26 Apr 2016
Audits and investigations in 2015 reveal that many issues remain
Board wants to see quicker action on managing risks and strengthening internal controls

The Office of the Inspector General says that its analysis shows that The Global Fund has demonstrated a steady and progressive improvement in organizational maturity over time, and that the work done in 2015 confirms that positive trajectory.

This information is contained in a paper prepared for the Board meeting in Abidjan on 26-27 April in which the OIG provides its annual “opinion” on governance, risk management and internal controls of The Global Fund.

The maturity scale that the OIG uses is rather technical. At the end of 2014, the OIG deemed that the Global Fund had progressed to an “initiated” level on the maturity scale. In 2015, the OIG said, the organization gradually progressed towards the “embedded” level of maturity (see Figure). Definitions of the maturity categories can be found in an annex to the OIG’s paper.

What makes the paper particularly interesting to read is that in it the OIG identifies the major issues that have emerged from the audits and investigations that it conducted in 2015. This article provides a summary of these issues.

Figure: Global Fund organizational maturity

Partnerships and country ownership

The OIG said that the founding principles of the Global Fund – partnership, country ownership, results-based funding, and transparency – remain as valid today as they were when the fund was established 15 years ago. “Yet, as the Global Fund has grown from a relatively small organization to a multi-billion-dollar institution, it is time for the organization to seriously challenge how well it lives up to each of these core principles.”

The OIG said that its country audits continue to highlight the limits of the partnership model: There have been many instances when weak partner engagement and poor coordination of interventions has limited, or in some cases even undermined, the effectiveness of programs. “Likewise, in the name of the principle of country ownership,” the OIG said, “the Global Fund has sometimes failed to hold accountable recipients of its funds, often resulting in poor implementation, at best, or outright diversion of resources, at worst, as highlighted in many of our audits and investigations.”

The OIG said that its audits in Pakistan, Tanzania, Nigeria, Sudan, and Kenya highlighted partnerships that have not functioned optimally. For example, in Tanzania, the OIG uncovered instances where the Global Fund, government implementers and partners were not aligned on matters such as funding responses to the three diseases, responding to storage and distribution challenges, and coordinating supervision and training activities.

The OIG said that country ownership is the notion that each country defines its own priorities, based on consultation with an empowered group of stakeholders, and owns the implementation of its programs. “However, our audits and investigations regularly highlight the inherent tension between fulfilling the spirit of that concept and, in return, holding grant implementers accountable,” the OIG said.

For example, the OIG said, several audits in 2015 have highlighted a high rate of persistent issues unaddressed by implementers, with significant programmatic implications, despite continued commitment of substantial resources by the Fund. “The legitimate concern about maintaining program continuity and minimizing the risk of treatment disruptions may have led, in some cases, to a perception that the Global Fund had few options but to continue funding despite persistent and material weaknesses,” the OIG explained.

Strategy planning and fundraising

The OIG said that The Global Fund has made significant improvements in its strategy planning process (see GFO article) and has maintained a strong ability to raise funds. Nevertheless, it said, “significant gaps remain in the maturity of processes to monitor the implementation of the strategy and in the ownership and accountability for the related results.” High-level strategic goals are not yet consistently translated into solid operational plans, the OIG said. “The Global Fund currently has a weak framework of key performance indicators that does not allow for meaningful measurement of progress in strategic areas nor does it foster accountability for results. Weaknesses also exist in the oversight and monitoring of key operational initiatives, often leading to implementation delays or near failures.”

Grant management processes

The Secretariat has undertaken a series of important initiatives designed to improve its core grant management processes, the OIG said. These initiatives include Accelerated Integration Management, Implementation Through Partnerships, and Differentiation for Impact. If successfully implemented, they have the potential to significantly impact how the Global Fund manages its core grant-making business and the effectiveness of its programs.

Until these initiatives are successfully implemented, the OIG said, its reviews will continue to highlight significant grant management issues across the portfolio.

While the Global Fund has made positive strides in improving the procurement of drugs and other commodities, the OIG said, grant implementation is still challenged by systemic weaknesses in supply chain management as highlighted again this year in OIG’s reviews of high impact portfolios such as Nigeria, Ghana, and Tanzania. “These weaknesses have important programmatic implications, such as persistent occurrence of stock outs, expiration of drugs, or leakage of commodities.”

