[Senate Prints 112-17]
[From the U.S. Government Printing Office]






112th Congress 
 1st Session                COMMITTEE PRINT                     S. Prt.
                                                                 112-17
_______________________________________________________________________

                                     

 
                     FRAUD AND ABUSE OF GLOBAL FUND
            INVESTMENTS AT RISK WITHOUT GREATER TRANSPARENCY

                               __________

                        A MINORITY STAFF REPORT

                      PREPARED FOR THE USE OF THE

                     COMMITTEE ON FOREIGN RELATIONS

                          UNITED STATES SENATE

                      One Hundred Twelfth Congress

                             First Session

                             April 5, 2011

                                     




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                COMMITTEE ON FOREIGN RELATIONS          

            JOHN F. KERRY, Massachusetts, Chairman          
BARBARA BOXER, California            RICHARD G. LUGAR, Indiana
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania   MARCO RUBIO, Florida
JIM WEBB, Virginia                   JAMES M. INHOFE, Oklahoma
JEANNE SHAHEEN, New Hampshire        JIM DeMINT, South Carolina
CHRISTOPHER A. COONS, Delaware       JOHNNY ISAKSON, Georgia
RICHARD J. DURBIN, Illinois          JOHN BARRASSO, Wyoming
TOM UDALL, New Mexico                MIKE LEE, Utah
             Frank G. Lowenstein, Staff Director          
       Kenneth A. Myers, Jr., Republican Staff Director          

                             (ii)          
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                            C O N T E N T S

                              ----------                              
                                                                   Page
Letter of Transmittal............................................     v


History and Background...........................................     1


    The United States and the Creation of PEPFAR.................     1


    Funding History of PEPFAR....................................     2


    The Role of International and Other Organizations............     2


Establishment of the Global Fund to Fight AIDS, Tuberculosis and 
  Malaria........................................................     2


Funding History..................................................     2


Operation and Structure of the Global Fund.......................     3


Process for Providing Medicines and Services.....................     3


Accomplishments of the Global Fund...............................     3


Benchmarks and Transparency......................................     4


Creation of the Office of Inspector General......................     4


Current Response by the OIG......................................     5


Secretariat Response.............................................     6


    United States Recommendations on Reform......................     7


Budget Implications..............................................     7


    United Nations Development Program...........................     8


Department for International Development.........................     9


Recipient Countries As Donors....................................     9

                                Appendix

2004-2009 Statistical Data Provided by the UN, World Bank, WHO, 
  UNAIDS.........................................................    11


Staff Recommendations............................................    12

                                 (iii)
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                         LETTER OF TRANSMITTAL

                              ----------                              

                              United States Senate,
                            Committee on Foreign Relations,
                                     Washington, DC, April 5, 2011.
    Dear Colleagues: Through the President's Emergency Plan for 
AIDS Relief (PEPFAR), the United States is providing both 
bilateral and multilateral assistance to disadvantaged 
populations to prevent and treat people with HIV/AIDS, 
tuberculosis and malaria. As of December 2010, U.S. investment 
in these programs totaled more than $32 billion. The U.S. 
provides its multilateral assistance through the Global Fund to 
Fight AIDS, Tuberculosis and Malaria, an independent entity 
which receives contributions from both countries and private 
organizations and provides medication and health services 
through nearly 600 grants in more than 140 countries. Although 
the Global Fund has demonstrated significant accomplishments 
and successes in saving lives through its antiretroviral drug 
programs and its prevention work, it has recently come under 
fire for mismanagement of grants in several countries. 
Following the release of several critical reports, some donors 
to the Fund have suspended their contributions until all 
mismanagement practices and abuses of funds can be rectified.
    Many of the new Members of the Senate who have no direct 
experience with PEPFAR and the Global Fund have asked Committee 
staff for a brief primer on these programs in anticipation of 
having to make funding decisions relative to the these global 
initiatives. I requested Senior Professional Staff Members 
Shellie Bressler and Lori Rowley to produce this primer. Their 
report examines the history and operation of PEPFAR and the 
Global Fund, the problems and initial improvements made to it, 
and the most recent challenges it faces. It also provides a 
series of recommendations for implementation by both the U.S. 
Government and the Global Fund for strengthening existing 
systems for the distribution of supplies, medication and 
services in order to prevent further mismanagement and to 
ensure that the maximum number of people may benefit from the 
health prevention and treatment efforts of the Global Fund.


