GLOBAL FUND OBSERVER (GFO), an independent newsletter about the Global Fund provided by Aidspan to over 8,000 subscribers in 170 countries.

Issue 148: 2 June 2011. (For formatted web, Word and PDF versions of this and other issues, see

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CONTENTS

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1. NEWS: Disbursements for China Grants Temporarily Suspended

Amid concerns about insufficient participation of civil society organisations in programme implementation, inadequate financial management and possible misuse of grant funds, the Global Fund Secretariat has temporarily suspended disbursements for all active Global Fund grants in China. GFO has learned that the Global Fund has reached agreements with Chinese authorities concerning at least one of the grants.

2. PROFILE: China Global Fund Watch Initiative

The China Global Fund Watch initiative serves as an independent watchdog over the implementation of the Global Fund-financed programmes in China. It was founded by human rights lawyer Jia Ping, who served as the first elected member of the China Country Coordinating Mechanism (CCM) for the community-based organisations and NGO sector in 2006.

3. LETTERS TO THE EDITOR: Responding to “Auditing the Auditor”

We reproduce five letters which we received from heads of principal recipient (PR) organisations in response to our commentary entitled “Auditing the Auditor” in our last issue (GFO 147).

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1. NEWS: Disbursements for China Grants Temporarily Suspended

Global Fund raises concerns relating to financial management

and involvement of civil society

Possible misuse of grant funds alleged

Citing concerns about insufficient participation of civil society organisations in programme implementation, inadequate financial management and possible misuse of grant funds, the Global Fund Secretariat has temporarily suspended disbursements for all active Global Fund grants in China. GFO has learned that the Global Fund has reached agreements with Chinese authorities concerning at least one of the grants.

Several articles about the suspensions have appeared in the mainstream press. The Global Fund has not made any public announcement concerning the suspensions, but it has responded to questions from journalists.

According to the Global Fund website, China has four active grants: two for malaria, and one each for HIV and TB. China has been awarded 14 grants by the Global Fund, but in 2010 China went through an elaborate process of grant consolidation. The sole principal recipient (PR) for all of China’s grants is and has been the (China) Center for Disease Control (CDC), a government entity.

In November 2010, the Global Fund Secretariat sent an “administrative letter” to the CDC advising that disbursements for China’s HIV grant were being suspended. According to the newsletter China Global Fund Watch, the administrative letter referred to the CDC’s failure to meet “a host of terms and conditions” in the grant agreement. The following are some of the examples cited in the letter:

  • The CDC failed to allocate 20% of programme budgets to civil society organisation (CSO) implementers, as had been agreed. (The 20% figure applies to the first year of the grant; the agreement was that the allocation would gradually increase in subsequent years until it reached 35%. China Global Fund Watch said that less than 11% had been allocated to CSOs in the first year.)
  • A capacity building plan for implementers was submitted two weeks after the deadline, but plans for CSO implementers were not included.
  • The procurement and supply management plan had not yet been finalised.
  • The monitoring and evaluation plan was inadequate and had to be completely rewritten and resubmitted.

(China Global Fund Watch is produced by a grassroots organisation, the China Global Fund Watch Initiative. See next article for a profile of the organisation.)

According to China Global Fund Watch, the administrative letter also pointed out that although most project targets had been accomplished during the most recent reporting period, financial performance was poor.

Note: The Global Fund Secretariat told GFO that “poor financial performance” refers to the fact that expenditures were behind schedule; and that this may have been due to late signing by CDC of grant agreements with the provinces.

When the administrative letter was sent in November 2010, no concerns were raised about possible misuse of grant funds.

According to media accounts, in early May 2011 the Global Fund suspended disbursements for the three remaining China grants. Jon Lidén, the Fund’s Director of Communications, is quoted as saying that disbursements were stopped after an internal report raised concerns about how grant monies were being used by the thousands of counties and districts that received the payments. Lidén also cited the CDC’s failure to channel sufficient funding to CSO implementers.

Lidén is also quoted as saying that following talks between the Global Fund Secretariat and the CDC, Chinese officials indicated a willingness to address the Fund’s concerns. According to Lidén, the CDC said that it would improve its management of the grants, repay any funds that were not properly used, and increase funding and training for community groups.

Note: No details have been released concerning the possible misuse of grant funds. We don’t know how much money was involved nor how the funds may have been misused. The Global Fund’s Office of the Inspector General (OIG) has indicated that it plans to conduct an audit of the China grants.

An article in the New York Times said that the suspensions “appear rooted in a collision between the fund’s conviction that grass-roots organizations must be intrinsically involved in the fight to control diseases like AIDS, and the Chinese government’s growing suspicion of any civil-society groups that are not directly under its control. They follow complaints by some AIDS activists that Chinese officials have sought to suppress their public-health activities, have shunted grant money to groups under government control and have failed to account for how some funds were spent.”

