oversight

Global Health: Assessment of First Year Efforts of the Global Fund to Fight AIDS, TB and Malaria

Published by the Government Accountability Office on 2003-05-07.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                            United States General Accounting Office

GAO                         Testimony
                            Before the Subcommittee on Foreign
                            Operations, Export Financing, and Related
                            Programs, Committee on Appropriations,
                            House of Representatives
For Release on Delivery
Expected at 2:00 p.m. EDT
Wednesday, May 7, 2003      GLOBAL HEALTH
                            Assessment of First Year
                            Efforts of the Global Fund
                            to Fight AIDS, TB and
                            Malaria
                            Statement of David Gootnick
                            Director, International Affairs and Trade




GAO-03-755T
                                               May 7, 2003


                                               GLOBAL HEALTH

                                               Assessment of First Year Efforts of the
Highlights of GAO-03-755T, a report to the
Chairman, Subcommittee on Foreign              Global Fund to Fight AIDS, TB and Malaria
Operations, Export Financing, and Related
Programs, House Committee on
Appropriations




                                               •   The Fund has made noteworthy progress in establishing essential governance
By the end of 2002, more than 40                   and other supporting structures and is responding to challenges that have
million people worldwide were living               impeded its ability to quickly disburse grants. A key challenge involves locally
with human immunodeficiency                        based governance structures, many of which are not currently performing in a
virus/acquired immunodeficiency                    manner envisioned by the Fund.
syndrome (HIV/AIDS), with 5 million
                                               •   The Fund has developed comprehensive oversight systems for monitoring and
newly infected that year. HIV/AIDS,
                                                   evaluating grant performance and ensuring financial accountability and has
along with tuberculosis (TB) and
                                                   issued guidance for procurement; however, the oversight systems face
malaria, causes nearly 6 million deaths
                                                   challenges at the country level and some procurement issues have not been
per year and untold human suffering.
                                                   finalized.
Established in January 2002, the
                                               •   The Fund’s ability to approve and finance additional grants is threatened by a
Global Fund (the Fund) aims to
                                                   lack of sufficient resources. Pledges made through the end of 2003 are
rapidly disburse grants to augment
                                                   insufficient to cover more than a small number of additional grants and without
existing spending on the prevention
                                                   significant new pledges, the Fund will be unable to support all of the already
and treatment of these three diseases
                                                   approved grants beyond their initial 2-year agreements.
while maintaining sufficient oversight
of financial transactions and program
effectiveness. As of April 1, 2003, the        Pledges Made, Amount Received, and Grant Proposals Approved

United States had pledged $1.65
billion to the Fund and is expected to
remain its single largest donor. In this
study, GAO was asked to assess (1)
the Fund’s progress in developing
governance structures; (2) the systems
that the Fund has developed for
ensuring financial accountability,
monitoring and evaluating grant
projects, and procuring goods and
services; (3) the Fund’s efforts to raise
money; and (4) its grant-making
process.

In responding to our draft report, the
Fund, the Department of Health and
Human Services, the Department of
State, and the U.S. Agency for                     a
                                                       The pledges expected through 2008 include $173 million that has no specified arrival date.
International Development agreed with
                                                   b
our findings.                                      These numbers represent the maximum amount approved by the board. Final budgets may be reduced
                                                   during grant negotiations. Five-year figures are potential, rather than guaranteed, commitments.

                                                   Note: A shortfall in the funding of already approved grants is evident when 5-year commitments are
                                                   compared with total pledges over this time frame. The small amount of resources available for funding
                                                   new grants is evident when comparing 2-year commitments with pledges through 2003.
www.gao.gov/cgi-bin/getrpt?GAO-03-755T.        •   Improvements in the Fund's grant-making processes have enhanced its ability
To view the full report, including the scope       to achieve its key objectives, but challenges remain. These challenges include
and methodology, click on the link above.          ensuring that grants add to and complement existing spending on HIV/AIDS,
For more information, contact David Gootnick       TB, and malaria and that recipients have the capacity to effectively use grants.
at (202) 512-3149 or gootnickd@gao.gov.
          Mr. Chairman and Members of the Subcommittee:

          I am pleased to be here today to discuss our assessment of the first full
          year of operation of the Global Fund to Fight AIDS, Tuberculosis and
          Malaria (“the Fund”).

