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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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Corruption by Global Fund Grant Implementers
Bernard Rivers
GFO Issue 139 - 27 January 2011
http://www.aidspan.org
Bernard Rivers ([email protected]) 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 ([email protected]) 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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