The OIG said that ongoing gaps in data quality, both at the Secretariat and country levels, and a limited monitoring and evaluation framework, continue to constrain The Global Fund’s ability to consistently and reliably measure the impact of grants. This challenge is further compounded in difficult operating environments, the OIG said. In addition, there are challenges related to the adequacy of existing implementation arrangements in federal environments where they has been significant devolution of health systems at the state level.

Finally, the OIG said, “while The Global Fund has fully recognized that long-term success is unlikely in its fight against the three diseases without a parallel strengthening of health systems and thoughtful strategies to support sustainability after countries transition out, the organization is still in the early stages of tackling these complex issues.”

Risk management

In the view of the OIG, risk management is still at an early stage of maturity and there is a lot of work ahead to embed risk management in day-to-day business activities. A risk management framework exists, the OIG said, but it is not yet effectively used to guide the organization in achieving its goals.

The OIG said that the various risk management tools and processes are currently fragmented and need to be streamlined. The Secretariat is addressing this through its Risk and Assurance initiative. The OIG said that progress on this initiative has been slow during 2015 and completion of the related pilots has been significantly delayed. The OIG believes that the root causes of these delays are related to problems with clarity of the vision, stakeholder buy-in and accountability, project management, and executive sponsorship.

Other issues previously identified

In its annual opinion, the OIG identified four areas where issues had been identified previously and where problems continue to occur: due diligence; grant oversight; grant differentiation; and combined assurance.

Due diligence. Recent OIG investigations in Timor Leste and India identified non-competitive tenders and improper procurement practices by Global Fund sub-recipients. The OIG attributed these problems to a lack of due diligence by the implementers. The OIG said that although the Capacity Assessment tool is useful, it is only performed for principal recipients and does not cover all sub-recipients, suppliers, or individuals. “When due diligence is expected to be performed by PRs on other implementers or suppliers, adequate oversight is necessary to ensure the effectiveness of their due diligence procedures,” the OIG said.

Grant Oversight. The OIG’s 2014 annual opinion highlighted a need to pay greater attention to post-disbursement oversight and monitoring of the activities of grantees, especially financial management at the sub-recipient level and below. The OIG said that some progress has been made in 2015. Scrutiny over grant in-country cash balances has increased. The number of fiscal agents has also increased in order to assist implementers in managing their fiduciary risks. However, the OIG said, portfolio-wide progress in this area will be limited until the risk and assurance project is properly implemented. “OIG audits in Nigeria, Uganda, Pakistan, Tanzania, and South Sudan point to significant gaps in financial oversight that remain due to a fragmented approach to financial assurance.”

According to the OIG, oversight continues to be weak at the country coordinating mechanism level. (See GFO article on the OIG’s audit of CCMs.)

Grant differentiation. In its 2014 Opinion, the OIG said that the Global Fund has taken significant steps in differentiating its approach to managing grants. But this is still a work in progress. The OIG said that recent audits, in particular in Indonesia, Ghana, South Sudan, and Honduras, have identified the ongoing risks of a non-differentiated approach.

Combined assurance. According to the OIG, audit work in Ghana, South Sudan, and Indonesia has continued to find weaknesses in assurance. “Global Fund assurance initiatives in 2015 have been limited in their effectiveness and, with the exception of the work in the finance division that is still ongoing, are still not tailored to the country context.”

Response of the Secretariat

The Secretariat did not take issue with the OIG’s rating or findings in a section of the OIG’s paper devoted to the response of the Secretariat. The Secretariat said that “in 2015, a strong foundation was laid for improved management for improved management processes.”

Board reaction

The Board registered a response of its own to the OIG’s 2015 opinion. The Board said that “while in-country partnerships are in place and significant initiatives and measures have been implemented to improve programmatic, fiduciary and risk-management processes, immediate and heightened efforts are needed to accelerate progress and advance risk management systems and processes.”

Accordingly, the Board tasked the Secretariat with developing a detailed action plan to advance risk management and internal controls, with measureable and time-bound targets. It asked the Secretariat to report by June 2016 on progress in the implementation of the action plan.

With respect to the differentiation initiative, the Board tasked the Secretariat with reviewing the business model in high-risk countries. It asked the Secretariat to present possible options to the Board’s standing committees at their second meetings in 2016. The options will then be discussed by the Board. 

The Office of the Inspector General Annual Opinion 2015 on Governance, Risk Management and Internal Controls of the Global Fund, Board Document GF-B35-11, should be available shortly at www.theglobalfund.org/en/board/meetings/35

Read this article in French. Lire l'article en français.

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