                                   v

    These tough recommendations run the gamut from withholding 
U.S. funds to the United Nations Development Fund (whose 
Development Program is a large recipient of Global Fund grants) 
until the organization's internal procedures allow for greater 
access to their internal audit and investigation documents, to 
a recommendation for the development of an additional layer of 
protection and an early warning system in those nations where 
instability and/or government corruption are a concern.
     I hope you find this report useful and that we may work 
together to reduce fraud, improve transparency and ensure 
maximum value for the U.S. investment in these global health 
programs.
            Sincerely,
                                          Richard G. Lugar,
                                                    Ranking Member.


                     FRAUD AND ABUSE OF GLOBAL FUND
                      INVESTMENTS AT RISK WITHOUT
                          GREATER TRANSPARENCY

                              ----------                              


                         History and Background

The United States and the Creation of PEPFAR
    The United States has been at the cutting edge of research 
into the cause and treatment of HIV/AIDS among its citizens 
since the early days of the detection of the disease. Its 
interest in addressing the devastating consequences of HIV/AIDS 
internationally began in earnest in early 2001 under the 
leadership of President George W. Bush when he established a 
cabinet-level task force to address HIV/AIDs globally. Co-
Chairs Secretaries Colin Powell (State) and Tommy Thompson 
(Health and Human Services) led a diverse team from many 
sectors of the executive branch to develop the initiative.
    Despite the fact that the task force developed its proposal 
as the nation coped with the aftermath of the September 11 
attacks, it received strong focus from the President, driven 
both by his own point of view and the encouragement of the 
evangelical Christian movement, some members of which believed 
that overcoming this devastating disease was a moral 
obligation. President Bush unveiled a proposal, now referred to 
as the President's Emergency Plan for AIDS Relief (PEPFAR), in 
his 2003 State of the Union address. He requested Congress to 
commit $15 billion over five years for the effort, primarily 
for Africa and the Caribbean.
    At this time, Members of the House and the Senate were also 
developing their own legislation, including a bill Senators 
Lugar and Kerry were drafting. Following the President's 
proposal in January of 2003, the pace of the legislative effort 
accelerated. Under bipartisan leadership of Chairman Henry Hyde 
and Ranking Democrat Tom Lantos, the House acted first, passing 
H.R. 1298--the United States Leadership Against HIV/AIDS, 
Tuberculosis and Malaria Act of 2003--by a vote of 375-41 in 
May of that year.
    On May 7, 2003, Chairman of the Senate Foreign Relations 
Committee Richard Lugar, along with Ranking Member Joseph 
Biden, Senator John Kerry, and Democratic Leader Tom Daschle, 
led the Senate effort as sponsors of S. 1009, The United States 
Leadership Against HIV/AIDS, Tuberculosis and Malaria Act of 
2003. Together with the backing of Senate Majority Leader Bill 
Frist, the Senate approved the legislation, authorizing the 
U.S. to participate in the Global Fund to fight AIDS, 
Tuberculosis and Malaria. Following House adoption of the 
Senate's amended version, President Bush signed the bill into 
law on May 27, 2003 as Public Law 108-25.
    On July 18, 2008, the Senate approved the reauthorization 
of the legislation, the Tom Lantos and Henry J. Hyde United 
States Global Leadership Against HIV/AIDS, Tuberculosis and 
Malaria Reauthorization Act (P.L. 110-293), by a bi-partisan 
vote of 80-16. The reauthorization increased funding; set 
higher targets for prevention, treatment and care; and gave 
country teams the flexibility to tailor their programs to meet 
their countries' epidemics.
Funding History of PEPFAR
    Since its creation in Public Law 108-25 in 2003, PEPFAR has 
received annual appropriations from Congress totaling $32.367 
billion through fiscal year 2010. (Final funding levels for 
fiscal year 2011 remain unknown pending the outcome of the 
continuing resolution). The largest portion of this funding 
flows through appropriations to the State Department's Office 
of the U.S. Global AIDS Coordinator, while other funds also are 
dispensed to PEPFAR from the Departments of Health and Human 
Services, Defense, Commerce, Labor, and the Peace Corps via 
other appropriations bills. PEPFAR represents both the United 
States' bilateral efforts to support the treatment of HIV/AIDS, 
TB and Malaria and our international financial support of the 
Global Fund. (See below).
The Role of International and Other Organizations
    As the President and the Congress worked to set the 
parameters for a U.S. program and its partnership participation 
in a global effort against HIV/AIDS, other countries and the 
United Nations also engaged in the effort. In remarks at the 
African Leaders Summit in Abuja, Nigeria, in April of 2001, 
Secretary-General Kofi Annan put forth a number of specific 
actions for African nations themselves to stem the HIV/AIDS 
epidemic on the African continent. He called for ``the creation 
of a Global fund, dedicated to the battle against HIV/AIDS and 
other infectious diseases.''

