The Office of the Auditor General s investigation of Norwegian development aid to the health sector in Malawi

Transcription

1 Document 3-series Office of the Auditor General of Norway The Office of the Auditor General s investigation of Norwegian development aid to the health sector in Malawi Document 3:8 ( )

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3 Document 3-series The Office of the Auditor General's investigation of Norwegian development aid to the health sector in Malawi Document 3:8 ( )

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5 To the Storting The Office of the Auditor General hereby submits Document 3:8 ( ) The Office of the Auditor General's investigation of Norwegian development aid to the health sector in Malawi. Office of the Auditor General, 19 February 2012 For the Board of Auditors General Jørgen Kosmo Auditor General

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7 Table of contents 1 Main findings 7 2 The Office of the Auditor General's remarks 8 3 The Office of the Auditor General's recommendations 10 4 The Ministry's follow-up 11 5 The Office of the Auditor General's final remark 12 Annex 1: The Office of the Auditor General's letter to the Minister 13 Annex 2: The Minister's response 17 Annex 3: Report 25 Word list and abbreviations 31 1 Introduction 34 2 Objectives and issues 36 3 Methodological approach and implementation 38 4 Audit criteria 41 5 Goal attainment in the SWAp-POW and for budget support 45 6 The global health funds' programmes in Malawi 59 7 Resource flows in the health system 69 8 Follow-up and oversight 91 9 Assessments 109 Annexes Reference list 122 Fold-out: Background and objectives for the audit. Findings and recommendations

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9 Ministry of Foreign Affairs The Office of the Auditor General's investigation of Norwegian development aid to the health sector in Malawi The objective of the audit was to assess the goal attainment and effectiveness of major health inputs in Malawi directly or indirectly funded by Norway, and to assess the administration's supervision and control of the use of funds. The term effectiveness primarily refers to the extent to which human resources, medicines, supplies and funds for equipment and infrastructure made available to the publicly funded health care system in Malawi reach the health facilities responsible for the production of health services. The audit includes both the bilateral health sector support and general budget support that Norway has provided in addition to GAVI Alliance (GAVI) and Global Fund programmes in Malawi. The audit covers the period , since the two major bilateral initiatives run over this period, and since the vast majority of the Global Fund's disbursements also took place during this period. The bilateral support from Norway to the health sector programme (Health Sector Wide Approach Programme of Work SWAp-POW) totalled NOK 380 million in the period. In addition, NOK 60 million, which was earmarked for the purchase of medicines directly to health centres and hospitals, was channelled through UNICEF. During the period Norway also gave NOK 400 million in general budget support to Malawi. The Global Fund has disbursed about NOK 2.7 billion to Malawi ( ), while GAVI has disbursed about NOK 650 million ( ). The United Nations Millennium Development Goals (MDGs) serve as guidelines for Norwegian development policy. Norway has taken particular responsibility for Millennium Development Goals 4 and 5 for reducing child mortality by two-thirds and maternal mortality by three-quarters, respectively, from 1990 levels by Great progress has been achieved in the global effort for the health-related goals, but the situation for both child and maternal mortality remains severe in South Asia and sub-saharan Africa. As a result of the political and economic focus on the health goals, many countries have received a sharp increase in development aid in the health area. In Malawi, development aid tripled from 2002 to At the same time, the national health systems of many of Norway's partner countries have been in a state of persistent crisis. A significant increase in resources to countries with weak health and financial management systems raises the risk of inefficient use of the resources. The report was presented to the Ministry of Foreign Affairs in a letter dated 2 November The Ministry commented on the report in a letter dated 30 November The comments are largely incorporated in the report and in this document. 1 Main findings Development in Malawi has had a positive impact on maternal and child health and access to basic health care services, but the key goal of reducing mortality and strengthening the health system has not been attained. There are clear weaknesses in the Ministry of Foreign Affair's supervision and oversight to ensure that the funds are used as intended. It may be questioned whether the Ministry of Foreign Affair's allocation of budget support/ sector budget support to Malawi is consistent with the intentions of the Storting (the Norwegian parliament). The Ministry of Foreign Affair's guidelines for budget support do not adequately reflect the Storting's preconditions for when budget support can be granted. There is a high degree of inefficiency in resource flows to hospitals and health centres in Malawi, which, among other things, translates into loss of medicines and lower availability of health personnel. While the global health funds have made important contributions in efforts to combat AIDS, malaria and tuberculosis and for reducing child mortality in Malawi, the country is highly vulnerable to fluctuations in the support. 7

