A Global Fund report says their finding on their Myanmar grants "raises questions about whether the termination decision was optimal." Duh.
The full report is worth reading but here is a clip from the Executive Summary and the section on Myanmar.
http://www.theglobalfund.org/en/files/inspector_general/ReviewOfTheSuspensionTerminationProcessesForGrants.pdf
[him] moderator
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Review of the suspension/ termination processes for Global Fund grants
Myanmar was one of the first countries to be placed on the ASG list. This
resulted in the mandatory safeguards as listed in the ASG policy as well as
additional safeguards to address the specific risks identified in Myanmar.
These included the zero cash policy to national entities which meant that GF
money could only be transferred to GF authorised entities e.g. non
governmental organisations not affiliated to government and not to national
entities. All personnel implementing GF programs also had to be contracted
by UNDP and not national entities.
XI The Fund terminated its grant agreements with Myanmar effective August
18, 2005 citing the breach by government of the commitments made to the
GF PR. Specifically the reasons provided were:
(a) The Government of Myanmar decision, in July 2005, to institute
new travel clearance procedures which would have the effect of
restricting access of the Principal Recipient, staff of implementing
partners and staff of the Global Fund to grant implementation
areas; and
(b) The government imposing additional procedures for review of
procurement of medical and other supplies.
XII However, the reasons provided for terminating the grants were negated by
the government’s lifting of restrictions that caused the termination soon after
they were imposed and the GF programs continuing to run for a period of
over a year despite TGF having previously stated that it was impossible to
continue implementation in the country. This raises questions about whether
the termination decision was optimal and whether TGF had exhausted all
possible alternatives before making such a weighty decision.
XIII This phase out period lasted from the termination of the grants i.e. 18
August 2005 to 31 December 2006 when the title of the residual program
assets was handed over to the SRs. A phase out plan was developed by the
PR, reviewed by the LFA and approved by TGF. According to this plan, no
new activities were to be undertaken. Activities to be undertaken would
cover:
(a) Life saving activities i.e. activities which if interrupted would have
consequences on the critical welfare and health of the
beneficiaries;
(b) Ongoing obligations, commitments and contracts that had already
been signed by the PR; and
(c) Operational activities important to continue during the six months in
order for donors to take on areas previously funded by TGF.
XIV Detailed phase out plans were prepared and no additional funds were
disbursed by TGF to meet the obligations of the phase out period. Of the
US$ 11,929,652 disbursed to the country, the country was holding US$
11,049,443 at the time of termination. US$ 11,186, 275 was spent up to the
end of the phase out period leaving a balance of US$ 743,476. UNDP has
so far refunded US$ 665,000 and is due to pay the balance.
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Myanmar
Background
30. Myanmar signed three grants with the Global Fund. The grants were
implemented with UNDP as the Principal Recipient. The Local Fund Agent (LFA)
was KPMG. The table below provides a summary of grant information:
Grant Grant number Grant Approved Amount
signature amount disbursed
date US$ US$
TB Round 2 MYN-202-G01-T-00 13-Aug-046,997,137 2,735,234
HIV Round 3 MYN-305-G02-H 14-Jan-0519,221,525 6,103,009
Malaria Round 3 MYN-305-G03-M 14-Jan-059,462,062 2,491,409
Totals 35,680,724 11,329,652
Percentage of total grant 32%
Table 3: Grants in Myanmar at 31 August 2008 (Source: The GF website)
Pre termination
Myanmar was placed on the ASG list prior to the start of the grant with various
conditions set to mitigate GF risk. However, these conditions hindered the
implementation of grants in the country.
31. Myanmar was one of the first countries to be placed on the ASG list. There
was no documentation available about why, when and how the decision to place
Myanmar on the ASG list was made. Without this information, the OIG cannot
provide assurance about the adequacy of the conditions established to mitigate
whatever risks may have been initially identified.
