The Global Fund’s 31st Board Meeting – Jakarta, Indonesia, March 6-7, 2014

Introduction

The Global Fund to Fight AIDS, Tuberculosis and Malaria held its 31st board meeting on March 6-7, 2014, in Jakarta, Indonesia. Nafsiah Mboi of Indonesia and Mireille Guigaz of France, the Chair and Vice Chair of the Board respectively, presided over the meeting.

In addition to approving a 2014 operational budget for the Global Fund, the most seminal actions taken during the meeting were votes on decision points key to the rollout of the New Funding Model, including: amending the comprehensive funding policy; approving funds for Special Initiatives and Regional Proposals; allocating funds raised during and carried over from 2013; approving mechanisms to transition from a rounds-based system to an allocation-based system; and establishing and apportioning grant funding among four bands of countries, grouped by income and disease burden levels.

Executive Director’s Opening Statement

Mark Dybul, the Global Fund’s executive director, lauded the efforts of board members and others present that resulted in a successful Replenishment effort in December, an event that emphasized shared responsibility and partnership as a central tenet of the Global Fund’s work and resulted in a
30 percent increase of pledged resources over the Replenishment effort in 2010.

Dr. Dybul reiterated that the Pledging Conference was not the end of Replenishment but the launch. He hopes to continue with this momentum as the Global Fund moves forward in implementing the New Funding Model. He noted the importance of efforts to reduce infection rates for HIV/AIDS, tuberculosis and malaria and to increase domestic financing in the fight against these three diseases.

Adoption of Operational Budget

The board heard from Daniel Camus, the chief financial officer at the Global Fund, who noted that Global Fund grant disbursements had increased from $2.6 billion in 2011 to $3.3 billion in 2012, and to an expected $3.9 billion in 2013.

The board approved a 2014 operating budget of $298.8 million, which is lower the budgeted level for
2013 ($308 million). This amount includes a plus-up of $18 million in costs associated with the full rollout of the New Funding Model in 2014, when nearly half of all new grant development activities for 2014-2016 are expected to occur. The 2014 operating budget includes $20.5 million in funding for the Office of the Inspector General (OIG), approximately the same budgeted level as 2013.

Revising the Comprehensive Funding Model

The board approved changes to the Comprehensive Funding Policy to align it with the New Funding
Model. The changes were based on the following financial safeguards:

  • Asset and liability management – Insures that the Replenishment pledges are equivalent to what is spent, and balances assets (pledges) and liabilities (grants) over the three-year cycle.
  • Cash management – Manages actual contributions (cash) for each year, manages when and how much will be committed quarterly, and determines exactly how much will be spent from signed agreements.
  • Liquidity risk management/foreign exchange risk – Manages exchange rate risk through foreign exchange-hedging strategies.

The transition from a rounds-based model to an allocation-based model provides the following advantages:

  • Full alignment of replenishment and allocation periods;
  • Maximization of the country allocation envelope;
  • Flexibility of access to funding for applicants;
  • Dynamic financial monitoring to support the allocation-based funding and cash management;
  • Optimal utilization of cash resources through a portfolio approach;
  • Management of foreign exchange risk; and
  • Sound and responsible financial management.

Below is a chart that delineates how the monies raised at and since the December 2013 Replenishment Conference will be spent:

Allocation of $12.2 Billion Raised for 2014-2016 Replenishment
                               Allocation of $12.2 Billion Raised for 2014-2016 Replenishment

Transitioning between the old and new models of grant financing also presents a unique opportunity to accelerate the funding of the country grants. The strategic financial approach put forth by the amended Comprehensive Funding Policy allows for greater predictability of assets and liabilities, thereby allowing for the reallocation of reserve funds to the country programs; In total, $16 billion is expected to be made available for in-country programs between 2014 and 2016, representing a 20 percent increase in disbursement funding from that of the previous four years.

