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MASSIVE CORRUPTION! (…in Small Global Health Grants?)
January 24, 2011
After writing a rather optimistic blog about progress against corruption in health, I received a link from Karen Grépin to a troubling news story from AP about corruption involving the Global Fund Against Aids TB and Malaria (Global Fund).
When I read the story, though, it didn’t contradict my previous blog. Rather, it demonstrated why it is so difficult for us to have serious discussions about corruption in global health aid.
To be gripping, headlines and articles tend toward the dramatic side of any story with a strong temptation to exaggerate. Yet, the true dimensions of corruption are rarely known because we only hear about the few programs that report problems. So how are we to know what’s really going on?
First, let’s look at the exaggerations. To begin with, the AP story implies this is new information; but the Global Fund itself already publicly disclosed all the reported cases last year. To make the story sound timely, the lead sentence informs the reader that AP “learned” about these cases yesterday…should they really admit that?
Then, the lead gives us two figures and a small, but critical adjective. The funds involved are $21.7 billion (MASSIVE!) and the share of corruption is two-thirds (MASSIVE!) of… (here’s the key adjective) …some grants. Oh, two-thirds of some grants. Well, how big were those grants?
Time for George Carlin’s joke about “JUMBO shrimp.”
The two-thirds share applies only to two grants totaling about $10 million in Mauritania and these are the most extreme cases reported in the article. In its press release, the Global Fund provides a more appropriate way of gauging the overall scale of corruption, noting that they’ve uncovered $34 million of fraud out of total disbursements of $13 billion—about 0.3%. I suspect Wall Street would be envious of such low levels of fraud and abuse.
But once we get past the exaggerations, we are still left with a very difficult question. While readers might finish the AP article mistakenly thinking that $14 billion has been stolen (that is, two-thirds of $21.7 billion), it would also be a mistake to read the Global Fund press release and believe that only $34 million is gone.
What we’re missing is a way to assess how representative these cases may be. If the Global Fund’s detection system is 100% effective, then these cases are isolated and it is a tiny problem. If the detection system only picks up 50% of cases, then instead of a tiny problem, we’ve got a small one. But if the detection system only finds 5% of cases then—despite the mistaken deduction from the AP article—we really would have a massive billion-dollar corruption problem.
The Global Fund should be praised, not slammed, for its investigations and for its openness. But, it also needs to be challenged to find a way to estimate how representative these cases may be. This is not exclusively a problem of the Global Fund. Carefully reading the anti-corruption reports of any international aid agency is bound to uncover some truthful but troublesome phrases like this one from the 2010 Annual Report of the World Bank’s Integrity Vice Presidency (INT):
The number of cases INT opens in a region does not directly correlate with greater fraud and corruption risks. Rather the statistic indicates where allegations have been reported, which in turn reflects where INT has been most active over the years. (Page 7)
When agencies begin to open new cases in ways that are correlated with corruption risks, they’ll start having a better way to respond to accusations of “MASSIVE FRAUD ( … in some programs).”
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12 Responses to “MASSIVE CORRUPTION! (…in Small Global Health Grants?)”
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January 24th, 2011 at 5:42 pm
You’ve done a great job laying out the challenge, so thanks for this post.
January 24th, 2011 at 5:51 pm
My dissatisfaction with the coverage of this “recent” news about the Global Fund differs from yours.
My dissatisfaction is that the coverage does nothing to help readers understand the underlying problems with the Global Fund model of health development assistance that are linked to the problems identified in the audit reports.
Two serious problems with the Global Fund model of assistance have been identified which enable/exacerbate fraud and corruption: 1) weak arrangements for supervision; and, 2) extremely weak arrangements and requirements for procurement using GF funds.
On supervision: in essence the Global Fund is a financier of development assistance – they leave the project preparation and supervision to others. This work gets done under all kinds of ad hoc arrangements which the Global Fund 5 year evaluation said very clearly are not working. Yes, that’s right the Five Year Evaluation explicitly said that supervision is a big problem with GF financed activities (See Study Area 2 Report – link below). For example, the main supervising body in each country is a “Country Coordinating Mechanism” – and these bodies were found to have many problems with conflicts of interest (e.g. INGOs which were deciding how to allocate funds and were supervising funds were also executing funded activities).
