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entitled 'Global Health: The Global Fund to Fight AIDS, TB and Malaria 
Is Responding to Challenges but Needs Better Information and 
Documentation for Performance-Based Funding' which was released on June 
10, 2005. 

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Report to Congressional Committees: 

June 2005: 

Global Health: 

The Global Fund to Fight AIDS, TB and Malaria Is Responding to 
Challenges but Needs Better Information and Documentation for 
Performance-Based Funding: 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-639]: 

GAO Highlights: 

Highlights of GAO-05-639, a report to congressional committees: 

Why GAO Did This Study: 

The Global Fund to Fight AIDS, Tuberculosis and Malaria established as 
a private foundation in January 2002is intended to rapidly disburse 
grants to recipients, including governments and nongovernmental 
organizations. The Global Fund has signed over 270 grant agreements and 
disbursed more than $1 billion. Governments provide most of its 
funding; the United States has provided almost one-third of the $3.7 
billion the Global Fund has received. In May 2003, the President signed 
legislation directing the Comptroller General to monitor and evaluate 
Global Fundsupported projects. GAO reviewed grants that the Global 
Fund began disbursing before January 2004. This report (1) describes 
the Global Funds process for managing grants and disbursing funds, (2) 
identifies factors that have affected grant performance, (3) reviews 
the basis and documentation of performance-based funding, and (4) notes 
recent refinements of Global Fund processes. 

What GAO Found: 

Global Fund policy is to manage grants in a transparent and accountable 
manner, disbursing funds to recipients based on their demonstrated 
performance as measured against agreed-on targets. In implementing this 
performance-based funding system, Global Fund officials are to 
periodically assess whether the grants principal recipient has made 
sufficient progress to warrant its next disbursement. After 2 years, 
the Global Fund is to determine whether to continue funding the grant 
for an additional 3 years. In making an assessment, officials consider 
several information sources, including the recipients reports on its 
performance and expenditures and an independent agents verification of 
the recipients reports. 

Recipient countries capacity to implement grants has been an 
underlying factor in grant performance, according to Global Fund and 
other knowledgeable officials. These officials, as well as principal 
recipients, also cited guidance, coordination, planning, and 
contracting and procurement as factors associated with challenges or 
successes in grant performance. For example, recipients in three 
countries reported that they could not meet their targets because they 
had not received national treatment guidelines. However, several grant 
recipients reported that, under certain circumstances, Global Fund 
guidance allowed them to quickly redirect funds, thereby enabling them 
to meet their targets. 

GAO found problems associated with the information sources that the 
Global Fund uses in making performance-based funding decisions. For 
example, the limited monitoring and evaluation capabilities of many 
recipients raise questions about the accuracy of their reporting. 
Moreover, the Global Fund has not consistently documented its 
determinations that recipients performance warranted additional 
funding. For instance, the Global Funds documentation did not explain 
its decisions to disburse funds to some recipients who reported that 
they had met few targets. Further, the Global Fund does not track or 
publicly document denied disbursement requests. 

The Global Fund is taking steps to address challenges to grant 
performance and improve the overall management of grants, including
* reorganizing and strengthening its staff; 
* developing a risk assessment mechanism and early warning system to 
identify poorly performing grants; 
* streamlining reporting and funding procedures; 
* working with partners to strengthen recipient capacity; and 
clarifying certain guidance for the country coordinating mechanismthe 
entity in each country responsible for developing grant proposals, 
nominating grant recipients, monitoring grant implementation, and 
advising the Global Fund on the viability of grants for continued 
funding. However, the Global Fund has not clearly defined the role of 
these entities in overseeing grant implementation. 

What GAO Recommends: 

GAO recommends that the U.S. Global AIDS Coordinator work with the 
Global Funds Board Chair and Executive Director to improve the basis 
for, and documentation of, the Global Funds funding decisions. The 
U.S. Departments of State and HHS, USAID, and the Executive Director of 
the Global Fund largely concurred with the reports conclusions. 

www.gao.gov/cgi-bin/getrpt?GAO-05-639. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact David Gootnick at (202) 
512-3149 (gootnickd@gao.gov). 

[End of section]

Contents: 

Letter: 

Results in Brief: 

Background: 

Grant Management Process Has Many Participants and Occurs in Two 
Phases: 

Several Factors Affected Grant Performance: 

Sources Informing Funding Decisions Have Limitations, and Decisions Are 
Not Clearly Documented: 

Global Fund Has Taken Several Steps to Refine Grant Management and 
Performance: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Methodologies Used to Compare Grants' Disbursements: 

Appendix III: Comments from the Global Fund: 

Appendix IV: Joint Comments from the Departments of State and Health 
and Human Services, and the U.S. Agency for International Development: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Global Fund Grants by Disease, Region, and Recipient Type: 

Table 2: Selected Characteristics of 130 Global Fund Grants: 

Table 3: Information Related to Disbursements for Different Types of 
Grants, Defined by Principal Recipient Type, Disease Type, and Grant 
Size: 

Table 4: Regression Models Showing Effects of Various Factors on 
Percentage of Grants Disbursed, Minus the Amount Disbursed in First 
Disbursement: 

Table 5: Percentages of Timely and Untimely Disbursements, by 
Disbursement Stage: 

Figures: 

Figure 1: Global Fund Grant Management Process: 

Figure 2: Global Fund Grant Life Cycle: 

Figure 3: Global Fund Grant Rating System for Phase 2: 

Figure 4: Global Fund Milestones: 

Abbreviations: 

CCM: country coordinating mechanism: 

HHS: U.S. Department of Health and Human Services: 

HHS/CDC: U.S. Centers for Disease Control and Prevention: 

HIV/AIDS: human immunodeficiency virus/acquired immune deficiency 
syndrome: 

NGO: nongovernmental organization: 

PWC: PricewaterhouseCoopers: 

TB: tuberculosis: 

UNAIDS: Joint UN Programme on HIV/AIDS: 

UNDP: UN Development Programme: 

UNICEF: United Nations Children's Fund: 

UNOPS: UN Office for Project Services: 

USAID: U.S. Agency for International Development: 

WHO: World Health Organization: 

Letter June 10, 2005: 

The Honorable Richard G. Lugar: 
Chairman: 
The Honorable Joseph R. Biden, Jr.: 
Ranking Minority Member: 
Committee on Foreign Relations: 
United States Senate: 

The Honorable Henry J. Hyde: 
Chairman: 
The Honorable Tom Lantos: 
Ranking Minority Member: 
Committee on International Relations: 
House of Representatives: 

In January 2002, the Global Fund to Fight AIDS, Tuberculosis and 
Malaria (the Global Fund) was established as a private foundation to 
increase spending for the prevention and treatment of the three 
diseases. The Global Fund is intended to rapidly disburse grants to 
recipients such as governments and nongovernmental organizations, based 
on recipients' performance against agreed-on targets; the Global Fund's 
policy is to make such disbursements in a transparent and accountable 
manner. The Global Fund approved its first grants in April 2002; as of 
April 15, 2005, it had signed 271 grant agreements with recipients in 
123 countries and territories and had disbursed more than $1 billion. 
The Global Fund is a public-private partnership, governed by a board of 
directors representing governments, nongovernmental organizations, 
private companies, and persons living with the three diseases. The 
Global Fund receives most of its funding from national governments; the 
United States has provided almost one-third of the $3.7 billion that it 
has received, and the President's 2006 budget requests an additional 
$300 million. 

In May 2003, we reported that the Global Fund had made progress in 
establishing governance structures and had developed comprehensive 
systems for monitoring grants but that the monitoring systems faced 
challenges.[Footnote 1] Also in May 2003, the President signed 
legislation directing the Comptroller General to monitor and evaluate 
projects supported by the Global Fund.[Footnote 2] Since then, the 
Global Fund has continued to refine its processes. This report reflects 
our review of grants that the Global Fund began disbursing before the 
beginning of 2004--that is, grants that have had at least 1 year in 
which to demonstrate performance. In this report, we (1) describe the 
Global Fund's process for managing grants and disbursing funds; (2) 
identify factors that have affected grant performance; (3) review the 
basis for, and documentation of, the Global Fund's performance-based 
funding; and (4) describe the Global Fund's recent refinements for 
managing grants and improving their performance. 

To describe the Global Fund's process for managing grants and 
disbursing funds, we reviewed Global Fund documents and interviewed 
officials from the Global Fund headquarters in Geneva, Switzerland. To 
identify factors affecting grant performance, we reviewed principal 
recipients' progress reports for 38 grants that had a first 
disbursement on or before December 31, 2003--to allow for at least 1 
year of performance--and met additional criteria, and we categorized 
reasons given for deviation from performance targets. Also, to 
determine whether certain grant characteristics were factors associated 
with the percentage of funds disbursed for each grant, we analyzed 
disbursement data for 130 grants that began disbursing funds by the end 
of 2003. Further, we reviewed documents obtained from field visits to 
four countries--Indonesia, Kenya, Thailand, and Zambia[Footnote 3]-- 
and interviewed a wide variety of government, civil society, and 
bilateral and multilateral development officials in those countries who 
were involved in grant implementation or oversight. In addition, we 
interviewed officials from the Global Fund and multilateral technical 
assistance agencies. To review the basis for, and documentation of, the 
Global Fund's performance-based funding, we examined Global Fund 
documents--including its policy manual, recipients' progress reports, 
and documents assessing the eligibility of 25 of 28 grants considered 
by the Global Fund as of the end of March 2005 for continued funding 
after an initial 2 years--and spoke with Global Fund staff. To describe 
the Global Fund's recent refinements for managing grants and improving 
their performance, we reviewed additional Global Fund documents and 
conducted follow-up interviews with Global Fund and other officials. We 
conducted our work from June 2004 through March 2005 in accordance with 
generally accepted government auditing standards. (See app. I for 
further details of our scope and methodology.)

Results in Brief: 

The Global Fund's grant management process takes place in two phases. 
Several entities participate in the management of each grant: the 
country coordinating mechanism (CCM), representing country-level 
stakeholders; the grant's principal recipient; the Global Fund 
secretariat; the grant manager; the Global Fund board of directors; and 
the local fund agent, the Global Fund's representative in each 
recipient country, responsible for verifying grant recipients' 
financial and program reporting. The Global Fund board generally 
approves 5-year grants but approves a budget ceiling for only 2 years; 
the secretariat then signs an initial contract with the recipient for 2 
years--phase 1 of the grant--during which it is to disburse funds based 
on regular reviews of the recipient's performance. Toward the end of 
the 2-year period, the Global Fund decides whether to renew the grant 
for up to an additional 3 years, known as phase 2. The Global Fund 
bases its disbursement and renewal decisions on four sources of 
information: (1) periodic progress reports submitted by the recipient; 
(2) recipient expenditure data; (3) the local fund agent's verification 
of the recipient's progress and spending; and (4) contextual 
information, including information about mitigating circumstances that 
may affect the recipient's performance. 

Several factors have influenced grant performance. According to Global 
Fund officials and other knowledgeable entities, recipient countries' 
capacity to implement grants has been an underlying factor. In 
addition, principal recipients as well as Global Fund and development 
partner officials frequently cited four factors--guidance, 
coordination, planning, and contracting and procurement--associated 
with challenges or successes in grant performance. For example, 
recipients in three countries reported that they could not meet their 
targets because they had not received approved national guidelines for 
treating the diseases. However, several grant recipients reported that, 
under certain circumstances, Global Fund guidance allowed them to 
quickly redirect funds, thereby enabling them to meet their targets. 
Our analysis to determine whether certain grant characteristics were 
factors associated with the percentage of a grant's funds disbursed 
found no significant association between the type of grant recipient, 
grant size, or disease targeted and the percentage disbursed. 

We found problems with the sources of information that the Global Fund 
uses to make periodic disbursement and grant renewal decisions and with 
its documentation of those decisions. Regarding the information 
sources, we noted that recipient progress reports vary in quality; 
their expenditure data are often incomplete; local fund agents' 
assessments are inconsistent, reflecting varying levels of expertise; 
and contextual information for phase 1 decisions is not systematically 
collected. Further, although the Global Fund's policy is to disburse 
funds based on grant performance, the secretariat did not document how 
it determined that grants' performance warranted additional 
disbursements for the 38 grants that we reviewed. For example, the 
documentation did not show why the secretariat disbursed funds to some 
recipients who reported that they had met few of their targets. 
Moreover, the secretariat does not track denied disbursement requests. 
In addition, for about one-third of the grants that we reviewed, Global 
Fund staff did not document the reasons for their recommendations 
regarding continued funding after an initial 2-year grant period. 
Stakeholders raised additional concerns regarding the grant renewal 
process; for example, a representative of a local fund agent stated 
that this process may occur too early in the life of a grant to 
adequately reflect the grant's progress. 

The Global Fund is taking a number of steps to address challenges to 
grant performance and improve the overall management of grants, 
including: 

* reorganizing and strengthening its staff by increasing the number of 
grant managers, adding a new position focused on documenting 
disbursement decisions and other grant milestones, creating a new unit 
devoted to problem grants, and taking measures to improve the 
monitoring and evaluation of grants and the reliability of the 
performance data that recipients report;

* developing a risk assessment mechanism and early warning system to 
identify poorly performing grants and more systematically alert grant 
managers when they need to intervene;

* streamlining reporting and funding procedures by allowing most 
recipients to report semiannually instead of quarterly and considering 
new, more efficient funding mechanisms than the current round-based 
approach;

* working with partners to strengthen recipient capacity, for example, 
by collaborating with the World Health Organization's (WHO) Roll Back 
Malaria Department in 2004 to reprogram existing grants to incorporate 
new, more effective malaria treatments; and: 

* clarifying some guidance for the CCM, the body in each country 
responsible for developing grant proposals, nominating grant 
recipients, monitoring grant implementation, and advising the Global 
Fund on the viability of grants for continued funding after 2 years. 
However, the Global Fund has not clearly defined the CCMs' role in 
overseeing grant implementation. 

To improve the quality of the information on which the Global Fund 
bases its funding decisions, and the secretariat's documentation of 
these decisions, we are recommending that the U.S. Global AIDS 
Coordinator work with the Global Fund's Board Chair and Executive 
Director to (1) complete efforts to ensure that local fund agents have 
the necessary expertise to evaluate recipients' grant performance data, 
(2) continue to work with development partners to strengthen the 
quality and consistency of that data by enhancing recipients' capacity 
for monitoring and evaluating their financial and program-related 
activities, and (3) continue efforts to clearly document the Global 
Fund's reasons for periodically disbursing funds and renewing grant 
agreements. 

In providing written comments on a draft of this report, the 
Departments of State (State) and Health and Human Services (HHS), the 
U.S. Agency for International Development (USAID), and the Global 
Fund's Executive Director largely concurred with our conclusions. The 
Global Fund's Executive Director agreed with our recommendations and 
the U.S. government agencies did not comment on them in their joint 
letter. (See apps. III and IV for a reprint of their comments.)

Background: 

Human immunodeficiency virus/acquired immune deficiency syndrome (HIV/ 
AIDS), tuberculosis (TB), and malaria, are devastating millions of 
individuals and families, thousands of communities, and dozens of 
nations around the world according to the UN's WHO. 

