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Protecting Whistleblowers since 1977

US Funding to Global Fund May Be At Risk

Bea Edwards, May 20, 2013

For the past year or more, turbulence has surrounded the independence of the Office of the Inspector General (OIG) at the Global Fund, and at GAP we have been closely following these developments. In November 2012, the Global Fund’s Board took the unprecedented step of sacking its Inspector General, John Parsons, after he had served the organization for five years. The board took this action even though in late 2011, an independent seven-member panel of outside experts, contracted by the Board to review the Fund’s entire operations, praised the OIG highly.

There’s a lot at stake. The Global Fund was supposed to address crucial health care needs in developing countries using a new aid delivery model that involved the private sector more directly than the traditional system of government-to-government aid. The Global Fund’s quasi-private model was to avoid the delays, bureaucracy and corruption often associated with the public-sector delivery systems.

The 2011 Report of the independent seven member panel of outside experts (High Level Independent Review Panel on Fiduciary Controls and Oversight Mechanisms) described the mission:

The Global Fund has led a significant evolutionary step forward in all of development assistance by financing performance-based, inclusive, country-focused, public-private projects that are subject to independent technical review.

To ensure completion of the mission, the OIG was established, granted independence of Global Fund management and mandated to be transparent in its audits and investigations by publicly releasing its reports. To further ensure independence, the IG reported directly to the organization’s Board.

Under Parsons, the OIG did not pull its punches in reporting fraud and corruption. Here, for example, is an excerpt from the OIG report for Nigeria, issued in October 2011

YGC [Yakubu Gowon Centre: The grantee of the Global Fund] also diverted proceeds of currency transactions to non-Global Fund-related bank accounts. The OIG could not determine the full extent of this practice, or quantify the full amount of the losses, based upon YGC’s failure to fully cooperate with the investigation by disclosing its Operations Bank Account (Executive Summary, p. 2 para. 3).

Of course, it was precisely this kind of transparent, plain-spoken reporting done by the OIG under John Parsons that reduced corrupt practices in grants. After all, if the donor organization soft-pedals the diversion of funds, there is no reason to stop diverting. 

The United States, which as the Global Fund’s largest donor has a keen interest in ensuring its donations are not siphoned off by corruption, can approve disbursement of its contribution in full to the Global Fund only after the State Department certifies that the OIG is operating without “undue interference” (PUBLIC LAW 112–74—DEC. 23, 2011. sec. 7058. c.1.B). The law reads:

Of funds appropriated by this Act that are available for a contribution to the Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund), 10 percent should be withheld from obligation until the Secretary of State determines and reports to the Committees on Appropriations that—the Global Fund is maintaining and implementing a policy of transparency, including the authority of the Global Fund Office of the Inspector General (OIG) to publish OIG reports on a public Web site (Sec. 7508, c.1.A; emphasis added).

The US therefore requires that the Global Fund strictly maintain the independence of the OIG. As part of the independence, the authority to publish OIG reports must also remain solely with the OIG.

Compliance with US law is now a problem for the Global Fund.

When Parsons headed the OIG, the Office found significant corruption in some of the grants reviewed, and the reports were made public. As the news of problems in Global Fund grants spread in early 2011, Germany, Ireland and Sweden suspended their contributions to the organization, which caused a firestorm.

To address donor countries’ concerns, the Board convened the Independent Panel cited above. The Panel reported that serious governance problems did, in fact, exist, but that the OIG was not one of them. On the contrary, the Panel’s Report released in September 2011 read:

Established in July 2005 at the behest of the donors, the OIG has been the only risk-mitigation strategy within the Global Fund that has worked as designed. The Panel has enormous respect for the positive impact the OIG’s work has had on securing the organization’s investments. With rigor and thoroughness, the OIG has shown that the Global Fund takes the integrity of its portfolio seriously.The willingness of the Fund’s Board to publish the OIG’s findings, openly and transparently, sets it apart from any other bilateral development agency or multilateral financial institution (p. 53; emphasis added).