A Global Fund delegation, headed by Deputy Executive Director Debrework Zewdie, visited Beijing in the third week of May for discussions with Chinese authorities and the CDC. In a letter sent to members of the China CCM on 26 May 2011, a copy of which was provided to GFO, Dr Zewdie said that certain agreements had been reached with Chinese officials. The letter appears to refer only to the HIV grant.

With respect to the involvement of civil society, Dr Zewdie described the agreements as follows:

  • The China CDC will select and appoint, through an open and transparent process, a major non-government sub-recipient (SR) to manage the civil society portion of the HIV grant.
  • A capacity building programme will be put in place that will enable this SR to become a PR in parallel to the CDC, before June 2012.
  • In turn, the SR will conduct institutional capacity building of community-based organisations and will fund them to enable them to develop into effective and sustainable partners in implementing the programme.

With respect to the financial management of the HIV grant, Dr. Zewdie described the agreements as follows:

  • The China CDC will take immediate action in the 24 counties verified in the financial management verification to correct the findings, including repaying funds used inappropriately.
  • The CDC will put in place stronger controls in the other approximately 3,000 counties that address the weaknesses identified.
  • By mid-June 2011, the CDC will receive confirmation of strengthened controls from all counties and share this confirmation with the Global Fund.

Several media reports said that the story of suspended disbursements was being played out against the backdrop of a larger debate concerning whether China should continue to receive foreign aid, considering its relative prosperity after decades of high economic growth.

Information for this article was taken from the following sources: “Summary: The Global Fund suspended grant disbursement to China Global Fund RCC AIDS program,” China Global Fund Watch, Issue No. 14, March 2011 (on file with the author); “AIDS funds frozen in China in grant dispute,” by Sharon LaFraniere, New York Times, 20 May 2011; and “Health fund freezes payments to China amid dispute,” Associated Press, 24 May 2011.

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2. PROFILE: China Global Fund Watch Initiative

Strengthening Global Fund governance and NGO engagement

The China Global Fund Watch initiative (GF Watch), a non-profit organization based in Beijing, serves as an independent watchdog over the implementation of the Global Fund-financed programmes in China. Its broader mission is to promote the development of a healthy civil society in the country – and hence good governance and public participation – by fostering the growth of HIV/AIDS NGOs and by building partnerships.

GF Watch was founded by human rights lawyer Jia Ping, who served as the first elected member of the China Country Coordinating Mechanism (CCM) for the community-based organisations and NGOs (CBO/NGO) sector in 2006. During his tenure, he worked on drafting the 2007 CCM CBO/NGO election plan and on designing what is now the CCM NGO Working Committee. Through this process, Mr. Jia realized the need for enhanced governance in the Global Fund’s in-country structures in order to strengthen programmes and further develop China’s NGOs. As a result, Mr. Jia established GF Watch in November 2007, and has served as its chief executive officer (CEO) ever since.

Given its broader mission of strengthening governance, GF Watch works primarily in four areas, as follows:

  • Public participation, good governance and transparency. GF Watch supports public participation – especially of those infected with, or affected by, HIV/AIDS – in seeking to achieve good governance and transparency in Global Fund-financed programmes. In addition to strengthening the role of civil society, GF Watch conducts independent monitoring and reporting of HIV/AIDS related activities and policies through its E-Newsletters. Key functions of the E-Newsletter are to raise awareness, increase transparency and ensure accountability of the Global Fund’s programmes, by providing information, analysis and recommendations on current policies and activities.
  • NGO development and partnership building.GF Watch believes that meaningful participation in the governance process requires mature NGOs and productive partnerships. GF Watch offers training workshops and ongoing technical assistance that fosters the development of HIV/AIDS NGOs, and facilitates collaboration between NGOs, government, academia and the private sector. Over the past two years, GF Watch has conducted trainings for NGOs in Heilongjiang and Shanxi provinces, resulting in provincial-level coalitions and increased advocacy among NGOs for greater participation in government policy making processes. In 2011, GF Watch will facilitate provincial-level dialogues between local government and NGO activists on public health policy in these two provinces – and will, in the process, establish an important platform for enhancing cooperation and communication.
  • Advocacy for women’s participation in the governance of the national HIV/AIDS response. GF Watch identified the absence of women in key aspects of the decision-making process as a serious impediment to the successful development of effective programmes. To address this gap, GF Watch has expanded its focus to include empowering women activists to participate in various aspects of the governance process. To this end, GF Watch provides regular trainings in capacity building and on-the-job coaching to women leaders to enable them to advocate their perspective more effectively. Moreover, Ms. Zhang Tao, GF Watch’s Associate Director, serves as an advisor to a national women’s network and a provincial-level women’s coalition in Henan province.
  • Public health policy and legal research. GF Watch conducts public health and HIV/AIDS-related policy and legal research. This research, most of which has been published, addresses human rights and lesbian, gay, bisexual and transgender (LGBT) issues, stigma and discrimination, and access to treatment. GF Watch also publishes a governance research series on topics such as the CCM membership election process, the NGO working committee mechanism, and women’s participation in the Global Fund in-country governance process.