* HIV/AIDS, the retrovirus that causes AIDS, is usually transmitted (1) 
sexually; (2) from mothers to children before or at birth or through 
breastfeeding; or (3) through contact with contaminated blood, such as 
through the use of contaminated hypodermic needles. In 2004, it led to 
between 2.8 and 3.5 million deaths, most of them in sub-Saharan Africa, 
which is home to more than 60 percent of people living with the virus. 
The number of people infected with HIV has risen in every region of the 
world, with the steepest increases occurring in East Asia, Eastern 
Europe, and Central Asia. In China, HIV/AIDS is now found in all 31 
provinces, autonomous regions, and municipalities; and in India, as of 
2003, 2.5 to 8.5 million people had been infected. In Eastern Europe 
and Central Asia, the number of HIV-positive people has risen ninefold 
in less than 10 years. 

* TB, a bacterial infection transmitted by inhalation of airborne 
organisms, ranks just behind HIV/AIDS as the leading infectious cause 
of adult mortality, each year killing up to 2 million people, mostly 
between the ages of 15 and 54 years. It is the most common killer of 
people whose immune systems are compromised by HIV. 

* Malaria, caused by a parasite, is transmitted in human populations 
through the bite of infected mosquitoes. The disease kills more than 
one million people per year, mostly young African children. 

The Global Fund, established as a private foundation in Switzerland in 
2002, was created as a partnership between governments, civil society, 
the private sector and affected communities to increase resources to 
fight the: 

three diseases. As shown in table 1, 45 percent of the Global Fund's 
271 grants, as of April 15, 2005, were focused on HIV/AIDS; 45 percent 
went to recipients in sub-Saharan Africa; and 59 percent went to 
government recipients. 

Table 1: Global Fund Grants by Disease, Region, and Recipient Type: 

Category: Disease focus: HIV/AIDS; 
Number of grants: 122; 
Percentage of total[A]: 45%. 

Category: Disease focus: Malaria; 
Number of grants: 71; 
Percentage of total[A]: 26%. 

Category: Disease focus: Tuberculosis; 
Number of grants: 67; 
Percentage of total[A]: 25%. 

Category: Disease focus: Integrated; 
Number of grants: 11; 
Percentage of total[A]: 4%. 

Category: Region: Sub-Saharan Africa; 
Number of grants: 121; 
Percentage of total[A]: 45%. 

Category: Region: East Asia and the Pacific; 
Number of grants: 38; 
Percentage of total[A]: 14%. 

Category: Region: Latin America and the Caribbean; 
Number of grants: 36; 
Percentage of total[A]: 13%. 

Category: Region: Eastern Europe and Central Asia; 
Number of grants: 31; 
Percentage of total[A]: 11%. 

Category: Region: South Asia; 
Number of grants: 24; 
Percentage of total[A]: 9%. 

Category: Region: North Africa and the Middle East; 
Number of grants: 21; 
Percentage of total[A]: 8%. 

Category: Type of recipient: Government: ministry of health; 
Number of grants: 97; 
Percentage of total[A]: 36%. 

Category: Type of recipient: Multilateral organization: UN Development 
Programme; 
Number of grants: 51; 
Percentage of total[A]: 19%. 

Category: Type of recipient: Civil society: nongovernmental 
organization; 
Number of grants: 45; 
Percentage of total[A]: 17%. 

Category: Type of recipient: Government: other[B]; 
Number of grants: 42; 
Percentage of total[A]: 16%. 

Category: Type of recipient: Government: ministry of finance; 
Number of grants: 21; 
Percentage of total[A]: 8%. 

Category: Type of recipient: Civil society: private sector; 
Number of grants: 8; 
Percentage of total[A]: 3%. 

Category: Type of recipient: Civil society: faith-based organization; 
Number of grants: 4; 
Percentage of total[A]: 1%. 

Category: Type of recipient: Multilateral organization: other[C]; 
Number of grants: 3; 
Percentage of total[A]: 1%. 

Category: Type of recipient: Total: government; 
Number of grants: 160; 
Percentage of total[A]: 59%. 

Category: Type of recipient: Total: civil society; 
Number of grants: 57; 
Percentage of total[A]: 21%. 

Category: Type of recipient: Total: multilateral organizations; 
Number of grants: 54; 
Percentage of total[A]: 20%. 

Total; 
Number of grants: 271; 
Percentage of total[A]: 100%. 

Source: GAO analysis of Global Fund data. 

[A] Total may not sum to 100 because of rounding. 

[B] Includes national AIDS commissions and multicountry government 
bodies such as the Secretariat of the Pacific Community, which 
encompasses a number of islands in the Pacific. 

[C] Includes one other UN organization other than UN Development 
Programme and two other multilateral organizations. 

[End of table]

In March 2005, the Global Fund reported that across all grants, it had: 

* provided antiretroviral treatment to 130,000 people with AIDS;

* tested more than one million people voluntarily for HIV;

* supported 385,000 TB patients with directly observed short-course 
therapy;[Footnote 4]

* given more than 300,000 people new, more effective treatments for 
malaria; and: 

* supplied more than 1.35 million families with insecticide-treated 
mosquito nets. 

The Global Fund's key principles are to (1) operate as a financial 
instrument, not an implementing entity; (2) make available and leverage 
additional resources; (3) support programs that evolve from national 
plans and priorities; (4) operate in a balanced manner with respect to 
geographic regions, diseases, and health-care interventions; (5) pursue 
an integrated and balanced approach to prevention, treatment, care and 
support; (6) evaluate proposals through an independent review process; 
and (7) operate in a transparent and accountable manner and employ a 
simplified, rapid, and innovative grant-making process. 

Grant Management Process Has Many Participants and Occurs in Two 
Phases: 

Numerous entities participate in the Global Fund's processes for 
managing grants. The Global Fund manages its grants in two phases, 
generally over a 5-year period. During phase 1, the Global Fund signs a 
2-year grant agreement with the principal recipient and periodically 
reviews recipients' performance to determine whether to disburse 
additional funds. Near the end of phase 1, the board reviews the 
grant's progress to determine whether to renew the grant for an 
additional 3 years; if the board approves continued funding, the grant 
enters phase 2. The Global Fund board approved the first round of 
grants in April 2002 and approved 33 grants to enter phase 2 as of 
April 25, 2005. 

Numerous Entities Are Involved in Managing Grants: 

The following entities participate in the Global Fund's grant 
management process (see fig. 1). 

Figure 1: Global Fund Grant Management Process: 

[See PDF for image]

[End of figure]

* A country coordinating mechanism (CCM) representing country-level 
stakeholders submits grant proposals to the Global Fund and nominates a 
principal recipient to be responsible for implementing the grant. 
According to the Global Fund, the CCM should be made up of high-level 
host government representatives, representatives of nongovernmental 
organizations (NGO), multilateral and bilateral donors, the private 
sector, and individuals living with HIV/AIDS, TB, or malaria. CCMs are 
to develop and forward grant proposals to the Global Fund, monitor 
grant implementation, and advise the Global Fund on the viability of 
grants for continued funding after 2 years. 

* The principal recipient is a local entity nominated by the CCM that 
signs an agreement with the Global Fund to implement a grant in a 
recipient country. There may be multiple public and private principal 
recipients for a single grant. The principal recipient is responsible 
for overseeing the activities of any subrecipients implementing grant 
activities and for distributing grant money to them. 

* The secretariat is responsible for the Global Fund's day-to-day 
operations, including managing the grant proposal process; overseeing 
and managing grant implementation to ensure financial and programmatic 
accountability; and acting as a liaison between grant recipients and 
bilateral, multilateral, and nongovernmental partners to ensure that 
activities at the country level receive necessary technical assistance 
and are well coordinated. As of April 15, 2005, the secretariat had 165 
staff. Within the secretariat, the fund portfolio manager, or grant 
manager, is responsible for reviewing grant progress and deciding 
whether to disburse additional funds to the principal recipient. 

* The secretariat reports to the Global Fund's board of directors. The 
23-member board is responsible for overall governance of the Global 
Fund and approval of grants. The board includes 19 voting 
representatives of donor and recipient governments, NGOs, the private 
sector (including businesses and foundations), and affected 
communities. Key international development partners, including WHO, the 
Joint UN Programme on HIV/AIDS (UNAIDS), and the World Bank, 
participate as nonvoting members. The World Bank also serves as the 
Global Fund's trustee. 

* The local fund agent is the Global Fund's representative in each 
recipient country and is responsible for financial and program 
oversight of grant recipients. This oversight role includes an 
assessment of recipients prior to their receiving money from the Global 
Fund. To date, the Global Fund has contracted with the following 
entities to serve as local fund agents: four private firms, KPMG, 
PricewaterhouseCoopers (PWC), Chemonics International, Inc., and 
Deloitte Emerging Markets; one private foundation that was formerly a 
public corporation, Crown Agents; the Swiss Tropical Institute; and two 
multilateral entities, the World Bank and the UN Office for Project 
Services (UNOPS). PWC and KPMG serve as the local fund agents in 91 of 
the 110 countries for which the Global Fund has contracted local fund 
agents. 

Global Fund Implements Grants in Two Phases: 

After the board approves a proposal submitted by a CCM and vetted by an 
independent, multinational technical review panel, typically for a 5- 
year grant, the secretariat signs a 2-year grant agreement with the 
principal recipient. This initial 2-year period represents phase 1 of 
the grant; if the board approves continued funding, the grant enters 
phase 2. 

Phase 1: 

For grants approved in 2002 and 2003, the local fund agent conducted, 
or contracted with other entities to conduct, assessments of the 
recipient's capacity to (1) manage, evaluate, and report on program 
activities; (2) manage and account for funds, including disbursing to 
subrecipients; and (3) procure goods and services and maintain a 
reliable supply of drugs and other commodities. The local fund agent 
initially conducted these assessments after the signing of the grant 
agreement but now conducts them before the Global Fund signs an 
agreement with a principal recipient. After the local fund agent 
determines that the results of its assessments are satisfactory, the 
Global Fund instructs the World Bank to disburse the first tranche of 
funds to the principal recipient. 

According to its policy, the Global Fund disburses subsequent tranches 
based on performance to ensure that investments are made where impact 
in alleviating the burden of HIV/AIDS, TB, and malaria can be achieved. 
During the grant period, the portfolio managers are to link 
disbursements to periodic demonstrations of program progress and 
financial accountability. The grant agreements initially specified that 
principal recipients would report their progress and request additional 
disbursements on a quarterly basis. In July 2004, the secretariat 
changed the default reporting/disbursement request cycle to every 6 
months.[Footnote 5] As of April 15, 2005, about 20 percent of the 
Global Fund's grants were on a 6-month schedule. According to the 
secretariat, some grant recipients may choose to remain on a quarterly 
schedule or the secretariat may decide, based on a grant's risk 
profile, to disburse only one quarter at a time. 

According to secretariat officials, grant managers use four sources of 
information to determine whether to disburse additional funds to grant 
recipients.[Footnote 6]

* Recipient progress reports. Principal recipients submit progress 
reports on meeting designated targets along with requests for further 
funding at the end of each disbursement period. If program results or 
expenses differ significantly from plans attached to the grant 
agreement, the principal recipient is to explain the reasons for these 
deviations and may also provide an overview of other program results 
achieved, potential issues and lessons learned, as well as any planned 
changes in the program and budget. The recipient forwards its progress 
report and disbursement request to the Global Fund secretariat through 
the local fund agent. 

* Recipient expenditure data. The progress reports contain cash-flow 
information. Principal recipients are to outline expenditures for the 
previous disbursement period, comparing amounts budgeted for grant 
activities with amounts spent. Recipients are then to reconcile 
expenditures and provide a current cash balance. Budgets may vary from 
initial projections, owing to cost savings, additional expenditures, or 
currency fluctuations. 

* Local fund agent assessments. The local fund agent reviews and 
validates the information in the progress update, performs ad-hoc 
verifications of program performance and financial accountability, and 
advises the Global Fund on the next disbursement. Local fund agents are 
to highlight achievements and potential problems to support their 
advice and may identify performance gaps to be addressed. 
Representatives of one local fund agent, which covers grants in 29 
countries, said that they base their disbursement recommendations on 
two considerations: (1) the Global Fund's level of risk in making 
additional disbursements to a recipient that uses funds ineffectively 
and (2) the immediate effect of withholding disbursement on program 
implementation, including the delivery of disease-mitigating services. 
These representatives said that, overall, they strive to tie the 
progress update to projected results in the grant agreement. 

* Contextual information. The secretariat also uses additional 
information relevant to interpreting grant progress, such as news of 
civil unrest, political disturbance, allegations of corruption, 
conflict, major currency crisis, change of principal recipient, and 
natural disasters. A secretariat official said that the secretariat did 
not document requirements for such information for phase-1 decisions 
but did allow grant managers to consider any information that would 
adversely affect grant implementation in their decisions to disburse. 
This information is typically obtained through informal communications 
with grant recipients, bilateral and multilateral donors, or other 
development partners, according to secretariat officials. 

The principal recipient is to provide the CCM with copies of its 
disbursement requests and progress reports, and CCM members may comment 
on the progress of implementation based on their local knowledge and 
experience, either through the local fund agent or directly to the 
secretariat. If the secretariat decides to approve the disbursement 
request, it may specify the level of disbursement and actions that the 
principal recipient must take. The secretariat then instructs the World 
Bank to make the disbursement. The secretariat may also decide not to 
approve the disbursement request. 

Phase 2: 

When a grant reaches its sixteenth month, the Global Fund invites the 
CCM to submit a request for continued funding for the period following 
the initial 2 years. The Global Fund refers to this period as phase 2 
of the grant (see fig. 2). 

Figure 2: Global Fund Grant Life Cycle: 

[See PDF for image] 

[End of figure] 

The CCM is to submit its request to the Global Fund by month 18, and 
the secretariat is to evaluate the CCM's request using the four sources 
of information described earlier.[Footnote 7] Based on its assessment 
of this information, as informed by its professional judgment, the 
secretariat gives the grant one of four scores, as shown in figure 3. 
It then provides its assessment and recommendation--called a grant 
scorecard--to the board regarding approval of the request, and the 
board decides on the request by month 20. If the board approves the 
request, the principal recipient and the Global Fund negotiate and sign 
a grant agreement extension over the next 2 months. At month 22, the 
Global Fund instructs the World Bank to make the first phase-2 
disbursement. 

Figure 3: Global Fund Grant Rating System for Phase 2: 

[See PDF for image] 

[End of figure] 

Note: The grant's performance rating is combined with contextual 
considerations to yield a decision as to whether the grant should be 
continued under phase 2. For example, a performance rating of A 
combined with no or minor contextual issues would likely result in a 
"go" decision, whereas the same performance rating combined with more 
significant contextual issues could result in a "conditional go," 
revised go," or even a "no go" decision. Similarly, a lower performance 
rating could result in any of the four possible decisions, depending on 
contextual considerations. (This explanation is based on information 
provided to us by the Global Fund in April 2005. The Global Fund's 
previously available guidance indicated a simpler decision-making 
process.)

