1002/hpm.2152
Submission date: September 20, 2012.
- Issue published online: 3 MAR 2013
- Article first published online: 13 DEC 2012
- Manuscript Accepted: 17 OCT 2012
- Manuscript Revised: 20 SEP 2012
- Manuscript Received: 4 JUN 2012
- Jonathan C. Brown;
- Wilfred Griekspoor;
- Global Fund;
The Global Fund to Fight AIDS, Tuberculosis and Malaria has contributed to remarkable health improvements in the three diseases since its creation in 2002. However, media reports about “astonishing losses” and fraud in Fund programs in 2011 caused several donors to suspend funding. The Fund's annual round of new financing was canceled, and a substantial reform program is being implemented. Two former senior managers of the Fund contend that fraud was never a major problem; rather than imposing harsh new controls on recipient countries that might impede health outcomes, the Fund should maintain the core elements of its innovative model and make selective rather than sweeping changes in its operations.
Copyright © 2012 John Wiley & Sons, Ltd.
In October 2010, donors gathered in New York to pledge US$ 11.7 billion for the Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund), a 20% increase over that of the previous three years. This was a remarkable achievement in a period of financial crisis and budget austerity in donor countries. This was also a testament to the success of the Fund's operational model—country driven, performance-based, with a light oversight framework—and to its recipients' programmatic achievements since its creation in 2002:
- commitments of US$ 21.7 billion and disbursements of US$ 13 billion for the three diseases in 150 countries by the end of 2010;
- antiretroviral therapy provided to 3 million people with AIDS, distribution of 160 million insecticide-treated bed nets to combat malaria, and 7.7 million treatments for TB; and
- contributing to saving an estimated 6.5 million lives.
Twelve months after the New York meeting, the bright prospects for the Global Fund had reversed. Press reports in early 2011 headlined “fraud,” quoting anonymous sources in the Fund's Office of Inspector General (OIG) about “astonishing losses” in the Fund's programs. The Associated Press wrote on 24 January 2011 under a headline “Fraud Plagues the Global Fund”:
“A 21.7 billion development fund backed by celebrities and hailed as an alternative to the bureaucracy of the United Nations sees as much as two thirds of some grants eaten up by corruption, the Associated Press has learned. Much of the money is accounted for with forged documents or improper bookkeeping, indicating it was pocketed, investigators of the Global Fund to Fight AIDS, TB and Malaria say. Donated prescription drugs wind up being sold on the black market. The fund's newly reinforced inspector general's office, which uncovered the corruption, can't give an overall accounting because it has examined only a tiny fraction of the $10 billion that the fund has spent since its creation in 2002. But the levels of corruption in the grants they have audited so far are astonishing.”
Although the findings of abuse were in a very small number of countries and in a small number of activities, such as training and allowances, the impression of an organization out of control gained acceptance. Several donors suspended their contributions to the Fund. The Fund canceled its annual round of project funding, replaced senior managers, embarked on a reorganization of its operations, and proposed important adaptations to its operational model.
Before the programmatic achievements are forgotten and the Global Fund inadvertently moves from being a financial intermediary to become a more traditional development agency, one should answer three questions:
- Was the level of losses in Global Fund programs, especially fraud, so high that the donors should have suspended their funding?
- Were the examples of fraud and insufficient attention to financial oversight instruments inherent in the Global Fund model?
- Are the present actions of the Global Fund to transform itself appropriate or are they an over-reaction?
Losses identified in Global Fund programs are routinely posted on the Global Fund website as audits and investigations are completed by the OIG, a unit created in 2005 that reports to the Fund's Board of Directors. Initially, the OIG reported on “losses” as a whole, and thus all losses were characterized as “fraud” especially by the media. Only in 2011, and after sensationalized and misleading media reports, did the OIG begin to differentiate among various kinds of misuse of funds such as (i) fraud—stealing money; (ii) expenditures inadequately substantiated, often because of poor or missing documentation, which might later be found or its absence explained; (iii) ineligible expenditures, activities not covered by grant agreements but usually for associated health activities; and (iv) other losses such as unreported interest or other income.