Equally importantly, the evaluation found that the procurement arrangements for GF funding were particularly problematic – when benchmarked against global standards (See Table 15: Internationally recognized steps for effective procurement benchmarked against GF requirement on p 129 of the Study Area 2 report) and when benchmarked against other development organizations.
Here is the key recommendation on procurement word for word from the 2008 Study Area 2 report of the Global Fund report: “At a minimum, THE GF SHOULD COMMIT TO MEETING INTERNATIONALLY ACCEPTED STANDARDS FOR PROCUREMENT. Failure to increase oversight standards, in the interest of efficiency or country ownership may put the GF’s investments at risk…”.
So, the issue I would like to see raised here or in the newspaper coverage is: what has the Global Fund and the GF Board done since 2008 to remedy these issues?
Here is a link to the Study Area 2 report of the Global Fund Evaluation. http://www.theglobalfund.org/e.....tions/sa2/
January 24th, 2011 at 10:09 pm
April: Nice point but your e.g. on INGOs leads to still another question. Let me quote from your post: “and these bodies were found to have many problems with conflicts of interest (e.g. INGOs which were deciding how to allocate funds and were supervising funds were also executing funded activities).”
Ummm. Isn’t that true of the World Bank among other official funders?
January 24th, 2011 at 11:48 pm
I have to agree with April. The report was mostly out of date news for GF watchers and it failed to show what the issues were behind the losses. To Bill’s point, the losses discovered were small compared to the funds disbursed, but I suspect a lot more losses went undocumented.
To answer April’s last question, what I hear from my INGO friends who are receiving GF funds or are PR’s, apparently the GF is putting Geneva based inspectors in charge of approving disbursements, seriously hampering implementation. SO much for local control and ownership. This means that the GF has essentially reinvented the history of most bilateral donors like USAID which used to directly fund local governments and local organizations over which they had limited control in the name of strong local ownership, and eventually moved to funding organizations and used mechanisms over which they had a high level of financial control because of bad experiences like the GF has just experienced. It has been a noble experiment, but ultimately the GF is going be like nearly every other donor, albeit with fewer bilateral strings attached.
January 25th, 2011 at 9:23 am
I was also shocked to see the Global Fund’s work in this coverage referred to as “small grants.” My recent blog articles on alternative small grant mechanisms that directly support local, grassroots organizations in the developing world (defined as approximately <US$20,000) is what I consider small. Guess it's all relative.
January 25th, 2011 at 10:25 am
Thanks Nancy for underscoring this important point about how development institutions structure their decision-making and oversight, and especially how they contain conflicts of interest, to ensure funds are used properly.
Most importantly, World Bank money does not flow with the WB playing both a supervisory and execution role, except for a tiny amount of base-budget (for project supervision) and World Bank-executed trust funds. For WB-executed trust funds this dual role can occur where the grant giver allows grant funds to be spent on WB staff,which very few do, except for the negotiated 2-5% to cover administrative costs.
With respect to allocation decisions among program/project activities or sectors or sub-sectors, these decisions have to be agreed with government legally.
In sum, the World Bank has very little World Bank executed budget. Compared to other official funders, it has less than the Asian Development Bank and way less than UN agencies.
There are several other checks in place to constrain misuse of funds, fraud and corruption. Supervision of Bank project funding flows involves matrix management oversight(it is harder to misuse your authority over funding decisions if that authority is split)plus independently managed fiduciary and safeguards supervision and independent quality reviews (see Quality Assurance Group reports here http://goo.gl/eWgET), independent impact evaluation (see IEG’s website for reports http://goo.gl/qfAl2), and a unit – INT – that conducts independent investigations for fraud and corruption (see this website to look at some of the reports http://goo.gl/tnnqz) and the Inspections Panel – to which people or communities who feel they have been harmed can bring their complaints and mobilize investigations by an independent unit – see here http://goo.gl/4MHD2.
