Fiscal Agents in GF grant – no silver bullet
Introduction
“The Global Fund provides grants to implement public health programs designed to ambitiously develop and scale up the delivery of health services. In some environments, there are significant risks due to political instability, institutional weaknesses and the sub-optimal capacity of implementers. In its portfolio of over 100 countries, the Global Fund has classified 47 countries as high or very high risk based on a risk classification known as the External Risk Index (ERI). The ERI is an aggregate of ten indices developed by other organizations that capture political, economic, governance and operational factors contributing to external risk. In April 2016, the Global Fund identified 24 out of those 47 countries as “challenging operating environments”. These environments have high ERI and are characterized by weak governance and man-made or natural crises”[1]
In this report, the GF clearly states “The Global Fund has strengthened controls and oversight in 19 of the 47 very high- and high-risk countries, as of September 2016, by invoking a measure called the Additional Safeguard Policy. The measure is designed to be temporary and used ‘whenever the existing systems to ensure accountable use of Global Fund financing suggest that Global Fund monies could be placed in jeopardy without the use of additional measures’”[2]
The GF has disbursed more than three billion American dollars countries designated as high risk since the Audit Report Global Fund Grant Management in High-Risk Environments quoted above. The same countries have had fiduciary arrangement put in place by having either fiscal agents or procurement agents (or a combination of both) to safeguard GF Funds. Unfortunately, most of these countries do have a high disease burden most of the times, making every single cent properly and adequately invested worth its weight. Characteristically, these same countries have continued to face challenges in low fund burn-rates, poor activity implementation and never-ending challenges that have contributed to the mediocre achievement of the fund objectives.
It is not by coincidence that the safeguarding and oversight roles of these agents, mainly the fiscal agents, have of-course contributed to improved funds accountability, but also to a greater extent the poor burn-rate, that can be simply translated to poor activity implementation rates. This article aims at exposing the underlying challenges – the weak link- on why activity implementation rates do not improve at the same rate as the financial resources accountability efforts.
Observations cited in this article are not exhaustive, but form the larger part of what I term – the weak link – in Global Fund support and capacity-building investments to countries defined as high risk, directly impacting the delivery of essential health and life-saving interventions.
The man-made catastrophes of high-risk countries
It is easier and more diplomatic to highlight the man-made catastrophes I will mention below as challenges faced by the Global Fund recipients. In reality, these are not challenges but the “catastrophes” that come along with the package of being labelled a high-risk country.
Common amongst all countries defined as high-risk are one or more of the following characteristics:
- Countries in conflict or emerging from conflict (man-made);
- Countries with rampant corruption (man-made);
- Countries with extremely weak or non-existent central state governments (man-made);
- Countries with extremely weak economies (man-made);
- Countries with weak democratic processes and inherent autocracy (man-made)
The list goes on. There is a common thread in all the high-risk countries, almost all of them are desperately in need of financial resources and are inherently disorganised and have limited qualified human resources and so on. Without being stereotypical, most of the countries have structural and systemic challenges that will always pose a high risk to any “penny that drops in the coffers”.
Fiduciary and procurement arrangements under the GF grants
Procurement mechanisms have been extremely successful under the Global Fund grants. Procurement tools such as the Pooled Procurement Mechanism and Wambo.org have assured timely availability of health commodities to most of the recipient’s programmes. Further enhancement and tailor-made solutions to sourcing of health commodities will continue to bring more value for money and appropriate health commodities to grant recipient countries. Of note, these tools are successful because they limit, to the greatest extent possible, recipient countries’ direct access to funds but the actual health commodities. The good news is that health commodities are always a sizable chunk of the allocated funds.
However, it is the financial resources that have to reach the countries are always exposed to possible misappropriations. It is also understandable that the Global Fund or any other donor will be apprehensive when countries show signs and tendencies of not being a good at just being good “bookkeepers” and users of the funds. The Global Fund has, to a greater extent addressed the “bookkeeping” part of it and not the fund application part of it. And this is the weak link. Fiscal agents have been good at bridging the gap, varying from being outright accountants within the recipients’ programme management unit to outright watchman over the “fund pot”.