   Establishment of the Global Fund to Fight AIDS, Tuberculosis and 
                                Malaria

    The United Nations General Assembly held a Special Session 
on AIDS in June 2001 at which the organization agreed to 
establish a fund to address the global AIDS pandemic. 
Additionally, the G-8 endorsed the establishment of the fund at 
its 2001 Summit in Genoa. The Global Fund to Fight AIDS, 
Tuberculosis and Malaria was established in 2002, not as a 
United Nations organization, but rather as an independent 
financing entity that both receives contributions and disperses 
these donations to countries for the treatment, prevention and 
care of HIV/AIDS, tuberculosis and malaria.

                            Funding History

    Since it began receiving contributions in 2001, the Global 
Fund has received nearly $18 billion from more than 43 
countries. Additionally, private donors and other contributors 
have provided significant funding. An early donor, the Bill and 
Melinda Gates Foundation, made its first contribution in 2004 
and has contributed $650 million to date. Through a recent re-
focus on prevention of the disease, and noting the Global 
Fund's focus on treatment, the Foundation has recently expanded 
its commitment to the Fund to $500 million over a five year 
period, thus bringing its contributions to over $1 billion by 
2014. Private donors have contributed nearly $950 million and 
together, with country donors, $18.9 billion has been donated 
to the Fund since its inception through 2010. Additionally, 
more than $2.5 billion has already been pledged for 2011 from 
both countries and foundations. Of the $32.367 billion the U.S. 
has provided to date for PEPFAR, more than $5 billion has been 
transferred to the Global Fund through fiscal year 2010.

               Operation and Structure of the Global Fund

    The Fund's board is composed of 20 voting members 
representing nations, both donor and developing countries, non-
governmental organizations and private sector representatives. 
An additional six non-voting members serve on the board, 
representing the World Health Organization, the Joint United 
Nations Programme on AIDS (UNAIDS), the World Bank, a health 
partner organization, the Executive Director of the Global Fund 
and one Swiss citizen.
    The Fund's overall operations are led by the Secretariat, 
with more than 500 employees in its offices in Geneva, 
Switzerland.

              Process for Providing Medicines and Services

    The Global Fund opens grant applications for services, 
medications and supplies to competitive bids from entities that 
work together in partnerships called County Coordinating 
Mechanisms (CCMs). These entities are composed of 
representatives of organizations including governments, either 
multilateral or bilateral agencies, non-governmental 
organizations, academic institutions, private businesses, and 
people living with the diseases. CCMs select Principal 
Recipients (PRs), which are usually national organizations to 
carry out the work in each country or area. While the majority 
of the Fund's grants are approved to CCMs, others may also 
apply. In areas of severe internal conflict, it may be the case 
that no CCMs apply. In these instances, the United Nations 
Development Program (UNDP) may be called on to conduct the 
work, or the UNDP may win a competitive contract among many 
bidders.
    Contracts are released through a series of funding rounds 
that include several levels of review, first from the 
Secretariat, which ensures the overall eligibility and 
completeness of the application and next from the Technical 
Review Panel (TRP). This panel is an independent panel of up to 
40 experts in the health fields of the Fund's focus and may not 
include any members of the Fund's Board. Following the 
recommendation of the TRP, the full Board must approve each 
grant.

                   Accomplishments of the Global Fund

    According to statistics kept by the Global Fund, through 
December 2010, the Global Fund committed $21.7 billion for 579 
grants in 144 countries and had disbursed $ 9.3 billion to 
grant recipients.
    Global Fund-supported programs have saved an estimated 6.5 
million lives through the delivery of significantly expanded 
key services:


   3 million people currently on antiretroviral treatment for 
        HIV

   7.7 million people on effective TB treatment under the 
        internationally approved TB control strategy (DOTS)

   160 million insecticide-treated bed nets distributed to 
        protect families from malaria


    Additional results in treatment, prevention and care 
include:



   150 million people reached with HIV counseling and testing

   142.4 million malaria drug treatments delivered

   2.7 billion condoms distributed

   5 million basic care and support services provided to 
        orphans and vulnerable children

   160.4 million people reached with community outreach 
        services

   12.3 million people trained to deliver services for 
        prevention and treatment of AIDS, TB or malaria

                      Benchmarks and Transparency

    The Tom Lantos and Henry J. Hyde United States Global 
Leadership Against HIV/AIDS, Tuberculosis and Malaria 
Reauthorization Act (P.L. 110-293) included a series of 
transparency and administrative benchmarks for the Global Fund 
to Fight AIDS, Malaria and Tuberculosis. These benchmarks 
include the requirements to strengthen the Office of the 
Inspector General (OIG) and make available the OIG reports on 
the Global Fund's website; the online publication of all Global 
Fund Board reports, meeting decision points, and United States 
positions taken on votes; the online publication of all grant 
and sub-grant recipient funding and performance for grants; a 
requirement to take steps to prevent the imposition of tariffs 
and taxes by host countries on goods and services provided by 
the Global Fund.