This is probably much more detail than blog readers are interested in. However, I believe the WB has learned a lot in the past 50 years about how to manage development assistance funding flows – and many of those lessons have come to be reflected in the processes and institutional arrangements I’ve outlined above.
We are still learning too.
January 26th, 2011 at 12:29 pm
First, I’d like to acknowledge Jennifer’s comment. Yes, small is relative. It must be horrifying to an organization trying to manage a $20,000 grant to hear that $4 million was stolen. Whether it is 67% of a $6 million program or 0.067% of a $6 billion program, it is still a lot of money. I think this is why we commonly hear the phrase “zero tolerance for corruption” even when, in reality, no program can be managed with such an unrealistic threshold.
Some of the other comments though point to 3 distinct but related questions that get lost in this mixture:
Question #1: How big a problem is corruption?
Answer: We don’t know. To get a clear answer would require representative sampling and the like but no one does this. Instead, we get reports from integrity offices about the cases they’ve investigated but no idea if they’re representative. That’s the issue I focused on in my original posting.
Question #2: Do procurement and audit controls make a difference in reducing (or detecting) corruption?
We can compare the Global Fund with other organizations like PEPFAR (see Nandini Oomman’s blog at http://bit.ly/i1YGeG) and the World Bank (April’s comments above) on the degree to which they have rules and procedures, separate functions of oversight and implementation, and publicize their activities and findings. But these may do little or nothing to reduce corruption if (1) all they do is verify that paperwork is properly filed (and criminals are smart about inventing paperwork) or (2) the real cost-inflation isn’t in the corrupt public officials but collusion among private contractors. It is true that the Global Fund lacks the oversight structures and procurement rules present at the World Bank. However, we also lack evidence that the World Bank’s approach does a better job of reducing corruption. All it might do is get in the way of program effectiveness. The relatively light approach to tracking at the Global Fund was by design. They were created with the intention of avoiding burdensome procedures. But they still had to figure out how to control corruption. So the system was designed to get money out on the basis of documenting results rather than inputs. Which leads to question #3 …
Question #3: Can you control corruption by discarding the expenditure tracking approach and verifying results or outputs instead?
This was the original logic of the Global Fund model but – as far as I understand – was never really implemented. When the Global Fund reports that it financed a certain number of bednets, it is usually difficult to tell if the estimate comes from a survey of net use or is extrapolated from their grantees’ reports. If you try to control corruption by focusing on measuring outputs, then you worry less about getting receipts for inputs and focus your attention instead on independently verifying outputs. The assumption is that you don’t get outputs without someone spending the money on producing them; and, if you get the outputs, should we care whether you call the surplus diverted by agents “rents,” “profit” or “theft”? The advantage of controlling corruption by focusing on results is that it tends to complement efforts to improve managerial efficiency; whereas controlling corruption by tracking expenditures can easily work at cross purposes. This is why we think that COD Aid – with its requirement that deliverables be independently verified – might be a more effective way to address corruption concerns than existing aid approaches.
January 27th, 2011 at 9:20 am
Terrific, thoughtful post Bill. For another balanced commentary on the same see Bernard Rivers in the Global Fund Observer: http://www.aidspan.org/index.p.....;article=1
January 28th, 2011 at 10:26 am
Bill – This is an interesting thread. I provided a link to it in the commentary on GF-related corruption that I wrote yesterday in Global Fund Observer, for which Rakesh has provided a link in the previous Comment. (I run Aidspan, which is a watchdog of the GF, based in Nairobi.)
April Harding raises the issue of conflicts of interest on Global Fund CCMs (the national committees that develop proposals to the GF and oversee the grant implementers). The conflict of interest is not just with INGOs, it’s with national NGOs. Before dual-track funding, whereby the GF hopes to have non-goverment implementers, not just government ones, the NGO members of CCMs played an important watchdog role. Now, they’re much more interested in becoming principal recipients or sub-recipients. This is an unfortunate negative consequence of a development that a lot of us in CS pushed for.
