HIV/AIDS, TB, and malaria, three of the world’s deadliest infectious diseases, cause tremendous human suffering, economic loss, and political instability. According to UNAIDS, in 2002 AIDS caused 3 million deaths, and 5 million people became infected. More than 70 percent, or 28.5 million, of the 40 million people with HIV/AIDS worldwide live in sub- Saharan Africa. However, according to a report by the National Intelligence Council, HIV infections in just five populous countries—China, India, Nigeria, Russia, and Ethiopia—will surpass total infections in central and southern Africa by the end of the decade. In addition, Thailand, a developing country that had successfully countered the growth of AIDS in the 1990s, is now facing a resurgent epidemic. According to WHO, after HIV/AIDS, TB is the world’s leading infectious cause of adult mortality, resulting in as many as 2 million deaths per year. Like HIV/AIDS, tuberculosis primarily affects the most economically active segment of the population, with 75 percent of the annual deaths occurring in those between the ages 15 and 54. Conversely, malaria, which causes more than 1 million deaths and at least 300 million cases of acute illness each year, is a leading cause of death in young children. The disease exerts its heaviest toll in Africa, where about 90 percent of malaria deaths occur. The Fund was formally launched in January 2002. The Fund is a grant- making organization with the purpose of attracting, managing, and disbursing funds that will increase existing resources and make a sustainable and significant contribution to the reduction of infections, illness, and death. The Fund aims for an integrated and balanced approach, covering prevention, treatment, care, and support, and seeks to establish efficient and effective disbursement mechanisms. During its first full year of operation, the Fund successfully completed two proposal rounds and began distributing grant money. Over the course of these two proposal rounds, the Fund approved grants to 153 proposals in 81 countries across the major regions of the world (see fig. 2). These grants total nearly $3.7 billion ($1.5 billion over the first 2 years) and cover all three diseases. In its first year, the Fund developed and established key governance and other supporting structures, including a board of directors, a permanent secretariat, a grant review process, and country-level structures required to develop, implement, and oversee grants. However, limited communication, administrative complications, and the evolving nature of these new structures, especially at the country level, led to a lack of clarity over roles and responsibilities and slowed the Fund’s ability to sign the initial grant agreements. The Fund has recognized these problems and is taking steps at both the country and headquarters levels to address them. The Fund has made noteworthy progress in establishing key headquarters and country-level governance structures. Figure 3 illustrates the governance structure of the Fund. At the headquarters level, governance structures include a board of directors, a permanent secretariat, a Technical Review Panel (TRP), and the World Bank as its trustee. The board is the governing body of the Fund, consisting of 18 voting members and 5 nonvoting members. The voting members consist of seven government representatives from developing countries, seven government representatives from donor countries, and one representative each from a developing country nongovernmental organization (NGO), a developed country NGO, the private sector, and private foundations. The five nonvoting members consist of a representative from WHO, the World Bank (as trustee, see below), UNAIDS, a person representing communities living with HIV/AIDS, TB, or malaria, and one Swiss citizen appointed by the board. The board makes all funding decisions; sets Fund policies, strategies, and operational guidelines; and selects the executive director of the secretariat. The board chair and vice chair rotate between beneficiary and donor country representatives. In January 2003, the U.S. Secretary of Health and Human Services was elected to serve as chairman, replacing the outgoing chairman from Uganda. Figure 4 illustrates the current structure of the Fund’s board. The board plans to meet three times per year and strives to make decisions by consensus. When consensus cannot be reached, any voting member can call for a vote. Successful motions require approval from a two-thirds majority of those present, representing both donor and recipient voting groups, which means that the current voting structure may make it difficult to reach a decision. For example, the only time the board brought an issue to a vote a decision was not reached because the members could not get a sufficient number of affirmative votes. The board has established four committees: (1) Governance and Partnership, (2) Resource Mobilization and Communications, (3) Portfolio Management and Procurement, and (4) Monitoring and Evaluation, Finance, and Audit. The committees respond