What is going on at the country level
Countries have learned to conform to the existence of fiscal agents. In almost all cases, the fiscal agents come as a grant requirement. In most cases, they are signatories to bank accounts holding grant funds which ultimately places a rubber stopper to any dipping hands. Conforming and accepting the fiscal agents as part of the grant has brought in notable benefits which include increased grant financial management compliance but with a major trade-off on implementation rates. Countries have even focused on ensuring that they knowingly showcase their efforts to create and produce every document required to account for every cent. Consciously or not, they have also slackened their programme activity implementation rates. Grant staff members take more time to ensure that they account for every cent. Levels of effort have tipped towards creating or producing documents that showcase that they are aware of grant compliance requirements – mainly financial and procurement.
Is it by chance that programme activity implementation levels (burn-rates) are always lower in these high-risk countries? Is it that countries request for funds that they know they will not spend? Is it because they are not fully aware of what the country requires that they come up with hypothetical activities that will not absorb the allocated funds? Or is it because they have focused more on financial management requirements that they forget to ramp up their implementation rates? The answer is that both the Global Fund and recipients know exactly what causes recipient high-risk countries to not fully absorb their funds. That unaddressed cause for lower burn-rates is the weak link. To define the weak link, I will highlight its anatomy below.
Grant development stages
It is common knowledge that the idea of a grant structure, its activities and how it shall be implemented is, and should be, defined during the concept note development. Addressing why financial resources are needed, how they shall be used, where they shall be applied and what results shall be achieved should be laid bare at grantmaking. Unfortunately, this is also the same stage that any possible unbecoming schemes are conceived. Unbecoming scheme conception varies from country to country. It can start at the highest level of authority to the actual staff members tasked with developing the grant. Such unbecoming schemes are not immediately apparent to anyone who is at a distance to the process.
I will give an example:
Example 1:
Country 1 needs vehicles for its MoH senior staff. Vehicles are inserted in the grant as a requirement to successfully implement the grant. When vehicles are purchased, a number of vehicles are allocated to non-grant linked personnel and activities.
Example 2:
Staff salaries are generally low in country 2. More soft activities and pieces of training are slotted in the grant to allow more per diems paid out to staff to maintain motivation and commitment of staff to general MoH activities. Daily subsistence allowances become a means of propping up the meagre salaries.
Example 3:
Plausible activities are put in the grant. However, there is clear evidence that the recipient country does not have skill sets to implement the activities. Partial and “skimming the top” implementation is done and funds are paid out and justified as activities having been implemented.
In the examples above, once such activities are in the approved budget, the recipient country will have every right to implement (truthfully or falsely). The fiscal agent shall not have any power to stop a “schematic inclusion of activity” because their scope is limited to financial and procurement oversight. Compounding the problem is the general lack of programmatic expertise amongst the fiscal agent staff.
The bottom line is, any idea of misappropriation of funds come in at grantmaking and not necessarily at the utilization of funds. The proportion of which types of activities are “schematically” conceived and inserted in the grant during grantmaking is unknown and varies from recipient to recipient. It is generally known that “micro-misappropriations” are always done by low-level staff members during activity implementation, however, their cumulative effect is significant in the long run. It is also generally known that high dollar value scheming involved the upper echelons of the recipient.
High-level, high value and first-level scheming always happen at grantmaking. These schemes have all the tenets and characteristics of genuine and worthwhile investments but tinted with specs of misappropriations which can be both material or monetary. Would this be picked by the fiscal agent? The clear answer is no. Why? Because the fiscal agent comes in later and is mainly financial experts (accountants). Could this have been observed and curtailed by a programme savvy outsider if they were involved in grantmaking, the answer could be yes? The weak link clearly is the limited in-country grant-making oversight and scrutiny. Programmatic checks during grantmaking would (and could) have saved hundreds of thousands of dollars on high-value schemes.
