GLOBAL FUND OBSERVER (GFO), Issue 139: 27 January 2011

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GLOBAL FUND OBSERVER (GFO), an independent newsletter about the Global Fund provided by

Aidspan to over 8,000 subscribers in 170 countries.

Issue 139: 27 January 2011. (For formatted web, Word and PDF versions of this and other

issues, see www.aidspan.org/gfo.)

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CONTENTS

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1. COMMENTARY:

Corruption by Global Fund Grant Implementers

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.

2. NEWS: " We

Should Strive to Eliminate HIV infections among Injection Drug Users by

2015 " - Kazatchkine

In his latest progress

report to the Board, Executive Director Michel Kazatchkine said that the

international community should set a goal to virtually eliminate HIV infections

among injection drug users by 2015. Kazatchkine also provided updates on a

number of other issues, including community systems strengthening, grant

performance and prevention of mother-to-child transmission.

3. NEWS: Global

Fund Says Not Enough Money Being Spent on Ways to Prevent Stock Outs

The Global Fund

Secretariat says that funding devoted to supporting procurement and supply

management (PSM) processes are less than 1% of total funding channelled to countries,

and that this is not adequate to address the risks of stock-outs. The

secretariat considers that its current ability to anticipate, prevent and

mitigate stock-outs related to weak PSM capacity at country level is

" low. "

4. NEWS: OIG Report

Details Extensive Fraud in Mali and Mauritania Grants

In a progress report

last month to the Global Fund Board, the Office of the Inspector General (OIG)

said that more than one-third of the funds distributed to the Ministry of

Health (MOH), principal recipient for TB and malaria grants in Mali,

have been misappropriated. The OIG also said that similar patterns of fraud have

been observed in HIV, TB and malaria grants in Mauritania.

5. NEWS:

Preliminary Investigations Uncover Fraud in Grants to Djibouti and Nigeria

Fraud and other

irregularities in the management of Global Fund grants in Djibouti and Nigeria have been identified in

preliminary investigations conducted by the OIG. The investigations are

ongoing.

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1. 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 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. 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. (For some insightful discussions on all this, seehere, 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 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.

Bernard Rivers (rivers@...)

is Executive Director of Aidspan and Editor of GFO.

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2. NEWS: " We Should Strive to Eliminate HIV

infections among Injection Drug Users by 2015 " - Kazatchkine

E.D. updates the Global Fund

Board on many topics

Michel Kazatchkine, Executive Director of the Global

Fund, says that " if we are to end the AIDS epidemic, we must begin to see

a dramatic decline in new infections among people who inject drugs. " He

added that the international community should set a goal to virtually eliminate

HIV infections in this population by 2015.

Kazatchkine said that people who use illicit

drugs are denied harm reduction services, have poor

access to antiretroviral therapy (ART), and are

sometimes abused or tortured by law enforcement officials. " More

high-level advocacy is needed to overcome the political, legal and

sociocultural obstacles to providing appropriate interventions for

drug-users, " Kazatchkine said. For this reason, he said, he has accepted

an invitation to be a Commissioner on the Global Commission on Drug Policy,

which will meet in early 2011.

This information is contained in an update that

Kazatchkine prepared for the Global Fund Board meeting in December 2010. The

update touched on many topics. We provide some highlights below.

Male circumcision: Although male circumcision is being implemented as a preventive

intervention in a number of high-burden countries - including Botswana, Kenya,

Tanzania, Zambia and Zimbabwe - uptake remains

relatively limited. The Secretariat intends to undertake an analysis of Round

10 proposals and work with partners to find opportunities for scale-up.

Community systems strengthening

(CSS): In

Round 10, 49% of submitted proposals included a CSS component. More than 5% of

the funds requested for Round 10 were earmarked for CSS.

Prevention of mother-to-child

transmission (PMTCT): The initiative to improve the quality and coverage of PMTCT

interventions, launched about 16 months ago, has resulted in reprogramming of

over $70 million in existing HIV grants in 11 of the 20 countries that account

for 80% of the global burden of vertical HIV transmission. Funds for PMTCT in

Global Fund grants have risen by 65% in 2010.

PR breakout: As of November 2010, governments accounted for around two-thirds

of the principal recipients (PRs), the non-government sector nearly 25%, and

multilateral organisations (mainly UNDP) nearly 10%.