to issues raised by the board and identify options for addressing them. For example, the Portfolio Management and Procurement Committee has developed a proposal appeals process. The United States has representatives on three of the four committees (Governance and Partnership; Portfolio Management and Procurement; and Monitoring and Evaluation, Finance, and Audit). The secretariat has hired 63 staff as of April 1, 2003, to run the day-to-day operations of the Fund. As the Fund’s only full-time body, the secretariat receives and screens grant applications, studies and recommends strategies to the board, communicates board decisions to stakeholders, manages and oversees regional grant portfolios, receives and reviews program and financial reports submitted by grant recipients through the LFA, and performs all administrative functions for the Fund. The board reviews and approves the secretariat’s business plan and budget. In January 2003, the board approved a $38.7 million budget for 2003 for the secretariat (see table 1). The Technical Review Panel (TRP) reviews and evaluates eligible proposals submitted to the Fund. It currently consists of 22 independent experts: 7 members with cross-cutting expertise in development, including health systems development, economics, public policy, and finance; 7 members with expertise in HIV/AIDS; 4 members with expertise in malaria; and 4 members with expertise in TB. There are two U.S. members on the TRP, an expert on TB and an expert with cross-cutting expertise in health and development issues. The TRP is supported by a WHO/UNAIDS working group that reviews the accuracy of baseline data on disease prevalence, poverty, and other indicators provided in the proposals. The working group also reviews the accuracy and relevance of the information provided by applicants on their ability to effectively use additional funds. The TRP makes recommendations to the board for final decisions on proposal selection. According to officials at the Department of Health and Human Services, health and development experts at the Centers for Disease Control and Prevention and USAID conducted an informal review of approved proposals and largely concurred with the TRP’s recommendations. As the Fund’s trustee, the World Bank receives money from donors, holds the money in an interest-bearing account, and disburses it according to the Fund’s written instructions. At the country level, governance and oversight structures include a Country Coordinating Mechanism, a principal recipient, subrecipients, and a Local Fund Agent. The country coordinating mechanism (CCM) is meant to provide a forum for stakeholders to work together to identify needs and develop and submit proposals to the Fund and follow the progress of grant projects during implementation. According to the Fund, CCM membership should include high-level government representatives as well as representatives of NGOs, civil society, multilateral and bilateral agencies, and the private sector. Further, all eligible partners in the CCM should be entitled to receive Fund money based on their stated role in implementing the proposal. The principal recipient, which is a member of the CCM, is responsible for receiving and implementing the grant. A principal recipient can be a government agency, an NGO, a private organization, or, if alternatives are not available, a multilateral development organization. Of the 69 grant agreements resulting from the first round of proposals approved by the Fund, 41 (59 percent) are with principal recipients that are government agencies, 17 (25 percent) are with NGOs, and 9 (13 percent) are with the U.N. Development Program. (See app. II for more detailed information.) The principal recipient is responsible for making sure that funds are properly accounted for as well as for monitoring and evaluating the grant’s effectiveness in accordance with indicators mutually agreed to by the Fund and the grantee. In some cases, there may be multiple principal recipients for a single grant. The principal recipient typically works with other entities, or subrecipients, to carry out grant activities. Subrecipients are entities, such as NGOs, with the expertise necessary to perform the work and can be other CCM members. The principal recipient is responsible for supervising any subrecipients and distributing Fund money to them. The local fund agent (LFA) is the 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 Fund. The assessment covers recipients’ ability to maintain adequate financial controls, procure goods and services, and carry out program activities. The Fund selects one LFA in each country. As of April 1, 2003, the Fund has contracted with four organizations to fill this role: two private sector firms, KPMG and PricewaterhouseCoopers; one private foundation that was formerly a public corporation, Crown Agents; and one multilateral entity, the U.N. Office for Project Services (UNOPS). The Fund may contract with additional organizations as the need arises and expects to receive bids from potential LFAs by August 2003.