10 2 The Office of the Auditor General's remarks 2.1 Development in Malawi has had a positive impact on maternal and child health and access to basic health care, but the key goal of reducing mortality and strengthening the health system has not been attained While Malawi has shown progress with respect to reducing maternal and child mortality, it has not been sufficient for attaining the goals set in the SWAp-POW for Millennium Development Goals 4 and 5 on reducing child mortality by twothirds and maternal mortality by three-quarters from 1990 levels by 2015 will be difficult to reach. Another goal of the SWAp-POW was to increase the availability and use of essential health services. There has been a positive development in this respect, and half of the targets set have been achieved. The health objectives for the general budget support have generally been achieved. However, the goals set for inputs into the SWAp-POW human resources, drugs and medical supplies, medical equipment and infrastructure, have not been achieved. In the OAG's assessment, there are material weaknesses in the Malawian authorities' efforts to strengthen the public health system in the country. Doctor and nurse ratios are still very low and have declined in recent years after some years of progress. Medicine stocks at health centres and hospitals are often low or empty. The ability to realise projects in the form of new medical equipment or construction of health centres and hospitals is weak. A large part of the funds budgeted for these purposes have not be used. 2.2 There are clear weaknesses in the Ministry of Foreign Affair's supervision and oversight to ensure that the funds are used as intended The Storting's Standing Committee on Foreign Affairs has emphasised the need for goal-oriented and effective oversight of aid funds, regardless of which agencies the development aid is channelled through. In the OAG's assessment, the Ministry of Foreign Affair's follow up of the local external audit of the SWAp-POW and the many issues pointed out in it, has been too weak. For four of the years covered by the audit, the Malawian authorities failed to respond, without repercussions, to Norway's and other donors' written questions about the findings in the audit reports. One year, Norway and the donors also failed to undertake a written follow-up of the audit report, despite the fact that the audit points out material errors and deficiencies. The OAG finds that it is unacceptable that Norway and other donors did not follow up findings from the external audits of the SWAp-POW relating to the following three circumstances in Malawi: a disbursement equivalent to NOK 1.3 million (MK 33 million) apparently made to the permanent secretary at the Ministry of Health lacks documentation failure to adjust health sector accounts equivalent to NOK 9 million (MK 265 million), which means that no explanation was given for what the funds were used for missing vouchers for fuel expenditures equivalent to NOK 2.5 million (MK 66 million) at the Ministry of Health's main office in fiscal year A fourth factor relevant to implementation of the general budget support emerged in connection with a report on support for the Malawi National Audit Office (NAO) prepared for the German Development Bank (KfW). It involved an expenditure of about NOK 2.8 (MK 69.9 billion) billion in the Malawian central government accounts for fiscal year , which was unaccounted for and poorly documented. The transaction was not commented on in the NAO's audit report. Only later was it stated that the amount was due to erroneous accounting of Malawian government bonds. The Norwegian Embassy did not specifically raise the matter with the Malawian authorities in prior years. The OAG believes that the Ministry of Foreign Affairs should have directed a formal request at an earlier date to the authorities for an explanation of the matter and the size of the transaction, taking into account the known weaknesses in accounting for government bonds. The OAG takes a positive view of the fact that the Ministry of Foreign Affairs has taken the initiative for a special audit of procurements in the Central Medical Stores (CMS), and that the support to the SWAp-POW was frozen as a result of suspicion of irregularities in CMS. Substantial resources have been channelled to the health sector in Malawi from sources including the global health funds without these funds being visible in the SWAp-POW's budgets and accounts. This weakens the opportunities for efficient resource use and to hold the authorities accountable. Norway and other donors in Malawi have given little attention to this. In the OAG's opinion, it is important that the Ministry of 8