Post-approval grant approval stages
Whilst the focus has been on fiduciary oversight and establishing financial safeguards in high-risk countries, and resultantly – as has been generally observed, financial management and compliance, in general, has improved in most high-risk countries where fiscal agents exist. But have they been successful in stopping “unlawful schemes”? The answer is yes for cases of brazen misappropriation. I will define brazen misappropriation as explicit and daringly open acts of resources diversion of resources. The presence of the fiscal agent has either acted as a deterrent or the de facto custodian of the GF resources. It is my general belief, as observed in various high-risk countries that funds misappropriations will always occur at programme activity implementation, and rightfully camouflaged as genuine programmatic activities that are within approved activities.
PR activities implementation and budget management
Assuming that all necessary preparations for grant roll-out were followed correctly and rolled out promptly to allow for implementation, it is also this period when the general characteristics of the high-risk countries come out. In cases of poorly thought grants, immediate challenges emerge. Schemes to fleece the grant also come-out as this is the period of high-volume procurements intended to support the grant. Most fiscal agents’ personnel do not participate in programme planning and coordination as they are seen to have a limited and focused role. More so, fiscal agent team members shun such forums as they are generally ack programmatic experience.
Budget management in most high-risk countries is marked with high levels of manipulation to fit budget management expectations. Manipulation of the budget is always latent and not easily observed by an outsider. In all my experiences, budget manipulation has always occurred when the PR is planning for current and future activities. It is at this stage that funds are planned for – for genuinely budgeted activities and for those that will give “dippers” the opportunity to do so. A savvy programme expert will immediately identify activities that are implemented for the sake of propping up meagre salaries or outright misappropriation camouflaged as a genuine activity.
In truth, most fiscal agents do not have staff members who understand the dynamics of programming. It is in the process of programming that all weaknesses, schemes, realism of activity implementation and the abilities of the countries to fully manage grants come out. And this can not be achieved in the current fiscal agents’ terms of reference where most of their responsibilities focus on financial and procurement oversight.
Compliance circumnavigation
Most recipients know that for every resource used in any activity, it shall be accounted for. Most recipients know that they shall be required to produce documentation that speaks of how much was spent on an activity, what was acquired or paid for, where it was used, and the evidence of the results …the list goes on. Most recipients have become proficient at this process. Increasingly, fiscal agents’ experts, who are financial and procurement experts, would not have a strong stand in challenging dubious programmatic planning and allocation of financial resources to such activities. The more the fiscal agent gets detached from the programmatic planning process, the less they can detect grant funds fleecing schemes.
There are cases where the recipients fabricate a whole lot of documents that are fully compliant when that activity was partially or not even implemented. This, only as a result of the fiscal agent not being programme savvy. In the fiscal agent’s terms of reference and their focused roles, these documents would pass. It is also true that in such cases, the fiscal agent’s checklists and control mechanisms could have passed ineligible costs just because the documentation ticked all the correct and right boxes. The recipients have also known that if the documentation ticks the boxes as required, then they are safe. This compliance trick is what most high-risk countries have tried to always achieve in order to be seen as compliant.
The weak link
Knowledge of programme or grant management should be an essential part of a fiscal agent’s understanding of the grant context dynamics and be a pre-requisite. The less the fiscal agent is aware of what happens at all levels of grant management renders their effectiveness of oversight and controls minimal.
In most of the cases, given the general characteristics of the high-risk countries, there are both latent and explicit hindrances or stumbling blocks to the fiscal agents’ access to a programme or grant implementation activities such as planning sessions, visits to implementers and activity locations and the general discussions that surround resource allocation and utilization.
Because high-risk countries actively, one way or another, try to hide all or some of their risky grant management behaviours by blocking or hindering fiscal agents from accessing and/or participating in programmatic planning and coordination. This is further compounded by the general weaknesses in fiscal agent’s knowledge in programme management rendering fiscal agents’ ineffectiveness to a certain extent.
It is then essential that FAs are knowledgeable in programme or grant management. Programmatic knowledge allows the fiscal agent to know the exposure to risks of the resources, both financial and material. It is true that fiscal agents have been effective on financial and procurement oversight and at the same time they have been weaker at linking the oversight to effective programme activity implementation.
The weak link, which can be defined as the weaknesses in most fiscal agents, is the lack of knowledge and experience in programme management. Lack of participation in recipients programmatic planning and various aspects of grant activity implementation further deepens this weakness.