The secretariat sends its recommended scores to the board members, who 
vote on the recommendations via e-mail.[Footnote 8] A "go" decision 
means that the Global Fund approves proceeding to phase 2. "Conditional 
go" means that the Global Fund approves proceeding to phase 2 after the 
principal recipient undertakes specific actions within the time frame 
specified. "Revised go" means that the principal recipient must 
reprogram the grant and substantially revise the targets and budgets 
for phase 2. "No go" means that the Global Fund does not approve the 
grant's proceeding to phase 2.[Footnote 9] Currently, recipients denied 
further funding ("no go") cannot formally appeal the board's decision. 
However, a board subcommittee may consider a formal appeal process. If 
the "no go" decision affects patients on lifelong treatment, the 
principal recipient may be eligible to receive funding to sustain 
treatment for 2 more years. 

As figure 4 shows, the Global Fund board approved the first round of 
grant proposals in April 2002. The second, third, and fourth rounds 
were approved in January 2003, October 2003, and June 2004, 
respectively. The board is expected to approve a fifth round of 
proposals in September 2005. As of April 25, 2005, the secretariat had 
reviewed 36 grants that became eligible for continued funding under 
phase 2. The board approved 20 grants, conditionally approved 13, 
denied 1, and is still considering 2. The board will continue to 
evaluate grants for phase 2 on a rolling basis as they become eligible. 

Figure 4: Global Fund Milestones: 

[See PDF for image] 

[End of figure] 

Several Factors Affected Grant Performance: 

According to Global Fund officials and other knowledgeable entities, 
recipient countries' capacity to implement grants was an underlying 
factor in grant performance. In addition, principal recipients for the 
38 grants[Footnote 10] as well as Global Fund and development partner 
officials frequently cited four factors associated with challenges or 
successes in grant performance: (1) guidance, (2) coordination, (3) 
planning, and (4) contracting and procurement. We found no significant 
association between the type of principal recipient, grant size, or 
disease targeted and the percentage of a grant's funds disbursed to the 
principal recipient. 

Limited Capacity in Recipient Countries Affected Performance, but Some 
Governments Have Strengthened Health-Sector Capacity: 

Global Fund and development partner officials cited limited capacity in 
recipient countries as an underlying factor that can negatively affect 
grant performance.[Footnote 11] Global Fund grant managers said that in 
many cases, grants experienced early delays because of weaknesses in 
recipients' financial, procurement, and monitoring and evaluation 
systems. For example, Indonesia's local fund agent found the principal 
recipient's management and financial plans to be insufficient and asked 
the recipient to rework them seven times before the local fund agent 
recommended grant disbursements. Also in Indonesia, TB spending 
increased fivefold, greatly straining capacity, particularly for 
monitoring and evaluating activities at the district level. In Kenya, a 
lack of designated, adequately trained staff at the principal recipient 
(the ministry of finance) and immediate subrecipients (the ministry of 
health and the National AIDS Control Council) slowed disbursements from 
the principal recipient and from the immediate subrecipients to 
implementing organizations. Ethiopia has been slow in implementing its 
first three grants, particularly those for TB and malaria, owing to 
lack of monitoring and reporting capacity within the ministry of 
health, delays in recruiting staff to manage financial systems, slow 
decision-making processes, delays in starting the procurement process, 
and cumbersome procurement procedures. 

Despite limited overall capacity in recipient countries, we found 
instances where recipient governments had worked with development 
partners to strengthen capacity in the health sector, thus facilitating 
grant performance. For example, according to the Indonesian government 
and WHO officials, the Global Fund grant in Indonesia is building on a 
strong foundation, using the country's 5-year strategic plan for TB, a 
joint effort of the Indonesian government and WHO. Between 2000 and 
2003, the Dutch government helped train TB "soldiers" in Indonesian 
provinces, which improved outreach and case-detection efforts under the 
Global Fund grant; Indonesia's ministry of health had already 
established mechanisms to quickly disburse funds to districts. In 
addition, the Zambian government has worked with donors and other 
development partners to strengthen its health sector financing 
mechanisms. As a result, donors, including the Global Fund, contribute 
directly to an existing mechanism, the pooled health sector "basket," 
and use the health sector donor group overseeing these funds to monitor 
and evaluate grant progress in meeting targets. Zambia's health sector 
also has mechanisms in place to quickly channel funds to the country's 
more than 70 districts. In Mongolia, the local fund agent reported that 
the principal recipient and subrecipients had adequate financial 
management systems in place to account for funds and that the principal 
recipient could immediately start implementing the program with little, 
if any, technical assistance. Some countries and grant recipients are 
also seeking to strengthen their capacity through Global Fund grants, 
according to the Global Fund and principal recipients. 

Lack of Clear Guidance Impeded Performance, but in Some Cases Guidance 
Helped Recipients Meet Targets: 

Grant recipients frequently reported that a lack of guidance from the 
recipient country's government or the Global Fund caused them to fall 
short of grant targets. For example, recipients in three countries 
reported that they could not meet their targets because they had not 
received approved national treatment guidelines. Indonesia's ministry 
of health did not have guidelines ready for the voluntary counseling 
and testing component of its HIV grant, delaying distribution of 
information to the provinces. Senegal's ministry of health, another 
principal recipient, did not have treatment plans needed for 
implementing its malaria grant, preventing the principal recipient from 
receiving antimalarial medication. In addition, some stakeholders 
reported that guidance from the Global Fund was lacking or unclear or 
that they encountered difficulties with Global Fund grant policies. For 
example, in at least one instance, U.S. government officials reported 
that spending delays in Kenya resulted from unclear guidance from the 
Global Fund regarding altering programs to allow the use of newer, more 
effective but expensive malaria drugs. The Global Fund recognized that 
procedures for early grants were unclear and that this lack of clarity 
caused program delays. Further, WHO officials and at least one 
recipient voiced concerns over lack of flexibility when recipients 
sought to modify grant activities. For example, one subrecipient in 
Thailand expressed concern that it could not use Global Fund money to 
build or maintain a shelter for HIV-positive women because this type of 
activity was not written into the grant. Grant recipients also said 
that continued staff turnover in the Global Fund's grant management 
teams made it difficult to receive clear, consistent guidance. For 
example, recipients in Thailand said that they had worked with four 
different grant managers over the life of their grants and that this 
turnover had complicated communication. 

However, several grant recipients reported that, under certain 
circumstances, Global Fund guidance allowed them to quickly redirect 
funds to meet existing targets. For example, the principal recipient in 
Indonesia cited grant flexibility as a factor positively affecting 
performance in both its TB and HIV/AIDS round-1 grants, because this 
flexibility allowed it to adjust its funding priorities in line with 
its targets. Similarly, in Thailand, one subrecipient stated that the 
Global Fund allowed it to change training modules to meet educational 
needs, contributing to success. 

Poor Coordination Slowed Grant Implementation, but Good Coordination 
Facilitated It: 

The Global Fund secretariat reported that, in some cases, poor 
coordination negatively affected grant implementation. For example, in 
Ghana, internal rivalries between ministry of health units with 
different responsibilities in the program are slowing implementation. 
In Senegal, the Global Fund reported that the principal recipient did 
not meet its target for coordinating and developing partnerships to 
promote community-based programs for combating malaria. 

However, effective coordination between grant recipients and local 
community groups or development partners sometimes contributed to 
recipients' meeting or exceeding their goals. Zambia's HIV/AIDS grant 
exceeded its targets for training and provision of services because of 
development partner, NGO, and private sector contributions. Similarly, 
in Kenya, one NGO principal recipient leveraged the activities of other 
groups providing HIV care kits. Another recipient in Kenya exceeded its 
targets for condom distribution by working with local intermediaries to 
increase demand by approaching new types of clients, such as shoe 
shiners, open vehicle cleaners, security officers, staff at petrol 
stations, and young men at salons. In Indonesia, a grant subrecipient 
was able to provide treatment to a larger number of TB patients by 
partnering with private physicians, because a significant number of 
patients sought treatment at private clinics. 

Planning Difficulties Made It Hard to Meet Targets, but Adept Planning 
Made Them Attainable: 

Planning difficulties affected some recipients' ability to meet grant 
targets. Recipients reported that they sometimes did not achieve 
targets for a variety of reasons, including not budgeting sufficient 
time or money to complete targets, or scheduling activities for the 
wrong time period. One recipient in Zambia underestimated the time 
needed to analyze baseline data on constituent needs prior to the 
planned distribution of educational materials on malaria prevention to 
1,000 households. The recipient eventually printed the materials but 
did not reach the targeted households within the planned time frame. In 
Sri Lanka, a malaria grant recipient underestimated the cost of 
establishing a community center and had to redesign its program plan to 
remain within the grant budget. According to the progress report, the 
principal recipient established new targets to use the funds originally 
budgeted to build the center, delaying grant implementation. Further, a 
recipient in Kenya did not conduct 3,000 planned community education 
skits aimed at preventing HIV during one disbursement period and 
attributed the shortfall to a conflict with annual school examinations. 
The Global Fund recognized that recipients' difficulty in setting 
targets for the initial grants derived in part from the fact that it 
was developing procedures and guidelines at the same time that it was 
approving and signing round-1 and round-2 grants. 

Conversely, in some cases, adept planning positively affected grant 
performance. In Indonesia, several grant recipients reported that 
effective planning for TB treatment allowed various districts to 
complete work plans early in the grant, in turn allowing the provinces 
that oversee those districts to meet their target of developing budgets 
on time. In Haiti, one principal recipient exceeded its targets by 
planning activities around World AIDS Day, increasing the demand for, 
and the principal recipient's provision of, AIDS-related services such 
as condom distribution. 

Delays in Contracting and Procurement Hindered Grant Performance, While 
Efficient Procurement Helped: 

Recipients frequently reported that contracting delays with 
subrecipients, vendors, or other service providers caused them to miss 
quarterly targets. For example, UNDP, a principal recipient in Haiti, 
was unable to hold a planned HIV conference because of delays in 
signing a contract with a subrecipient. Delays in selecting and 
reaching contracts with subrecipients caused the Argentine grant to 
start slowly, the Global Fund secretariat reported. In Thailand, the 
ministry of public health recipient could not establish TB treatment 
services because of a subrecipient delay in selecting a site and 
contract. Grant recipients and the Global Fund secretariat also cited 
procurement delays as reasons for missing quarterly targets. For 
example, recipients of malaria grants in Tanzania and Zambia reported 
that they did not distribute the targeted number of bed nets due to 
lengthy government procurement processes. In addition, during our visit 
to Zambia, we found that local spending restrictions also affected 
recipients' ability to meet and report on targets. A district health 
director explained that spending restrictions delayed her purchase of a 
new hard drive for her office's computer, which slowed the district's 
grant activities and reports to the principal recipient.[Footnote 12] 
In Kenya, we found that the limited capacity of the Kenyan health 
ministry's procurement agency and the ministry's reluctance to contract 
with outside procurement experts led to delays and, as a result, to 
gaps in the supply of HIV test kits, which bilateral donors had to 
fill. In Ghana, according to the Global Fund secretariat, the 
government's slow, bureaucratic procurement processes caused delays 
that contributed to the grant's poor performance in reaching people 
with HIV/AIDS and opportunistic infections. 

However, the Global Fund secretariat reported that some principal 
recipients' efficient procurement helped them meet their targets. For 
example, a principal recipient in Madagascar managed procurement 
exceptionally well throughout the grant and, as a result, exceeded its 
targets for distributing bed nets. The Global Fund disbursed this 
grant's phase-2 funding early, because the recipient had implemented 
the program rapidly and was therefore able to use the additional funds. 
Another recipient in Madagascar consistently met targets, and its 
disbursements to subrecipients accelerated. The Global Fund also 
reported that, after initially strengthening its capacity, the 
principal recipient in Moldova made substantial progress with 
procurement activities, thereby lowering treatment costs per patient 
and realizing significant savings due to lower acquisition costs. 

No Significant Association Found between Grant Characteristics and 
Percentage of Funds Disbursed: 

To determine whether certain grant characteristics were factors 
associated with the percentage of funds disbursed,[Footnote 13] we 
analyzed 130 grants with first disbursements on or before December 31, 
2003. We found no significant association between the type of principal 
recipient, grant size, or disease targeted and the percentage of a 
grant's funds disbursed, after taking into account the time elapsed 
since the first disbursement.[Footnote 14] (See app. II for details of 
our analysis.) For example, the Global Fund disbursed a smaller 
percentage of grants to government recipients than to recipients in the 
private sector and faith-based organizations, but these differences do 
not incorporate other factors such as grant size or time elapsed since 
the first disbursement. We also considered whether disbursements were 
made in a timely manner, that is, within 135 days (a 90-day quarter 
plus a 45-day grace period allowed by the Global Fund for reporting). 
Overall, we found that 35 percent of the disbursements were made within 
135 days and that later disbursements were more timely than earlier 
ones. The number of timely disbursements was too small at any given 
disbursement stage to determine whether timeliness varied according to 
recipient or disease type, or grant size. 

Sources Informing Funding Decisions Have Limitations, and Decisions Are 
Not Clearly Documented: 

We noted problems associated with the four information sources that the 
secretariat draws on for periodic disbursement and renewal decisions. 
In addition, although the Global Fund's stated policy is to disburse 
funds based on performance and to operate in a transparent and 
accountable manner, we found that the secretariat did not document its 
reasons for periodic disbursement decisions during phase 1. Similarly, 
some of the secretariat's recommendations regarding grant renewals for 
phase 2 have not been fully documented, and stakeholders have raised 
additional concerns regarding the timing of the phase-2 renewal 
process, dated information, low grant expenditure, and potential 
politicization of disbursement decisions. 

Information Sources for Disbursement and Renewal Decisions Have 
Limitations: 

We found the following problems associated with the sources of 
information that the secretariat uses in making periodic disbursement 
decisions during phase 1 and determining whether to renew grants during 
phase 2. 

* Recipient progress reports vary in quality. Some reports do not 
explain why recipients missed targets, and the limited monitoring and 
evaluation capabilities of many recipients raise questions about the 
accuracy of their reporting. Secretariat officials acknowledged that 
guidance for planning program activities, setting indicators, and 
monitoring and evaluating progress was not available when initial 
grants were signed. However, Global Fund secretariat and other 
officials have raised questions about the ability of principal 
recipients to discharge their responsibility for reviewing and 
monitoring the activities of subrecipients to which they disburse 
funds. According to the Global Fund official in charge of grant 
operations, many early grant proposals were overly ambitious and 
hurriedly assembled; he said more recent proposals were more realistic 
and better designed. UNAIDS officials also stated that when principal 
recipients' progress updates show poor performance, it is not always 
clear whether grants are underperforming or recipients are failing to 
effectively report performance. For example, when a progress update 
shows failure to achieve targets, the principal recipient and 
subrecipients may have actually completed the activities but not 
understood how to record them. 

* Recipient expenditure data are incomplete. Recipients' cash-flow 
reports do not include data on expenditures below the level of the 
principal recipient. In addition, principal recipients may not always 
document their disbursal of money to subrecipients. Moreover, Global 
Fund and other officials have questioned whether some principal 
recipients have the expertise needed to monitor subrecipients' 
expenditures. Further, secretariat officials stated that although the 
achievement of program targets and cash flow are closely linked, 
recipients' expenditures do not necessarily indicate that they are 
meeting their targets. The officials stated that utilizing this source 
of information is essential to guard against treatment interruptions or 
irreparable harm to struggling programs that are not yet viable but 
show strong potential. 