32. The placing of Myanmar on the ASG list resulted in the mandatory
safeguards as listed in the ASG policy as well as additional safeguards to
address the specific risks identified in Myanmar. These included the zero cash
policy to national entities which meant that GF money could only be transferred
to GF authorised entities e.g. non governmental organisations not affiliated to
government and not to national entities.
33. In addition to the conditions listed above, there were additional conditions
that TGF required Myanmar to meet. These were not articulated in the grant
agreement nor implementation letters signed between TGF and the country.
They were agreed upon in a meeting with the MOH and commitments were to be
communicated to TGF in form of a letter. OIG was informed by the country team
that this letter was received from the country. The additional conditions were:
(a) Explicit guarantee of tax exemption of all grant proceeds;
(b) Explicit guarantee of use of the UN exchange rate for all grant proceeds;
(c) Explicit guarantee of access to all international staff of TGF, the LFA,
UNDP and the Sub Recipients (SRs);
(d) Final endorsement from the CCM of the program work plan and budget.
34. Implementation of the Tuberculosis grant had just started and the HIV and
Malaria grants had not yet started at the time TGF grants to Myanmar were
terminated. The delays in starting the two grants despite having signed the
grants seven months earlier was due to implementation of and fulfilling the
conditions for countries on the ASG list particularly the review and negotiation of
Memoranda of Understanding between the PR and the SRs. While TGF is
justified in having some mandatory conditions for all countries on the ASG list,
there should be some flexibility allowed in determining the conditions that will be
applied to each country. These should be customised to meet specific risks
identified in a country. Otherwise, the conditions instituted can run counter and
not support the GF goals of speedy disbursement to countries as was the case in
Myanmar.
35. The PR stated in several communications that implementation of the GF
programs was difficult especially under the zero cash policy where the PR was
not allowed to transfer money to government entities or their employees yet
some activities in practice could only be implemented by Government
departments/ entities. The justification for some of the conditions set as
mitigators of risk became questionable especially since they became
impediments to program implementation.
Termination process
The reasons provided for terminating the grants were negated by the
government’s lifting of restrictions that caused the termination soon after and the
GF programs continuing to run for a period of over a year despite having
previously stated that it was impossible to continue implementation in the
country. This raises questions about whether the termination decision was
optimal and whether the Global Fund had exhausted all possible alternatives
before making such a weighty decision.
36. The Fund terminated its grant agreements with Myanmar effective August
18, 2005 citing the breach by government of the commitments made to the GF
PR. Specifically the reasons provided were:
(c) The Government of Myanmar decision, in July 2005, to institute new
travel clearance procedures which would have the effect of restricting
access of the Principal Recipient, staff of implementing partners and
staff of the Global Fund to grant implementation areas.
(d) The government imposing additional procedures for review of
procurement of medical and other supplies.
37. The termination was opposed by some development partners who in a
statement to TGF said that ‘although the operating environment was difficult, it
was not impossible (as was suggested in TGF’s press releases). What is clear is
that TGF, as complicated by the additional safeguards agreed for Burma has
proven in retrospect to be the wrong vehicle for responding to the major needs
here’. This position was supported by the letter from the PR to the Secretariat
dated 4 August 2005 that stated that ‘the additional safeguards that had been
applied to the implementation of the different grants were seen by the Myanmar
authorities as only excuses that were being imposed by political groups outside
the country to provoke the termination of the GF grants’. The PR continued to
state that “the close scrutiny by advocacy groups of GF activities meant that the
operations are constrained almost to a point of ineffectiveness”. This suggests
that the Myanmar authorities saw the safeguards as being politically motivated.
38. According to the termination letter sent to the country by the then Chief of
Operations, the grants were terminated with immediate effect. This contravened
the signed grant agreements that provided for a sixty day written notice. This
termination notice period was meant to give the country an opportunity to
address the GF concerns and/or plan for alternatives to current arrangements.
