Global Fund program infected by health sector corruption

PNGi has published a number of reports on the endemic corruption and mismanagement in Papua New Guinea’s health sector, a problem which continues to be ignored by the government.

Now we can reveal how a major international agency, Population Services International (PSI), became infected with the same disease in its PNG operations.

Unlike the PNG government though, which is refusing to even acknowledge, let alone tackle, the crippling problem of corruption, PSI, working with its donor, the Global Fund, responded effectively and transparently to deal with the outbreak.

Through timely auditing, transparent disclosure, and monitored follow up actions, the outbreak of corruption was contained, the impacts minimised and new defence measures were put in place to minimise the chances of any re-infection.

It is this response which is perhaps the most interesting feature of the whole case and which should serves as a lesson to the PNG government, the National Health of Department (NDoH) and their many international donors.

The background

The Global Fund spends nearly US$4 billion a year fighting AIDS, tuberculous and malaria worldwide. It has an extensive program in PNG, where it has spent more than $230 million and currently has two active grants, worth $36.3 million.

Not all the money allocated to PNG has, though, ended up where it was intended, as a recent report from the Fund’s Inspector General[i] reveals.

The patient

PSI is a ‘global nonprofit organisation’ that works in over 50 countries ‘in the areas of malaria, family planning, HIV, diarrhea, pneumonia and sanitation’. Its headquarters are in Washington DC in the United States.

Until 2015, PSI was the implementing agency for a malaria prevention program in PNG sponsored by the Global Fund.

The infection

In 2015, PSI acknowledged that its PNG National Finance Manager was involved in fraud. An initial investigation revealed fraudulent expenditure totalling US$195,447 [over K600,000].

The fraud included duplicating supplier payments and directing payment to the Finance Manager’s personal bank account and the pocketing of unused travel advances.

The money had been stolen from the malaria prevention program financed by the Global Fund.

The treatment

The first response to the infection came from PSI itself. It conducted a further review of the same grant and identified a further $356,161 [over K1.1m] of unsupported and non-compliant expenditure.

PSI itself identified weak financial controls, including a lack of segregation of duties and poor management, had allowed the fraud to occur.

After receiving an alert from PSI’s external auditor in January 2017, the Global Funds Office of the Inspector General (OIG) conducted its own, more extensive, investigation and found a further $175,818 [@K570,000] of non-compliant expenditure.

All the losses have been refunded by PSI to the Global Fund.

The follow up

As well as reimbursing the full non-compliant expenditure identified in the investigations and dismissing the Finance Manager, PSI has implemented reforms to its financial systems and improved the internal controls. This applies not just in PNG but also at PSI headquarters and in all its national programs.

There is no indication though that the fraud was ever referred to the police.

The lessons

Although PSI can be criticised for some elements of its response to the fraud within its PNG program, it did not immediately report its further findings of unsupported expenditure for example and its Finance Manager appears not have to been referred to the police for prosecution, there are still many aspects to be praised and from which we can draw  important lessons about how corruption can be effectively identified and constrained:

  1. Internal auditing
    The fraud started in January 2014, within 18 months it had been picked up through internal auditing.
  2. Timely response
    Once the fraud was identified a further internal investigation was immediately set up which identified further non-compliant expenditure.
  3. Transparency
    PSI reported the fraud to the Global Fund as soon as it was confirmed, in July 2015.
  4. External auditing
    An external audit of the grant to PSI alerted the Global Fund to the fact the problem may be wider than just the single fraud and prompted the Inspector General’s investigation
  5. Follow up
    As a result of the findings a comprehensive set of time-bound reforms were identified and regular monitoring of their implementation ensured the changes were made.
  6. Public reporting
    As part of its commitment to transparency and accountability, and to show stakeholders it is making effective use of the funds with which it is entrusted, the Global Fund publishes its OIG reports online

How not to deal with corruption

The response of PSI and the Global Fund to the corruption in their PNG program, stands in stark contrast to the national government’s response to the ongoing epidemic of fraud and mismanagement in the health system.

We take, as one example, the case of Mr Paul Dopsie, but there are many others that also illustrate the point.

In November 2017, a special audit team from the Prime Minister’s Department investigated the procurement and distribution of medical drugs and other health supplies managed by the NDoH. The auditors found what they described as widespread failures throughout the medical supply and distribution chain which, they claim, have persisted and not been addressed over many years.

They also highlighted what they say is a damning set of allegations of official corruption, the facts of which were well known to the Department Secretary but which he failed to act upon. The allegations are that the Executive Manager Corporate Services has been demanding payments from NDoH suppliers in order to ‘favourably facilitate’ the payment of invoices. In the case of one logistics company, it is alleged the Manager received a total of K265,500 over a 22 month period.

An initial complaint about Mr Dopsie was lodged with NDOH in February 2017, but, unlike in the case of PSI, there has been no timely response, no transparency, no follow-up and no public reporting. The infection remains untreated, its extent remain unknown and its spread remains unchecked.

It is a story which, as PNGi has previously reported, is repeated time and time again throughout the whole health system. Serious allegations of fraud and mismanagement have been identified in numerous reports from a range of institutions but no effective action is ever taken to address them.

We should remember though that this is not just an analysis of organisational and system failures. In the case of the National Department of Health there are very real human victims of the corruption and mismanagement. Every day, across Papua New Guinea, mothers, children, wives, parents, sisters and brothers and dying and suffering needlessly because the Department of the Prime Minister, the Health Minister and the Health Secretary have failed to act.

In PNG there is no government commitment to transparency or accountability, and no commitment to showing the public  or other stakeholders that effective use is being made of the funds which are entrusted to the State to spend wisely.

[i] The Office of the Inspector General (OIG) was established in 2005 as an independent yet integral part of the Global Fund. Its mandate is to safeguard the assets, investments, reputation and sustainability of the Global Fund by ensuring that it takes the right action to end the epidemics of AIDS, tuberculosis and malaria. Through audits, investigations and advisory work, the OIG promotes good practice, reduces risk and reports fully and transparently on abuse.