* Local fund agent assessments are inconsistent. According to Global 
Fund secretariat officials and others, the ability of local fund agents 
to effectively verify program activities varies widely. A secretariat- 
commissioned assessment reported that the current local fund agent 
system does not provide grant managers with a sufficient level of risk 
assurance for continued funding.[Footnote 15] The study, as well as 
Global Fund and development partner officials, reported that although 
most local fund agents are competent to assess and verify financial 
accountability, they often lack the knowledge and experience needed to 
assess and verify recipients' performance--specifically, recipients' 
ability to meet program targets, monitor and evaluate progress, and 
procure and manage drugs and other medical supplies. The study also 
stated that local fund agents' assessments of financial and program- 
related capacity and verifications of activities are limited and rarely 
include site visits to implementing subrecipients. 

* Contextual information is systematically collected for phase 2 but 
not for phase 1. To better understand why recipients received phase-1 
disbursements when they did not meet many of their performance targets, 
we requested full disbursement dossiers from the secretariat; however, 
the dossiers contained very little contextual information supporting 
the disbursement decisions. The contextual information provided was 
often in the form of hand-written notes or e-mail correspondence that 
had been collected ad hoc. Secretariat officials acknowledged that 
while they collect contextual information through detailed questions on 
the scorecards for phase-2 decisions, they have no systematic method 
for collecting such information for phase-1 decisions. Although the 
Global Fund considers contextual information in its funding decisions, 
it does not document the extent to which it uses such information. 

Little Documentation Provided to Support Phase 1 Disbursement 
Decisions: 

Although the files for the 38 grants we reviewed contained information 
on progress toward targets and cash flow, they contained little or no 
documentation explaining why the Global Fund approved the 
disbursements.[Footnote 16] Overall, for the 38 grants we reviewed, we 
determined that recipients met, on average, 50 percent of their 
targets; partially met 21 percent; and failed to meet 24 
percent.[Footnote 17] For 6 percent of the targets, the information in 
the progress reports was insufficient to determine whether the target 
had been met, partially met, or not met. In some of these cases, the 
Global Fund disbursed funds to recipients even though they reported 
that they had met few or none of their targets. For example: 

* The principal recipient for Sri Lanka's second malaria grant received 
disbursements for its third and fourth quarters, although it had 
submitted two progress updates showing that it met only 2 of its 14 
targets for the third quarter and 4 of 13 targets for the fourth 
quarter. The secretariat provided no written information explaining its 
approval of the third-quarter disbursement and provided only a one- 
sentence declaration of agreement regarding the fourth-quarter 
disbursement. In both cases, the local fund agent had recommended that 
the recipient receive less than the amount requested, citing cash-flow 
considerations but not mentioning performance against targets. In each 
case, the secretariat disbursed the amount that the local fund agent 
recommended. 

* The principal recipient for Thailand's TB grant received its second 
disbursement although it had met only 1 of 29 performance targets. The 
secretariat approved the full amount requested, stating that the 
recipient had not requested sufficient funds in its previous 
disbursement request, although the grant manager did not provide 
documentation to validate this assessment. The local fund agent had 
noted the grant's poor performance and, acknowledging the grant's low 
cash reserves, suggested a disbursement of 25 percent of the 
recipient's request. 

Further, the Global Fund secretariat does not systematically track 
denied disbursement requests or publicly document denials. Secretariat 
officials acknowledged that they currently have no mechanism for 
tracking or documenting these instances. According to these officials, 
the denial may eventually be documented in a memorandum on the grant's 
disbursement request history once a disbursement is approved or, if the 
grant is ultimately canceled without further disbursement, in a grant- 
closing memorandum. 

Some Renewal Recommendations Were Not Clearly Documented: 

According to grant management officials, the secretariat is to 
unequivocally demonstrate satisfactory performance of all grants 
recommended to the board for continued funding under phase 2. However, 
we found that the secretariat did not always clearly explain the 
overall score it assigned each grant when it recommended the grant for 
continued or conditional funding. Although a substantial part of the 
score is to be based on recipients' performance against agreed-on 
targets (e.g., the number of people to be reached by disease mitigation 
services), the final score can also reflect grant managers' 
professional judgment, contextual information from multilateral and 
bilateral donors, and past disbursement rate data. Secretariat 
officials said that decisions based on these information sources should 
be documented when an overall score does not seem to reflect 
recipients' achievement of individual targets. However, we did not find 
such documentation in the grant scorecards for 8 of 25 early grants 
that the Global Fund has considered for continued funding after an 
initial 2-year period. The secretariat gave 3 of the grants an overall 
score of B2 yet recommended "conditional go," which corresponds to a B1 
score. For another grant, the secretariat gave a B1 score for three 
indicators, two of which concern the number of people reached by 
treatment, care, or other disease mitigation services, yet made an 
overall recommendation of "go," which corresponds to an A score. Such 
discrepancies between scores and recommendations are significant, 
because the recommendations determine the levels of action that 
recipients are to undertake before receiving phase-2 funding. Seven of 
the scorecards also raised concerns about the quality of recipients' 
data and their monitoring and evaluation capabilities. Of the 25 
grants, the Global Fund decided to cancel one, and the secretariat's 
scorecard clearly explained the reasons for recommending that the board 
cancel the grant. 

Stakeholders Also Raised Concerns Regarding Phase-2 Renewal Process: 

According to the Global Fund, the phase-2 renewal process is a critical 
checkpoint to ensure that grants show results and financial 
accountability. However, some stakeholders raised concerns about the 
process that the Global Fund used to review the first set of grants 
eligible for renewal. For example, a representative of a local fund 
agent stated that this process may occur too early in the life of a 
grant and that progress may be better evaluated when a grant approaches 
the 3-year mark. Further, officials representing a Global Fund board 
member stated that data provided to the board during the first round of 
renewal decisions did not contain expenditure data. These officials 
stated that when they sought expenditure data (i.e., amounts spent by 
grant recipients on program activities) on the Global Fund's Web site 
in March 2005, the most recent information for their grants of concern 
had been posted in June 2004. Subsequent data submitted to the board 
for phase-2 renewal decisions contained expenditure information. In one 
case, a recipient applying for phase-2 funding and recommended by the 
secretariat for continued funding had received more than 75 percent of 
its 2-year grant amount yet had transferred only 12 percent of this 
money to subrecipients for program activities. These officials also 
raised concerns over the potential for the politicization of board 
decisions because the board had returned three "no go" recommendations 
to the secretariat for further consideration after some recipients and 
NGOs lobbied board members. 

Global Fund Has Taken Several Steps to Refine Grant Management and 
Performance: 

The Global Fund's secretariat is launching a range of initiatives to 
address challenges to grant performance and improve the overall 
management of grants. Systemwide, the secretariat is (1) reorganizing 
and strengthening its units, (2) developing a risk assessment mechanism 
and early warning system, (3) streamlining reporting and funding 
procedures, (4) working with partners to strengthen recipient capacity, 
and (5) clarifying guidance for CCMs. However, the board has not 
clearly defined the CCMs' role in overseeing grant implementation. The 
Global Fund has also responded to country-specific challenges in Kenya 
and Ukraine. 

Secretariat Reorganizing and Increasing Its Staff to Better Manage 
Grants: 

To improve grant management and documentation of funding decisions and 
to better support underperforming grants, the Global Fund took the 
following actions in 2004: 

* Reorganized the secretariat's operations unit and increased the 
number of staff from 118 to 165.[Footnote 18] For example, it added 
eight grant manager positions and established regional teams, each with 
a team leader, so that more than one grant manager is responsible for a 
set of grants in the countries within a regional team. To better 
document periodic disbursement decisions, the secretariat added a new 
position, known as a program officer, to its grant management 
structure. The secretariat is currently recruiting program officers for 
each regional team, who are to be responsible for documenting 
disbursement and other decisions and keeping track of grant milestones. 
Further, secretariat officials said that the Global Fund is planning to 
recruit additional grant management staff to conduct increased day-to- 
day recipient monitoring and assistance. The program officers and the 
additional grant management staff accounted for most of the increase in 
staff at the secretariat between 2004 and 2005, according to a Global 
Fund administrative official. 

* Created the Operational, Partnerships and Country Support Unit to 
focus on problem grants. According to secretariat officials, this unit-
-which also includes new positions to liaise with development and 
technical assistance partners, local fund agents, and CCMs--will enable 
the secretariat to address grant performance issues before they become 
serious problems and will thereby better manage risk exposure. For 
example, the unit could mobilize intervention by high-level recipient 
government officials, solicit technical assistance from partners, or 
engage the United Nations Children's Fund (UNICEF) to procure health 
commodities until the recipient government can set up a viable 
procurement system. 

* Strengthened its strategic information and evaluation unit to improve 
monitoring and evaluation, data reliability, and quality assurance. 

* To enhance the quality and consistency of the data that recipients 
report, in June 2004 the secretariat issued a monitoring and evaluation 
"toolkit" developed in cooperation with other donors and development 
assistance partners.[Footnote 19] This toolkit guides grant recipients 
to select consistent indicators to measure progress toward key program 
goals, such as the number of people with AIDS who were reached with 
drug treatment or the number of people given insecticide-treated bed 
nets to prevent malaria. The secretariat has also required attachments 
to each grant agreement that outline program indicators and the 
specific activities that enable recipients to meet these indicators and 
overall program goals. According to Global Fund officials, progress 
will more easily and consistently be measured when all grants have 
aligned their indicators and activities to this toolkit. Grant managers 
are currently working to accomplish this goal with the recipients they 
cover.[Footnote 20] According to the Global Fund, these developments 
have been important in harmonizing monitoring and evaluation approaches 
among partners at national and international levels and will help 
simplify country-level reporting to multiple donors by ensuring the use 
of a common set of indicators to measure interventions. Partners 
provided training on the toolkit in 2004. According to the secretariat, 
training is to continue in 2005. Recipients we met with in Thailand 
confirmed that they had received the toolkit. However, they said that 
it was not in their native language and therefore was not 
useful.[Footnote 21]

* In March 2004, the board approved establishing a Technical Evaluation 
Review Group with members from UNAIDS, WHO, and other partners to 
develop a system for assessing and ensuring data reliability. The group 
first met in September 2004. According to Global Fund officials, these 
efforts will result in more systematic reporting and analysis by 
recipients, the Global Fund, and partners and, consequently, in better 
comparisons of grants. 

* To strengthen strategic information for monitoring grant performance, 
in fall 2004, the secretariat created a "data warehouse" that contains 
information from recipients' progress reports and disbursement 
requests, donors, CCMs, and local fund agent assessments. Secretariat 
staff use the database to prepare "scorecards" that rank grants for the 
phase-2 renewal process. 

Secretariat Is Implementing a Risk Assessment and Early Warning System 
to Identify Potential Nonperforming Grants: 

The secretariat has devised a risk-assessment model and early warning 
system to identify poorly performing grants and to more systematically 
alert grant managers when they need to intervene. Because the Global 
Fund disburses grants to recipients in countries with varying levels of 
economic development and capacity, its risk-assessment model will 
incorporate grant size and performance as well as country development 
and corruption indicators.[Footnote 22] By tracking key events in the 
context of grant and country risk, the grant portfolio managers can 
determine whether recipients have missed important milestones. The 
early warning system is to generate reports using indicators--for 
example, time elapsed between disbursements--to flag problems and 
trigger possible interventions. The system will also incorporate 
contextual information from country-based partners. When the system 
identifies slow-moving grants, staff from the secretariat's 
Operational, Partnerships and Country Support unit will be able to 
assess and follow up with the appropriate level of intervention. For 
example, if a grant recipient in a high-risk country does not submit a 
progress report and disbursement request at the expected time, the 
system will alert staff that follow-up is needed. 

Although the system has not been fully implemented, secretariat 
officials said that their recent intervention in Tanzania exemplifies 
the way the system should work. The Tanzania malaria grant was not 
demonstrating progress after 1 year, as measured by the amount of funds 
disbursed compared with the amount that the secretariat expected to 
disburse. After following up with the principal recipient, secretariat 
staff realized that political infighting--rather than technical 
limitations--were inhibiting progress of the malaria program: competing 
groups were vying for control of grant funds and uncertain of how to 
procure and distribute bed nets to vulnerable groups, such as pregnant 
women or women with young children. The government decided to give 
vouchers to members of vulnerable groups to enable them to purchase bed 
nets at a lower price;[Footnote 23] however, the ministry of health did 
not print or distribute the vouchers or specify where they should be 
distributed. The Director of the Operational, Partnerships and Country 
Support Unit traveled to Tanzania and met with development partners and 
high-ranking host government officials to encourage the government to 
take action. The Global Fund brought in UNICEF, a key development 
partner in Tanzania, to work with the government's malaria advisor as 
well as experts from the Swiss Tropical Medicine Institute to resolve 
the problems and get the program back on track. 

Secretariat Is Streamlining Procedures: 

In response to concerns that grantee reporting requirements are 
difficult and time consuming for recipients, grant managers, and local 
fund agents, the secretariat instituted a new policy that changes the 
default for reporting from quarterly to every 6 months. In addition, 
the secretariat is considering new, more streamlined funding mechanisms 
than the current round-based approach. However, the board has not 
endorsed these changes, and some board members, including the United 
States, are opposed to them at this time. 

To decrease the administrative burden on grantees and to bring its 
practice more in line with other donor agencies, the secretariat 
instituted a semiannual reporting policy in July 2004. Some recipients 
still report quarterly, such as those implementing grants that the 
secretariat identified as high risk--for example, in countries with 
limited human resource capacity--while others have the option of using 
quarterly disbursements to meet their needs--for example, as a hedge 
against currency fluctuations. However, this policy change did not 
require board approval, and some board members, including the United 
States, do not support it. 

Although the Global Fund strives to be a funding mechanism that 
seamlessly fits into many country programs by providing additional 
funding where needed, it recognizes that its current practice of 
financing grants through rounds can disrupt countries' planning and 
time lines and strains recipient capacity. In addition, some associated 
with the Global Fund said that rounds might lead CCMs and recipients to 
concentrate their energy on developing new proposals rather than 
implementing existing grants and that repeated rounds add greatly to 
the secretariat's workload. A document submitted to the board by the 
secretariat stated that although the round-based grant approval system 
worked well for launching the Global Fund and identifying countries 
that submitted strong proposals,[Footnote 24] this system forced 
recipients to adapt their planning cycles to those of the Global Fund 
(rather than building on preexisting planning cycles), encouraged the 
submission of smaller proposals, and left a considerable amount of time 
between proposal submission and approval. This document presented 
several options for the board, such as creating two continuous funding 
streams--one for governments and another for civil society recipients. 
For example, government applicants could submit their national 
strategic plans for the coming years, highlighting financing gaps and 
facilitating integration of Global Fund financing with existing 
planning and budgeting systems, such as sectorwide approaches. 
According to the document, this approach would create incentives for 
CCMs to improve and accelerate the disbursement of funds and would ease 
the secretariat's workload, allowing secretariat staff to spend more 
time managing grants and less time negotiating grant agreements. The 
board has not set time frames for further discussing this issue. 
According to U.S. board members, the board has not yet fully discussed 
or approved these changes, and a majority of board members oppose them 
at this time. 