Partnership building, especially among the NGO, government, policy and legal research communities, is an important aspect of the work of GF Watch. These partnerships complement and reinforce a system of checks and balances that promotes accountability and advocates for NGO participation. Consistent with Chinese Premier Wen Jiabao’s statement, “Creating a social environment encourages people to monitor the government,” GF Watch has established itself as a leading civil think tank to promote civil society’s meaningful participation in public debates.

Finally, GF Watch has established an advisory board, which consists of leading national and international academics, and which adds depth to the organisation’s management structure and resource pool.

This article is based on information provided by Jia Ping, one of the leading HIV/AIDS lawyers in China, and CEO of GF Watch. For more information, visit the GF Watch website .

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3. LETTERS TO THE EDITOR:

Responding to “Auditing the Auditor”

Editor’s note: On 24 May 2011, in GFO 147, we ran a Commentary entitled “Auditing the Auditor” which focused primarily on the work of the Global Fund’s Office of the Inspector General (OIG). We invited readers to submit “letters to the editor” with responses to the article. We received five letters, which we reproduce below. Each of the letters was from the head of a principal recipient (PR). (Letters were edited for length.) GFO also invited the OIG to provide comments. The OIG replied that it would place its comments on the Global Fund website in due course.

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Letter from Derek von Wissell, Director of the National Emergency Response Council on HIV/AIDS, a government agency that serves as PR for all Global Fund grants in Swaziland

I think your comments on “problem area 1” (“The OIG’s approach to conducting audits and investigations is overly zealous”) are a realistic reflection of our experience. The whole audit experience in Swaziland was so unpleasant that I nearly lost some of my most senior staff who felt offended by the attitude, actions and accusations of the auditors.

For example, before the end of the audit, allegations were made by the OIG at a debrief to an open public audience that were so intolerable they led to a confrontation (in private, witnessed by the fund portfolio manager) between myself and the Inspector General. False allegations were made implying fraud/theft/corruption in statements like “The PR is unable to provide documentation and proof of expenditure for $x million,” a very large amount of money. The audience, including senior government officials, the media and CCM, was stunned. The allegation was proven false a couple of days later, but there was no public retraction. To this day, nine months later, questions are still being asked by the media and even in Parliament about the OIG’s statement. In a money-managing organisation such as a PR, reputational risk is taken extremely seriously.

“Zero tolerance” is acceptable and understandable, but it is by applying first world standards on third world capacity that tensions are bound to emerge. Many of our implementers do not have bookkeepers, computers or accounting systems, but they are doing fine work, impacting on people’s lives.

I think the Global Fund Board should set a level of “acceptable risk, deviation, loss or leakage” to avoid a situation where the pursuit of perfect “zero tolerance” comes at an unacceptable cost. What does the OIG cost to discover how much loss?

In conclusion, there is a real danger that the truly amazing work and successes brought about by the Global Fund will become overwhelmed and stifled by the Fund’s unreasonable preoccupation with processes, details and micromanagement – and by the OIG.

Derek von Wissell, Mbabane, Swaziland

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Letter from Elizabeth Mataka, Executive Director, Zambia National AIDS Network (ZNAN), a national NGO which serves as a PR in Zambia (Ms. Mataka also served as Vice-Chair of the Global Fund Board from 2007 to 2009.)

The GFO article was well thought out, bringing out the true concerns that most audited countries have had regarding the working methods of the OIG and of its sub-contracted auditors.

My first concern is that OIG staff come not to audit but to find fault at all costs. If they do not find theft/fraud/embezzlement in a PR, they go fishing in other waters. How else would you explain the question during the entry meeting, “Yes Mrs. Mataka, so what is keeping you awake at night?”

My second concern is that the OIG focuses too much on PRs and not enough on sub-recipients (SRs) and sub-sub-recipients (SSRs). My organisation, ZNAN, is not an implementer; instead, it sub-grants 90% of its Global Fund grants to approximately 150 community-based SRs which operate throughout the country. The auditors who came to audit ZNAN spent 80% of their time auditing us and had very little time to audit our SRs and SSRs. They did not have time to look at the SR documentation which we provided to them. Yet the OIG still went ahead and formed a negative opinion (concerning unsupported expenditures which should be refunded) without fulfilling its task of going down to audit these SRs and SSRs. If they had visited the SRs, they would have realized that even though the SR’s books were not always properly kept, funds were still being spent on the target group!

My third concern relates to the difficulty of financing the implementation of OIG recommendations. The OIG report highlights the areas of weakness and makes recommendations, which often include capacity strengthening of various kinds. Such interventions require funds to implement, and the most obvious source of these funds is the same (or different) GF grants, particularly in the case of civil society PRs that have no other funding sources or whose other donors have withheld funding due to the same OIG report.