          By the end of 2002, more than 40 million people worldwide were living
          with human immunodeficiency virus/acquired immunodeficiency
          syndrome (HIV/AIDS), with 5 million newly infected that year. HIV/AIDS,
          along with tuberculosis (TB) and malaria, causes nearly 6 million deaths
          per year. In addition to causing human suffering in sub-Saharan Africa and
          elsewhere in the world, these diseases threaten economic growth and
          raise the potential for increased conflict and political instability. In
          January 2002, the Fund was established as a grant-making entity with the
          goal of rapidly increasing spending on the prevention and treatment of
          these diseases in resource-poor settings while maintaining sufficient
          oversight of financial transactions and program effectiveness.

          My remarks will focus on several key areas, as discussed in our report
          issued today:1 (1) the Fund’s progress in developing key governance
          structures, (2) the oversight mechanisms and procurement policies
          approved by the Fund, (3) the Fund’s efforts to mobilize resources, and (4)
          the Fund’s grant-making processes. I will highlight the progress made and
          the key challenges that the Fund faces in each of these four areas.

          My observations are based on the work that our GAO team conducted
          over the previous year. For this project, our team conducted audit work
          that included site visits to Fund headquarters in Geneva, Switzerland, and
          to Ethiopia, Haiti, Honduras, and Tanzania— four countries that were
          awarded grants. We also obtained perspectives on the progress and
          evolution of the Fund from officials at the Department of State, the U.S.
          Agency for International Development, and the Department of Health and
          Human Services.


          The Fund has established key governance structures, including a board of
Summary   directors, a secretariat, and a grant review process. It also has called on



          1
           U.S. General Accounting Office, Global Health: Global Fund to Fight AIDS, TB and
          Malaria Has Advanced in Key Areas, but Difficult Challenges Remain, GAO-03-601
          (Washington, D.C.: May 7, 2003).



          Page 1                                                                   GAO-03-755T
potential recipient countries to establish structures at the country level to
develop, implement, and oversee grants. The principal country-level
governance structure, the Country Coordinating Mechanism (CCM), is
designed to provide a forum for locally based stakeholders to develop,
review, and submit grant proposals to the Fund and to follow the progress
of Fund-supported projects. However, a number of challenges—for
example, communication difficulties between the Fund and the CCM and
between the CCM chair and its members—have slowed the establishment
and effective operation of this key structure. The Fund has acknowledged
the CCM-related challenges and is working to address them by enhancing
its guidance and communications with CCMs.

The Fund has developed comprehensive oversight systems for ensuring
financial accountability and monitoring and evaluating grant performance,
and it has issued guidance on procurement. The Fund’s principal oversight
entity at the country level, the Local Fund Agent (LFA), is one of several
potential contractors hired by the Fund and is responsible for (1) ensuring
that grant recipients account for the money they spend and measure
progress in fighting disease and (2) assessing recipients’ ability to procure
goods and services. However, the introduction of the LFA as an oversight
mechanism has been marked by controversy and misconceptions, which
have delayed the designation of LFAs in some countries, thereby slowing
the implementation of grants. The Fund has recognized these challenges
and is working to address them—for example, through its new guidelines
on financial management.

A lack of resources threatens the Fund’s ability to approve and finance
additional grants. Although the Fund has announced plans to award new
grants in its third proposal round, planned for October 2003, pledges made
as of April 1, 2003, were insufficient to cover more than a small number of
new grants. Specifically, the Fund projects that it will receive $1.6 billion
in technically sound proposals at its next proposal round in October 2003,
but it currently has less than $300 million to support this round of grants.
In addition, without significant new pledges, the Fund will be unable to
support all of the already approved grants beyond the initial 2-year
commitments. If all currently approved grants demonstrate acceptable
performance after 2 years, the Fund will require $2.2 billion more to assist
these programs for an additional 1 to 3 years.

