II. Executive Summary
The OIG’s investigation confirmed serious misappropriation and fraud associated with 22 of the 26 Sub-sub-recipients that had been flagged with suspicious or fraudulent expenditures by the Local Fund Agent. The OIG’s investigation identified four fictitious NGOs established by a PNPCSP staff member in order to access and embezzle grant funds. Nine other Sub-sub-recipients were found to have not carried out any program activities with the sum of grant funds received. In both cases, the 13 Sub-sub-recipients submitted falsified invoices and documentation to PNPCSP to justify their grant advances. The investigation further found situations of falsified invoices justifying grant expenditures in nine other Sub-sub-recipients. The OIG observed fictitious invoicing to be pervasive across the administration of the grant at the Sub-sub-recipient level, sometimes with PNPCSP involvement. Additionally, PNPCSP could not support two material expenditures it had made to suppliers.
The OIG’s findings are described under four sub-headings: (1) shell NGOs created by PNPCSP’s Communication Assistant to embezzle grant funds; (2) Sub-sub-recipients which did not carry out any grant activities for the sum of grant funds received; (3) instances of fictitious invoices/vendors justifying grant expenditures; and (4) PNPCSP unsupported expenditures. PNPCSP disbursed GNF 128.2 million (USD 26,023) to the shell NGOs and GNF 285 million (USD 60,953) to the non- performing Sub-sub-recipients. The total amount of transactions connected to the fictitious invoices is GNF 401 million (USD 78,355). Additionally, PNPCSP disbursed USD 250,852 in expenditures to one supplier for which it could not provide the OIG any information or supporting documents. Collectively, these findings total USD 416,183.
A. Root Causes of Fraud
Fraud and the diversion or embezzlement of grant funds was pervasive across the grant’s administration by PNPCSP at the Sub-sub-recipient level. The complicity of PNPCSP staff and local NGOs and the lack of a sufficient and robust system of internal controls and Principal Recipient oversight made the grant susceptible to fraud and loss of funds. Weak independent control systems allowed a PNPCSP staff member to create shell NGOs in order to embezzle grant funds; allowed PNPCSP to select and disburse grant funds to fictitious Sub-sub-recipients and to Sub-sub-recipients not performing any grant activities; and did not prevent or detect fictitious invoicing justifying grant expenditures from at least 22 or the 29 Sub-sub-recipients and sometimes involving PNPCSP staff. Wide-spread political turmoil and violence in Guinea during the grant’s Phase 1 period hampered efforts by the Local Fund Agent to contemporaneously validate the Sub-sub-recipients’ program activities.5
B. Actions Taken
The OIG observed numerous issues and red flags from its limited investigation of PNPCSP expenditures in general (i.e., un-related to the Sub-sub-recipients) for the grant and limited review of expenditures under two other grants active at the time. This included poor supporting documentation, questionable tender and selection of local suppliers, possible fabricated supporting documentation, and invoice irregularities possibly involving program staff. Due primarily to the nature and types of expenditures, the passage of time and other factors, however, the OIG was unable to sufficiently substantiate or conclude on findings of fraud and misconduct regarding these red flags.
In response to the challenges of operating in Guinea and monitoring grant activity in country and the OIG’s preliminary, interim and final findings and observations across the three grants investigated or reviewed, the Secretariat has been implementing measures to mitigate risks of misuse of funds. In July 2012, the Secretariat invoked the Additional Safeguards Policy (ASP), which permitted it to restructure the grant portfolio by closing and consolidating certain grants and replacing the Ministry of Health as Principal Recipient. The treatment component of the Round 10 HIV6 grant was consolidated with the Health Systems Strengthening (HSS) grant and the National AIDS Council (NAC) or Conseil National de Lutte contre le SIDA (CNLS) was appointed as the Principal Recipient. The Principal Recipient of the community outreach component of the Round 10 HIV grant7 is the German Federal Enterprise for International Cooperation (Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)), an international partner organization (IPO). PNPCSP is now a Sub-recipient to CNLS for the Round 10 HIV grant8, operates with a zero cash policy (i.e., all disbursements are made directly to suppliers by CNLS) and does not have any Sub-sub-recipients.
Population Services International (PSI) replaced National Tuberculosis Program (PNLAT) as Principal Recipient of Phase 2 of the Round 9 Tuberculosis grant.9 PNLAT is now a Sub-recipient of the grant and operating under a zero cash policy. The Round 10 Malaria grant10 initially comprised two grants, one managed by the Catholic Relief Services (CRS) and one managed by the National Malaria Program (PNLP, Programme National de Lutte contre le Paludisme. As part of the restructuring, the PNLP grant was consolidated with the CRS grant, and CRS became the sole Principal Recipient of the grant. The PNLP is now a Sub-recipient of the grant, and is also operating under a zero cash policy. ASP also permitted the Country Team to recruit an international Fiscal Agent and implement a “zero cash” policy. Since 2013, the Country Team retained Cardno to serve as the Fiscal Agent. The Fiscal Agent observes all procurements for non-health products conducted by the national programs whereas the procurement of health products is done through the Global Fund Pooled Procurement Mechanism (PPM). The Fiscal Agent also verifies and co-signs on all payments. Moreover, the Fiscal Agent observes the recruitment of staff engaged for Global Fund grant related work at the national programs to ensure the process is transparent.
C. Agreed Management Actions
As a result of its investigative findings, the OIG worked closely with the Secretariat to formulate actions to be implemented as set out in Section 5:
• Based on the findings of this report, the Secretariat will finalize and pursue, from all entities responsible, an appropriate recoverable amount. This amount will be determined by the Secretariat in accordance with its evaluation of applicable legal rights and obligations and associated determination of recoverability.
• The Secretariat will require PNPCSP to demonstrate adequate internal controls by ensuring that background checks are conducted on staff and there are no conflicts of interests (e.g. the Local Fund Agent may be requested to oversee recruitments).
• The Secretariat will require that the Communication Assistant and the person(s) who were his direct supervisor(s) during the relevant period not be permitted to occupy any positions connected to the implementation of Global Fund grants going forward.