Grant management support and capacity building versus the focused FA scope
It is evident that all fiscal agents’ TORs are clear on the needs to support, lead and build the capacities of weak country recipients of the GF grants. Subsequently, fiscal agents have been successful at building the financial and procurement areas of the grant management. Given the tendencies outlined above, fiscal agents have not been able to build capacities across all areas due to the focused TOR. At the same time, this has significantly affected the programmatic end of grant implementation.
Support and capacity building in high-risk countries should be tailored to address not only the financial and procurement parts of grant management. For value for money to the Global Fund, it is imperative that the role of the fiscal agent is widened to all aspects of grant management to allow for proper support and capacity building. The focused fiscal agent’s scope does partial addressing of the bigger problem, which subsequently does not address the core issues that high-risk countries pose to the grant funds.
What are the issues with high-risk countries?
Leadership, management and governance:
All high-risk countries have significant weaknesses in the three components of leadership, management and governance. Addressing these issues will result in awareness, responsibility and accountability at management levels. The extent of addressing these three core areas vary from high-level line ministry officials to middle and lower management. Building capacities and making management aware of the intricacies of good practices in leadership, management and governance. Enlightened management will ultimately hold everyone to a high standard and skills will trickle down to operational grant staff. The fiscal agent should have at least this knowledge and required to address these areas.
Human resources:
High-risk countries generally lack skilled human resources. If skilled human resources are available, they are generally expensive. In most high-risk countries, the general populace is “monetarily” poor, subsequently human resources in strategic grant positions are always looking opportunities that give immediate access to financial or material gains. As much of a generalisation this assertion is, there is a high chance that in most countries categorised as high risk, fraud tendencies are rampant. This, not a mere coincidence.
As such, capacity building in instilling responsibility, accountability and general regard of above-board principles should be prioritized in all countries were fiscal agents are present. General awareness of these principles has a tendency for positive behavioural change. Human nature changes when there is an awareness tenet to capacity building. This has been tested in all elements of behaviour change activities.
Practices, systems and skills:
One of the core functions of the fiscal agents is the training of personnel. Inherent in the current terms of references is the capacity building of the finance and procurement staff. The fiscal agent’s light footprint on programmatic and general grant management involvement hampers their effectiveness. The support in the establishment of a wholesome grant management system and all related tools should be the core function of the fiscal agent. Every weakness emanates from the conception of the grant idea and the inherent programming of fund absorbing activities. Financial or procurement oversight has its limitation when programming is not at an optimal level. It is the establishment of systems and practices, not only in finance and procurement, that results in the good grant management practices at all levels.
The carrying out of a fully fledge organisational capacity assessment with pillars such as governance, planning, finance compliance and operations, grant management, human resources, project management and monitoring and evaluation should be carried out by the fiscal agents as these pillars cannot be separated from one another. Partial pillars will only result in partial solutions to the overall issues faced by the grant recipient, its donors and those who are sent in to provide sustainable remedial support.
In essence, the solution is that a fiscal agent should be an all-rounder in all key grant aspects and be in apposition to address deficiencies that a grant recipient faces in the implementation of the Global Fund grants.
Conclusion
As mentioned throughout this article, the fiscal agent has of-course contributed positively to financial and procurement management since they were introduced to support and build fund recipients. Amongst the pillars that usually inform on how an organisation is duly prepared to administer a grant, these two pillars happen to be two of not less than 8 pillars that need strengthening despite the level of development of a recipient. Of the two pillars that should be taken as imperative in fiscal agents’ terms of reference should be grant management and programme management. The addressing of leadership, management and governance deficiencies should take place simultaneously when financial and procurement capacity building is taking place. It is recommended that emphasis on programmatic and grant management be at the same level as what is demanded financial and procurement oversight. This will eliminate the weak link that currently exists in fiscal or fiduciary arrangements in countries defined as high risk for the Global Fund.
[1] Audit Report – Global Fund Grant Management in High-Risk Environments: https://www.theglobalfund.org/media/4284/oig_gf-oig-17-002_report_en.pdf?u=636488964760000000
[2] Ibid
