EXCLUSIVE: Global Fund Backed by Bill Gates to Launch Probe in the Wake of Fraud

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By George Russell

Published February 02, 2011

| FoxNews.com

An independent probe into fraud allegations at the $28 billion global health fund supported byMicrosoft founder Bill Gates and his wife Melinda will be announced later this week, perhaps as early as Wednesday, Fox News has learned.

The investigation was originally demanded by the government of Germany, which last week announced the suspension of more than $250 million in new contributions to the fund. Its imminent announcement was officially confirmed to Fox News by Jon Liden, a spokesman for the Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM), who added that “an independent, trusted individual” will be named as head of the probe, which the fund prefers to call a “review.”

Negotiations about the scope of the probe were still under way Tuesday, and were slated to include a major international conference call among donors on Wednesday. According to Liden, “all donor countries” to the fund would be invited to participate in the review.

Some 54 countries have contributed or pledged more than $28 billion to the fund since 2001, according to the Global Fund. The United States is far and away its biggest supporter, with donations and pledges of more than $9.5 billion from 2001 through 2013; the U.S. has paid up more than $5.1 billion of that total.

The GFATM has also received backing from a number of high-profile private-sector institutions, including Product (RED), which has the backing of rock star Bono; the Bill and Melinda Gates Foundation; and the Fox Television show "American Idol."

So far, only Germany and Sweden ($85 million) have suspended upcoming donations to the fund.German Development Minister Dirk Niebel, who initially sparked the funding freeze, has said that the funding freeze will stay in place until the investigation finishes its work, which he anticipates will be this summer.

According to Germany’s Niebel, the fund has “given an assurance that the ongoing treatment of sick people will not be compromised at any point by the investigations.” But according to the fund’s spokesman, “any withholding of a German contribution for 2011 will affect our ability to sign grants approved for funding in December 2010.”

The controversy over the misuse of Global Fund health money erupted two weeks ago, after an Associated Press story, citing a report from the fund’s inspector-general, charged that “as much as two-thirds” of some Global Fund health grants to developing countries had been “eaten up by corruption.” The story specifically named projects in Djibouti, Mali, Mauritania and Zambia, and cited forged or non-existent receipts for “training events,” phony travel and housing claims and outright theft, along with shoddy bookkeeping

In response, the Global Fund noted that all of the wrongdoing had been uncovered by the fund itself the previous year; that programs in the offending countries had been suspended and criminal charges laid; and that the fund was demanding the return of $34 million. The total amount involved, according to the Global Fund, was only a pittance compared to some $13 billion in spending so far. It quoted the inspector general, John Parsons, as declaring that “The distinguishing feature of the Global Fund is that it is very open when it uncovers corruption.”

On the other hand, only a fraction of the total Global Fund disbursements had been examined.
Further complicating the issue was the fact that the fund does not manage the health programs it finances in afflicted countries, but delegates that to various “implementing agencies” or governments themselves -- or parts of the United Nations.

In the case of Mauritania, half the fund’s money was managed directly by the government, but some projects were managed by the sprawling United Nations Development Program (UNDP), the U.N.’s flagship anti-poverty agency. According to a UNDP spokesman, the agency’s own auditors identified “more than $1 million in fraud” involving fund money among UNDP’s government partners, and blew the whistle itself.

Worldwide, UNDP is among the largest managers for Global Fund projects, handling 63 grants in 27 countries, worth about $1.1 billion, and providing “capacity development support” to “a wide variety” of other fund partners, according to a UNDP spokesman.

The main reason for the fund’s reliance on UNDP, according to knowledgeable sources, is the U.N. agency’s array of offices in 166 countries, including a large number where the fund can’t find other project managers.

Just how sure the Global Fund can be that UNDP is doing its job well, however, is a matter of contention. According to a source familiar with the situation, it is a longstanding sore point between the Global Fund and UNDP that the U.N. agency does not provide copies to non-government donors of internal audits it carries out on Global Fund projects. Instead, the fund gets overall summaries.

“This is a big weakness,” says one informed source, who added that there has been a “long dialogue” between the two institutions over the lack of auditing information and that the fund’s campaign to get full auditing details from the agency is continuing. Fox News has learned that the fund’s inspector general, John Parsons, met with UNDP officials Tuesday on the issue.

“You can’t manage billions of dollars in spending volume just by handing over summaries of audits,” the source added.

On its own website, UNDP says that “Global Fund grants managed by UNDP are subject to intensive audit scrutiny,” before acknowledging that under “current policy” it can’t provide the audit details. But, UNDP says, it “does, as a standing practice, inform the Global Fund about key audit findings and recommendations resulting from internal audits of Global Fund grants managed by UNDP.”

In addition, a UNDP spokesman said, “we have on several occasions exchanged with the Global Fund’s Office of the Inspector General, on a confidential basis, information relevant to investigations.”

The spokesman added that UNDP is “currently working out procedures” with its 36-nation supervisory executive board “to share complete audits with the Global Fund and other institutional donors.”(The U.S. is an executive board member, and also has a representative on the Global Fund’s International Board.)

UNDP’s Executive Board is currently meeting in New York City, but a UNDP spokesman said it hoped the new arrangement would be in place “in September, if not sooner.” The Global Fund, according to a knowledgeable source, “thinks it can be done faster.”

The issue of UNDP’s disclosure of internal audits, even to executive board members, has long been a point of controversy. They remained a UNDP internal secret (in UNDP terms, a “management tool”) until 2007, after a prolonged battle with the Bush administration over programs in North Korea, and even now are not given to countries that ask for them, but simply are presented for reading -- along with a non-disclosure agreement. Even then, they can be redacted or kept confidential if the country where the audit takes place raises significant objections.

Nor will further audit disclosure on UNDP’s part necessarily bring full transparency to the way the U.N. agency is handling the Global Fund’s money in some of the world’s toughest and most sensitive places. According to UNDP documents, the agency itself can farm out to other contractors some of the responsibilities for spending and accounting for Global Fund money -- as, for example, in the case of Northern Sudan.

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The issues of shared audits, sub-contracted programs and financial controls and other safeguards over all the money supposedly flooding in to help millions of the world’s ailing people will no doubt be among many things examined by the independent investigation, once it has been announced and organized.

George Russell is executive editor of Fox News