Global Fund Is Working with Partners to Improve Technical Capacity at 
the Country Level: 

Because most grant performance problems are associated with limited 
capacity at the country level, where the Global Fund has no presence 
and plays no part in program implementation, the Global Fund relies on 
its technical partners to provide technical expertise to grant 
recipients.[Footnote 25] Although the partners we spoke with expressed 
their strong support for the Global Fund, they also voiced concern that 
they have not received additional resources to provide the technical 
support that grant recipients have requested.[Footnote 26]

The Global Fund and partners reported that partners provided essential 
support that strengthened recipients' capacity to prepare applications 
for Global Fund financing and helped address the underlying problems 
that affected grant performance. For example: 

* UNAIDS, a key technical partner, has added about 30 monitoring and 
evaluation officers in various countries who are available to support 
CCMs in preparing grant performance reports for phase-2 renewals. 
UNAIDS has also intensified its capacity-building support at the 
country level. 

* Several WHO departments have provided critical technical support. For 
example, WHO's Stop TB unit supported 50 countries when they developed 
their applications for Global Fund financing. The Global TB Drug 
Facility worked with recipients in eight countries to identify and 
resolve procurement and supply management bottlenecks. WHO's HIV/AIDS 
Department helped to develop comprehensive technical support plans for 
accelerating the scale-up of antiretroviral therapy and prevention 
services in 15 to 20 countries.[Footnote 27] In addition, according to 
the Global Fund, it collaborated closely with WHO's Roll Back Malaria 
Department in 2004 to incorporate into existing grants new, more 
effective malaria treatments that use artemisinin-based combination 
therapy. 

* USAID and the U.S. Centers for Disease Control and Prevention (HHS/ 
CDC) are assisting grantees in a number of countries. For example, 
USAID is supporting TB grants in numerous ways, including providing 
training on procuring and managing medical supplies, addressing country-
level financial management constraints, and conducting human resource 
assessments to determine existing capacity needs. In another instance, 
HHS/CDC is assisting one grantee in reporting and monitoring activities 
and revising project funds to improve grant implementation. HHS/CDC has 
also coordinated the implementation and monitoring of activities under 
another country's TB grant, participating in supervisory visits to 
districts to assess their progress and compiling and submitting 
quarterly reports for the TB grant to the ministry of health. 

UNAIDS and WHO officials in Geneva and in the field expressed strong 
support for the Global Fund but consistently raised concerns about 
their organizations' ability to respond to increasing numbers of 
requests from grant recipients for help in addressing issues underlying 
performance problems. For example, although UNAIDS recently added about 
30 monitoring and evaluation officers in its country and regional 
offices, officials said that the agency's resources are being stretched 
thin and that it cannot provide assistance to all Global Fund grant 
recipients. Likewise, WHO officials said that its regional and country 
staff are dedicated to providing technical assistance, but because WHO 
is not funded to support Global Fund grants it is often unable to 
respond to all recipients' requests for help. According to officials 
from WHO's HIV/AIDS, Stop TB, and Roll Back Malaria departments, the 
Global Fund works under the assumption that UN agencies have a mandate 
to provide technical assistance. However, unless it gets more money 
from its member countries for this purpose, WHO does not have the 
resources to keep up with the massive increase in need for technical 
assistance owing to Global Fund grants. In addition, WHO officials 
pointed out that the Global Fund does not encourage recipients in 
African countries to take advantage of WHO's Global Drug Facility to 
procure quality-assured TB drugs at the cheapest prices available; 
instead, the Global Fund encourages competition and reliance on local 
industry. 

Global Fund Has Clarified Guidance and Taken Steps to Strengthen CCMs, 
but Some Issues Remain: 

To strengthen accountability in recipient countries, the board has 
clarified some roles and responsibilities for the CCMs. The board has 
stated that CCMs are responsible for overseeing grant implementation 
and are therefore to play an important role in deciding whether grants 
should be renewed for phase-2 funding. In March 2005, to enhance and 
clarify CCM functioning, the secretariat convened regional workshops on 
CCM best practices in Zambia and India. In addition, to improve 
communication between the Global Fund and CCMs, the secretariat is 
compiling contact information for all CCM members. This information 
will enable it to communicate directly with the members instead of 
relying on the CCM chairperson to disseminate information. Secretariat 
officials acknowledged that no formal studies conclusively demonstrate 
a link between CCM functioning and grant performance. However, the 
Global Fund's March 2005 report stated that many of the (then) 27 
grants eligible for phase-2 funding benefited from several factors, 
including full levels of participation by CCM members in that body. 
Further, the report stated that low levels of participation and 
involvement by CCM members were a key factor in poor 
performance.[Footnote 28] Secretariat officials stated that they plan 
to initiate a study at the end of 2005 to systematically investigate 
links between CCM functioning and grant performance, given that a 
number of additional grants will then have neared the 2-year mark and 
gone through the phase-2 decision process. 

In response to findings from several earlier studies commissioned by 
the Global Fund on CCM functioning, in November 2004, the board agreed 
on specific requirements for CCMs.[Footnote 29] However, it has not 
clearly defined CCMs' role in monitoring grant implementation.[Footnote 
30] In April 2005, the board directed CCMs to develop tools and 
procedures for overseeing grants, stating generally that these tools 
and procedures "should include but need not be limited to" a list of 
five activities such as recording key oversight actions and developing 
a work plan that "could include" site visits. The board noted that 
because CCMs vary from country to country, these guidelines can be 
adapted and their application paced as needed. According to secretariat 
staff, the board has not reached consensus regarding CCMs' oversight 
role because some members want clear, specific requirements for CCMs 
while others prefer the more general guidelines. In addition, in 2004, 
the board agreed on a checklist for measuring CCM performance that 
focuses mostly on the makeup of the CCMs, participation and 
communication among members, and governance and management. However, 
the checklist did not include parameters for measuring the 
effectiveness of CCMs in overseeing grant performance. Participants at 
the Zambia workshop recommended that the secretariat develop more 
specific guidelines defining the oversight role of the CCM. 

Global Fund Intervened in at Least Two Countries to Address Grant 
Performance: 

The Global Fund secretariat intervened in at least two countries in 
response to grant performance problems. For example, in Kenya, the 
secretariat intervened in 2004 at the request of donors and board 
members to encourage the principal recipient to hold regular meetings 
with subrecipients and designate staff to administer and monitor the 
grants. The secretariat also intervened in Kenya to improve 
coordination by facilitating new CCM procedures, such as designating 
multiple minute-takers to ensure the accuracy of the minutes and making 
sure that minutes are circulated promptly. According to one CCM member, 
two additional people now take notes at each meeting; however, the 
minutes are not being circulated in advance of the next meeting. In 
commenting on a draft of this report, U.S. government officials said 
that, despite these interventions, problems persist. For example, they 
said that CCM meetings in Kenya are too infrequent and poorly prepared; 
decisions are made outside of the meetings; and the minutes are often 
inaccurate. 

In Ukraine, the Global Fund suspended three HIV/AIDS grants in January 
2004 after investigating irregularities in the principal recipients' 
procurements that development partners had brought to its attention a 
month earlier. The secretariat had also found that after nearly 12 
months of a 24-month program, the recipients had spent less than 4 
percent of the total 2-year amount for the three grants. The Global 
Fund had disbursed a total of $7.1 million to the principal recipients, 
from whom it obtained $6.3 million in reimbursements. In March 2004, 
the secretariat signed an agreement with a new principal recipient to 
continue the HIV/AIDS mitigation activities specified in the original 
grants; in addition, it transferred $300,000 to this entity to avoid 
interrupting ongoing programs.[Footnote 31]

Conclusions: 

The Global Fund's mandate reflects inherent tensions. On the one hand, 
the Global Fund is to function solely as a funding entity with no 
implementing role and to encourage recipient country bodies such as the 
CCM to be responsible for implementing and overseeing grants. On the 
other hand, it is to disburse funds rapidly while also ensuring that 
recipients are able to account for expenditures and produce measurable 
results in addressing the three diseases. 

In seeking to balance these tensions and further improve its 
performance, the Global Fund has revised--and continues to revise--its 
processes. Some systemwide changes require board approval or will take 
time to fully implement, whereas others can be implemented relatively 
quickly. Capacity in recipient countries, guidance, coordination, 
planning, and contracting and procurement are pivotal to grant 
performance and therefore merit continued attention. However, local 
fund agents' frequent lack of expertise in assessing these factors, and 
many recipients' limited monitoring and evaluation capabilities, raise 
questions about the accuracy and completeness of the information that 
the secretariat uses to make its periodic disbursement and funding 
renewal decisions. In addition, despite recent improvements, the Global 
Fund's lack of consistent, clear, and convincing documentation of its 
funding decisions may hamper its ability to justify these decisions to 
donors and other stakeholders, in accordance with its principles of 
transparency and accountability. To ensure that all funding decisions 
are clearly based on grant performance and reliable data, it is 
critical that the Global Fund resolve these issues in a timely manner. 

Recommendations for Executive Action: 

To improve the quality of the information on which the Global Fund 
bases its funding decisions and the documentation explaining these 
decisions, we recommend that the U.S. Global AIDS Coordinator work with 
the Global Fund's Board Chair and Executive Director to take the 
following three actions: 

* complete efforts to ensure that local fund agents have the necessary 
expertise to evaluate performance data on disease mitigation that 
recipients submit,

* continue to work with development partners to strengthen the quality 
and consistency of that data by enhancing recipients' capacity for 
monitoring and evaluating their financial and program-related 
activities, and: 

* continue efforts to clearly document the Global Fund's reasons for 
periodically disbursing funds and renewing grant agreements. 

Agency Comments and Our Evaluation: 

We requested comments on a draft of this report from the Executive 
Director of the Global Fund, the Secretaries of State and HHS, and the 
Administrator of USAID, or their designees. We received formal comments 
from the Global Fund as well as a combined formal response from State, 
HHS, and USAID (see apps. III and IV). The Global Fund concurred with 
the report's conclusion and recommendations and noted steps it is 
taking to improve documentation of grant performance such as organizing 
regional training of principal recipient staff to improve the quality 
of their reporting; defining universal and detailed performance 
indicators for each grant to more systematically track performance; and 
tailoring grant oversight and terms of reference for local fund agents 
based on grant risk. State, HHS, and USAID largely concurred with the 
report's conclusions but did not comment on the recommendations in 
their formal response. Both the Global Fund and the U.S. agencies also 
submitted informal, technical comments, which we have incorporated into 
the report as appropriate. 

We are sending copies of this report to the Global Fund Executive 
Director, the U.S. Global AIDS Coordinator, the Secretary of HHS, the 
Administrator of USAID, and interested congressional committees. Copies 
of this report will also be made available to other interested parties 
on request. In addition, this report will be made available at no 
charge on the GAO Web site at [Hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-3149. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made major contributions to this 
report are listed in appendix V. 

Signed by: 

David Gootnick, Director: 
International Affairs and Trade: 

[End of section]

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

In May 2003, the President signed a law directing the Comptroller 
General to monitor and evaluate projects supported by the Global 
Fund.[Footnote 32] This report reflects our review of grants that the 
Global Fund began disbursing before the beginning of 2004--that is, 
grants that have had at least 1 year to perform. In this report, we (1) 
describe the Global Fund's process for managing grants and disbursing 
funds, (2) identify factors that have affected grant performance, (3) 
review the basis for, and documentation of, the Global Fund's 
performance-based funding, and (4) describe the Global Fund's recent 
refinements for managing grants and improving their performance. 

Methodology for Describing the Global Fund's Process for Managing 
Grants and Disbursing Funds: 

To describe the Global Fund's process for managing grants and 
disbursing funds, we reviewed Global Fund documents, including The 
Global Fund Operational Policy Manual and related guidance documents; A 
Force for Change: The Global Fund at 30 Months; The Global Fund to 
Fight AIDS, Tuberculosis and Malaria: Annual Report 2002/2003; and 
Investing in the Future: The Global Fund at Three Years. We also 
interviewed Global Fund officials in Washington, D.C., and in Geneva, 
Switzerland. 

Methodology for Identifying Factors That Affected Grant Performance: 

To identify factors affecting grant performance, we conducted three 
types of analysis. First, we selected 13 countries that had grants with 
a first disbursement on or before December 31, 2003, to allow for at 
least 1 year of performance, and that had grants covering more than one 
principal recipient. In addition, all but 4 of these countries had 
grants covering more than one disease. We reviewed Global Fund dossiers 
for 38 grants to recipients in these countries and categorized reasons 
given for deviation from performance targets. (Our initial scope 
included the 45 grants to these countries, but for 7 of the grants 
there were no disbursement requests available during the period of our 
review.) We found 75 progress reports/disbursement requests and 51 
local fund agent assessments associated with 24 of the 38 grants. These 
38 grants represent 29 percent of the 130 grants that had received a 
first disbursement by the end of 2003. 

Starting with the grant's second disbursement, we included all 
disbursement requests from each grant that were available on the Global 
Fund Web site as of November, 2005, and a few that we received 
subsequently from the Global Fund. We requested full disbursement 
dossiers from the Global Fund. These dossiers contained principal 
recipients' progress reports and cash-flow/expenditure data, local fund 
agents' reviews of the recipients' information and recommendations 
about further disbursements, and, in most cases, additional documents 
such as correspondence between the Global Fund secretariat and the 
principal recipient. Using this information, we coded reasons given for 
deviation from grantees' agreed-upon performance targets into 1 of 
about 30 categories. We grouped this information into 5 major 
categories--resources or capacity; coordination; programmatic problems, 
needs, or changes; procurement; and factors beyond recipients' control. 
Within these categories, we developed specific subcategories such as 
guidance, decisions or plans not made, done, or available; signing of 
contracts or agreements delayed or not done; and limited trained human 
resources. 

As in any exercise of this type, the categories developed can vary when 
produced by different analysts. To address this issue, two GAO analysts 
reviewed a sample of the progress reports and independently proposed 
categories, separately identifying major factors and then agreeing on a 
common set of subcategories. We refined these subcategories during the 
coding exercise that followed. We then analyzed the reasons for 
deviations from all of the recipients' progress reports and placed them 
into one of the subcategories. When information in the progress reports 
was insufficient to determine how to code a reason, we consulted the 
local fund agents' reports. We tallied the counts in each subcategory 
and identified the subcategories mentioned in the greatest number of 
grants. 

The information in the disbursement requests varied in detail and 
quality. The two analysts, together with a methodologist, therefore 
discussed and documented categorization criteria and procedures 
throughout the analysis, and the methodologist reviewed the entire 
analysis as a final step. As a validity check on our document analysis 
and to identify frequently cited factors that affected grant 
performance, we compared the information in the subcategories mentioned 
in the most grants to information available from our fieldwork (see 
below) and determined that both sources of information reported similar 
findings. 