Approval of Funding for Special Initiatives and Regional Proposals

In earlier decisions, the board approved allocating up to 10 percent of total funding for Special Initiatives and Regional Proposals. At the meeting in Jakarta, the board approved the following specific amounts:

  • Special Initiatives ($100 million) – Investment in these programs is intended to supplement the country grants when funds are needed more urgently.
    • Humanitarian Emergency Fund ($30 million)
    • Country Data Systems ($17 million)
    • Technical Assistance (TA) for Strong Concept Notes/PR Grant-Making Capacity Building ($29 million)
    • TA on Community, Rights & Gender ($15 million)
    • Enhancing Value for Money and Financial Sustainability ($9 million)
  • Regional Proposals ($200 million)

Approval of Country Band Allocations

The board approved the creation of four bands of countries and an overall allocation of funding among them. Two factors dictated each band – Gross National Income (GNI) per capita and disease burden. Countries were categorized as higher disease burden if they had greater than a 0.26 percent total disease burden. Countries were categorized as higher income if they had GNI per capita above
$2,000.

The allocations under this approach concentrate a significant amount of incentive and indicative funding in Band 1 — or the lowest income, highest disease burden countries — consistent with the Global Fund’s overall strategy. The band allocation of indicative funding for 2014-2016 is as follows:

  • Band 1(Lower income, higher burden): $11,250 million
  • Band 2 (Lower income, lower burden): $915 million
  • Band 3 (Higher income, higher burden): $1,530 million
  • Band 4 (Higher income, lower burden): $1,105 million

Band placement will not dictate the amount of funding given to each country; each will undergo a specific analysis to account for disease burden and ability to pay. Grants will then be disbursed up to the amount determined by an allocation formula. Although grant implementation duration will typically last four years, country teams can negotiate a shorter or longer implementation period. Those countries in Bands 1, 2, and 3 may apply for the incentive funding allocation, which totals $950 million.

The board also approved a new grant extension approach. It would allow countries to apply for funding extensions of up to 12 months in strongly justified and exceptional circumstances to:

  • Facilitate the submission of single concept notes for multiple disease components (e.g. joint TB-HIV concept notes for high co-infection countries);
  • Address challenges in timely submission of concept notes due to circumstances that are beyond the control of the applicants;
  • Compensate for delays in the review and processing of applications, or when the Global Fund board objects to funding recommendations from the Secretariat;
  • Compensate for delays in grant-making and signing due to extraordinary circumstances, matters related to the work of the OIG, or changes to nominated Principal Recipients;
  • Ensure continuation of essential services when there are insufficient Global Fund resources to commit to a new grant.

If an extension requires additional resources (a costed extension), the Global Fund can provide funding for up to six months up to a level of $10 million, subject to the availability of funding and the Comprehensive Funding Policy. These funds will be advanced from the next allocation period and can only be granted once the Global Fund has communicated the country’s allocation for the next implementation period. If an extension is of no additional cost, e.g. it can be financed with funds allocated for the current implementation period, the grant can be extended for up to 12 months.

Office of the Inspector General

Martin O’Malley, Inspector General of the Global Fund, said that his intent was to move the OIG forward from raising findings to achieving outcomes and developing solutions. Certain changes implemented through the Secretariat have already begun to reap rewards. For example, 27 percent of high-risk procurement was managed in a safe way last year; now that figure is 83 percent. Additionally, the Global Fund has saved $137 million already because of better procurement practices and is expecting procurement savings of at least 8 percent per year going forward.

OIG Communications Strategy

The Board approved a new OIG communications strategy that is intended to make explicit and professionalize interactions between and among the OIG, grant implementers, and the Secretariat. The strategy covers all aspects of communication, including with whom the OIG engages, which channels it uses and what core products it creates to communicate its findings and to raise awareness of risks. The principal objectives are:

  • To ensure that the right people know about the risks facing the Global Fund-financed programs so that necessary preventive measures and corrective actions can be taken;
  • To foster a culture of full transparency and accountability to get the most impact out of each dollar;
  • To clarify the engagement model with key stakeholders and to put necessary safeguards in place before the publication of OIG products;
  • To better define and design OIG core products to enhance their impact; and
  • To establish the best channels of communication for OIG findings and to encourage whistleblowers to come forward.

