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The Office of the Inspector General The Office of the Inspector General Country Audit of Global Fund Grants to Zambia Audit Report No: GF-OIG-09-15 Issue Date: 5 October 2010 Country Audit of Global Fund Grants to Zambia Table of contents Executive Summary ...................................................................................... 1 Summary of findings .................................................................................... 1 Introduction ................................................................................................. 11 Ministry of Health ........................................................................................ 13 Background ............................................................................................... 13 Achievements and challenges ................................................................... 15 Strengthening grant management ............................................................. 16 Ministry of Finance and National Planning (MOFNP) ............................... 47 Background ............................................................................................... 47 Achievements and challenges ................................................................... 47 Strengthening Grant Management............................................................. 48 Zambia National AIDS Network .................................................................. 59 Background ............................................................................................... 59 Achievements and challenges ................................................................... 60 Strengthening grant management ............................................................. 60 Churches Health Association of Zambia ................................................... 78 Background ............................................................................................... 78 Achievements and challenges ................................................................... 78 Strengthening grant management ............................................................. 80 Oversight ..................................................................................................... 93 Country Coordination Mechanism Zambia ................................................. 93 Cooperating Partners ............................................................................... 104 The Global Fund Secretariat .................................................................... 105 Appendix I: Global Fund Secretariat comments and responses .......... 107 Appendix 2: Recommendations and Action Plan ................................... 118 1 Country Audit of Global Fund Grants to Zambia Acronyms ACT Arteminisin-based Combination Therapy AIDS Acquired Immune Deficiency Syndrome ART Anti Retroviral Therapy ARV Antiretroviral CBOH Central Board of Health CCM Country Coordinating Mechanism CHAZ Churches Health Association of Zambia CHI Church Health Institutions CIDA Canadian International Development Agency CP Conditions Precedent CQ + SP Chloroquine and Sulphadoxypyremethamine CSO Civil Society Organisation DFID Department for International Development DHMT District Health Management Team DR Disbursement Request FBO Faith Based Organisation GRZ Government of The Republic of Zambia HIV Human Immunodeficiency Virus HMIS Health Management Information System IEC Information, Education and Communication IGA Income Generating Activity ITN Insect side Treated Net JAR Joint Annual Review LFA Local Fund Agent LLITN Long Lasting Insect Treated Net M&E Monitoring and Evaluation MDR Multi-Drug Resistant MOFNP Ministry of Finance and National Planning MOH Ministry of Health MOU Memorandum of Understanding NAC National AIDS Council NGO Non-Governmental Organization NTP National TB Program OIG Office of Inspector General OVC Orphans and Vulnerable Children PHO Provincial Health Office PMU Project Management Unit PR Principal Recipient PSM Procurement and Supply Chain Management PUDR Progress Update and Disbursement Request QA Quality Assurance RDT Rapid Diagnostic Test Kits RFQ Request For Quotation SR Sub Recipient Audit Report No: GF-OIG-09-15 2 Issue Date: 5 October 2010 Country Audit of Global Fund Grants to Zambia SSR Sub-Sub-Recipient STI Sexually Transmitted Infection TB Tuberculosis TOR Terms of Reference TRP Technical Review Panel UN United Nations UNDP United Nations Development Program US$ United States Dollars VCT Voluntary Counselling and Testing WHO World Health Organization XDR Extensive -Drug Resistant ZNAN Zambia National AIDs Network Audit Report No: GF-OIG-09-15 3 Issue Date: 5 October 2010 Country Audit of Global Fund Grants to Zambia Executive Summary 1. In 2009, the OIG Audit Unit undertook an audit of Global Fund grants to Zambia. The audit principally focused upon grant rounds 1 and 4, which were active between 2003 and 2009 and covered the operations of the four Principal Recipients; their interactions with the Sub-Recipients (SRs), as well as a review of the adequacy of the oversight provided by the mechanisms entrusted with fulfilling this responsibility-the Country Coordinating Mechanism (CCM), the Local Fund Agent (LFA), and the Global Fund Secretariat (Secretariat). 2. While the audit principally concerned rounds 1 and 4, Round 7 was covered to the extent it had begun to be implemented; and a limited review of the institutional arrangements proposed for round 8 was also undertaken as the grant agreement was close to finalisaton at the time of the audit. 3. In connection with carrying out its responsibilities, the audit team, which included in addition to an OIG audit team leader and local audit staff, public health, procurement, and supply management specialists, visited 6 Zambian provinces, 14 districts, 48 health facilities and 67 SRs. Summary of findings 4. This section briefly highlights the findings and conclusions arising from the audit and the detailed findings are contained in the rest of the report. It is, however, essential that this report is read in its entirety in order to comprehend fully the approach to, and findings of the OIG‟s work. 5. The audit focused upon the four Principal Recipients i.e. the Ministry of Health (MOH), the Ministry of Finance and National Planning (MOFNP), the Zambia National AIDS Network (ZNAN) and the Christian Health Association of Zambia (CHAZ). In each of the PRs, the audit identified significant financial management and control weaknesses, episodes of misappropriation and fraud, and losses of grant funds which called for reimbursements. 6. The OIG cannot give assurance that the MOH and the MOFNP have the required capacity to manage the grants effectively and recommended that other entities should be identified by the CCM to do so. In response the UNDP was appointed as Principal Recipient of the grants managed by the MOH. The OIG could not give assurance that the grant programs managed by ZNAN and CHAZ were operating effectively at the time of the audit. Implementation of the recommendations offered by the OIG should help to considerably strengthen their effectiveness. Ministry of Health (MOH) 7. By way of background, from 2003 through 2006, Global Fund grants to Zambia were initially channelled through the Central Board of Health until it was absorbed by the Ministry of Health in 2006. In August 2006, the CCM appointed the MOH the PR, and in June, 2007, the MOH and the Global Fund formally signed a Grant Agreement. 8. During its tenure, the MOH accomplished some notable achievements with the Government and other cooperating partners, including successful treatment of close Audit Report No: GF-OIG-09-015 1 Issue Date: 5 October 2010 Country Audit of Global Fund Grants to Zambia to 90% of tuberculosis cases; providing ART to approximately 245,000 people; and providing at least 70% of households with at least one insecticidal treated bed net (ITN). Unfortunately, however, the audit exercise identified a number of major systematic problems that impacted upon the quality of health care, including inadequate human resources at the facility level and the lack of adequate funding of the DHMTs to execute its functions. In that regard, the requisite quota of quarterly visits to health facilities was found not to have been met. 9. As set forth in detail in the body of the report, as a result of these deficiencies, the OIG has concluded that the Ministry of Health, as the lead in country-PR, does not have the capacity to effectively manage Global Fund grants. This conclusion is reached principally on the basis of serious shortcomings in financial management and the identification of episodes of fraud and losses of funds; misuse of grant funds; poor management of SRs and procurement; and a significantly weak control environment that expose these entities to significant financial misappropriation risk that has materialized. 10. In connection with MOH‟s financial management systems, the OIG identified serious weaknesses, including significant financial losses and significant financial mismanagement. In particular, the OIG auditors identified over ZMK 20 billion (US$ 4,365,000) arising from unsupported costs i.e. unsupported expenditure, unretired advances, with some outstanding since 2007, unsupported procurements etc. The OIG also noted ineglible expenditure amounting to ZMK 5.8 billion (US$ 1,659,000) arising from expenditure outside of the approved budget, overpayment of etc. 11. In addition, instances of suspected fraud were identified. In March, 2009,
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