18 December 2017
An OIG audit found that the Global Fund has improved assurance since its last audit in 2014. The Global Fund now differentiates countries based on their risk profile as a starting point to determine assurance needs. The organization has also set up committees to oversee and coordinate assurance activities. However, assurance is insufficiently aligned to the highest risks in grants such as supply chain and program activities. This often results in gaps and possible redundancies in assurance at the country level. Work to define the Global Fund’s risk appetite will mitigate this but is still in its early stages.
Assurance involves reviewing the processes and controls in place to manage the key risks in Global Fund grants with the ultimate goal of ensuring that each program meets its objectives. With no offices outside its Geneva headquarters, the Global Fund relies on various assurance providers, particularly its Local Fund Agents (LFAs). Sometimes referred to as the ‘eyes and ears’ of the Global Fund, LFAs are independent organizations contracted by the Secretariat on a country-by-country basis to objectively examine various aspects of grant implementation.
In response to significant risks identified in the past, the Global Fund has rightfully prioritized in many cases the mitigation of financial and fiduciary risks. As a result, assurance resources have traditionally been focused on those risks. However, as the risk profile of the organization evolves, there is an increasing need to also put sufficient focus on critical programmatic, procurement, and supply chain risks. Work on defining a clear organizational risk appetite framework at the corporate level is nascent. Until it is completed, country teams don’t have yet enough guidance on what should be an appropriate level of assurance and the corresponding trade-offs for different country risk exposures.
The LFA model remains central to the Global Fund’s assurance framework. With a budget of US$48 million in 2016, the model is an innovative approach to providing assurance. It has allowed the Global Fund to remain lean while overseeing a broad range of programs in over 100 countries. However, LFA operational effectiveness is limited by the following: insufficient focus on key grant risk areas, gaps in functional expertise for some of the risk areas, and few available tools to guide LFA work. The Global Fund also faces a significant concentration risk as the bulk of LFA services remain with one provider.
The audit also found that assurance is managed separately across four functional areas and over six different teams within the Secretariat (program finance, the Country Coordinating Mechanism hub, the Supply Chain Department, LFA coordination, the Risk Management Department, and monitoring evaluation & country analysis, in addition to the country teams). Although the risks of duplication and overlaps are relatively limited due to specific roles, the management of assurance budgets is fragmented across these teams. This limits the Global Fund’s ability to comprehensively review its total available assurance resources, evaluate the risk trade-offs, and allocate resources based on agreed risk priorities.
In response to OIG audit report, the Secretariat will better align its assurance to risks and mitigation activities by developing and implementing an assurance handbook for use by the country teams. Following a recent Board decision, the Secretariat will update LFA procurement procedures aiming to mitigate the concentration risk while considering service quality and cost. The Secretariat will also develop functionalities to allow for monitoring of assurance budgets by portfolio and type of activities. It will revise the audit guidelines to strengthen the review of internal controls as part of the external audit.
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