In addition, we reviewed the 75 progress reports/disbursement requests 
associated with these 38 grants and tallied the total number of targets 
in each request. We ranked each target using the same numeric rating 
system: 

the Global Fund uses for phase 2 (see fig. 3).[Footnote 33] Because 
many of the total 1,125 targets were nonnumeric (e.g., developing a 
monitoring and evaluation plan), we did the following: (1) if the 
principal recipient clearly met the target, we ranked the target as met 
("meeting or exceeding expectations") and included it with the numeric 
targets that fell into that category; (2) if the principal recipient 
clearly showed no progress toward meeting the target, we ranked it as 
not met ("unacceptable") and included it with the numeric targets in 
that category; and (3) if the principal recipient partially met the 
target, we gave it a separate ranking--"partially met nonnumeric 
target," and characterized it as partially met, along with the 
partially met numeric targets. To arrive at percentages for the targets 
in each category, we first calculated the percentage for each progress 
report/disbursement request and then averaged the percentages for the 
category from all the reports. Because the number of targets in each 
report varied greatly, we averaged the percentages rather than the 
numbers of targets to ensure that each report was given equal weight. 
We excluded from our calculations those few targets for which the 
information available was not adequate to determine whether or to what 
extent the target was met. 

Second, we reviewed documents obtained from field visits to four 
countries--Indonesia, Kenya, Thailand, and Zambia--and interviewed a 
wide variety of government, civil society, and bilateral and 
multilateral development officials in these countries involved in grant 
implementation or oversight. All four of these countries received more 
than $36 million in committed funds for several grants that covered 
more than one disease, and three of them (Kenya, Thailand, and Zambia) 
also have grants that cover both government and civil society 
recipients. In addition, we interviewed officials from the Global Fund, 
World Health Organization (WHO), and the Joint UN Programme on HIV/AIDS 
(UNAIDS) in Washington, D.C., and Geneva, Switzerland. 

Finally, to determine whether the percentage of funds disbursed for 
each grant (after the first disbursement) and the timeliness of the 
disbursements were associated with grant characteristics such as type 
of principal recipient, grant size, or disease targeted, we analyzed 
130 grants with first disbursements on or before December 31, 2003. 
(See app. II for a more detailed discussion of this methodology.) To 
assess the reliability of the Global Fund's data, we (1) posed a set of 
standard data reliability questions to knowledgeable agency officials, 
(2) performed basic electronic reasonableness tests, and (3) 
interviewed officials about a few small anomalies that we found during 
our analysis. We found only one minor limitation, namely that 
disbursement dates were not reported for less than 5 percent of the 
disbursements. Based on our assessment, we determined that the data 
were sufficiently reliable to generate descriptive statistics about the 
program, and to be used for advanced statistical modeling work. 

Methodology for Reviewing the Basis for, and Documentation of, the 
Global Fund's Performance-Based Funding: 

To review the basis for, and documentation of, the Global Fund's 
performance-based funding, we examined Global Fund documents-- 
including The Global Fund Operational Policy Manual and related 
guidance documents, the dossiers for the 38 grants that had a first 
disbursement on or before December 31, 2003, and documents supporting 
Global Fund decisions to continue or discontinue funding 25 of 28 
grants that had reached their phase-2 renewal point and been reviewed 
by the secretariat as of March 31, 2005.[Footnote 34] We also analyzed 
local fund agents' assessments to determine how often grant managers 
documented disbursement decisions. In addition, we interviewed Global 
Fund officials in Washington, D.C., and in Geneva, Switzerland, and 
officials from the Departments of State and Health and Human Services 
(HHS), and the U.S. Agency for International Development (USAID). 

Methodology for Describing the Global Fund's Recent Refinements for 
Managing Grants and Improving Their Performance: 

To describe the Global Fund's recent refinements for managing grants 
and improving their performance, we reviewed Global Fund documents 
including The Global Fund Operational Policy Manual and related 
guidance documents and organization charts, and job descriptions for 
the positions of local fund agent officer, country coordinating 
mechanism (CCM) coordinator, program officer, and fund portfolio 
manager (grant manager). We also examined Global Fund papers, including 
the Discussion Paper on the Core Business Model for a Mature Global 
Fund; Update on New Measures of Performance and Early Warning System; 
Update on the Global Fund Information Management Platform; Revised 
Guidelines on the Purpose, Structure and Composition of Country 
Coordinating Mechanisms and Requirements for Grant Eligibility; and 
Performance Standards and Indicators for CCM Monitoring. In addition, 
we reviewed the report Investing in the Future: The Global Fund at 
Three Years and the Monitoring and Evaluation Toolkit for HIV/AIDS, 
Tuberculosis, and Malaria. We also reviewed documents from a March 2005 
CCM workshop conducted in Zambia. Further, we reviewed documents 
obtained during fieldwork in Kenya, conducted follow-up correspondence 
with CCM members in Kenya, and reviewed Global Fund documents 
concerning grants to Ukraine. Additionally, we interviewed officials 
from the Global Fund, the Departments of State and HHS, USAID, UNAIDS, 
and WHO. 

We conducted our work from June 2004 through March 2005, in accordance 
with generally accepted government auditing standards. 

[End of section]

Appendix II: Methodologies Used to Compare Grants' Disbursements: 

This appendix provides descriptive information related to the 130 
grants that had received their first disbursements from the Global Fund 
on or before December 31, 2003, and the results of analyses we 
undertook to determine whether some types of grants had disbursed a 
larger percentage of their 2-year funds than others and to estimate the 
number of disbursements that were made in a timely fashion. 
Disbursements refer to those from the Global Fund to the principal 
recipient, not from the principal recipient to subrecipients. Data were 
current as of February 4, 2005. 

Grant Characteristics: 

Table 2 shows selected characteristics of the 130 grants we reviewed. 

Table 2: Selected Characteristics of 130 Global Fund Grants: 

Category: Principal recipient type: Civil society (private sector and 
faith-based organizations); 
Number: 20; 
Percentage[A]: 15.4%. 

Category: Principal recipient type: Civil society (NGO); 
Number: 7; 
Percentage[A]: 5.4%. 

Category: Principal recipient type: Ministry of finance; 
Number: 11; 
Percentage[A]: 8.5%. 

Category: Principal recipient type: Ministry of health; 
Number: 52; 
Percentage[A]: 40.0%. 

Category: Principal recipient type: Government entities other than 
ministries of health or finance; 
Number: 20; 
Percentage[A]: 15.4%. 

Category: Principal recipient type: Multilateral organization[B]; 
Number: 20; 
Percentage[A]: 15.4%. 

Category: Disease type: HIV/AIDS; 
Number: 70; 
Percentage[A]: 53.8%. 

Category: Disease type: Malaria; 
Number: 32; 
Percentage[A]: 24.6%. 

Category: Disease type: Tuberculosis; 
Number: 28; 
Percentage[A]: 21.5%. 

Category: Grant size[C]: <$2 million; 
Number: 25; 
Percentage[A]: 19.2%. 

Category: Grant size[C]: $2-$5 million; 
Number: 43; 
Percentage[A]: 33.1%. 

Category: Grant size[C]: $5-$10 million; 
Number: 27; 
Percentage[A]: 20.8%. 

Category: Grant size[C]: >$10 million; 
Number: 35; 
Percentage[A]: 26.9%. 

Category: Number of disbursements: 1; 
Number: 10; 
Percentage[A]: 7.7%. 

Category: Number of disbursements: 2; 
Number: 34; 
Percentage[A]: 26.2%. 

Category: Number of disbursements: 3; 
Number: 34; 
Percentage[A]: 26.2%. 

Category: Number of disbursements: 4; 
Number: 34; 
Percentage[A]: 26.2%. 

Category: Number of disbursements: 5; 
Number: 6; 
Percentage[A]: 4.6%. 

Category: Number of disbursements: 6; 
Number: 8; 
Percentage[A]: 6.2%. 

Category: Number of disbursements: 7; 
Number: 4; 
Percentage[A]: 3.1%. 

Category: Percentage of grant disbursed: <50%; 
Number: 40; 
Percentage[A]: 30.8%. 

Category: Percentage of grant disbursed: 70-74%; 
Number: 46; 
Percentage[A]: 35.4%. 

Category: Percentage of grant disbursed: 75-99%; 
Number: 27; 
Percentage[A]: 20.8%. 

Category: Percentage of grant disbursed: 100%; 
Number: 17; 
Percentage[A]: 13.1%. 

Total; 
Number: 130; 
Percentage[A]: 100.0. 

Source: GAO analysis of Global Fund data. 

[A] Percentages may not add to 100.0 due to rounding. 

[B] The UN Development Program and other UN organizations. 

[C] Grant size refers to the 2-year, or phase 1, amount. The grants 
ranged in size from roughly $221,000 to more than $55 million. 

[End of table]

No Significant Differences between Grant Type and Percentage of Grant 
Disbursed: 

Table 3 shows the performance of different grant types with respect to 
receiving disbursements. Some of these characteristics varied by type 
of grant, although many of the differences were not significant. 

Table 3: Information Related to Disbursements for Different Types of 
Grants, Defined by Principal Recipient Type, Disease Type, and Grant 
Size: 

Grant category: Principal recipient type: Civil society (private sector 
and faith based); 
Number of observations: 20; 
Average days since first disbursement[A]: 575.70; 
Average number of disbursements: 3.95; 
Average percent of grants disbursed: 71.94%; 
Average percentage of grants disbursed: (of grants remaining after 
first disbursement)[B]: 65.96%; 
Percent of grants fully disbursed: 10.0%. 

Grant category: Principal recipient type: Civil society (NGO); 
Number of observations: 7; 
Average days since first disbursement[A]: 560.86; 
Average number of disbursements: 3.29; 
Average percent of grants disbursed: 76.39%; 
Average percentage of grants disbursed: (of grants remaining after 
first disbursement)[B]: 72.23%; 
Percent of grants fully disbursed: 42.9%. 

Grant category: Principal recipient type: Ministry of finance; 
Number of observations: 11; 
Average days since first disbursement[A]: 463.73; 
Average number of disbursements: 2.09; 
Average percent of grants disbursed: 56.84%; 
Average percentage of grants disbursed: (of grants remaining after 
first disbursement)[B]: 45.46%; 
Percent of grants fully disbursed: 9.1%. 

Grant category: Principal recipient type: Ministry of health; 
Number of observations: 52; 
Average days since first disbursement[A]: 557.58; 
Average number of disbursements: 3.35; 
Average percent of grants disbursed: 62.52%; 
Average percentage of grants disbursed: (of grants remaining after 
first disbursement)[B]: 50.59%; 
Percent of grants fully disbursed: 7.7%. 

Grant category: Principal recipient type: Other government; 
Number of observations: 20; 
Average days since first disbursement[A]: 548.85; 
Average number of disbursements: 2.60; 
Average percent of grants disbursed: 64.86%; 
Average percentage of grants disbursed: (of grants remaining after 
first disbursement)[B]: 50.33%; 
Percent of grants fully disbursed: 20.0%. 

Grant category: Principal recipient type: Multilateral organization; 
Number of observations: 20; 
Average days since first disbursement[A]: 579.70; 
Average number of disbursements: 3.55; 
Average percent of grants disbursed: 68.67%; 
Average percentage of grants disbursed: (of grants remaining after 
first disbursement)[B]: 62.92%; 
Percent of grants fully disbursed: 15.0%. 

Grant category: Disease type: HIV/AIDS; 
Number of observations: 70; 
Average days since first disbursement[A]: 548.93; 
Average number of disbursements: 3.19; 
Average percent of grants disbursed: 64.65%; 
Average percentage of grants disbursed: (of grants remaining after 
first disbursement)[B]: 51.52%; 
Percent of grants fully disbursed: 14.3%. 

Grant category: Disease type: Malaria; 
Number of observations: 32; 
Average days since first disbursement[A]: 559.59; 
Average number of disbursements: 3.06; 
Average percent of grants disbursed: 65.11%; 
Average percentage of grants disbursed: (of grants remaining after 
first disbursement)[B]: 58.18%; 
Percent of grants fully disbursed: 9.4%. 

Grant category: Disease type: Tuberculosis; 
Number of observations: 28; 
Average days since first disbursement[A]: 563.36; 
Average number of disbursements: 3.61; 
Average percent of grants disbursed: 68.28%; 
Average percentage of grants disbursed: (of grants remaining after 
first disbursement)[B]: 62.22%; 
Percent of grants fully disbursed: 14.3%. 

Grant category: Grant size: <$2 million; 
Number of observations: 25; 
Average days since first disbursement[A]: 590.20; 
Average number of disbursements: 3.24; 
Average percent of grants disbursed: 80.89%; 
Average percentage of grants disbursed: (of grants remaining after 
first disbursement)[B]: 59.27%; 
Percent of grants fully disbursed: 32.0%. 

Grant category: Grant size: $2-$5 million; 
Number of observations: 43; 
Average days since first disbursement[A]: 549.37; 
Average number of disbursements: 3.33; 
Average percent of grants disbursed: 64.93%; 
Average percentage of grants disbursed: (of grants remaining after 
first disbursement)[B]: 58.90%; 
Percent of grants fully disbursed: 14.0%. 

Grant category: Grant size: $5-$10 million; 
Number of observations: 27; 
Average days since first disbursement[A]: 535.26; 
Average number of disbursements: 3.30; 
Average percent of grants disbursed: 58.16%; 
Average percentage of grants disbursed: (of grants remaining after 
first disbursement)[B]: 50.16%; 
Percent of grants fully disbursed: 0.0%. 

Grant category: Grant size: >$10 million; 
Number of observations: 35; 
Average days since first disbursement[A]: 550.74; 
Average number of disbursements: 3.11; 
Average percent of grants disbursed: 61.03%; 
Average percentage of grants disbursed: (of grants remaining after 
first disbursement)[B]: 53.07%; 
Percent of grants fully disbursed: 8.6%. 

Total; 
Number of observations: 130; 
Average days since first disbursement[A]: 554.66; 
Average number of disbursements: 3.25; 
Average percent of grants disbursed: 65.54%; 
Average percentage of grants disbursed: (of grants remaining after 
first disbursement)[B]: 55.53%; 
Percent of grants fully disbursed: 13.1%. 

Source: GAO analysis of Global Fund data. 

[A] A larger number of days since the first disbursement implies an 
earlier first disbursement. 

[B] The percentage of grants disbursed (of grants remaining after first 
disbursement) was calculated based on 128 grants, rather than 130, 
because two grants were completely disbursed after a single 
disbursement. 

[End of table]

Ministries of finance, on average, made a smaller number of 
disbursements and disbursed a lower percentage of their grants, 
although they also had made their first disbursements later and 
therefore had less time to make disbursements. Similarly, larger grants 
disbursed lower percentages of their grant amounts than smaller grants; 
but again, differences in the time elapsed make it difficult to know 
whether these differences reflect anything more than the time they had 
to make disbursements. Differences in disbursements, percentages 
disbursed, and average days since the first disbursement were 
insignificant across grants dedicated to the different types of 
diseases. 

