On 4 May 2020, the Office of the Inspector General (OIG) released findings of a Follow-up audit of Global Fund Grants in the Democratic Republic of the Congo (DRC) implemented by an international non-governmental organization Population Services International (PSI). The audit revealed that the financial management and grant oversight by PSI and the Global Fund Secretariat were ineffective. PSI did not monitor the detailed grant budget, had limited control over payments, had ineffective procurement practices, and had non-compliant transactions. The Secretariat’s non-compliance with communication protocols, as it communicated with the PSI entity in DRC directly, rather than the PSI headquarters in Washington added to the strain.
According to the World Bank’s classification of 2020, the DRC is a low-income country. It is Africa’s second-largest country by area, with a land mass of more than 2.3 million square kilometers. The DRC’s health system comprises 516 health zones across 26 provinces. The country’s health-worker-to-population ratio of six doctors, nurses, and midwives per 10 000 people is below the World Health Organization’s (WHO’s) recommended threshold of 23 doctors, nurses, and midwives per 10 000 people.
The DRC falls in three Global Fund categories. The DRC is a ‘high impact’ country due to its very large portfolio with a mission-critical disease burden. It is a challenging operating environment due to its poor infrastructure, the occurrence of armed conflict in some regions, and recurrent Ebola outbreaks. An additional safeguard policy (ASP) applies since the DRC requires extra measures to strengthen financial and oversight controls.
Since 2003, the DRC has received $1.58 billion from the Global Fund. Of these funds, $597 million and $543 million were for the 2015-2017 and 2018-2020 implementation periods, respectively. From 2011 to 2017, PSI was the Principal Recipient (PR) implementing the Global Fund grants through its DRC entity, Association de Santé Familiale (ASF).
In the 2019 report on the Follow-up audit of Global Fund Grants in the Democratic Republic of the Congo, the OIG provided PSI additional time to make the relevant financial records available. Aidspan discussed these findings (see GFO July 2019 article on the follow-up audit of Global Fund grants to the DRC). PSI made the requested records available in tranches between May and November 2019. Consequently, the OIG performed a follow-up audit of the Global Fund’s malaria grant implemented by PSI in the DRC from January 2015 to December 2017. The follow-up audit assessed whether expenditure was in line with grant agreements and the approved budget and whether adequate documentation supported transactions.
Summary of the main findings
The OIG had two main findings, which in summary are:
1. Both the PSI and the Secretariat’s grant oversight and assurance mechanisms were ineffective
The audit reveals that both the PSI and the Global Fund Secretariat were ineffective in monitoring and providing financial oversight on grants implemented in the DRC due to various factors. These included the PSI’s inability to obtain accurate data from its affiliate in the DRC and to monitor budget at the grant activity level. Additional factors were the misclassification and rollover of expenses to a new grant cycle (prohibited by the Global Fund policies), as well as the Global Fund Secretariat’s non-compliance with communication and oversight protocols.
Untimely and inaccurate communication from ASF hampered the ability of PSI headquarters to effectively monitor the budget of the Global Fund grants. Furthermore, since PSI headquarters were not able to monitor grant budgets at the required activity level, they monitored budgets at the cost category level instead. It could therefore not justify the unauthorized overspending of $12.8 million for travel and external professional services. The Secretariat is yet to determine whether to allow or recover the non-compliant travel-related costs, amounting to $3.8 million. However, the OIG did not consider the overspend on external professional services to be non-compliant or recoverable.
The movement of budget expenses for the 2012-2014 implementation cycle into the 2015-2017 implementation cycle further weakened PSI’s ability to monitor the grant budget effectively. The rollover of budget expenses to the next grant cycle conflicts with the Global Fund’s requirements for grant closure at the end of the grant implementation cycle. The Secretariat and PSI were unsuccessful in reclassifying the expenses incurred to the appropriate implementation cycle. This was partly due to the failure of the Secretariat and PSI’s external auditor to confirm the accuracy of the cash balance at the end of the 2015-2017 implementation cycle.
The OIG noted that 17.8% of the $77.5 million transactions that the audit team tested were assigned to the incorrect cost categories. Of these misclassified expenses, $1.6 million was for procurement and supply chain management. Due to the incorrect categorization of these expenses, the OIG omitted the $1.6 million from the initial calculation of potentially recoverable amounts. From these funds, the OIG proposed a recovery of $0.2 million.
The Secretariat’s non-compliance with communication protocols contributed to PSI’s inability to monitor grant budget effectively. Rather than communicate with the PSI headquarters, as stipulated in the grant confirmation letter, the Secretariat directly communicated with ASF. Included in this communication were requests to ASF to undertake activities outside the approved budget. Consequently, certain categories of expenses exceeded the budgeted amounts.