I plan to write more in GFO in about a week’s time on what the GF could/should do to detect/reduce/punish corruption in the implementation of its grants. I’ll be interested to hear suggestions, here or by email to bernard.rivers (at) aidspan.org.
January 29th, 2011 at 10:55 am
Bill Brieger over at Malaria Matters posted the best summary of what’s wrong with the Global Fund and how to go about fixing it. http://goo.gl/uysKN
Note: my comments reflect only my personal opinion.
January 31st, 2011 at 5:49 am
Many of the posts have commented on procurement of health products, and I am certain that some of the fraud uncovered by the Global Fund’s Office of the Inspector General (OIG) is indeed in the area of procurement. But what has not been talked about much is the fact that in Mali and Mauritania, two of the countries that have been mentioned in many of the media reports, the biggest problem identified by the OIG has to do with so-called “training events.” To quote the OIG on the TB and malaria grants in Mali: “The highest level of fraud has been found to exist in purported “training events” and related per diem payments, lodging and travel expense claims, and pervasive fraudulent invoicing. Forged signatures have been found to be rampant…. The purported ‘training events’ and per diem expenses constitute approximately half of all TB and Malaria grant funds. More than 70percent of the expense documents have been determined to contain substantive and credible evidence of fraud.” The OIG said that a lot of people, including “numerous local merchants” and government officials, were in collusion with respect to this fraud.
The OIG said that a “virtually identical pervasive fraud scheme” was perpetrated in Mauritania. The OIG spoke of “fabricated documents (supporting invoices and requests for payment) provided by SRs and SSRs over a five and a half year period.”
How could such fraud have gone on for five and half years without anyone in the Global Fund, or representing the Global Fund, knowing about it?
February 5th, 2011 at 10:28 am
I’ve been a staunch supporter of the GF from the beginning, overlooking the many criticisms I’ve heard over the years (some valid, most silly), and tolerating the higher risks that I knew this new model must involve. But this growing number of stories, and the GF’s defensive, circle-the-wagons, blame-shifting attitude have for the first time made me suspect that something larger may be amiss with the Fund. Yesterday’s story in the Financial Times has now pushed me over the edge. See http://www.ft.com/cms/s/0/bd2d.....z1D5iHRgLQ.
It’s true that the initial AP story was overblown, and muh of the later coverage is of suspect origin (like Fox News). Most of these simply extrapolate irresponsibly from a very small sample. But the latest story by the FT is something new and different. It takes a more sober and balanced look and reveals much more disturbing information. The most important revelation is that the Fund’s five-year evaluation, which the GF and its many supporters portrayed as a glowing review, in fact included some quite damning findings. Most important of these were: (1) that GF accountability practices in some cases do not even meet minimal levels of commonly accepted international standards; and (2) there is no persuasive evidence that GF grants have had any measurable impact on HIV prevention.
Since the evaluation is several hundred pages long, when it came out I took the GF’s own summary on faith and limited myself to reading the summary, which itself was quite long. I imagine most other GF supporters did the same thing, since we have always felt we could trust their word. But the FT story led me to delve into the fine print of the evaluation, and I must say that after several hours of digging, I now feel deceived. Buried deep in the report (perhaps deliberately?) is the sort of language that, if used to refer to a U.S. federal agency, would have triggered bipartisan investigations. And now the FT’s own review has found that even two years later, the Fund has done essentially nothing about these findings. This is not the transparent and responsible organization I was led to believe I was supporting. I have also been disturbed at some of the GF’s response to the story. One of its first statements said, in essence, that they’re no worse than any other global agency. When an organization responds to allegations by pointing fingers at its competition, that’s a sure sign there’s something larger going on.
I have no idea how widespread the actual losses are thus far. That’s up to the new investigation to determine, and I’ll be watching with interest for its report. But no matter what it finds, it’s clear from the FT story that we can no longer trust the GF to play straight with us. Now that we see it’s no different from any other bloated bureaucracy, I hope more reporters will drop the gentle treatment they’ve given it over the years and really start to dig.