The Fund has made improvements in its grant-making processes that
enhance its ability to achieve its key objectives. These improvements
include altering eligibility criteria to focus on the neediest countries and
adding additional members to the proposal evaluation panel to increase its

Page 2                                                           GAO-03-755T
             overall knowledge base and better prepare it to evaluate nonmedical,
             development-related issues. However, the Fund faces the ongoing
             challenges of ensuring that its grants augment and complement existing
             spending on HIV/AIDS, TB, and malaria and that recipients have sufficient
             capacity to effectively use these grants. Although these coordination and
             capacity challenges are not unique to the Fund, the Fund has recognized
             them, and its efforts to address them are evolving.


             HIV/AIDS, TB, and malaria, three of the world’s deadliest infectious
Background   diseases, cause tremendous human suffering and economic loss and
             threaten political stability in many countries in sub-Saharan Africa and the
             developing world. According to the Joint U.N. Program on HIV/AIDS, in
             2002, AIDS caused 3 million deaths, and 5 million people became infected
             with HIV. More than 70 percent, or 28.5 million, of the 40 million people
             with HIV/AIDS worldwide live in sub-Saharan Africa. However, according
             to a report by the National Intelligence Council, HIV infections in just five
             populous countries—China, India, Nigeria, Russia, and Ethiopia—will
             surpass total infections in central and southern Africa by the end of the
             decade. According to the World Health Organization, after AIDS, TB is the
             world’s leading infectious cause of adult mortality, resulting in as many as
             2 million deaths per year. Like HIV/AIDS, TB primarily affects the most
             economically active segment of the population, with 75 percent of the
             annual deaths occurring in those aged 15 to 54 years. Conversely, malaria,
             which causes more than 1 million deaths and at least 300 million cases of
             acute illness each year, is a leading cause of death in young children. The
             disease exerts its heaviest toll in Africa, where about 90 percent of annual
             malaria deaths occur.

             The Fund was formally launched in January 2002. As of April 1, 2003, the
             United States had pledged $1.65 billion2 to the Fund out of total pledges of
             $3.37 billion and was its single largest donor. (See fig. 1 for more
             information about the Fund’s first year.)




             2
              Through fiscal year 2003, the United States had appropriated up to $650 million to the
             Fund, and it has pledged an additional $1 billion over 5 years, beginning in 2004.



             Page 3                                                                        GAO-03-755T
Figure 1: Timeline of the Fund’s First Year




                                          The Fund is a grant-making organization with the purpose of attracting,
                                          managing, and disbursing funds that will increase existing resources and
                                          make a sustainable and significant contribution to the reduction of
                                          infections, illness, and death. It aims for an integrated and balanced
                                          approach, covering prevention, treatment, care, and support. It also seeks
                                          to establish efficient and effective disbursement mechanisms. In the past
                                          year, the Fund has approved 153 grants in 81 countries across the major
                                          regions of the world.3 These grants total nearly $3.7 billion ($1.5 billion
                                          over the first 2 years) and cover all 3 diseases (see fig. 2). The Fund began
                                          disbursing money to grantees in late 2002.




                                          3
                                              This country total does not include one global grant and grants to two regions.



                                          Page 4                                                                           GAO-03-755T
Figure 2: Approved Grants, by Disease and by Regiona




                                       a
                                       Based on maximum allowable grant money for the full length of board-approved programs for the
                                       Fund’s first two proposal rounds.




