What Can We Learn from the Global Fund’s “Massive Fraud”?

January 25, 2011
News about the Global Fund, fuelled in part by a recent FP article by Roger Bate, set off a flurry of tweets and blogs yesterday—so much so that I had to tune out of Twitter to write this. The alleged large scale fraud as described by the FP article doesn’t provide the whole picture (see the Global Fund’s comment, “A Half Truth On Drug Theft,” in response to Robert Bate’s commentary and my colleague Bill Savedoff’s post on how it is not really possible to assess the scale of corruption with the information we have). What worries me is that this type of sensationalist news distorts a few facts that can prompt drastic decisions that ultimately affect people who have nothing to do with the corruption in question. It also distracts attention away from the many development practice problems at hand. But, given this current level of attention, what can we learn from this news that will help the development community address the knotty issues about development and corruption? Is the Global Fund the Only Offender?  The Global Fund is being singled out as the only offender. Any aid modality that provides large amounts of money to push relatively expensive commodities such as ARVs and combination anti-malarial drugs rapidly through the public sector is going to provide the opportunity for leakages and theft. Let’s examine PEPFAR as a direct comparison—the program has lots of money, but employs different aid mechanism for AIDS prevention, treatment, and care (see the HIV/AIDS Monitor paper Following the Funding for more details). After digging around on the web a bit, here’s what I found:Not much.I couldn’t find public information except for one report that came up from the USAID Office of the Inspector General, dated March 2010. In this Worldwide Audit of the PEPFAR-funded Activities and Commodities for the Prevention of Mother to Child Transmission of HIV, I noticed that no recommendations were provided to address identified problems, explaining that these were delivered to specific country missions. This non-transparent sharing of information does not allow us to understand how the U.S. Government is taking action against fraud that occurs in its reputed airtight oversight procedures. On pages 7-9, the auditors describe examples of commodity management problems at four selected missions: Ethiopia, Kenya, Nigeria, and Tanzania.  Poor inventory records were found at all four sites—incomplete stock cards, mislabeling of commodities, lack of regular inventory counts, and poor record keeping. For example:
“In Tanzania, auditors found that 5 of 14 service providers sampled lacked inventory records for commodities, while even those that had inventory records were not always updating them when the commodities were received and dispensed. Without adequate inventory records, the providers’ pharmacy staffs could not determine the current level of commodities on hand, resulting in significant variances between physical counts and inventory records. Consequently, the providers could not determine whether any commodities had been lost or stolen or whether more needed to be ordered.”
All missing and unsupported inventory at the four sites totaled $40,000, out of $39 million (or about 0.1%) in fiscal year 2008 for all PMTCT activities. In comparison, one calculation by Tom Paulson pokes fun at the proportion (0.3% of all grants) of Global Fund corruption that the AP is so troubled by.Corruption doesn’t only happen with the Global Fund’s monies. Many developing countries are plagued with the same problems—poor management capacity and oversight capacity, and corruption—whether the Global Fund, PEPFAR, or the UN system supports them.  The difference is that the Global Fund actually reports findings from its Office of the Inspector General (OIG) and calls out countries for fraud, while other donors are reported to be highly secretive about any corruption investigation that might affect them, if they conduct them at all. See for example this information from an IOG report to the Global Fund Board from its Finance and Audit Committee (FAC) about a key principal recipient of the Global Fund—the UNDP:
“The Global Fund has been seeking access to internal UNDP audits on Global Fund grants where UNDP serves as PR, but has not been successful. The UNDP's Office of Audit and Investigation has agreed to provide summaries of its audit findings, but the FAC said that, so far, "these summaries have been inadequate." While the OIG has been able to conduct audits "around" the UNDP (e.g., by auditing sub-recipients), "this does not give a sufficient insight into the grant operations and management by UNDP."
When was the last time you heard about a PEPFAR, UN, or World Bank corruption scandal shared with the press by these agencies?  In short, the Global Fund deserves some credit for seeking out perpetrators and holding them accountable publicly. Other donors need to be more upfront about corruption in their programs and how they address it.What Happened to Country Ownership?  The Global Fund, and more recently, the U.S. Government, believe that countries must be in the driver’s seat for sustained impact.  If donors are serious about this principle, the appetite to take—and learn from—risks is necessary as countries develop their own systems and processes to achieve results.Through our research under the HIV/AIDS Monitor we learned that PEPFAR minimizes leakages in commodity procurement because it manages this step of the supply chain closely, providing product and technical assistance, rather than cash for countries to buy drugs. In contrast, the Global Fund finances countries to develop procurement capacity—fiscal and operational management and technical assistance. Of course, this hands-off approach contributes to a greater risk of losing both cash and commodities. But, the OIG is actively identifying cases of fraud and taking action, with the objective of slowly but surely changing the way donors and recipients do business.The Global Fund should be commended for its approach to handling fraud rather than penalized. How long are we going to continue to provide aid that stifles development because donor policies don’t enable countries to manage money and produce results against these investments? That’s why I like my colleagues, Nancy Birdsall and Bill Savedoff’s COD Aid proposal—practical, hands-off financing for verifiable results that can build country ownership. Granted it’s impossible to ensure that no corruption will occur, but funders can take a calculated risk to minimize this by placing more weight on results and rewarding this achievement rather than hyperventilating about corruption and how money is spent. Presumably, countries will spend their existing resources more responsibly in order to get more aid. No results, no money. It’s hard to tell whether COD Aid will work, but the concept is appealing and we will only know if we try.  Rather than locking down on an aid mechanism that is trying to build country ownership, this news should be an incentive for donors to strengthen these models and try new ways of making country ownership more than just donor speak. What’s the Way Forward for the Global Fund? And for Other Donors?It is important for taxpayers and beneficiaries to get accurate information about donor funds and how they are spent, relative to the impact of these funds. This is the core of aid effectiveness debates, and what should drive the allocation of scarce resources. When the media distorts numbers and facts to sensationalize a problem I have to ask, “Why now?” As Congress debates the budget with increasing signs that U.S. foreign aid spending is at risk, there seems to be more (read: politics) at play here than actual facts and evidence about the Global Fund’s funding model and oversight capacity.Nothing I saw in the recent news discusses the five year Global Fund evaluation and how learning from that endeavor and other sources influenced donors decisions at the Global Fund replenishment meeting last fall. The U.S. Government and the Global Fund agreed to specific benchmarks for the Global Fund to strengthen its oversight mechanisms, articulated in this Call to Action from the U.S. Government.  In response, the Global Fund described specific steps that it has taken and continues to take in a document that, to my knowledge, isn’t yet publicly available.While much damage has been done, the Global Fund and its supporters need to lay out smart and honest messages about its reform measures, and share these widely—perhaps, through an AP story! And most of all, other donors who have perfected a culture of disbursement that feeds a culture of corruption in recipient countries need to come forward with information about how they handle fraud. Outing the perpetrators—whether they receive money from the Global Fund or other donors—is one essential way to make sure that our taxpayer money is being used effectively.


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.