Methodologies Used: 

To determine whether the differences in the percentage disbursed varied 
by type of grant, we used ordinary regression techniques. The Global 
Fund also analyzed grant disbursements, reporting in March 2005 that 
disbursements are indicative of performance. Our analysis differed from 
the Global Fund's in that we looked at the percentage of the 2-year 
grant amount disbursed since the first disbursement, whereas the Global 
Fund looked at the percentage that was disbursed relative to the 
percentage that was expected to be disbursed since the first 
disbursement. Because the actual effect of time turns out to be 
nonlinear--meaning that although time elapsed since the first 
disbursement has a significant effect on the percentage disbursed, that 
effect decreases over time--we estimated the effect of time directly 
before estimating differences in the percentage disbursed across 
different types of grants.[Footnote 35]

We fit bivariate regression models (models 1-4 in table 4) to estimate 
and test the significance of the gross effects of time since first 
disbursement, principal recipient type, disease type, and grant 
size[Footnote 36] (or the effects of each of these factors, ignoring 
all others) and a multivariate regression model (model 5) to estimate 
the net effects of each (or the effects of each after controlling for 
the effects of the others). Table 4 shows these results. 

Table 4: Regression Models Showing Effects of Various Factors on 
Percentage of Grants Disbursed, Minus the Amount Disbursed in First 
Disbursement: 

Time (in days); 
Model: 1: .785[A]; 
Model: 5: .830[ A]. 

Time-squared; 
Model: 1: -.001[A]; 
Model: 5: -.001[A]. 

Principal recipient type: Civil NGO; 
Model: 2: 6.27; 
Model: 5: 12.20. 

Principal recipient type: Ministry of finance; 
Model: 2: -20.50; 
Model: 5: .68. 

Principal recipient type: Ministry of health; 
Model: 2: -15.37[B]; 
Model: 5: -10.67. 

Principal recipient type: Other government; 
Model: 2: -15.63; 
Model: 5: -10.09. 

Principal recipient type: Multilateral; 
Model: 2: -3.04; 
Model: 5: -.24. 

Disease type: Malaria; 
Model: 3: 6.65; 
Model: 5: 6.36. 

Disease type: Tuberculosis; 
Model: 3: 10.70; 
Model: 5: 8.88. 

Grant size: $2-$5 million; 
Model: 4: -0.37; 
Model: 5: 9.45. 

Grant size: $5-$10 million; 
Model: 4: -9.10; 
Model: 5: 2.25. 

Grant size: >$10 million; 
Model: 4: -6.20; 
Model: 5: 1.85. 

Constant; 
Model: 1: -194.44; 
Model: 2: 65.96; 
Model: 3: 51.52; 
Model: 4: 59.27; 
Model: 5: -209.50. 

F-statistic; 
Model: 1: 12.87; 
Model: 2: 1.34; 
Model: 3: 1.06; 
Model: 4: 0.49; 
Model: 5: 2.80. 

Significance; 
Model: 1: <.001; 
Model: 2: .25; 
Model: 3: .35; 
Model: 4: .69; 
Model: 5: .002. 

Variance explained; 
Model: 1: 17.1%; 
Model: 2: 5.2%; 
Model: 3: 1.7%; 
Model: 4: 1.2%; 
Model: 5: 22.6%. 

Source: GAO analysis of Global Fund data. 

Note: The reference (and omitted) categories for the principal 
recipient type, disease type, and grant size variables are other civil 
society grants, HIV/AIDS grants, and grants for less than $2 million, 
respectively. 

[A] Denotes effects which are significant at the .05 level. 

[B] Denotes effects which are significant at the .10 level. 

[End of table]

Model 1 in table 4 shows the effect that time, or days between the 
first disbursement and February 2, 2005, has on the percentage of the 
grant disbursed. The significant time-squared term indicates that the 
effect of time is nonlinear. This nonlinearity makes the interpretation 
of the time coefficients somewhat less straightforward, but the 
positive time coefficients in table 4 indicate, not surprisingly, that 
grants that have had more time to make disbursements have disbursed a 
larger percentage of the 2-year grant amount remaining after the first 
disbursement. The negative coefficients associated with the squared 
term means that over time, time is less of a factor, or that the 
difference in the percentage disbursed between 100 days and 200 days is 
greater than the difference between 300 and 400 days. The sizable F- 
statistic at the base of the column for model 1 attests to the 
significance of the effect of time, and this nonlinear effect of time 
explains 17 percent of the variation in the amount disbursed of the 
total remaining after the first disbursement. 

Models 2, 3, and 4 estimate the gross effects of principal recipient 
type, disease type, and grant size on the percentages disbursed, after 
subtracting the amount of the first disbursement. These differences are 
estimated using dummy variables to indicate the differences between the 
grant categories named in the table and the omitted referent category 
(civil society for principal recipient type, HIV/AIDS for disease type, 
and less than $2 million for grant size). The constants for each of 
these models reflect the percentages disbursed for grants in the 
referent categories, and the coefficients indicate the differences 
between the percentages for the categories in the table and the 
percentages for the referent categories. The overall percentage 
disbursed was 21 points lower for ministry of finance grants, and 
roughly 15 points lower for ministry of health grants and other 
government grants, than for civil society grants. These differences 
reflect the results of ignoring, rather than controlling for, 
differences in time since first disbursement, grant size, and disease 
targeted. 

Model 5 estimates all of these effects simultaneously and, as such, 
provides us with net effect estimates, or estimates of each effect, 
controlling for the others. It shows that the time each grant has had 
since its first disbursement is the principal determinant of the amount 
disbursed. Grants that made their first disbursement earlier disbursed 
larger amounts of their remaining 2-year awards. After these effects 
were controlled for, the differences between principal recipient types 
in the percentages disbursed became smaller than they appeared before 
controls; and the only difference, which had appeared marginally 
significant before controls, became insignificant afterward. We found 
no significant differences by disease type or grant size when looking 
at either the gross or net effects. 

Timeliness of Disbursements: 

We also looked at the extent to which disbursements were made in a 
timely fashion (i.e., in 135 days or less). As table 5 shows, 35 
percent of all disbursements were timely, or within 135 days, and the 
extent to which disbursements were timely was greater for later 
disbursements than for earlier disbursements. The number of timely 
disbursements is too small at most stages for us to determine whether 
timeliness varies across grant types. 

Table 5: Percentages of Timely and Untimely Disbursements, by 
Disbursement Stage: 

Disbursement stage: 2nd; 
Timeliness of disbursement: Untimely: 94.0%; 
Timeliness of disbursement: Timely: 6.0%; 
Timeliness of disbursement: Total: 100.0%. 

Timeliness of disbursement: Untimely: 109; 
Timeliness of disbursement: Timely: 7; 
Timeliness of disbursement: Total: 116. 

Disbursement stage: 3rd; 
Timeliness of disbursement: Untimely: 58.0%; 
Timeliness of disbursement: Timely: 42.0%; 
Timeliness of disbursement: Total: 100.0%. 

Timeliness of disbursement: Untimely: 47; 
Timeliness of disbursement: Timely: 34; 
Timeliness of disbursement: Total: 81. 

Disbursement stage: 4th; 
Timeliness of disbursement: Untimely: 39.2%; 
Timeliness of disbursement: Timely: 60.8%; 
Timeliness of disbursement: Total: 100.0%. 

Timeliness of disbursement: Untimely: 20; 
Timeliness of disbursement: Timely: 31; 
Timeliness of disbursement: Total: 51. 

Disbursement stage: 5th; 
Timeliness of disbursement: Untimely: 11.8%; 
Timeliness of disbursement: Timely: 88.2%; 
Timeliness of disbursement: Total: 100.0%. 

Timeliness of disbursement: Untimely: 2; 
Timeliness of disbursement: Timely: 15; 
Timeliness of disbursement: Total: 17. 

Disbursement stage: 6th; 
Timeliness of disbursement: Untimely: 41.7%; 
Timeliness of disbursement: Timely: 58.33%; 
Timeliness of disbursement: Total: 100.0%. 

Timeliness of disbursement: Untimely: 5; 
Timeliness of disbursement: Timely: 7; 
Timeliness of disbursement: Total: 12. 

Disbursement stage: 7th; 
Timeliness of disbursement: Untimely: 0.0%; 
Timeliness of disbursement: Timely: 100.0%; 
Timeliness of disbursement: Total: 100.0%. 

Timeliness of disbursement: Untimely: 0; 
Timeliness of disbursement: Timely: 4; 
Timeliness of disbursement: Total: 4. 

Disbursement stage: Total; 
Timeliness of disbursement: Untimely: 65.1%; 
Timeliness of disbursement: Timely: 34.9%; 
Timeliness of disbursement: Total: 100.0%. 

Timeliness of disbursement: Untimely: 183; 
Timeliness of disbursement: Timely: 98; 
Timeliness of disbursement: Total: 281. 

Source: GAO analysis of Global Fund data. 

[End of table]

[End of section]

Appendix III: Comments from the Global Fund: 

[THE GLOBAL FUND to Fight AIDS, Tuberculosis and Malaria:

Professor Richard G.A. Feachem: 
CBE, FREng, DSc (Med):
Executive Director:

Our Ref: OED/mmngrf/20.5.05-GAO:

20 May 2005:

Mr David Gootnick:
Director, International Affairs and Trade: 
United States General Accounting Office: 
WASHINGTON DC 20548:
United States of America:

Dear Mr Gootnick:

Thank you for sharing the draft report on the Global Fund: The Global 
Fund to Fight AIDS, TB and Malaria is Responding to Challenges but 
Needs Better Information and Documentation for its Continued Funding 
Decisions. External analyses, such as this report, are critical to the 
sustained success of the Global Fund. From its inception, the Fund has 
shown a desire and ability to adapt to constantly evolving challenges 
in order to respond to the urgency of the fight against the three 
pandemics. The first report prepared by the GAO in 2003 assisted us in 
making improvements in key operational areas.

Implementation: Progress and Challenges:

We appreciate your recognition of the progress the Global Fund has made 
in reaching millions of people with life-saving services. Together with 
the President's Emergency Plan for AIDS Relief (PEPFAR), we supported 
the provision of antiretroviral AIDS treatment to 240,000 people in 
2004, an accomplishment thought impossible just a few years ago. We 
have only just begun to impact the terrible burden of these diseases 
and you rightly indicate that difficult challenges, such as the 
capacity of recipients, must be addressed to accelerate expansion of 
services. Many of these challenges are faced by all organizations 
fighting the diseases in the developing world, including PEPFAR, the 
World Bank and others. We are working with the US Government and other 
partners to develop innovative solutions to address them and to improve 
coordination among us at both the local and global levels.

As you note, we have also taken steps to improve the Global Fund's 
structures and systems. You highlight the efforts we have made to 
better leverage the technical support of our partners, particularly 
through a new early warning system to identify and mobilize assistance 
for struggling grants. While we continue to work to improve our own 
systems, many of the challenges you identify must be primarily 
addressed at the country level by technical partners with the capacity 
and mandate to provide such assistance.

You highlight procurement as another key challenge to grant 
performance. In collaboration with partners, we have developed and are 
now offering recipients a simplified procurement process which puts 
fewer demands on the procurement capacity of individual recipients and 
will reduce the procurement period substantially. We are also 
developing a Global Electronic Marketplace for HIV/AIDS, TB and malaria 
medicines and supplies. Based on the experience of the US Government as 
well as private sector electronic trading places, this initiative will 
enable recipients to rapidly acquire the right products at the best 
price with increased transparency and reduced risk of corruption.

Performance-based Funding System:

Your report found that some elements of the Global Fund's performance- 
based funding system can be improved to ensure the highest quality of 
information and documentation for financial decision-making. In line 
with your recommendations, we have made significant progress in further 
developing our systems. I provide information below on three key areas: 
documentation for grant disbursement decisions; strengthening of Local 
Fund Agents (LFAs); and documentation for decisions on continued 
funding after two years of grant life.

Documentation of performance as a basis for disbursements:

You note that the information which the Global Fund has used to assess 
the short-term performance of its grants has in some cases been of 
varying quality or incomplete. It is important to note that these 
shortcomings have occurred in a grant management system of exceptional 
transparency and comprehensiveness. Compared to most other existing 
systems of grant management, the Global Fund has already achieved high 
information flows and substantial documentation of disbursement 
decisions. Much of this information is in the public domain. However, 
we share your quest to make this system live up to the highest demands 
for accountability and we are working to improve both the procedures 
and their execution.

The first and second rounds of grants, in particular, were approved and 
grant agreements were negotiated, before the Global Fund had fully 
developed its system to capture short-term performance, which forms the 
basis for disbursement decisions. As a result, the amount of systematic 
information available to document disbursement decisions to early 
grants was limited. Funding decisions were therefore primarily informed 
by ongoing interaction between Portfolio Managers, recipients, and 
LFAs. Despite these limitations, all disbursement decisions were based 
on sound data relating to progress of grants, through a Disbursement 
Control Sheet which goes through a rigid four-step approval process 
within the Secretariat. We acknowledge that the documentation 
underlying this approval process has in some cases been suboptimal, and 
we are taking firm steps to improve it.

An analysis of the grants portfolio as of February 2005 revealed that 
there is a strong relationship between disbursement levels and overall 
program performance among our 27 earliest grants. This strengthens our 
confidence that the information collected and the disbursement 
decisions made by the Secretariat do live up to the principle of 
performance-based funding.

Through internal assessment, we have also identified and acted upon 
others areas of improvement to our performance-based funding system 
over the past eight months. These include:

* To improve the systematic tracking of performance, we have defined 
universal and detailed performance indicators for each grant. These 
have been written into each grant from Round Four onwards, so that no 
new grant agreement is signed without an agreed set of indicators, 
targets and milestones.

* To improve the quality of reporting by Principal Recipients, we have 
organized regional training of Monitoring & Evaluation (M&E) staff of 
Principal Recipients and country-level partner organizations. In April, 
2005, we launched a joint facility to support recipients M&E together 
with the Office of the Global AIDS Coordinator, CDC, WHO and UNAIDS.

* As you noted in your report, we have also substantially strengthened 
the Secretariat to improve the Global Fund's ability to process 
disbursement requests and document its decisions. In addition, we are 
improving our IT systems to provide a fully electronic platform for 
grant management and have initiated systematic training of portfolio 
staff.

Local Fund Agents:

Your assessment points to some limitations of the LFAs, locally-based 
companies (most commonly PricewaterhouseCoopers or KPMG), in verifying 
the performance and financial information provided by the Principal 
Recipients. Recognizing opportunities for improvement, the Global Fund 
commissioned a comprehensive review of this critical element of our 
model last year.

The review concluded with a number of recommended changes to improve 
LFA effectiveness and efficiency, including improved expertise and 
training of LFA field representatives, rationalizing assessment of 
procurement and financial management capacity of Principal Recipients, 
and a more sophisticated assessment of risk, which will allow the 
Global Fund to move away from a "one-size-fits-all" approach to 
tailored grant oversight and terms of reference for LFAs based on risk 
profiles. A revised model for LFA support will be piloted over the 
second half of 2005.

Documentation of performance as a basis for continued funding 
decisions: 

The performance of Global Fund grants are systematically reviewed after 
18 months. This review forms the basis for the Board's decision on 
continued funding after two years (Phase 2). The first grants reached 
this review in January 2005 and, as of May, 50 grants have completed 
this process.