              Creation of the Office of Inspector General

    As initially set up in 2002, the Global Fund did not 
include any independent, oversight mechanism to ensure 
transparency and accountability. As early as September 2004, 
about 18 months into the program, representatives from the Bush 
Administration publicly raised concerns about the 
administration of the Fund ranging from slowness in grant 
distribution to inadequate staffing levels to review grants as 
well as the distribution of grants to corrupt or repressive 
states. In their ``Fiscal Year 2005 Report on the Global Fund 
to Fight AIDS, Tuberculosis and Malaria'' document, the 
President's Emergency Plan for AIDS Relief (PEPFAR) expressed 
concerns about the understaffed Secretariat. Although the 
Secretariat successfully monitored financial programs regarding 
the number of grants issued and pushed to move quickly on new 
grant negotiations, the understaffed Secretariat could not 
properly analyze reports coming in from Local Fund Agents 
(LFAs), which monitor programs on-the-ground at the country 
level.
    The United States representatives to the Board continued to 
press for greater transparency. Recognizing the need to provide 
better transparency, in July 2005 the Board of the Global Fund 
to Fight AIDS, Tuberculosis and Malaria established an 
independent Office of the Inspector General that sought to 
ensure the integrity and effectiveness both of the programs of 
the Global Fund and its internal operations. The Office of the 
Inspector General (OIG) reports to the Board of the Global 
Fund, with the Finance and Audit Committee as the primary point 
of contact. The U.S. delegation was instrumental in developing 
the policies of this new position to include best practices of 
U.S. government inspector general offices and in consultation 
with the U.S. government's Inspector General legal counsel.
    Consequently, in an effort to increase transparency, it was 
established that the Office of the Inspector General would 
publicize its reports, whenever possible, while reserving the 
right to redact portions of documents. These guidelines require 
reports to be posted on the Global Fund's website within three 
days of completion. In those instances where public disclosure 
would not be prudent, the information could be made available 
on an ``as needed'' basis, and recipients would be informed of 
the circumstances under which the issuance of the report would 
be harmful if publicly posted.
    On February 5, 2007, the Boston Globe ran an article 
entitled ``Disease-Fighting Fund's Expenses Hit'' alleging that 
Global Fund Executive Director Richard Feacham used a little 
known, private bank account to incur excessive and lavish 
expenses on the Global Fund's tab. The claims were based on an 
unpublished report by Inspector General Ibrahim Zeekeh who 
resigned around that time for health reasons. The Inspector 
General's report said that Feachem's spending habits created 
``potential risks,'' including loss of donor confidence because 
of ``inadequate internal controls over funds,'' and that 
``senior management failed to convey and reinforce the need for 
careful and prudent use of donor funds.''
    Richard Feachem served as Executive Direction until March 
31, 2007. Upon Dr. Feacham's departure, Dr. Michel Kazatchkine 
became the Global Fund's new Executive Director. In December 
2010, he was reappointed for a second term as Executive 
Director, a term that extends until March 2014.\1\
---------------------------------------------------------------------------
    \1\ ``Professor Michel Kazatchkine Appointed a Second Term as 
Executive Director of the Global Fund'' Press Release, Global Fund to 
Fight Aids, Malaria, and Tuberculosis, January 11, 2011.
---------------------------------------------------------------------------
    Following Zeekah's resignation, the position of Inspector 
General of the Global Fund remained vacant for nearly a year 
until, in January 2008, John Parsons, a former Inspector 
General at the United Nations Educational, Scientific and 
Cultural Organization, joined the Global Fund as its new 
Inspector General. At his first board meeting, John Parsons 
made it clear to the U.S. delegation that his highest priority 
would be accountability and effectiveness at the country level.