                                       Page 5                                                                           GAO-03-755T
                      In its first year, the Fund developed and established key headquarters and
The Fund Has          country-level structures required to develop, implement, and oversee
Established           grants. (See fig. 3). However, limited communication and the evolving
                      nature of these new structures, especially at the country level, led to a lack
Necessary             of clarity over roles and responsibilities, slowing the Fund’s ability to sign
Governance            the initial grant agreements. The Fund has recognized these problems and
                      is taking steps at both the country and headquarters levels to address
Structures, but Its   them.
Ability to Rapidly
Disburse Grants Is    Figure 3: The Fund’s Governance Structure

Challenged at the
Country Level




                      Notes: The World Health Organization and the Joint U.N. Program on HIV/AIDS assist the technical
                      review panel with data and other expertise. The Fund has entered into an agreement with the World
                      Health Organization for the provision of administrative services at the headquarters level.

                      The arrows denote relationships but do not specify their nature, e.g., information or money flow vs.
                      accountability.




                      Page 6                                                                                 GAO-03-755T
                       The CCM—the country-level governance structure designed to review and
                       submit proposals and follow the progress of Fund-supported programs—
                       identifies a principal grant recipient. The principal recipient is a member
                       of the CCM and is responsible for receiving and implementing the grant. A
                       principal recipient can be a government agency, a nongovernmental
                       organization, a private organization, or, if alternatives are not available, a
                       multilateral development organization.

                       As of late 2002, in three of the four countries we visited there was limited
                       communication between the secretariat and the CCM and between CCM
                       leadership and other members. These communication problems and the
                       evolving nature of the country-level structures resulted in key participants’
                       being unsure of their roles in the proposal process and unprepared to
                       support the implementation of grants. In one country, the CCM was better
                       prepared largely because it had received a high level of support from Fund
                       staff and strong leadership from the CCM chair; however, according to the
                       Fund, it does not have sufficient resources to provide this level of support
                       to all CCMs. The Fund has acknowledged the difficulties experienced by
                       CCMs and is addressing them by clarifying its guidance to CCMs. For
                       example, it is conducting regional workshops and working with local
                       partners such as bilateral and multilateral donors. In addition, the Fund is
                       considering expanding the secretariat to allow its staff to devote more
                       time to advising individual CCMs and to working with local partners that
                       are assisting with grant implementation.


                       The Fund has developed systems for financial accountability and for
The Fund Developed     monitoring and evaluating grant activities. However, in the Fund’s first
Comprehensive          year of operation, these systems faced challenges at the country level. The
                       introduction of the local fund agent (LFA)—the Fund’s representative in
Oversight Systems,     each recipient country—has been marked by controversy and
but the Systems Face   misconceptions regarding its oversight role. For example, several
                       government officials in one of the countries that we visited believed,
Challenges             incorrectly, that a government ministry would be permitted to perform the
                       functions of the LFA, even though the grant recipient is another
                       government ministry. This contradicts explicit Fund instructions that the
                       LFA must be independent from the grant recipient. Also, stakeholders in
                       recipient countries have assumed, incorrectly, that the LFA was charging
                       an exorbitant fee and deducting it from the grant. In fact, LFA fees are
                       funded through the secretariat, not deducted from each grant.

                       Finally, in countries with a limited number of qualified personnel and
                       organizations, LFAs will face the challenge of maintaining the

                       Page 7                                                            GAO-03-755T
                         independence necessary to avoid real or perceived conflicts of interest.
                         These problems may delay the designation of LFAs in some countries,
                         slowing the implementation of the first round of grants. The Fund is aware
                         of these issues and is taking measures to address them. For example, in
                         January 2003, the Fund drew up guidelines on financial management
                         arrangements for principal recipients that, among other things, includes
                         options for the use of credible, existing local systems.

                         The Fund has developed detailed procurement requirements for drugs and
                         medical supplies as well as more general requirements for procuring
                         goods and services. These requirements are focused primarily on
                         procuring drugs and public health products in a manner that ensures
                         quality, safety, and the lowest possible prices. The requirements also
                         stipulate that no Fund money may be used for procuring drugs or other
                         health products until the Fund, through the LFA, has verified that
                         recipients have the capacity to manage procurement tasks such as
                         purchasing, storing, and distributing these products in accordance with
                         Fund guidance, unless the Fund agrees otherwise.


