Transparency and the Global Fund's Healthy Crisis

The UN-backed, Geneva-based Global Fund to Fight AIDS TB and Malaria is in trouble. More than thirty-four million dollars worth of grants for the procurement of lifesaving drugs and other commodities for the world's poor have been stolen. Last week, Germany joined Sweden in demanding an investigation of the waste and fraud, Germany has suspended financial transfers, totaling over $300 million, until it is completed. Other nations may follow suit.

Committees of the new US Congress may want to hold hearings concerning halting aid dispersion to the Fund in the coming weeks. If US were to withhold funding, the Global Fund would have to immediately halt many grant payments, and potentially cancel huge upcoming aid disbursements. That would lead to major disruptions in the delivery of life saving medicines to tens of thousands of people. Is tolerating corruption a worse outcome? My short answer is yes, corruption is so damaging that it is worth disrupting successful programs to stop it. However, the longer answer is far more complicated, I explain why in a minute.

I feel some personal responsibility for the recent negative attention the Global Fund is receiving, as at least part of the recent criticism draws on reports I published exposing product thefts and other fraud in the Wall Street Journal in September and Foreign Policy earlier this month. The Associated Press reported in September on my research which was published in the peer review literature. My research team found that 28% of the most important antimalarials, which they had procured in private pharmacies across 11 African cities, had been stolen and diverted from the public sector, the vast majority from donor programs. At the time the Global Fund largely downplayed my concerns, but claimed they were conducting an investigation.

When medicines and donor financing is stolen under the current system, the poorest of the poor suffer from inadequate access to drugs. Without donor help, they may die, but when the Global Fund's systems work, millions of lives may be saved.

But my concern over diverted medicines, and theft of money is not primarily that fewer people will be treated, tragic as that may be. No, the greater worry is that by enabling corruption, donors will create sustained damage in the long run. It is no exaggeration to say that current grants which are badly administered may contribute to corruption long after they are dispensed and forgotten. In this way they may perpetuate economic suffering of the poor, even if the grants temporarily alleviate their major health concern.

The figures detailing the scale of corruption at the Global Fund are convoluted and confusing. On the one hand we're told that two thirds of the $27bn organization may be corrupt , on the other we're told that the amount known to be stolen is far below one per cent of disbursements. As it stands, of the 145 countries which have received Global Fund grants, only 33 (23%) have been audited.

Below is a list of some of the countries which have been audited in 2010, and their total disbursements to date. The "*" means there are investigations are in progress following the audit. Ongoing investigations in countries as diverse in size as Nigeria and Djibouti may soon unearth new frauds. The Office of the Inspector General also has 15 country audits planned for 2011, 12 of which are identified as high risk.

Cambodia-US$ 220,327,449

Cameroon-US$ 134,134,928

Haiti-US$ 169,551,019

Zambia-US$ 368,827,700

Djibouti *-US$ 8,339,868

Dominican Republic-US$ 82,423,111

Kenya *-US$ 268,939,429

Laos-US$ 68,978,388

Malawi *-US$ 350,924,778

Rwanda-US$ 448,153,059

Sri Lanka *-US$ 29,941,670

Swaziland *-US$ 120,891,433

Uzbekistan *-US$ 40,783,432

Kyrgyzstan *-US$ 40,572,727

Mali *-US$ 78,580,135

Nigeria *-US$ 515,803,911

The Global Fund currently reports that a total of $34 million has been stolen. While this is a miniscule amount when compared with the Fund's total budget of $13 billion, the actual percentage of money used fraudulently in audited countries is much higher. At this point, it is far from clear how much money is actually being stolen.

Unfortunately, we may not find out anytime soon.

As the Fund says of itself

"The resource 'crisis' is particularly severe for the Investigations Unit which has seen a dramatic increase in the number of referrals of complex fraud and corruption cases. As noted above most of the OIG's audits now result in a referral for investigation. Even without the audit referrals, the Investigations Unit currently has more than 100 active cases, 63 of which remain unassigned and unaddressed because of the lack of resources and staff to address them." (see http://www.theglobalfund.org/documents/board/22/BM22_09OIG_Report_en.pdf)

Transparency is key

While I generated some of the Global Fund's negative press, much of it came from Global Fund itself. The current media focus on the Fund is a function of its own honesty.

I was assisted in investigating product thefts from the Global Fund because it publishes extensive reports on its website. These reports show where drugs have been delivered, the scale of the purchases, and the real benefit achieved under good circumstances, and denied under the bad. Over the past decade I have tried on numerous occasions to investigate World Bank and UN agency programs, but have been repeatedly blocked from accessing necessary information.

The Global Fund has apparently run into the same problems. The UN Development Program (UNDP) receives millions of dollars a year from the Global Fund for commodity procurement (roughly a fifth of the Global fund's multi-billion dollar annual budget), but refuses to share its internal audit documents on more than two dozen countries. UNDP partners, like the Fund, are unable to access proper documentation on programs in some of the most corrupt countries, where fraud is very likely.

Given that one of the stated aims of the Fund is to encourage local capacity development by fostering decision making and involvement at the national level, , it is odd that it provides funds to the UNDP in so many cases. It makes most sense not to fund opaque organizations like UNDP, but if UNDP is to be funded then it would be simpler, arguably, for countries to give funds directly to UNDP to do it

Why action against the Fund now?

