$22 Billion Fund Backed by Gates Lacks Safeguards, Review Finds

A $22 billion disease-fighting fund backed by donors including Chevron Corp. (CVX) and the Bill and Melinda Gates Foundation lacks sufficient safeguards to prevent fraud and must reform to remain effective, a review found.

The Geneva-based Global Fund to Fight AIDS, Tuberculosis and Malaria is also likely to have “substantially less” than its estimate of $1.5 billion for the next round of grants as it faces “accelerating deterioration” in its finances for the next three years, according to the review published today by a committee led by former U.S. Health Secretary Michael Leavitt.

The fund appointed the committee in March after reporting “grave misuse of funds” in four recipient nations, prompting governments including Germany and Sweden to freeze donations. It spent more than $13 billion since 2002 fighting the biggest infectious killers, and has committed to spending about $9 billion more. Economic distress in donor nations, combined with corruption in some of the poor ones it helps, “imperil the sustainability” of the organization, the report said.

“There’s nothing here that can’t be fixed," Leavitt said in a telephone briefing with reporters. "The fund does not have enough capacity to respond to every need the world presents in those three disease categories and therefore it must be selective in how it invests its limited resources.”

The committee said the fund has “inadequate accountability mechanisms” and “insufficiently rigorous scrutiny of budgets” in grant proposals, allowing for “padding” of budgets that are then easily exploited.

‘Austerity’

At its triennial replenishment meeting in New York last year, the fund received pledges of $11.7 billion for programs from 2011 to 2013. That’s more than the $9.7 billion it had for the previous three years, and a little more than half of the $20 billion it wanted.

“Austerity among the donors makes the Global Fund more vulnerable now than at any time in its history,” the committee said. “The halcyon days of ever-increasing budgets for global health are over.”

The U.S. government pledged $4 billion, making it the biggest donor, followed by France with $1.5 billion. The Gates Foundation, the world’s richest charity, has contributed $650 million and Chevron has committed $55 million.

Among its recommendations, the committee said the fund should adopt a risk management approach to financing programs whereby it takes account of which countries can be most trusted with its money. It should also pay for surveys of disease rates in recipient nations that it can then specifically target.

The Global Fund welcomes the findings and is “totally committed to making the necessary changes,” it said in a statement.

‘Unacceptable’ Relationship

“We want the focus to be on not just quantity and speed of disbursement, we want this very much to be about the delivery of results and impact on the ground,” Simon Bland, the fund’s chairman, said in a telephone interview. “It’s a message we can take.”

The report also described as “unacceptable” the working relationship between Michel Kazatchkine, the fund’s executive director, and its inspector general, John Parsons, whose office is responsible for auditing grants and investigating fraud. The board must deal with it as an “urgent priority,” the report said.

To contact the reporter on this story: Simeon Bennett in Geneva at sbennett9@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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