The Inspector General highlighted the following areas to focus on in the coming year:

  • Bolstering the Combined Assurance Model
    • The Global Fund’s assurance components include the Secretariat’s risk management department, Local Fund Agents, External Auditors and the OIG. The OIG will tackle and mitigate risk by analyzing these components to bolster the Global Fund’s assurance regime as a whole – and specifically will do so by reviewing nine countries that went through the New Funding Model and analyzing five key risks:
      • Fraud and corruption;
      • Theft, diversion and counterfeiting;
      • Data quality;
      • Quality of health services; and
      • Human rights violations.
  • Improving the Accountability Framework
    • The OIG is in the process of clarifying the responsibilities, roles and accountabilities among Global Fund employees, including country portfolio managers, disease specialists, monitoring and evaluation advisors, etc. This delineation should be completed by June 30, 2014.
  • Accelerating Recoveries
    • Out of the $103 million in outstanding recoverable funds, 35 percent has been addressed: 25 percent has been recovered in cash, 9 percent has firm repayment commitments in place, and 1 percent has been written off.
    • The OIG expects to recover all remaining funds within two years, a timeline that accounts for varying country budgetary cycles.
    • Language specific to recoveries will also be included in future grant allocation letters to put countries on notice that current recovery cases will influence future allocations.
  • Facilitating and Accelerating Grant Closures
    • 248 grants were awaiting closure in 2013; thus far 38 have been fully closed and 185 have been financially closed.
    • To facilitate remaining closures, new policies will provide differentiated and simplified approaches with firm timelines on closing grants and holding country teams accountable for the closures.
  • Record-keeping
    • The Global Fund is introducing a grant management platform that will allow the Country Coordinating Mechanisms, Principal Recipients, Local Fund Agents and the Secretariat to request, review, approve and manage grant funds. This is being rolled out over 18 months.
    • All key documentation during the lifetime of the grant will be stored and retrievable for audit and analysis. An internal record retention policy will dictate what grant documents should be retained and for what duration.

Disclosure of Reports Policy

The board agreed that the OIG shall strive for full disclosure, accountability and transparency regarding its own activities as well as those of the Secretariat and grant recipients. In limited and exceptional circumstances, the OIG may determine, in coordination with the leadership of the Audit and Ethics Committee and the board, that full public disclosure of a final OIG report may not take place, if needed to protect the interests of the Global Fund and its stakeholders. Those circumstances include but are not limited to situations that could:

  • Expose witnesses, whistleblowers or other individuals to possible retaliation or other adverse consequences;
  • Interfere with or impede investigations or other activities by the OIG or other entities, or risk alerting subjects about pending investigations;
  • Needlessly expose the Global Fund to the risk of legal action; or
  • Aid the perpetration or contemplation of unlawful activities against the Global Fund.

Global Fund Evaluation Strategy

The Global Fund previously has had a five-year evaluation strategy in place. To align with best practices, the Fund announced that it intends to integrate the next evaluation into its Mid-Term Review. This shift is based on the following principles:

  • Periodic – evaluations will be planned, regular exercises that are in sync with and strengthen country processes;
  • Country platform – the process will be built on national systems, including program reviews;
  • Practical for grants – evaluation will provide recommendations for improved strategy implementation and feed into the new proposals and concept notes;
  • Plausibility design – evaluation will provide evidence of program impact and link investments of the Global Fund and others with the theory of change;
  • Partners approach – the evaluation approach will work with partners, synchronizing investments in-country while maintaining rigor and objectivity.

Composition of Board Committees

Finally, the Global Fund board agreed to appoint five individuals as voting members of the Audit and Ethics Committee, and 10 individuals as voting members and two individuals as non-voting members of the Strategy, Investment and Impact Committee for terms that will expire on March 9, 2016. The final membership of the Finance and Operational Performance Committee remains under consideration. Nominations for that committee will be sent to the board for approval by April 15,
2014.