When releasing the results of individual audits, the OIG has never attempted to put losses in the context of all grants that it had reviewed or of the Global Fund's whole portfolio. It has consistently declined to present the aggregate loss percentage in countries audited and cautioned in public and in private against extrapolating the completed audit results to the whole Global Fund portfolio because, among other things, its sampling was neither representative nor random. Rather, the OIG focused on what it considered high-risk countries and high-risk activities. Although this sampling might suggest that the OIG's findings represented the upper limit of what might be found in other countries, the OIG declined to make this judgment. In spite of this reluctance on the part of the OIG, it is possible to obtain the broader picture from Global Fund Board of Directors' documents and from individual country information available on the Global Fund website.
The 12 countries in which OIG audits and investigations were completed by March 2011 covered some US$ 1.69 billion of disbursements corresponding to 17% of the Global Fund disbursements over the years reviewed. US$ 44.2 million was identified as losses or 2.6% of the disbursed amount. Of the US$ 44.2 million, US$11 million was fraud, 0.7%. More importantly, US$ 10.9 million of the fraud (99%) was concentrated in two countries, Mali and Mauritania.
In a report to the Global Fund Board in November 2011, using a slightly different set of audits, the OIG reported losses of US$ 58 million of which US$ 10.3 million was categorized as fraud, now representing only 0.4% of disbursements in the 19 countries reviewed.
In July 2012, at the initiative of its new Chief Risk Officer, the Global Fund Secretariat finally started to publish an analysis of the aggregate misuse of funds uncovered by OIG audits and investigations. At the end of August 2012, on the basis of results from 32 country audits or investigations, overall losses were 2.5%, whereas fraud amounted to 0.4% (shown in the following figure). The misuse of funds as now reported by the Global Fund confirms our own earlier findings. Reasonable people can agree or disagree on what levels of fraud or misuse represents unacceptable risks, but few will view the Global Fund results as the fiduciary crisis that the media portrayed in early 2011.
It is one thing to uncover misuse, including fraud; it is another to tolerate it. In fact, the Global Fund stopped programs where fraud was detected, and suspended others where there were losses. And the Fund has attempted with some success to recover the “losses” from countries. The Fund's General Manager reported to the Global Fund Board in September 2012 that US$ 22 million had been recovered by the Fund Secretariat in 13 of the 29 individual cases and that a further eight cases are at an advanced stage of resolution. The public image of the Global Fund in 2010/2011 as being reluctant to tackle fraud was, however, amplified by two other factors inherent in the unique nature of the Fund's OIG.
First, the OIG saw eliminating corruption in developing countries as part of its mandate, as the Inspector General himself explained in a speech in the UK in February 2009:
“For the Global Fund, it is quite simple. We fight every day to limit the impact that AIDS, TB, and Malaria have on the world's most vulnerable populations. And we intend to win that fight. We also fight every day to eradicate corruption. We intend to win that fight as well.”
Second, certain operations of the OIG led to an unbalanced picture. For example, investigating the perpetuators of fraud in countries intensively until it had “court ready” evidence to turn over to national judicial authorities meant delays in publishing investigative results and in the Fund Secretariat taking corrective action. A High Level Panel set up in 2011 by the Global Fund Board to investigate the fiduciary controls and oversight mechanisms of the Fund noted that “The Global Fund's OIG is the only organization surveyed that, by itself, will audit, investigate and then build a case ready-made for prosecution.” In Nigeria, for example, the OIG asked the Fund Secretariat not to close a grant as that might reduce the willingness of the grant recipient to collaborate with the OIG's attempt to gather material for prosecution.