But here was the rub. The Panel continued:

The reports of the OIG have become crucial to the Global Fund’s approach to its grants, and outside stakeholders rely on them to assess the performance of the institution. As a consequence, these reports can have a significant impact on the reputation of the organization, including in unintended, negative ways (emphasis added).

The OIG reports made the Global Fund look bad, and they were obviously scaring away existing and potential donors. Rather than address the corruption exposed by the OIG reports and ensure that transparency was maintained to deter such corruption, however, the Board decided to take steps to muzzle the OIG itself.  

As a first step in November 2011, the Board established the Audit and Ethics Committee (AEC) with responsibility to act as a liaison between the Board and the OIG. In September 2012, the scope of the authority of the AEC broadened, and most likely during the fall of 2012 conflict between the OIG and the AEC escalated. At issue was “undue interference” by the AEC in the work of the OIG, precisely the actions that would trigger withholding of U.S. funds.

One can easily imagine the intense disputes that occurred between the AEC and Parsons, who was fighting for the independence of the OIG. It is obvious Parsons lost his job for not going along with the change in policy.

The Board fired Parsons in November 2012, and covered this action by accusing him of “unsatisfactory performance.” The Board also published a news release to the world repeating this allegation. This charge was baseless. The report of the Independent Panel had said exactly the opposite. Parsons filed suits at the Administrative Tribunal of the International Labor Organization for unlawful dismissal and defamation, in order to defend his reputation from this attack.

At GAP, where we work with whistleblowers everyday, we’ve seen that although it takes decades to build a career and stature in a profession, both can be destroyed in minutes. Parsons, who built his professional standing during a long and distinguished career as an audit professional in the public sector, is no exception.

After firing Parsons, the Board broadened the scope of the AEC’s authority once more. And the Charter of the AEC has been changed again this year. Under these new terms, for example, the AEC has acquired nebulous and expanded authority over the release of the OIG’s reports. As amended last fall, the AEC is now responsible for the:

…approval of approaches for (i) the release of OIG reports in accordance with the Disclosure Policy for Release of OIG Reports and other applicable Board-approved policies and (ii) communication to stakeholders in response to OIG reports (emphasis added; 2.1.d).

At GAP, when we see semantics like this in reporting lines and transparency measures, alarms go off. In comprehensible English, the statement means that the AEC now has the authority to determine how to release OIG reports – and, potentially whether to release them, which overrides the independence of the OIG. 

We understand that the U.S. State Department is preparing to certify that the OIG at the Global Fund is operating without undue interference and that the Appropriations Committees should release the final disbursement of funds for FY 2012 to the Global Fund. But the certification, if it is in the works, rests on very shaky grounds. Absent gross misconduct, an organization should never terminate an Inspector General. Yet the Board did terminate Parsons and charged him with unsatisfactory performance, when all public information attests to the fact that he did an extraordinarily good job in a tough assignment. The High Level Panel said the OIG alone was an effective oversight mechanism. Now the reporting prerogatives of the office have been subtly changed in a way that potentially muzzles the only watchdog with real teeth at the organization. 

The website for the OIG shows a dramatic reduction in the number of reports issued during the first four months of 2013, under the newly appointed Interim IG, relative to the last four months of Parsons’ tenure:concrete evidence of the weakening of the OIG. 

 Dates  August – November 2012* January – April 2013
 Audits 12 4
 Diagnostic Reviews    8 2
 Investigations 2 ----
 Total 22 6

*The table does not include December 2012, as that month takes in long holidays and the transition to new management at the OIG.

It doesn’t require any particular insight to conclude that the Board’s actions, including the dismissal of Parsons, look very much like “undue interference” with the OIG.

 

Bea Edwards is Executive and International Director for the Government Accountability Project, the nation's leading whistleblower protection and advocacy organization.