11 Foreign Affairs actively monitors that aid funds to the Malawian government are presented in the fiscal budget and accounts. This is especially necessary in light of the very complex situation with a large number of players who fund and implement health projects and programmes in the country. This is also important for reducing the risk of misuse of funds and corruption. The Norwegian Embassy has not had the expertise or capacity to follow up issues relating to financial management in the health sector. The OAG believes this is not satisfactory when substantial aid funds are provided as sector budget support to a country where public financial management is as weak as in Malawi's. In Report No. 35 ( ) to the Storting, systematic use of field visits was highlighted as a means of showing that Norway as a donor is actively monitoring how the recipient spends the funds and to prevent abuse. In Malawi, the Embassy does not use field visits systematically to ensure compliance. Norwegian budget support funds cannot be tracked separately. The OAG believes that more systematic use of field visits would still have been appropriate and provided valuable information on the situation in the districts and whether the resources reach the health centres and hospitals. 2.3 It may be questioned whether the Ministry of Foreign Affair's allocation of budget support/ sector budget support to Malawi is consistent with the Storting's intentions Norway's bilateral development aid to Malawi consists of a substantial share of general budget support and sector budget support to the health area. This form of development aid is meant to provide lower transaction costs and more efficient support. In Recommendation No. 172 ( ) to the Storting, the Standing Committee on Scrutiny and Constitutional Affairs pointed out that budget support can be reasonable in some cases, and that the Ministry of Foreign Affairs must ensure that the necessary preconditions have been met. In Recommendation No. 269 ( ) to the Storting, the Standing Committee on Foreign Affairs stipulated that budget support shall be granted when a country's public financial management meets a certain level of quality, and when the country has sufficient auditing and control systems for such support. In parallel with budget support, Norway has provided support for bolstering public financial management in Malawi, including through support to the National Audit Office and Reserve Bank of Malawi. Numerous audits, evaluations and assessments carried out by or for the Ministry of Foreign Affairs, DFID, IMF and the Global Fund's internal audit conclude the existence of major weaknesses and high risk in Malawi's public financial management in general and in the health sector throughout the period of the audit. Documented deficiencies include poor IT systems, deficient accounting, deficient documentation, poor auditing, procurement deficiencies along with the fact that the management has not addressed weaknesses. Several examples from health sector and central government accounts also illustrate such weaknesses, several of them with a potentially high level of severity. Consequently, the OAG questions whether the Ministry of Foreign Affairs' allocations of sector budget support to Malawi from 2008 onwards are consistent with the Storting's intentions. Two of the allocations took place after the Storting's Standing Committee on Foreign Affairs stipulated that budget support shall only be granted when a country's financial management meets a certain level of quality, and when the country has auditing and control systems for such support. 2.4 The Ministry of Foreign Affair's guidelines for budget support do not adequately reflect the Storting's preconditions for when budget support can be granted In Recommendation No. 269 ( ) to the Storting, the Storting's Standing Committee on Foreign Affairs underlines that experience with misuse of funds and corruption suggests that Norway should ensure that the quality of financial management and the national Supreme Audit Institution (SAI) schemes in each country are adequate when budget support is assessed and allocated. The Committee notes that there must be clear criteria for the expected quality of the countries' financial management when budget support is considered. The Ministry of Foreign Affairs' guidelines for budget support do not set clear criteria for the expected quality of public financial management when budget support is assessed and granted. In the OAG's opinion, it is unacceptable that the Ministry of Foreign Affairs has not updated the guidelines in line with the Storting's intentions. Without clear criteria, allocation of budget support will, in the OAG's opinion, be granted on faulty grounds. 9

12 2.5 There is a high degree of inefficiency in resource flows to hospitals and health centres in Malawi, which, among other things, translates into loss of medicines and lower availability of health personnel. Malawi has experienced a significant increase in development aid for health purposes in the last decade. However, there are major weaknesses in the efficiency of resource flows to the serviceproducing facilities. This means that the population receives considerably fewer benefits for the funds allocated to health purposes, than what could have been the case. Malawi's publicly funded health care system has and has long had a serious health personnel crisis with a very limited number of doctors and nurses. The audit of 13 health centres and hospitals shows that the availability of health personnel is significantly lower than the employment figures suggest. There are also clear indications that the rates for subsistence and lodging allowances for travel, courses and seminars are so high that they function as wage increases and give rise to unintended incentives for absence. The audit furthermore indicates that there is unequal distribution of resources between the levels in the state part of the health system. Primary health services, i.e. health centres and rural hospitals, in five of the seven districts that were examined, only receive about 20 per cent of each district's funds for medicines. While the facilities at this level are primarily designed to serve the vast majority of the population living in rural areas, the health centres have the highest frequency of stock-outs of medicines and have a poor medical equipment situation. Shortages of drugs has long been a problem in hospitals and health centres in Malawi. Leakages in the link between the central medicine depot and hospitals/health centres are still a problem. The audit also indicates that the handling of medicines in hospitals and health centres is the source of even greater losses. No account can be given for about 70 per cent of the antibiotic drugs that were examined, which according to the stock cards were taken out to be distributed to outpatients. This means that hospitals and health centres are out of essential medicines for parts of the year. The weaknesses of local drug management and the risk of loss this entails have long been known to the Norwegian Ministry of Foreign Affairs, other donors and the country's authorities. However, little follow-up has been done. In the OAG's opinion, it is important to take a closer look at the handling of drugs and medical supplies at health centres and hospitals, as well as the availability of health personnel. 2.6 While the global health funds have made important contributions in efforts to combat infectious diseases and for reducing child mortality in Malawi, the country is highly vulnerable to fluctuations in the support. The global health funds have made important contributions to combatting individual diseases such as AIDS and malaria, but also to support the health system in Malawi. In 2012, the Global Fund funded AIDS drugs for about 300,000 people. With a coverage rate of 67 per cent in 2011, it is still far from complete access to treatment for HIV/AIDS for all who need it, in line with Millennium Development Goal 6. More people also receive malaria drugs and mosquito nets as a result of funding from the Global Fund. Malawi has also achieved high vaccine coverage, and the country has introduced several new vaccines funded by GAVI. The Global Fund was the largest donor to Malawi's health sector for fiscal year and funded virtually all HIV/AIDS medication in the country. Malawi is also dependent on the support from GAVI to maintain its vaccination programme. Consequently, the country's population is highly vulnerable to fluctuations in the support from the global funds. The OAG believes the Ministry of Foreign Affairs should exert influence on the global health funds to further increase their cooperation with recipient countries like Malawi so that the authorities can, over time, take a larger share of the funding and thus create more lasting results. 3 The Office of the Auditor General's recommendations The OAG recommends that the Ministry of Foreign Affairs: initiate measures to improve the attainment of targets for health human resources, access to medicines, medical equipment and infrastructure in cooperation with other donors boost expertise and capacity to assess issues relating to public financial management, particularly at the embassies in countries that receive Norwegian budget support ensure that the accounts from the recipient country's authorities and the contents of the annual audit reports by local external auditors are adequately followed up 10