The question remains, however, whether the Global Fund model is particularly susceptible to losses. Although the Global Fund was established as a non-bureaucratic “financial intermediary” with a light oversight touch, it was not set up to avoid accountability for the use of money. If the original Global Fund model had been implemented with more rigor, the crisis in which the Global Fund found itself in 2011 might have been avoided, especially if from its early days: (i) project budgets had been defined in more meaningful detail and then monitored; (ii) Fund staff had been organized as teams to support programmatic and financial concerns rather than simply to disburse money; (iii) Fund management had been more responsive to early OIG findings and their implications for improving grant oversight; and (iv) the public messaging of the OIG had been put in the broader context of the overall portfolio.
As a result of the funding crisis and donors' calls for reform, the Global Fund initiated in late 2011 a program under the leadership of a new General Manager to “turn the page from emergency to sustainable response” through a “Consolidated Transformation Plan ” and a new Five Year Strategy, “Investing for Impact.” The transformation plan, which originally included 168 identified “deliverables,” goes beyond fiduciary areas and touches many aspects of the Global Fund. In particular, the transformation plan and the new strategy include what appears to be major changes in the Global Fund model: (i) a new funding model replacing the rounds-based model and incorporating maximum funding amounts for different (groups of) countries; (ii) a two-stage approach to proposal preparation and approval, including country interaction by Fund staff to assess real “demand” and to guide countries on how to prepare “implementation-ready” programs that mitigate against obvious risk; (iii) more emphasis on “value for money” in program preparation and ensuring “additionality” of the Global Fund support; (iv) in-depth fiduciary assessments for implementing agencies, especially in financial management and procurement; and (v) more risk-based supervision during implementation.
Although each of these changes might seem like a logical next step in the evolution of the Global Fund, the risk in such a broad and comprehensive redesign of grant management is that the spirit of the original light-touch model of the Global Fund may be lost and the Global Fund will be forced to assume the comprehensive development agency characteristics of the World Bank, without having the Bank's extensive staff of economists and fiduciary experts as well as substantial in-country presence.
The Global Fund is currently reflecting on how to introduce simple ways of allocating resources, assessing value for money, and assuring readiness of implementers. In our view, six basic steps are broadly sufficient to resolve remaining oversight concerns:
- Funding proposals should be based on meaningful program budgets that can be tracked by implementing agencies on an ongoing basis, verified by normal accounting and auditing instruments, and monitored by Local Fund Agents and the Fund Secretariat, which has recently increased the quantity and quality of its financial and grant management and procurement staff.
- During the two-stage proposal process, pre-assessments of implementing agencies could result in mandatory outside support in financial management, procurement, and distribution of health commodities.
- Expenditure tracking and financial controls should focus on cash intensive activities such as training, salary supplements, and vehicles already identified as risky by OIG audits and investigations.
- The Global Fund Secretariat should develop, with partners, a rapid in-country response capacity for its country teams to deal with losses as soon as they surface.
- The current functions of the OIG should be simplified as the High Level Panel noted that the “OIG encompasses functions that comparator institutions spread over multiple divisions. For example, the World Bank has five different units to accomplish the tasks in the OIG's purview.” We recommend the following: (i) fiduciary audits should continue to be done by the OIG; (ii) the OIG investigations unit should hand over to national authorities the task of preparing “court ready” cases concerning national programs and have a narrower mandate; (iii) program evaluation audits should be done by a separate specialized unit, or contracted out; and (iv) the internal audit function should be contracted out, which is appropriate for an organization as small as the Global Fund.
- The Board's new Audit and Ethics Committee, which oversees the OIG, should safeguard the continuation of the publication by the Global Fund of the aggregate results of country audits and investigations that can provide a global, portfolio-wide perspective. This task will be facilitated because the Committee will now have several independent members from the finance/auditing profession to provide recognized expertise for OIG oversight.
More radical fiduciary actions are not necessary to solve a “severe” fraud problem that does not exist today, and probably never did.