Grant performance: As of November 2010, 22% of grants were performing poorly (a B2 or

C rating), and 52% of grants that had been performing poorly at the end of 2009

had improved their performance.

Grant signings: As of mid-November 2010, 94 Round 9 grant agreements had been

signed, of which nearly half were single stream. Eight grants with a November

2010 deadline have received an extension. The Fund expects that agreements for

the 40 grants with a February 2011 deadline will be signed on schedule. Of the

74 grants approved for Phase 2 in 2010, 44% were given a " Go, " 53% a

" Conditional Go, " and 3% (two grants) a " No Go. " There has

been a higher proportion of " Conditional Go " decisions and B2-rated

grants at Phase 2 review in 2010, compared to 2009.

Single stream: As of mid-November 2010, the Global Fund projected that 60 single

stream grant agreements would be in place by the end of 2010, and that another

60 will be signed in 2011.

Additional Safeguard Policy

(ASP): ASP

measures for Cuba

were lifted in October 2010. Iran,

Sudan (northern and southern

sectors), Chad, Zimbabwe, North

Korea and Haiti

remain under the ASP. Mali, Mauritania, Djibouti,

Côte d'Ivoire and Papua New Guinea

are being added to the list of ASP countries as a result of recent OIG

investigations. In addition, ASP measures are applied de facto to grants in Iraq,

Syria

and West Bank & Gaza.

LFA terms of reference (ToR): The Secretariat is revising the LFA ToR to strengthen the LFA role

in detecting and preventing fraud and financial abuse. Also, issues related to

fraud and financial abuse are now addressed in LFA training, and an updated LFA

Manual will be published in early 2011. As well, LFAs are now required to conduct

an assessment of fraud and corruption risks in all countries managed under the

new Country Team Approach.

Additional comments

In his update to the Board, Kazatchkine

expressed some opinions concerning (a) eligibility for funding, and ( the proposal

development process. With respect to the former, Kazatchkine said that if the

Global Fund is to remain truly global in nature, eligibility criteria should

not be based on considerations about the funding available at any given point

in time. Instead, he suggested, consideration could be given to making

eligibility contingent upon countries agreeing to co-finance programmes and

having an agreed " exit " strategy in place, or countries becoming a

contributor to the Global Fund in addition to being a grant recipient.

Concerning proposal development, Kazatchkine

said that more effort is needed to better align the proposal development and

grant negotiation processes - for example, by involving PRs earlier, by

increasing the use of independent budget reviews by the TRP, and by designing

incentives for implementers to sign grants in a timely manner.

Information for this article

was taken from the " Report of the Executive Director, " December 2010,

Document GF/B22/03 atwww.theglobalfund.org/en/board/meetings/twentysecond/documents.

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3. NEWS: Global Fund Says Not Enough Money Being

Spent on Ways to Prevent Stock Outs

Secretariat: " More

in-depth involvement in PSM issues is beyond our capacity "

The solution may be to use more

grant monies to strengthen PSM systems

The current level of funding devoted to

supporting procurement and supply management (PSM) processes are less than 1%

of total funding channelled to countries, and are not adequate to address the

risks of stock-outs, according to the Global Fund Secretariat. The secretariat

considers that its current ability to anticipate, prevent and mitigate

stock-outs related to weak PSM capacity at country level is " low. "

PSM issues at country level are by far the most

frequent cause of stockouts. Other causes include interruption of the flow of

funding and global supply problems. The Global Fund Secretariat says that it is

addressing the issue of funding disruptions through

improving monitoring of funding continuity, bridge funding and extension

policies, improving disbursement processes, and working with partners. The

Secretariat expects that these measures will significantly reduce the risk of stock-outs due to funding flow issues. Global supply issues are

being addressed through working with partners and improving the monitoring of

procurement outcomes.

The Global Fund says that while countries have

full responsibility for PSM, the secretariat is undertaking several initiatives

to address problems in this area. These initiatives include setting policies to

enable a fair, transparent and effective procurement process; assessing

(through the local fund agent) whether proposed procurement systems meet

minimum requirements; and proposing and facilitating solutions to mitigate

identified risks. However, the secretariat says that more in-depth involvement

in PSM issues is beyond the capacity of the secretariat as it is currently

structured, and that improvements in this area will require major new efforts

and funding.

