Disbursements for China Grants Temporarily Suspended

2 Jun 2011

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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