Global Fund: Best failure disclosure we’ve seen yet?

Over the last year or so, The Global Fund has disclosed instances of apparent fraud in Zambia, Mali, and Mauritania among other countries.

This week, The Associated Press reported on these disclosures with the hostile headline: “Fraud plagues global health fund.” The Global Fund has been defended with the valid observation that the total fraud found accounts for a tiny percentage of its overall grants. But we’d like to do more than defend the Global Fund; we’d like to praise it for these disclosures.

The idea that disclosing failures should be rewarded has gained steam in our corner of the sector, particularly with the new AdmittingFailure.com site (see coverage by Good Intentions Are Not Enough and Tactical Philanthropy). We agree with the idea (previous posts on the topic here and here). But scanning the compilation at AdmittingFailure.com, we don’t see any admissions of failure that are as concrete, specific, and risky as the fraud disclosures the Global Fund has been making with some regularity.

To us, the key points regarding the Global Fund (aside from the fact that the percentage of funding reported as misused is small) are that

  • Disclosing these issues is a choice made by the Global Fund. In our investigations of large charities, we’ve seen no evidence that donors are auditing them in a way that would force disclosure of lost funds. We’ve also seen no evidence that these organizations have any way of even knowing when funds have been misused. Take UNICEF for an example: if UNICEF lost millions of dollars to fraud, it isn’t clear to us how (or whether) anyone would find out about it.
  • Other large charities could easily be seeing as much fraud, or more. We believe it is difficult to get anything done overseas without significant local help. Though it can be hard to tell, we believe that large organizations usually work with governments and with smaller community-based organizations, giving both opportunities to misappropriate funds. Even when they are officially executing their own programs, there’s a large number of degrees of separation between donors in the U.S. and local/locally connected people assigned to execute on the ground. We don’t see any reason to expect a systematically higher level of honesty from these people than from the people the Global Fund has worked with.

Bottom line – we feel that any large bureaucratic organization, particularly one that does a lot of grantmaking, could be losing a lot of money to fraud; what’s unusual about The Global Fund is that it is actively searching for these cases, disclosing them publicly, and then discussing (also publicly) how they can be addressed (PDF).

The Global Fund is not one of our top-rated charities; we think there are groups with even stronger reporting, and/or less complexity and bureaucracy to their activities, that we prefer for maximum impact. However, this incident reinforces our belief that The Global Fund has outstanding transparency compared to similar organizations. We think its disclosures of fraud deserve a place on AdmittingFailure.com and praise, not hostile headlines.

Comments

Global Fund: Best failure disclosure we’ve seen yet? — 4 Comments

  1. I agree that it is excellent that an organization would come forward with disclosures of fraud. However, this story still troubles me by the very fact that charities are committing fraud. I think (as Gandhi said) until people “become the change they want to see”, we will continue to see billions poured into the non-profit charity industry without seeing the results we’re expecting.

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  2. I wish the GF would be more specific about where this fraud is coming from. My understanding is that the grants that have been found to have instances of fraud are grants to GOVERNMENTS and not grants to civil society (i.e. charities).

    How anyone could find it surprising that something might go missing from a grant to some of these governments is beyond me. Corruption is an enormous problem in most developing countries and I don’t see why GF grants would somehow be sacred.

    And if you don’t believe a USAID Inspector General audit could possibly find instances of fraud you’ve clearly never been through one. Thorough would be putting it lightly.

    I won’t defend the internal controls of all charities, but to make the claim that large ones don’t have any is a bit absurd. I also probably wouldn’t lump what are essentially international organizations (UNICEF and the GF) with “charities.” They are quite different beasts both in terms of how they are funded and what they do with those funds.

  3. The problems occurred and probably will again. But airing them, letting other agencies know about the fraud may lessen the recurrences. If you know your name will be in the headlines, you are more careful about what you do, whether you are part of the oversight staff of a nonprofit or a local government official. Airing dirty linen is a positive action.

    What also strikes me in the details of the fraud is that outside agencies were working with local people. I wonder how much of the “fraud” is due to cultural and communication difficulties. And I wonder if the Global Fund is looking into that and learning some lessons from its own revelations.

  4. DS:

    • There are many differences between organizations, but to us the key reason to classify GFATM and UNICEF with “charities” is that they (a) solicit charitable donations from individuals and allow tax deductions for these individuals (and thus are literally charities); (b) may fund governments or local nonprofits to achieve their aims. Therefore, like other charities, they face risks of losing funds to fraud and they ought to be accountable to the public for such instances.
    • I don’t see any reason to exempt local nonprofits from concerns of fraud. Here’s one donor who seems to have encountered fraud in grants to local nonprofits.
    • You say that USAID has strong controls. Any thoughts on other large charities such as UNICEF?