The above information was included in a report

from the secretariat to the Global Fund Board's Portfolio and Implementation

Committee (PIC). Judging from the report that the PIC prepared for the Board

for its December 2010 meeting, there does not appear to be any attempt to find

more money from within the Fund's operating budget to address this issue.

Instead, the strategy appears to be to implement some small measures within the

secretariat, to engage partners more directly, and to promote the use of grant

monies to strengthen PSM systems.

In terms of what the secretariat can do, it is

planning to formalise partnership arrangements for the anticipation of low

stock levels; to work with partners to strengthen in-country management

information systems so that they can better detect potential problems; and to

explore the feasibility of establishing buffer stock mechanisms or joining

existing ones.

The PIC suggested that the secretariat also

consider using technical assistance projects and the Health System Funding

Platform as a way of channelling more funding towards improving PSM systems;

and enlisting the support of in-country partners, including bilateral aid

agencies.

Information for this article

was taken from " Prevention of Treatment Disruptions and Stock-Outs, "

October 2010, prepared by the Global Fund Secretariat for the PIC (this report

is not available on the Global Fund website); and " Report of the Portfolio

and Implementation Committee, " December 2010, Document GF/B22/5, which

should be available shortly atwww.theglobalfund.org/en/board/meetings/twentysecond/documents.

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4. NEWS: OIG Report Details Extensive Fraud in Mali and Mauritania Grants

Fraudulent invoices involved

Criminal investigations

launched in both countries

Editor's Note: In GFO 137, we

reported that the progress report submitted by the Office of the

Inspector General (OIG) in December 2010 contained updates on investigations in

Mali, Mauritania, Djibouti

and Nigeria.

We provided a link to that report, and we said that further details would be

provided in a future issue of GFO. We provide those details in this article and

in the next article. These are not new revelations. The OIG's findings of fraud

or potential fraud in these countries have been reported fairly widely in the

mainstream media recently.

More than one-third of the funds distributed to

the Ministry of Health (MOH), principal recipient (PR) for TB and malaria

grants in Mali,

have been misappropriated. Similar patterns of fraud have been observed in HIV,

TB and malaria grants in Mauritania.

These are the conclusions of the Office of the Inspector General (OIG)

following investigations undertaken in both countries. This information was

reported to the Global Fund Board in December 2010.

(The OIG uses the terms

" misappropriation " and " fraud " interchangeably.)

Mali

The OIG said that up to October 2009, more than

$13.1 million had been disbursed by the Global Fund to the MOH for the TB and

malaria grants. After examining more than 59,000 documents and conducting

further investigations in Mali

related to about $11 million of the disbursements, the OIG has identified

misappropriations totalling approximately $4.0 million (36% of the

disbursements).

The OIG is also examining disbursements of more

than $50 million to the MOH for its HIV grants. The OIG said that there is

substantial evidence of fraud in these grants at the sub-recipient (SR) level.

The investigation follows an OIG audit that

identified systematic weaknesses and fraud risk factors in the Mali

grant programmes.

The highest level of fraud in the TB and malaria

grants has been found in purported " training events " and related per

diem payments, lodging and travel expense claims. The training events

constitute about half of all TB and malaria grant funds.

The OIG said that the fraud has been perpetrated

in large measure by individuals associated with the SRs for the TB and malaria

grants: the National TB Control Programme (PNLT) and the National Programme for

the Fight Against Malaria (PNLP). According to the OIG, senior officials

working for grant implementers submitted thousands of fraudulent invoices,

created false bid documents, forged signatures and over-charged for goods and

services. The OIG said that many local merchants colluded in the fraud by

sharing invoice templates, creating false invoices and false receipts, and

making false statements to trigger payment. The OIG reported that to conceal

irregularities and fraud, the administration and finance department of the MOH

falsified bank statements and other documents.

(In his latest progress report to the Board, in

December 2010, Global Fund Executive Director Michel Kazatchkine said that

because of OIG findings in several countries that activities involving cash

transfers for training events and associated costs are, in many cases, posing a

high risk of misuse, the Global Fund Secretariat was instituting a two-month

freeze on all training activities across the portfolio, pending the

introduction of longer-term control measures.