                      Current Response by the OIG

    Under the leadership of IG John Parsons, the Office of the 
Inspector General has aggressively performed individual country 
and program audits and investigated allegations of fraud, 
whether reported through one of the Fund's hotlines or as a 
result of a scheduled audit. According to the Inspector 
General's December 2010 report to the Board of the Global Fund, 
the Secretariat was following up on 12 audits that contain 432 
recommendations. Through its public reports, the Global Fund 
has established records of finding, investigating and reporting 
fraud. In the past, a number of these investigations, including 
an extensive report on embezzlement and misappropriation of 
funds in Uganda, have led to the repayment of funds and the 
prosecutions of three individuals, including a 10-year sentence 
for one individual. Additionally, Ugandan officials believe 
that additional prosecutions are likely.
    Recently, several audits and reports of the Office of the 
Inspector General of the Global Fund have received widespread 
media coverage. This media attention has revolved around 
alleged widespread corruption and fraud in four of the 145 
countries that receive Global Fund grants: Mali, Djibouti, 
Mauritania and Zambia. The reports involve false and forged 
receipts for travel, training and general overhead expenses, 
and deficient record keeping. The Global Fund is demanding 
repayment of more than $34 million from grants approved in 
these four countries and is working with host governments on 
full prosecution of the wrongdoers.
    Specifically, in Mali, the Inspector General found that $4 
million was misappropriated through forged per diem records and 
falsified travel expense documents. To date, sixteen people 
have been arrested, and the Minister of Health resigned days 
before the report was released. Criminal proceedings have also 
been launched in Mauritania and Zambia. Additional safeguards 
have been implemented in these four countries regarding 
existing grants, and the Global Fund Secretariat is placing 
more attention on monitoring activities in other high risk 
countries in order to improve the local capacity of the 
implementing team and to detect potential fraudulent 
activities.
    Donors have begun to express concerns over the reports of 
fraud. For example, Germany and Sweden have halted donations 
(an estimated $85 million) until ongoing investigations are 
complete. Additionally, the United States delegation has 
stressed the need to enact measures and adopt procedures to 
ensure that all necessary steps are taken to ``correct and 
prevent the misuse of Fund resources.'' \2\
---------------------------------------------------------------------------
    \2\ United States Global Aids Coordinator Eric Goosby email to the 
Board of the Global Fund, February 6, 2011
---------------------------------------------------------------------------
    Nevertheless, the underlying question remains as to why 
fraud occurs in the first place. Over the past three years, a 
number of routine country and program audits have unearthed 
allegations of fraud and have led to full-fledged 
investigations. Is there something endemic with the grant 
issuances and partner selection? Do those entrusted with 
monitoring and evaluating the programs, and thus ensuring that 
funds are not finding their way into individual pockets, 
understand how to pinpoint fraud and quickly remedy the 
situation?

                          Secretariat Response

    After much delay, the Board made two decisive moves: 1) it 
increased the staffing and budgetary support for the Office of 
the Inspector General from a 2009 budget level of $6.67 million 
and 19 staff to 30 staff positions and a proposed budget of 
$19.79 for 2011; and 2) it acknowledged that reforms would be 
necessary in order to prevent additional donors from 
terminating their support or freezing and conditioning their 
contributions until the enactment of meaningful reforms by the 
Board of the Global Fund.
    At the December 2010 Board meeting, the Global Fund created 
the Global Fund Comprehensive Reform Working Group that has 
been tasked to produce a report with specific reforms to 
address recent shortcomings in fiduciary responsibilities and 
transparency. The Working Group consists of the Chair and Vice 
Chair of the Board of the Global Fund, the Executive Director 
of the Secretariat, three donor representative (the United 
States, France, and one from the Norway/Denmark/Ireland/ 
Luxembourg/Netherlands/Sweden consortium), and three 
representatives from the recipient countries community (Latin 
America and Caribbean, Eastern Europe, and East Africa). On 
March 16, 2011, the Global Fund Announced that former U.S. 
Health and Human Services Secretary Michael Leavitt and former 
President of Botswana, Festus Mogae, will lead this panel which 
is expected to present its findings at the June 30, 2011 Global 
Fund Board meeting.\3\
---------------------------------------------------------------------------
    \3\ ``Global Fund Names Former HHS Secretary Leavitt and Former 
President of Botswana Mogae to Lead Independent Review,'' Global Fund 
to Fight Aids, Malaria, and Tuberculosis press release, March 16, 2011
---------------------------------------------------------------------------
United States Recommendations on Reform
    The United States has outlined seven steps it believes 
important to create the confidence that the Global Fund can 
reduce the risk of fraud and abuse of resources. These steps 
include the following:


    1. Identify high risk grants

    2. Conduct an immediate review of grants and activities 
deemed as high risk

    3. Develop an early warning system to identify and address 
risk at the earliest possible stage

    4. Create a rapid response system to crack down on 
corruption as soon as it is realized

    5. Apply lessons learned from Inspector General audits and 
reports

    6. Better train in-country entities (local fund agents and 
country coordinating mechanisms) on spotting and addressing 
fraud