                         The Fund’s ability to approve and finance additional grants is threatened
Lack of Resources        by a lack of sufficient resources. The Fund has announced plans to award
Threatens Fund’s         new grants in its third proposal round in October 2003. However, pledges
                         made through April 1, 2003, for this year are insufficient to cover more
Ability to Continue to   than a small number of additional grants. The Fund has less than $300
Approve and Finance      million to support commitments in round 3—significantly less than the
                         $608 million in 2-year grant commitments approved in the first round and
Grants                   the $884 million approved in the second round (see fig. 4).




                         Page 8                                                        GAO-03-755T
Figure 4: Pledges Made, Amount Received, and Grant Proposals Approved




a
The pledges expected through 2008 include $173 million that has no specified arrival date.
b
 These numbers represent the maximum amount approved by the board. Final budgets may be
reduced during grant agreement negotiations. Five-year figures are potential, rather than guaranteed,
commitments.

Note: A shortfall in the funding of already approved grants is evident when 5-year commitments are
compared with total pledges over this time frame. The small amount of resources available for
funding new grants is evident when comparing 2-year commitments with pledges through 2003.


Based on the number of technically sound proposals it expects to receive
and approve in future rounds and the amount received as of April 1, 2003,
the Fund projects that it will require $1.6 billion in new pledges in 2003
and $3.3 billion in 2004. In addition, without significant new pledges, the
Fund will be unable to support all of the already approved grants beyond
the initial 2-year commitments. Specifically, if all currently approved
grants demonstrate acceptable performance after 2 years, the Fund will
require $2.2 billion more to assist these programs for an additional 1 to 3


Page 9                                                                               GAO-03-755T
                      years. Of the $3.37 billion pledged as of May 2003, 97 percent was pledged
                      by governments and only 3 percent was pledged by the private sector,
                      including foundations, corporations, and individuals.


                      The Fund made improvements in its grant decision-making process and
Improvements Made     enhanced its ability to serve its key objectives. For example, the Fund
in Grant Decision-    altered eligibility criteria to focus on the neediest countries and added
                      additional members to the technical panel responsible for reviewing
Making Process, but   proposals to increase its overall knowledge base and better prepare it to
Challenges Remain     evaluate nonmedical, development-related issues. However, the Fund and
                      its stakeholders have identified ongoing challenges to the grant decision
                      process, including ensuring that grants augment and complement existing
                      spending on HIV/AIDS, TB, and malaria and that recipients have sufficient
                      capacity to effectively use the grants. For example, the Fund has not yet
                      developed a system for monitoring whether the grants in fact add to and
                      complement existing spending once disbursed. The Fund has recognized
                      these challenges, and its efforts to address them are evolving.


                      In conclusion, our assessment of the Fund’s first year of operation
Conclusion            indicates that it provides a promising mechanism to complement bilateral,
                      multilateral, and private initiatives to fight three of the world’s deadliest
                      diseases. However, the Fund’s success will depend on its ability to meet
                      the challenges of facilitating effective locally based governance and
                      oversight mechanisms and raising sufficient resources to continue to
                      approve and finance grants. The Fund’s success will also depend on its
                      ability to ensure that its grants augment and complement existing
                      spending on HIV/AIDS, TB, and malaria and that recipients have the
                      capacity to effectively implement Fund-supported programs.

                      Mr. Chairman and members of the committee, this concludes my prepared
                      statement. I will be happy to answer any questions you may have at this
                      time.


                      For information on this statement, please contact David Gootnick,
Contacts and          Director, International Affairs and Trade, at (202) 512-3149 or Thomas
Acknowledgments       Melito, Assistant Director, at (202) 512-9601. You may reach them by email
                      at gootnickd@gao.gov or melitot@gao.gov. Other individuals who made
                      key contributions to this testimony include Sharla Draemel, Kay Halpern,
                      and Tom Zingale.



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                      Page 10                                                          GAO-03-755T
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