The OIG said that it has worked in close cooperation

with the Malian criminal authorities and with the investigating judge who was

assigned to the matter directly by the President of Mali. As a result, the

Malian national authorities have conducted numerous searches and seizures, and

have arrested and imprisoned 15 individuals in connection with the fraud.

(As reported previously in GFO, in December

2010, based on the OIG's findings, the Global Fund terminated or suspended Mali

grants worth $22.4 million. See " Global Fund

Terminates One Mali Grant and Suspends Two Others. " )

The progress report said that the OIG is

investigating the HIV grants and preparing its final report on the TB and malaria

grants investigation, but that its final reports on these investigations would

be withheld at the request of the investigating judge, on the grounds that

publication may seriously compromise his investigation and resulting

prosecutions.

The OIG said that there are safety concerns for

the OIG staff working on the investigations in Mali. The OIG was strongly advised

to seek protection of its staff because of the high visibility of the case, the

substantial sums of money involved, and the seniority of some officials who are

the subject of the inquiries. Protection has been provided by the U.S.

mission.

Mauritania

The OIG said that the fraud in Mauritania was perpetrated through

the submission of fabricated documents (supporting invoices and requests for

payment) provided by SRs and sub-sub recipients (SSRs) over a

five-and-a-half-year period.

There is currently only one HIV grant in Mauritania,

for which the PR is the National AIDS Committee (SENLS). That grant was

suspended by the Global Fund in September 2009, when the OIG first raised

allegations of fraud. The grant is still suspended. The OIG estimates that $4.1

million of the $6.2 million disbursed to SENLS (67%) was misappropriated. About

$1.7 million has been repaid thus far by the Government of Mauritania. About

$2.4 million remains outstanding.

In connection with this fraud, an arrest warrant

has been issued for a fourth staff member at SENLS. (GFO reported on the arrest

of three senior SENLS officials in " More Evidence

of Fraud in Global Fund Grants to Mauritania, " GFO 125.)

With respect to the two TB and two malaria

grants, for which the PR is the United Nations Development Programme (UNDP),

the OIG said that it had analysed about $3.5 million of the $9.9 million in

disbursements, and that about $2.7 million had been misappropriated. The OIG

said that " this is an amount that UNDP, as the Principal Recipient, is

responsible for in its fiduciary capacity over the SRs. "

The OIG stated that it was unable to examine the

rest of the disbursements for the TB and malaria grants because the UNDP

refused the OIG access to documents, staff and witnesses. (The UNDP claims that

because it is a UN agency, external organisations are not allowed to audit its

books.) The OIG said that as a result of this refusal, its investigation was

severely hampered, and it " cannot give assurance that the remaining

disbursements, more than $6 million, are not subject to systematic fraudulent activity. "

The OIG said that confidential witnesses and

whistle-blowers have advanced allegations that certain individuals were

involved in the fraud or recklessly disregarded indications of fraud and

obvious irregularities in the expenditure documents - but that the OIG has not

been able to examine these issues because of the impediments put in place by

the UNDP.

(In December 2010, the Global Fund was informed

that the UNDP Board will consider a proposal to allow institutional donors

access to UNDP audit reports, at its meeting in September 2011. In the interim,

the UNDP's Office of Audits and Investigations [OAI] will extend its audit

summaries, and will prepare and share with the Global Fund a consolidated

summary of OAI findings on audits of Global Fund-supported programmes for which

the UNDP is PR.)

The OIG said that because the Mauritania

criminal investigation is on-going, it has not sought to conduct interviews in

country, and it will refrain from issuing its final report until the completion

of the criminal probe, or until such time as it is safe to do so without

interfering in any resulting prosecution.

" The

Office of the Inspector General Progress Report for March-October 2010 and 2011

Audit Plan and Budget " is atwww.theglobalfund.org/en/oig/reports.

The " Report of the Executive Director, " December 2010, Document

GF/B22/03, is atwww.theglobalfund.org/en/board/meetings/twentysecond/documents.

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5. NEWS: Preliminary Investigations Uncover Fraud in Grants

to Djibouti and Nigeria

OIG is continuing to

investigate

Fraud and other irregularities in the management

of Global Fund grants in Djibouti

and Nigeria

have been identified in preliminary investigations conducted by the Global

Fund's Office of the Inspector General (OIG). Some details are provided in the

OIG's recent progress report. The investigations are ongoing.