    7. Strengthen ties between the Secretariat, the Inspector 
General and the in-country implementers.

                          Budget Implications

    At last fall's replenishment conference, the Obama 
Administration pledged $4 billion over three years to the 
Global Fund--a 38 percent increase over the previous three 
years. Much pressure was placed on the United States not only 
from the Global Fund but also from the development assistance 
advocates to make a multi-year pledge, with the hope that other 
donor nations would follow suit with their own multi-year, 
robust pledges. The Global Fund estimates that every dollar 
contributed by the U.S. is leveraged with $2 from international 
donors.
    The President's fiscal year 2011 budget request included $1 
billion for the Global Fund, and the Senate Appropriations 
Committee approved this funding level in the 111th Congress. 
However, on February 11, 2011, the House Appropriations 
Committee released its outline of proposed reductions in 
government spending for the remainder of fiscal year 2011 (from 
March 4, 2011 through September 30, 2011). This Continuing 
Resolution cuts the U.S. contribution to the Global Fund by 
$450 million.
United Nations Development Program
    Worldwide, the United Nations Development Program (UNDP) is 
one of the largest administrators and overseers of Global Fund 
programs. In recent years, the United States has contributed 
$100 million annually to the UNDP through the State 
Department's International Organizations Account. Additionally, 
the United States has allocated between $150 million and $250 
million annually to the UNDP for specific programs.
    At this time, UNDP has a presence in 27 countries where it 
manages nearly $1.1 billion in Global Fund grants, both as the 
Principal Recipient and as a sub-grant implementer.\4\ 
Oftentimes, the UNDP is called upon to take over the role as 
Principal Recipient--operating in a number of countries where 
no other organization will go, or where there are citing 
concerns about safety, lack of infrastructure to operate, or 
extreme dysfunction and/or corruption of the host government.
---------------------------------------------------------------------------
    \4\ ``UNDP-Global Fund Partnership'' Fact Sheet--UNDP, February 
2011.
---------------------------------------------------------------------------
    Over the years, the UNDP has lost credibility owing to 
controversies ranging from the ``Oil for Food'' scandal to the 
appointment of Iran to chair the UNDP 36-member executive board 
in 2009.\5\ The UNDP is commonly referred to as the ``Principal 
Recipient of Last Resort'' when the Global Fund has no other 
option in a country. Often, a decision must be made either to 
turn the responsibility over to the UNDP or to terminate the 
country's program.
---------------------------------------------------------------------------
    \5\ ``Iran's Mini-Empire at The U.N.'' by Claudia Rosett, 
Forbes.com July 23, 2010.
---------------------------------------------------------------------------
    The UNDP internal policy does not allow outside entities, 
such as the Global Fund or World Bank, to examine the UNDP's 
books--even when the UNDP is administering and overseeing a 
grant. The UNDP offers summaries of audits to the Global Fund 
OIG, but the Inspector General has stated that these summaries 
are insufficient and that the UNDP auditing team has refused to 
partner with the Global Fund auditors on joint investigations. 
The UNDP claims ``special immunity'' that allows the UNDP to 
restrict access to this information.\6\ As a United Nations 
Member State, the United States has access to UNDP's Office of 
Audits and Investigations reports, but only a limited group of 
people can view them. All reviews are conducted at the UNDP 
offices, with the reviewer only allowed to take notes, not to 
make copies of the reports. Although overlap of UN Member 
States and Global Fund Board Memberships exists, this limited 
access to pertinent documents is not conducive to 
theperformance of complete investigations.
---------------------------------------------------------------------------
    \6\ ``The Office of the Inspector General Progress Report for 
March-October 2010 and 2011 Audit Plan and Budget,'' Office of the 
Inspector General, the Global Fund to Fight Aids, Malaria, and 
Tuberculosis, December 2010.
---------------------------------------------------------------------------
    Such UN bureaucratic roadblocks came to light when the 
Office of the Inspector General at the Global Fund investigated 
reports of fraud in Mauritania, where the UNDP was Principal 
Recipient for two malaria grants and two tuberculosis grants. 
The Inspector General analyzed the expenditure of some $3.5 
million of the $9.9 million in disbursements and found that 
approximately $2.7 million had been misappropriated. The 
Inspector General was unable to examine the rest of the funding 
in question (approximately 55 percent of the total grant) 
because the UNDP refused to grant the Global Fund OIG access to 
documents, staff, and witnesses.\7\
---------------------------------------------------------------------------
    \7\ ``The Office of the Inspector General Progress Report for 
March-October 2010 and 2011 Audit Plan and Budget,'' Office of the 
Inspector General, the Global Fund to Fight Aids, Malaria, and 
Tuberculosis, December 2010.
---------------------------------------------------------------------------
    In the same report, the Global Fund Office of the Inspector 
General raised additional problems with programs associated 
with the United Nations Development Program. In Haiti, the 
Global Fund revoked Principal Recipient responsibilities from 
the UNDP due to lack of access to internal UNDP audits by the 
Global Fund Inspector General after he found a $519,326.00 
discrepancy between the records of the UNDP and records of the 
sub-grant recipients.\8\ In Mali, the UNDP has instructed sub-
recipients not to provide the Global Fund investigators access 
to any information, documents, or witnesses, even after fraud 
and misappropriation of funds were detected in preliminary 
investigations.\9\
---------------------------------------------------------------------------
    \8\ Ibid.
    \9\ Ibid.
---------------------------------------------------------------------------
    On February 4, 2011, the UNDP announced plans to ``submit a 
proposal to UNDP's Executive Board to allow the Global Fund to 
access the UNDP audit reports of Global Fund projects, a 
privilege currently restricted to UN Member States.'' \10\ The 
UNDP staff has confirmed that this proposed change, which will 
be presented to the UNDP Executive Board at their June 2011 
meeting, would grant ``limited access'' to the Global Fund but 
not full access to the audit and investigation materials.
---------------------------------------------------------------------------
    \10\ UNDP-Global Fund Partnership Fact Sheet--UNDP, February 2011.
---------------------------------------------------------------------------