Despite the Secretariat’s awareness of unexplained budget variances, it did not discuss the issue with the PSI senior management at the headquarters. Instead, the Secretariat continued to disburse funds to PSI. Furthermore, the Secretariat delayed communicating the Progress Update and Disbursement Request (PUDR) review results to PSI, as well as issuing a Management Letter by a year, sending the letter to ASF rather than to PSI headquarters, hindering PSI headquarters ability to address the matters raised.
The unclear roles and responsibilities of assurance providers, such as the External Auditor and the Local Fund Agent (LFA), contributed to ineffective financial oversight of the grant. For instance, the External Auditor was required to give an audit opinion on the cash balances of the Global Fund grants at the end of the year. However, the External Auditor did not give the audit opinion. Furthermore, the LFA failed to review the Fiduciary Agent’s expenditures, despite being required to do so.
2. Weak internal controls and procurement practices coupled by financial mismanagement resulted in ineffective use of grants
The OIG sampled $77.5 million out of $130 million incurred expenses for a financial review. The OIG noted transactions worth $25.3 million that were either not supported by adequate documentation or were non-compliant with the Global Fund policies and guidelines. Of these expenses, $6.2 million was potentially recoverable. Of the potentially recoverable amounts, $6 million had inadequate documentation, while the remaining $0.2 million was non-compliant with the Global Fund policies and guidelines.
The OIG proposed the recovery of amounts without supporting documentation for various reasons. For instance, 65% of travel-related expenditures worth $0.4 million completely lacked supporting documents. Transactions worth $2.2 million had copies rather than original supporting documents. There were no key supporting documents such as contracts, invoices, and proof of delivery for payments worth $3.3 million (of which 55% were travel related).
The OIG noted that the procurement of goods and services worth $5 million was non-competitive and non-transparent. However, the OIG proposed the recovery of $0.1 million paid in excess of the retail value of vehicles purchased. The OIG noted that expenditure to the value of $7 million for the mass distribution of long-lasting insecticidal nets (LLINs) occurred without a micro plan, which is a key document that details mass campaign activities, its scope, and budget. The absence of the micro plan rendered the expenditures as non-compliant with the Global Fund guidelines. However, the OIG did not propose the recovery of funds for the mass campaign, as there was evidence that the campaign occurred.
The audit revealed that PSI charged a 7% support cost, amounting to $3.4 million. In addition to this, fiduciary agents contracted to handle payments for mass campaign activities charged transfer fees of 11%. This contravenes the Global Fund’s Support Costs and Indirect Cost Recovery policy, which stipulates that the support cost is not applicable when fiduciary agents are contracted to oversee grant expenditures. The Secretariat will determine whether to allow or recover the support cost charged.
Agreed Management Actions
To resolve the issues raised in the report, the head of the Grant Management Division will work with the Secretariat to recover those funds that the OIG considered non-compliant expenses from PSI by 31 December 2020. The Secretariat will also address other issues raised in the audit report by implementing the following agreed management actions (AMAs): AMA 1, AMA 3, and AMA 4, as stipulated in the OIG’s Investigation Report on Tender manipulation and overpricing in the Malaria grant. The three AMAs requires the Secretariat to:
- evaluate the design and effectiveness of the internal controls implemented by PSI through the creation of the Global Fund Management Unit (within PSI) and its corresponding functional and administrative reporting lines, to mitigate similar future risks
- update its guidelines for grant audit to ensure that auditor engagement includes a review of the controls related to PR-hired third-party agents, as well as review the terms and conditions of engagement of third-party agents
- re-evaluate its framework agreement with PSI to clarify the scope of responsibility between different assurance providers, and review assurance arrangements with other international non-governmental organizations to determine whether revisions are needed in current arrangements or framework agreements.
Editor’s note: PSI is still PR for seven active Global Fund grants: HIV grants to Liberia and Madagascar; malaria grants to Haiti, Madagascar, Mali, and South Sudan; and TB/HIV grant to Haiti.
- This 2020 follow-up audit report is, ‘Global Fund Grants in the Republic of the Congo implemented by Population Services International’ (GF-OIG-20-013), 4 May 2020.
- The 2019 follow-up audit report, ‘Follow-up audit of Global Fund Grants in the Republic of the Congo’ (GF-OIG-19-014), 16 July 2019.
- The 2019 investigation report, ‘Global Fund Grants in the Democratic Republic of the Congo Tender manipulation and overpricing in Malaria grant’ (GF-OIG-19-006), 12 March 2019.