Audit of Global Fund Treasury Management
18 January 2017
This OIG audit concluded that the Global Fund has established, in a relatively short time, a well-functioning treasury function. The audit did not identify any material weaknesses or process failures. Governance, risk management practices and internal controls are adequately designed and generally well implemented. However, the auditors identified moderate risks related to independent oversight over trading activities for foreign exchange management, documentation of key controls, and formalization of processes that need management attention.
Treasury covers the management of cash and liquidity, asset and liability, foreign exchange and investments. These activities are critical given the nature of the Global Fund multi-currency funding model. Adequate and effective treasury management processes and controls ensure that the Global Fund’s financial asset are safeguarded and sufficient cash is available to disburse to recipients. Treasury activities are therefore an essential element in mitigating the organization’s financial risks. At the same time, these activities also involve complex processes and transactions that, if not managed adequately, can have material adverse consequences on the organization’s financial position.
The OIG found limited formalization of independent oversight over treasury activities. Since July 2016, the Recoveries Officer acts as a risk control officer. He currently reports to the Head of Treasury and not to the Risk Management Department which would ensure independent monitoring and oversight. In addition, he does not have independent access to the relevant information to monitor the risk limits, called Value at risk (VaR), set by the organization to guide foreign exchange transactions. Although he monitors the VaR limit breaches and counterparty limits, his duties do not include checks of trades completed against the approved hedging strategy, which is a typical control performed by a risk control officer. Similarly the Chief Risk Officer, who also has a role of risk manager to the treasury function, plays a key oversight part in monitoring the VaR limits; however, he is fully reliant on the information provided by the treasury function without having independent access to it.
Regarding foreign exchange management, the Global Fund uses US Dollars as its functional and reporting currency. As a result, foreign exchange risk arises due to some of the Global Fund’s financial transactions that are conducted in other currencies. For example, donor contributions and grant liabilities are denominated in currencies other than US Dollars which may fluctuate on the financial markets. The Global Fund started managing this risk in 2015 with hedging activities performed over its on-balance sheet exposures and off-balance sheet in 2016 to mitigate the risk of losses arising from foreign exchange fluctuations. The OIG concluded that foreign exchange management is only partially effective and susceptible to the following risks: trading limits for traders have not been defined and built into the system as a preventative control; Global Fund policy requires counterparty limits to be in place, however, no such limits have been defined by the Secretariat; the need for multi-currency disbursements to countries as a mechanism to mitigate the foreign exchange risk faced by grant countries are yet to be operationalized.
The Secretariat is putting in place corrective actions to address the weakness identified by the OIG audit. These include reviewing all policies and procedures that cover treasury activities and strengthening controls over foreign exchange management.
- Global Fund Treasury Management - Audit Report (GF-OIG-17-01 - 18 January 2017)
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For more information:
Thomas Fitzsimons
Email:
Mobile: + 41 (0)79 412 1461
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