39. OIG learnt from the country team that the termination decision was made
after discussions between the Operations and Legal team, the Executive and
Deputy Executive Director and select bilateral partners. However some partners
that had been actively involved in matters affecting Myanmar e.g. Japan that
should have been consulted were not.
40. The reasons provided for terminating the grants were negated by the
government’s lifting of restrictions soon after the termination and the GF
programs continuing to run for a period of over a year despite having previously
stated that it was impossible to continue implementation in the country. This
raises questions about whether the termination decision was optimal and
whether TGF had exhausted all possible alternatives before making such a
weighty decision.
Phase out period
The management of the phase out period met all the requirements listed in this
policy for the closure of terminated grants.
41. The termination of the grants started what was referred to as a ‘phase out”
period. This period was managed by the PR with direct oversight of the GF
through the LFA. There was no policy on closing grants at the time to guide this
process. A policy has subsequently been developed and the Myanmar phase out
process reviewed against this policy. The management of the phase out period
met all the requirements listed in this policy.
42. The CCM was not involved in overseeing this phase out process. The
involvement and role of the CCM in such situations needs to be defined.
Monitoring was undertaken by two development partners i.e. UNAIDS and WHO
and the LFA. The LFA terms of reference were enhanced with increased
coverage. However whilst they increased frequency of visits and sample sizes
reviewed, they did not extend the scope (i.e. the tasks undertaken remained
generic) and did not effectively address the unique risks within which TGF was
operating at the time.
43. This period lasted from the termination of the grants i.e. 18 August 2005 to
31 December 2006 when the title of the residual program assets was handed
over to the SRs. A phase out plan was developed by the PR, reviewed by the
LFA and approved by TGF. According to this plan, no new activities were to be
undertaken. Activities to be undertaken would cover:
(a) Life saving activities i.e. activities which if interrupted would have
consequences on the critical welfare and health of the beneficiaries;
(b) Ongoing obligations, commitments and contracts that had already
been signed by the PR; and
(c) Operational activities important to continue during the six months in
order for donors to take on areas previously funded by TGF.
44. At the time of terminating the grants, US$ 11.9 million had been disbursed
into the country. Of this total amount, US$ 3.5 million was already committed by
the PR leaving a balance of US$ 8.4 million that should have been refunded to
the GF. The grant agreements signed with the PR stipulated that the PR may use
portions of the grants already disbursed to satisfy commitments already incurred
before the date of termination. After these commitments had been satisfied, the
PR was supposed to return all remaining funds to TGF or dispose of them as
directed by TGF.
45. However, contrary to the grant agreement, TGF allowed the additional
funds to be committed. OIG did not see evidence of approval or ratification of this
decision by the Board. This decision was however justified by the Secretariat on
the following grounds:
(a) Significant adjustments that had been made to domestic and external
funding as a result of the TGF funding;
(b) Anticipation that replacement donor funding would take up to six
months to mobilize and there was a need to continue activities; and
(c) Cessation of activities in the 6 month period would affect the Myanmar
people.
46. Detailed phase out plans were prepared and no additional funds were
disbursed by TGF to meet the obligations of the phase out period. Of the US$
11,929,652 disbursed to the country, the country was holding US$ 11,049,443 at
the time of termination. US$ 11,186, 275 was spent up to the end of the phase
out period leaving a balance of US$ 743,476 which was to be refunded at the
end of the phase out period. Evidence has been seen that US$ 600,000 was
refunded by UNDP to TGF leaving a balance of US$ 143,476. The country team
informed OIG that UNDP has recently paid US$ 65,000 and is due to pay the
balance. The country team is following up UNDP for payment of the outstanding
balance.