Djibouti

An audit conducted by the OIG in April-May 2010

on Global Fund grants to Djibouti

worth $20 million found substantial irregularities, losses and unsupported

expenditures. The final report on the audit has not yet been released. Because of

the problems identified in the audit, the OIG launched an investigation. The

sole principal recipient (PR) for Global Fund grants in Djibouti (for all three diseases) is the

Executive Secretariat (ES) of Djibouti,

which is a government entity.

The OIG, which examined about 85% of the

disbursements to the PR, found that approximately $5.3 million (about 30% of

the disbursements examined) were either lost, unaccounted for, or could not be

shown to have been used for grant purposes.

The OIG said that motor vehicles were purchased

that were not used in the programmes supported by the Global Fund; payments

were made to suspicious vendors; and about $282,000 was used for training

seminars, travel and events that were not related to the Global Fund. About

$750,000 was transferred out of the bank account of one grant with no

explanation.

The OIG said that its audit identified a number

of other " red flags " pointing to the likelihood of irregularities -

for example, weaknesses by the PR in bank reconciliation processes; and the

lack of any process to monitor cash advances to employees and purported

vendors. The audit also identified serious deficiencies in the storage and

distribution of HIV drugs. There were discrepancies in stock statements; and

stock sheets contained serious and repeated errors and were regularly not

approved by authorised representatives. Expired drugs had been issued to health

centres and other drugs were misidentified as " unexpired. "

The OIG said that its findings have been

referred to the national investigative and prosecutorial authorities for

follow-up.

Nigeria

A recent OIG audit of Global Fund grants in Nigeria

identified potential fraud. The final report of the audit has not yet been

released. Because of the audit's findings, the OIG commenced an investigation

of the PRs and sub-recipients (SRs), and associated vendors and suppliers.

The OIG said that it has uncovered evidence of

funds being misappropriated through the use of fabricated expense vouchers

submitted for airline flights and training exercises. The OIG added that it is

examining allegations that this type fraud is pervasive in the Nigeria

grants.

(There have been numerous grants to Nigeria,

involving several PRs. The OIG's progress report did not say whether all PRs

were being investigated.)

The OIG said that its investigators were also

examining issues surrounding significant quantities of unaccounted for malaria

bed nets (at least 20,000), and allegations that the Global Fund was over-charged

for the costs of the purchase of the bed nets.

The OIG said that it was also investigating what

it called " extensive high risk money wire transfers to a number of third

parties in different continents, including the Americas, involving substantial

grant funds. " According to the OIG, the transfers, which involved two of

the PRs, were made at the direction of a third-party money remitter to whom the

PRs were referred by the local bank where the grant funds were originally

deposited. The bank had referred the PRs to the money remitter to allow the PR

to achieve a better exchange rate for transferring dollars into the local

currency. The investigation revealed that the third-party remitter instructed

the PRs to wire the dollars to other third parties; in exchange, the remitter

would wire the local currency into the PRs account, for a fee.

The OIG said that while there was currently no

evidence that the PRs acted with criminal intent in this matter, nevertheless

" these transactions constitute high risk money laundering activity and

pose a risk that grant funds were used in furtherance of underlying criminal

activities perpetrated by third parties in country. " In any event, the OIG

said, the PRs actually lost money in the currency conversions, which had an

associated cost of more than $64,000 (which the OIG said should be reimbursed),

and which did not achieve the advantageous exchange rate sought.

" The

Office of the Inspector General Progress Report for March-October 2010 and 2011

Audit Plan and Budget " is atwww.theglobalfund.org/en/oig/reports.

" Reproduced from the Global Fund

Observer Newsletter (www.aidspan.org/gfo), a service of Aidspan. "

Forwarded by:

---------------------------

Yours in Global Concern,

A.SANKAR

Executive

Director- EMPOWER INDIA - Professional Civil Society Organisation

Founder and General Secretary - Confederation of

Indian Civil Society Organisation’s (CICSO)

National Convener- National Alliance for Health,

Environment and Rights ( NAFHER)

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TUTICORIN-628

008, TN, INDIA

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91 461 2310151; Mobile: 91 94431 48599: www.empowerindia.org

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