                Department for International Development

    On March 1, 2011, the Department for International 
Development in Great Britain (DFID) issued a Multilateral 
Review. This report evaluated the 43 international funds and 
organizations to which the United Kingdom contributes with 
respect to value for the money and each fund's and 
organization's effectiveness in combating poverty, taking in 
account transparency and accountability. British Secretary of 
State for International Development Andrew Mitchell reported to 
the House of Commons that nine organizations provided ``a very 
good value for the British taxpayer.'' \11\ The organizations 
given the highest recommendations in the findings include a 
number of global health multilaterals: the GAVI Alliance, 
UNICEF, and the Global Fund.
---------------------------------------------------------------------------
    \11\ Statement by the Secretary of State for International 
Development: the Bilateral and Multilateral Aid Reviews to the House of 
Commons, March 1, 2011.
---------------------------------------------------------------------------

                     Recipient Countries as Donors

    Currently, the Global Fund Board is considering changing 
its prioritizing criteria for the funding of grants. One of the 
main issues being discussed is lowering the funding priority 
for grants to middle-income countries. (Income levels are 
determined by the World Bank Income Indicator).
    According to the Global Fund, in 2010, eleven countries 
were considered both donors and recipients: China, India, 
Malaysia, Namibia, Nigeria, Romania, Rwanda, Russia, South 
Africa, Thailand, and Tunisia. On a whole, the contribution by 
such countries is a token one; for the amount each country is 
donating pales in comparison to the amount they are receiving 
in grants. However, there is one exception: at the 2006 G8 
Summit in St. Petersburg, Russia, Russian President Vladamir 
Putin pledged to repay 80 percent of the $320 million Global 
Fund grants it has previously received (approximately $270 
million). \12\
---------------------------------------------------------------------------
    \12\ ``Global Fund Mulls Loans to Fight Aids'' by James Kilner, 
Reuters News Service, May 4, 2008.
---------------------------------------------------------------------------
    In terms of countries that have historically received large 
grants but have contributed a miniscule amount, China stands 
out. Since 2002, the Global Fund has approved 14 grants in 
China worth $1.87 billion, of which $832.5 million has been 
committed. In contrast to the vast bilateral investment in non-
health related infrastructure, including soccer stadiums, 
performing arts centers, and road projects, China has committed 
very little to multilateral funds. In the latest replenishment 
round, China has pledged $14 million to the Global Fund over 
three years. In contrast, the Russian Federation has paid back 
its previous grants and pledged $60 million over three years.
    According to the World Bank, China is considered a lower 
middle-income country with a per capita income of $3,650. The 
Global Fund's policies include cost-sharing provisions, and 
lower middle-income countries are expected to contribute as 
much as 65 percent of program costs. The Chinese government, 
according to the Global Fund, China is contributing 80-83 
percent of total costs of its in-country program. As China 
graduates to become an upper middle-income country (above 
$3,945 per capita income), it should no longer apply for Global 
Fund grants and thus should pick up the entire costs of the 
programs.