47. A final report was prepared at the end of the phase out period. An audit
was also undertaken at this time by STT Audit and Advisory Certified Chartered
Accountants. The audit did not cover the expenditure amounting to US$ 849,852
incurred by the technical agencies namely UNAIDS and WHO. The auditors
issued a qualified audit opinion based on the following:
(a) Lack of access to disbursements to one SR called Medicine du Monde
(MDM) amounting to US$ 391,680. The supporting documentation was
supposed to have been sent to France which contravenes the grant
agreement conditions; and
(b) There were differences noted between the UNDP detailed expenditure
ledgers and the financial statement balances for which no explanations
were obtained. Details are shown in the table below:
Detailed ledger Balance in
Grant balance summary report
US$ US$
TB Round 2 3,082,1425,356,566
HIV Round 3 5,150,4582,888,846
Malaria Round 3 2,953,6752,940,764
Totals 11,186,27511,186,176
Table 4: Balances at the end of the grant period (Source: Audited accounts
by STT Audit and Advisory Certified Chartered Accountants)
48. Based on the financial statements and the management letter, the audit
appears to have been undertaken on a going concern basis as opposed to being
a close out audit. The management letter did not contain key information that
TGF would typically require to make decisions to close the Myanmar grant
accounts e.g.:
(a) Whether grants were managed in accordance with the conditions in the
grant agreement, relevant GF policies and other conditions applicable to
the grants e.g. the additional safeguards;
(b) Whether the figures reported in the final report were accurate. There
were differences in the figures reported in the audit report and the final
PR report. These as well as those highlighted in the qualification above
remained unresolved;
(c) Whether disposal of assets was effectively undertaken and in
accordance with the signed agreement with TGF;
(d) Whether the internal control systems operated effectively in this period to
ensure that TGF resources were not exposed to risk especially in areas
like procurement (significant procurement was undertaken in the phase
out period); and
(e) Assurance on the final balances as well as amounts that needed to be
refunded to TGF.
49. At the close of the phase out period, with the approval of TGF, title of
assets passed from the PR to the SRs including the national entities. While the
grant agreement states that assets revert to the PR at the close of a grant, the
PR, UNDP could not take responsibility of these assets. The assets were
transferred to SRs on the understanding that they would be used once the Three
3
became operational. Proper documentation is
Diseases Fund (3D Fund)
available to evidence the process followed in transferring assets.
50. An asset verification exercise by the LFA post phase out revealed that
some assets procured of substandard quality e.g. bicycles and most of the
assets procured for SRs were not in use which reflected a lack of proper planning
by the PR. The assets not in use were due to:
(a) Sufficient capacity already existing in some SRs that suggested that they
did not need the additional assets procured by the GF money in the
phase out period;
(b) There were no funds provided for operational aspects e.g. running
generators;
(c) Lack of parts e.g. bicycles that were delivered unassembled and when
they were assembled some parts were missing or the wrong supplies
ordered e.g. the wrong film was supplied x-ray machines
51. The grants have not been closed. The country team awaits the refund
from UNDP in order to close the grants. Once this happens, a letter should be
sent from the Director of Country Programs to the Management Team and PR
and country CCM informing them about the closure of the grants.
Post termination
Consideration should be given to how grants will be managed should TGF
resume funding to Myanmar.
52. OIG was informed by the country team that the CCM’s proposal for Round
5 was screened out for no justifiable reason after the termination of the grants.
This was done by the then Director of Operations. Myanmar is still eligible to
apply for future funding from TGF. While TGF does not guide the Technical
Review Panel (TRP) but provides relevant information for their decision making,
there is no requirement for the TRP to be informed of past situations that have
arisen as in Myanmar.
53. It is not clear if Myanmar would remain on the ASG list if it receives
funding in the future or whether it would have to be reassessed and a decision
made on placing it on the ASG list.
(The 3D Fund was formally established on 12 October 2006 to fill the country needs following
the termination of TGF grants. This Fund is supported by Australia, the European Commission
(EC), the Netherlands, Norway, Sweden and the United Kingdom (UK) with pledges of US$100
million over 5 years.)