A system has been put in place to thoroughly and transparently record 
performance and contextual information as a basis for continued 
funding. The Phase 2 review involves a three stage independent review 
and documentation process, first by the Operations unit, followed by 
the Strategic Information unit, and finally the Secretariat's Phase 2 
decision panel. This process concludes with a recommendation by the 
Secretariat's to the Board. The recommendation is supported by a Grant 
Scorecard. Upon request, Board Members can receive all the 
documentation that underlies the Grant Scorecard data and evaluation. 
Grant Scorecards also function as the public record of all Phase 2 
funding decisions. They are placed on our website once a funding 
decision has been made by the Board.

A substantial "back-fitting" of performance indicators has been put in 
place for the early grants in order to evaluate their performance as 
objectively and systematically as possible for their Phase 2 review.

While this process can be and will be further improved, it already 
provides a sound basis for making accountable funding decisions, true 
to the principles of performance-based funding and with a full 
commitment to a transparent and objective process.

Conclusion:

Although many of the concerns noted in the GAO Report have already been 
- or are in the process of being - addressed, this report provides 
constructive guidance for the ongoing development of the Global Fund's 
operations. We appreciate its recommendations and are looking forward 
to continuing our close working relationship with the US Government to 
further improve our performance. In particular, we value the close 
collaboration with Ambassador Randall Tobias, who represents the United 
States on the Global Fund Board, and who chairs the Board's Policy and 
Strategy Committee.

We welcome Congress' continued focus on the Global Fund and recognize 
our responsibility as a significant component of the United States 
strategy to fight AIDS, TB and malaria. We would also welcome a further 
evaluation of our performance-based funding system in two years' time, 
when it has been fully established and thoroughly tested.

Yours sincerely:

[Signature Illegible]

[End of section]

Appendix IV: Joint Comments from the Departments of State and Health 
and Human Services, and the U.S. Agency for International Development: 

United States Department of State: 
Assistant Secretary and Chief Financial Officer:

Washington, D.C. 20520:

MAY 24 2005:

Ms. Jacquelyn Williams-Bridgers: 
Managing Director:
International Affairs and Trade: 
Government Accountability Office: 
441 G Street, N.W.
Washington, D.C. 20548-0001:

Dear Ms. Williams-Bridgers:

We appreciate the opportunity to review your draft report, "GLOBAL 
HEALTH: The Global Fund to Fight AIDS, TB, and Malaria is Responding to 
Challenges but Needs Better Information and Documentation for its 
Continued Funding Decisions," GAO Job Code 320292.

The enclosed Department of State comments are provided for 
incorporation with this letter as an appendix to the final report.

If you have any questions concerning this response, please contact Pam 
Pearson, Deputy Director, Office of the Global AIDS Coordinator at 
(202) 663-2417.

Sincerely,

Signed by: 

Christopher B. Burnham: 

cc: GAO - David Gootnick; 
S/GAC - Randall Tobias; 
State/OIG - Mark Duda:

Department of State Comments on GAO Draft Report "GLOBAL HEALTH: The 
Global Fund to Fight AIDS, TB and Malaria is Responding to Challenges 
but Needs Better Information and Documentation for its Continued 
Funding Decisions," (GAO-05-639 GAO Code 320292):

The Department of State appreciates the opportunity to comment on the 
draft report from the Government Accountability Office (GAO) entitled, 
The Global Fund to Fight AIDS, TB and Malaria is Responding to 
Challenges but Needs Better Information and Documentation for its 
Continued Funding Decisions.

The U.S. Departments of State and Health and Human Services and the 
U.S. Agency for International Development largely concur with the 
report's conclusions. As the Fund enters its third year of operations 
and is establishing a growing body of grant evaluations and 
assessments, certain deficiencies in the policies and procedures of the 
Global Fund Secretariat are becoming apparent, particularly those 
related to the quality of performance measures used in making funding 
decisions.

The Office of the Global AIDS Coordinator, through an interagency team 
that reviews Global Fund activities on an ongoing basis, has had a 
growing awareness of these problems. The lack of easily and publicly 
available documentation to support decisions on grant performance, 
disbursements and renewals is one of the most troubling deficiencies. 
We believe these deficiencies largely arise from inadequate reporting 
on progress by grantees, insufficient reliance on the extraordinary 
potential provided by the Local Fund Agents (LFAs), and lack of follow- 
up from Geneva-based Secretariat staff when Principal Recipients miss 
reporting deadlines or when the quality of such reporting is lacking. 
Given that the U.S. Government has provided roughly one-third of Global 
Fund contributions to date, the Coordinator's office takes very 
seriously any issue pertaining to whether the Global Fund is using U.S. 
taxpayer money in the most efficient and effective way possible.

We have worked diligently within the Fund Board and with the 
Secretariat to address these issues, and will continue to do so. We 
also will continue to work with our Embassies in-country to provide 
appropriate technical assistance to Global Fund grants. Our concerns 
get to the heart of one of the President's primary mandates for the 
Global Fund at its inception, that its grant awards and disbursements 
must be performance-based. The GAO Report has made an invaluable 
contribution to our long-term efforts to help the Fund realize its 
enormous potential to aid in the fight against HIV/AIDS, tuberculosis 
and malaria. 

[End of section]

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David Gootnick (202) 512-3149: 

Staff Acknowledgments: 

In addition to the person named above, Candace Carpenter, Martin de 
Alteriis, David Dornisch, Cheryl Goodman, Kay Halpern, Bruce Kutnick, 
Reid Lowe, Jerome Sandau, Douglas Sloane, Julie Trinder, and Tom 
Zingale made key contributions to this report. 

(320292): 

FOOTNOTES

[1] GAO, Global Health: Global Fund to Fight AIDS, TB and Malaria Has 
Advanced in Key Areas, but Difficult Challenges Remain, GAO-03-601 
(Washington, D.C.: May 7, 2003). 

[2] U.S. Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 
2003, (P.L. 108-25), section 202(f). 

[3] These four countries received more than $36 million in committed 
funds for several grants that covered more than one disease. Three of 
these countries, Kenya, Thailand, and Zambia, also have grants that 
cover both government and civil society recipients. 

[4] TB patients are typically prescribed a regimen of antibiotics for 4 
to 6 months. If patients fail to take their pills regularly, they may 
develop resistant strains of the disease, which are much more difficult 
to treat and require additional, expensive drugs. 

[5] Some board members, including the United States, disagreed with 
this change. 

[6] Secretariat officials stated that they apply this information with 
varying weight on a case-by-case basis, that partial achievement of the 
quarterly program goals may be acceptable, and that no single 
information source is critical to the approval of continued funding. 
For example, if other mitigating circumstances exist, such as the risk 
of treatment interruption, the secretariat may accept partial 
achievement of program goals. 

[7] Under phase 2, contextual considerations include financial and 
program management issues; CCM functioning; major changes in the 
political or technical environment in which the program operates; data 
quality; and any indication that the grant is not advancing the Global 
Fund's operating principles of promoting broad and inclusive 
partnerships, sustainability, and national ownership. The secretariat 
reports these considerations in a standard format for each grant. 

[8] Four objections from board members to a recommendation trigger an 
additional vote, and four further objections elevate the decision to 
the next formal board meeting, at which the decision is final. 

[9] When the secretariat recommends a "revised go" or "no go" decision, 
the board may refer the proposal back to the CCM, which must then 
deliver a revised request for continued funding to the secretariat. The 
secretariat then passes the request to the technical review panel, 
which provides a recommendation to the board. If the panel recommends 
to discontinue funding, the grant is terminated; if it recommends to 
continue funding, the board votes by e-mail on whether to continue 
funding. 

[10] Our initial scope included 45 grants, but 7 of these grants lacked 
progress reports or disbursement requests during the period of our 
review. We found 75 progress reports or disbursement requests 
associated with the 38 grants, which represent 29 percent of the 130 
grants that had received a first disbursement as of December 31, 2003. 

[11] Country capacity refers to a country's human, scientific, 
technological, organizational, institutional, and resource 
capabilities. 

[12] The District Health Director reported that the hard drive crashed 
because of a power outage and that the frequency of such outages could 
result in the need to replace the hard drive repeatedly. The Director 
of the Central Board of Health acknowledged this problem and stated 
that spending ceilings have since been raised at the provincial level 
but not at the district level. 

[13] We analyzed the percentage of funds disbursed after the initial 
disbursement. 

[14] Using a different methodology, the Global Fund concluded that NGO 
recipients had a slightly higher disbursement rate than government 
recipients [see The Global Fund to Fight AIDS, Tuberculosis and 
Malaria, Investing in the Future: The Global Fund at Three Years 
(Geneva, Switzerland: 2005)]. The Global Fund's methodology differed 
from ours in several ways. For example, the Global Fund's analysis 
assumed that the time elapsed since the first disbursement on the 
residual amount disbursed had a linear effect, while we estimated the 
effect of time directly and found it to be nonlinear. In addition, the 
Global Fund did not simultaneously estimate the effects of time, 
principal recipient type, grant size, and disease targeted, as we did. 

[15] Global Fund to Fight AIDS, Tuberculosis and Malaria: Review of the 
Roles, Functions and Performance of Local Fund Agents, Final Report, 
August 2004, Stein-Erik Kruse, Centre for Health and Social Development 
(HeSo), and Jens Claussen, Nordic Consulting Group (NCG). This report 
has not been shared with the board. 

[16] The Global Fund provided 51 local fund agent reports associated 
with 24 of the 38 grants. Thirty-five of the local fund agent reports 
provided no information on why funds should be released. 

[17] We reviewed 75 progress reports with a total of 1,125 targets 
associated with the 38 grants. For 116 (6 percent when the percentages 
for each report are averaged) of these targets, the information 
available was not adequate to determine whether or to what extent the 
target was met. For the rest, we used the Global Fund's system for 
ranking target attainment. The Global Fund considers a numeric target-
-for example, the number of health workers trained--to be met if the 
recipient achieves over 80 percent of it; partially met if the 
recipient achieves between 30 and 80 percent of it; and not met if the 
recipient achieves less than 30 percent of it. We placed partially met 
nonnumeric targets, for example, developing a monitoring and evaluation 
plan, in a separate category and added the targets in that category to 
the partially met numeric targets to arrive at the 21 percent figure 
for partially met targets. The percentages add up to 101 percent due to 
rounding. See appendix I for a more detailed description of our 
methodology. 

[18] According to the Global Fund secretariat, its staffing review 
indicates that it should be able to manage the volume of grants 
foreseen by 2007 with no more than 200 staff. 

[19] Monitoring and Evaluation Toolkit, HIV/AIDS, Tuberculosis and 
Malaria, June 2004. 

[20] Because grant agreements from the earlier rounds were signed prior 
to the launch of the toolkit, the strategic information team worked 
with grant managers to draft or revise monitoring and evaluation plans 
and add these plans to grant agreements and ensure the application of 
the toolkit's standard monitoring and evaluation framework. 

[21] The toolkit was published in the official UN languages of Arabic, 
Chinese, English, French, Russian, and Spanish. 

[22] The Global Fund secretariat has assessed several sources for the 
information on country development and corruption indicators and plans 
to use readily available information. 

[23] The government decided to use a voucher system instead of 
distributing the bed nets free of charge in order to develop a local 
bed-net industry and thereby help to make the supply of bed nets more 
sustainable. 

[24] At the request of the executive director, secretariat staff 
prepared a discussion paper, outlining some of the challenges facing 
the Global Fund and including several options for changing the core 
aspects of the current business model, and introduced it to the eighth 
board meeting in June 2004. According to Global Fund officials, the 
paper was updated and presented at the ninth board meeting in November 
2004 and discussed at a retreat after the official meetings. However, 
the board has not formally endorsed the paper. 

[25] According to the Global Fund, it has intensified dialogue on 
coordination, information exchange, and assistance in program countries 
with British, Canadian, French, German, Swedish, and U.S. bilateral 
partners. 

[26] UNAIDS allocated additional resources to help support harmonized 
monitoring and evaluation at the country level, which will benefit 
Global Fund grantees in these countries. In commenting on a draft of 
this report, U.S. government officials noted that grant proposals can 
and, in many cases, should, contain a line item for improving technical 
capacity at the country level. 

[27] According to WHO, its "3 by 5" initiative sets the global target 
to provide three million people living with HIV/AIDS in developing and 
middle income countries with life-prolonging antiretroviral treatment 
by the end of 2005. 

[28] In one case, the secretariat cited poor CCM governance (acute 
coordination problems and frequent turnover in the CCM chair) as a 
factor in its recommendation to discontinue funding. 

[29] Specifically, the board voted to require all CCMs to have a 
written plan to mitigate against conflict of interest when principal 
recipients and CCM chairs or vice chairs are from the same entity; 
establish and maintain a transparent, documented process to solicit and 
review proposal-related submissions, nominate principal recipient(s) 
and oversee grant implementation, and ensure input from a broad range 
of stakeholders in proposal development and grant oversight; show 
evidence of membership of people living with or affected by the three 
diseases; and have NGO representatives selected by their own sectors 
based on a documented, transparent process. 

[30] The board has also considered the funding of basic CCM operations. 
Some board members prefer the Indonesia model, where a key bilateral 
partner funds the CCM secretariat. Others prefer the Thailand model, 
where the host government houses the CCM secretariat in a ministry and 
funds administrative positions. At its tenth meeting in April 2005, the 
board requested the secretariat to work with multilateral and private 
partners to support CCM operations. In countries where partner support 
of CCMs is not available, the board approved limited use of grant funds 
to support CCMs. 

[31] The new principal recipient, an international NGO, had been a 
subrecipient under one of the original grants. 

[32] U.S. Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 
2003, (P.L. 108-25), Section 202(f). 

[33] The Global Fund also distinguishes between types of targets such 
as number of persons reached with services versus number of service 
centers established or strengthened, or number of persons trained to 
deliver services. In our analysis of the targets, we did not make this 
distinction. 

[34] As of that date, the secretariat had provided us with 
documentation for 25 grants, which went to recipients in Argentina, 
Benin, Burundi, China, Cuba, Ghana, Haiti, Honduras, India, Laos, 
Madagascar, Moldova, Mongolia, Morocco, Panama, Rwanda, Senegal, 
Tajikistan, and Tanzania/Zanzibar. 

[35] Further, the expected disbursement, as the Global Fund calculates 
it, is a straight-line function of the time since the first 
disbursement rather than a "stair step" function reflecting the 
discrete points in time at which each disbursement was made. 

[36] In our regression models, we categorize grant size rather than 
treat it as a continuous variable. We did this in part to simplify the 
interpretation of results, since preliminary analyses (not shown) 
revealed that the effect of grant size was not linear or monotonic. For 
example, while grants of $2 to $5 million disbursed a lower percentage 
of the residual grant amount than grants of less than $2 million, and 
grants of $5 to $10 million disbursed a lower percentage of the 
residual grant amount than grants of $2 to $5 million, grants greater 
than $10 million did not disburse a lower percentage of the residual 
amount than grants of $5 to $10 million. 

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