                                Appendix

                              ----------                              


 2004-2009 Statistical data provided by the UN, World Bank, WHO, UNAIDS
------------------------------------------------------------------------

------------------------------------------------------------------------
                        Disease Burden in China:
HIV/AIDS
  People living with HIV...................................      700,000
  Adult HIV prevalence (percent)...........................          0.1
  AIDS-related deaths......................................       39,000
  Estimated number of people receiving ARV therapy.........       65,481
------------------------------------------------------------------------
Tuberculosis
  TB case notifications....................................      975,821
  TB treatment success rate (percent)......................           94
  TB incidence, smear-positive (rate per 100,000                      48
   population).............................................
  TB incidence, smear-positive (number)....................      640,000
  TB prevalence, all forms (number)........................    1,200,000
  TB prevalence, all forms (rate per 100,000 population)...           88
------------------------------------------------------------------------
Malaria
  Estimated malaria deaths.................................           24
  Reported malaria cases...................................       16,650
  Reported malaria deaths..................................           23
========================================================================
                     Disease Burden in South Africa
HIV/AIDS
  Estimated number of people needing ARV therapy (WHO 2006     1,700,000
   guidelines).............................................
  Orphans due to AIDS......................................    1,400,000
  Estimated number of people receiving ARV therapy.........      971,556
  AIDS-related deaths......................................      350,000
  Estimated number of people needing ARV therapy (WHO 2010     2,600,000
   guidelines).............................................
  Adult HIV prevalence (percent)...........................         18.1
  People living with HIV...................................    5,700,000
------------------------------------------------------------------------
Tuberculosis
  TB prevalence, all forms (number)........................      300,000
  TB treatment success rate (percent)......................           74
  TB incidence, smear-positive (rate per 100,000                     410
   population).............................................
  TB case notifications....................................      343,855
  TB incidence, smear-positive (number)....................      200,000
  TB prevalence, all forms (rate per 100,000 population)...          610
------------------------------------------------------------------------
Malaria
  Reported malaria deaths..................................           43
  Reported malaria cases...................................       12,098
  Estimated malaria deaths.................................          146
========================================================================

                Disease Burden in the Russian Federation
HIV/AIDS
  AIDS-related deaths......................................       40 000
  People living with HIV...................................      940,000
  Estimated number of people receiving ARV therapy.........       75,900
  Adult HIV prevalence (percent)...........................          1.1
Tuberculosis
  TB treatment success rate (percent)......................           58
  TB incidence, smear-positive (number)....................       46,000
  TB prevalence, all forms (number)........................       98,000
  TB incidence, smear-positive (rate per 100,000                      33
   population).............................................
  TB case notifications....................................      128,263
  TB prevalence, all forms (rate per 100,000 population)...           69
------------------------------------------------------------------------

                         Staff Recommendations

     1. Future U.S. contributions to the Global Fund should be 
contingent upon the Global Fund Boards' adoption of reforms laid out by 
the United States Department of State. The Department of State would be 
required to certify to Congress that the reforms were in place before 
funds could be released.

     2. Withhold ALL funding to the United Nations Development Fund 
until it certifies that its internal rules and procedures have been 
sufficiently modified to allow the Inspector General of the Global 
Fund, the Inspector General of the World Bank, and any investigative 
arm of any multilateral organization to which the United States 
contributes funds FULL access to their audits, investigations, records 
and personnel.

     3. Withhold U.S. contributions from the Global Fund to the UNDP 
until the U.S. receives confirmation of such certification.

     4. Instruct the Government Accountability Office to conduct a 
study regarding the coordination of the Office of Inspectors General 
(or equivalent offices) of all U.S. Government entities and 
multilateral organizations receiving U.S. taxpayer funds that oversee 
the integrity of global health programs.

     5. The United States Representative to the Global Fund should 
reiterate in the strongest terms to the Board of the Global Fund that 
the United States has no tolerance for fraud and abuse and that the 
Office of the Inspector General needs to acquire adequate resources and 
personnel to audit and investigate programs on the ground.

     6. A high number of routine audits of Global Fund grants have 
turned into full-fledged investigations. The Global Fund should take 
any steps necessary to ensure that Local Fund Agents and CCMs are 
capable of managing grants and are properly trained on how to spot and 
mitigate suspected fraudulent activities.

     7. The United States Government should conduct a top to bottom 
analysis of U.S. investment and contributions to international 
organizations and funds, similar to that conducted by Britain. On March 
1, 2011, the United Kingdom Department for International Development 
issued a Multilateral Review, which evaluated the 43 international 
funds and organizations that the United Kingdom contributes with 
respect to value for the money and each fund's and organization's 
effectiveness in combating poverty, taking in account transparency and 
accountability.

     8. The U.S. government should work more closely with host 
governments on establishing or increasing the country's commitment to 
making its own investments in health programs. When possible, the 
countries must demonstrate some commitment in moving towards 
sustainability and cease complete reliance on the donor community for 
the indefinite future.

     9. The Global Fund should more clearly define its eligibility 
criteria to ensure that countries which truly do not need grants, due 
to high income or low disease burden, do not receive grants.

    10. The Global Fund should develop a more precise ``early warning 
system'' and possibly an extra layer of the protection for resources in 
countries with a history or threat of government instability, and in 
countries that exhibit high levels of government corruption.