Oddly enough, a lot of the information causing the recent stir has been publicly available since last year. It was ignored until a couple of slightly alarmist, but essentially accurate, Associated Press stories in the past two weeks insisted that this corruption be taken seriously. Governments have acted shocked and demanded investigations. But why have they waited until now?

Everyone involved in major aid distributions knows that corruption, mismanagement, and outright fraud are a regular occurrence. That doesn't mean that the majority of actors are corrupt. A small, often tiny, minority who are corrupt are able to get away with bad practice and outright fraud for a long time because of a lack of oversight. I don't know a single aid insider who was surprised or shocked by the corruption the Fund encountered. Contracts go to politically favored parties, products disappear, ghost employees are paid with grant money, etc. This causes enormous damage in the long run.

Of course, problems are often overlooked or tolerated in order to save lives and improve the quality of life for individual recipients. In other instances, corruptions is tolerated for much more dubious reasons: westerners' careers depend on the continuation of aid; discussing aid failures lowers generosity; we can't expect more ("this is Africa"); aid won't be stolen again ("this time will be different"), etc.

So even when governments are aware of aid fraud, it is tolerated and ignored-until it can't be.

The Governments of Sweden and Germany knew about the problems at the Global Fund in 2010, but chose not to act until evidence of a major fraud became undeniable and unavoidable. The AP stories sensationalized the undeniable corruption, making action unavoidable.

The resulting debate about aid efficacy and corruption is very healthy.

The problem is, though, that while the Global Fund must be investigated, it is far from the worst actor. The older aid organizations, particularly United Nations agencies like UNDP, know the aid-fraud nexus well. A gross case of corruption may occasionally escape, such as the Iraqi Oil For Food scandal, but most of the time, the old hands within these agencies know that transparency is their enemy. They know that if they don't investigate the performance of their aid, few outsiders will be able to contradict their assertions that their programs run efficiently and without corruption.

It is undoubtedly true that the Fund is being targeted because it is transparent and we have evidence of harm. If attention to corruption makes sense for the Global Fund, then surely it must for other agencies which are far less transparent than the Fund? Of course, the Global Fund's fraud ought to be investigated and this problem remedied as far as is realistically possible.

But fraud does not appear in a vacuum. Here are a few thoughts and suggestions about what we should be asking of the Fund:

The Global Fund was established to provide commodities for the poor and allow the beneficiary countries to tell the Fund what it needed. But from the beginning, the Fund has had to compromise on aspects of this mission. Many developing nations were incapable of putting proposals to the fund without considerable assistance, and even then, the countries themselves could not properly administer large amounts of donated money for drugs. As a result, the Global Fund had to work with principle recipients of the funds like UNDP, which handles an estimated 63 grants in 27 countries, worth over a billion dollars.

The US Government, should follow the German Government and demand and investigation. Both should demand the internal audits from UNDP for any program funded by the Global Fund (and hence by US taxpayer dollars). In this way, the transparency model of the Global Fund can be extended to cover UNDP.

Additionally, the US should consider carefully whether the funds it sends to the Global Fund should be used by UNDP. If it decides not to it could try and influence the global fund, through the US seat on the board, to drop UNDP as a recipient. After all, if the US taxpayer wants to support UNDP it can do it directly, and not via the Global Fund.

Second, when the frauds are investigated it is important to understand what role the Global Fund staff and Secretariat played. I'm not suggesting they acted corruptly, but if they pressured recipients to spend money-"use it or lose it", as has been alleged in Zambia, then these staff should be fired. Demanding that locations with poor oversight spend more than they effectually are able to do is tantamount to encouraging corruption.

Third, the Global Fund must stick to its mission of commodity financing. As mentioned above, many nations did not have the capacity to properly apply for Global Fund assistance. Given the Global Fund's limited budget and resources, it ought to direct badly needed funds only to countries which have the capacity to deliver drugs effectively. When the Global Fund attempts to step beyond its capabilities, it lacks the competence to deliver and often encourages corrupt programs.

Fourth, like other aid agencies power comes from larger budgets, and the Fund is no exception. The Global Fund Secretariat has taken on projects peripheral to its core mission. In addition to the above-mentioned dubious capacity building, the Fund also should not take on new projects, such as malaria drug subsidization schemes. The Fund doesn't have the capacity or the skilled staff to oversee this expenditure since it does not adequately understand the private sector drug markets of the countries it is supporting. Such ignorance is yet another avenue for fraud to flourish.

Finally, even when financial fraud doesn't occur, in countries which lack the capacity to distribute life-saving medications, donated commodities have been stolen. The Fund seems unsure about how to address yet another problem of poor logisitics.

Although these problems are severe, I do not think that the Global Fund should be disbanded. Indeed, if any good can come out of these problems, it will be that other agencies are encouraged to become as transparent as the Global Fund.

But more than that it requires a thorough investigation of how all US taxpayer aid is spent to ensure that our money does indeed save the lives of the poorest as intended.

If the Global Fund is punished simply because it has been more transparent than other multilateral agencies, transparency efforts will be thrown back by a decade a more, and this crisis will be tragically wasted. It would be a bitter irony if we redirected that money to agencies which are certainly less transparent and probably more corrupt than the Global Fund.

Roger Bate is the Legatum Fellow in Global Prosperity at AEI.

 

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