13 encourage measures to strengthen expertise and capacity relating to public financial management in the Ministry of Health in Malawi consider increased use of field visits to show presence and as a source of necessary additional information about the situation in the country consider whether budget support and sector budget support to Malawi should be granted without significant improvements in the country's public financial management update the Ministry's guidelines for budget support so that they are in line with the Storting's intentions encourage the global health funds to collaborate more with recipient countries to increase cofinanceing over time 4 The Ministry's follow-up The Minister of Foreign Affairs and the Minister of International Development emphasised that the OAG's presentation of the attainment of targets for reduced mortality and strengthening of the health system is somewhat oversimplified. They point out that Malawi's performance in the health sector is among the best in Africa. Malawi is one of the world's ten poorest countries, and consequently has great weaknesses in its health services. In this context, the results in the health sector are good. The ministers agree that the accounts from the authorities and the annual audit reports should have been followed up better by Norway and other donors. The Central Control Unit in the Ministry has opened a separate case for each of the three matters highlighted by the OAG. The cases are being followed up in accordance with the guidelines for handling suspected financial irregularities. In Malawi, the annual audit reports will be subject to further auditing. A financial adviser will be engaged to review the annual financial and procurement audits and advise the Malawian Ministry of Health and donors concerning follow-up. The Ministry of Foreign Affairs is considering strengthening its capacity in the area. According to the ministers, it would be very complicated if funds for purchasing medicines and vaccines for Malawi from sources including the Global Fund had to be entered in the Malawian SWAp budget and accounts. The ministers agree that parallel funding is a problem, and donors are therefore collaborating with the Malawian authorities to keep track of such contributions. The Ministry believes that the OAG has only reviewed a selection of documentation relating to the general budget support and has not emphasised the Embassy's other efforts to strengthen public financial management. The ministers point out that these are key points in following up the Storting's intentions in this area. They agree that there are weaknesses and risks relating to financial management in Malawi, but believe that the risk is acceptable with mitigation measures. With respect to the OAG's recommendation to consider whether budget support should be provided without significant improvements in the country's public financial management, the ministers point out that such assessments are done on an ongoing basis. The decision to resume the sector budget support to the health SWAp in July 2012 was made after careful consideration and introduction of new joint initiatives to strengthen financial management, auditing and procurement. In 2011, a new programme was prepared for work on public financial management and economic governance in Malawi. The ministers pointed out that the programme contains specific requirements for improving outcomes in financial management over time, and believe that the programme will considerably bolster efforts in this area. As to the issue of whether the guidelines for budget support adequately reflect the Storting's intentions for when budget support can be granted, the ministers believe there are different ways of addressing the need to set clear requirements for the quality of financial management. A practical way is to require implementation of specific reforms that strengthen financial management. The ministers point out that Norwegian guidelines and practices have been based on this principle. In the ministers' assessment, it will be difficult to formulate general quality standards for financial management systems since the countries' systems are complex and different. Other major donors, such as the UK and the European Commission, do not operate with minimum standards across countries. The Ministry monitors developments in the area and, in cooperation with Norad, will assess the need to update the guidelines. The ministers point out that inefficiency in the resource flows to health facilities is a common problem in developing countries. However, the situation in 2011 and 2012 is not necessarily s uitable for evaluating the outcomes of the health sector support from Norway and other donors. This is due to the shortage of medicine that arose 11

14 after Norway and other donors decided to freeze their health sector support. Together with other donors, the Ministry will consider whether there is a basis for more systematic collection of information concerning budget support, including field visits by donors. The ministers agree that the use of subsistence and lodging allowances for travel and seminars can create wrong incentives for health personnel. The Ministry has prepared new checklists for use by executive officers when they assess budgets in development aid projects. The ministers also agree that resources in the health sector are unevenly distributed. They point out that the authorities in Malawi are concerned about this, and the country's Ministry of Health is currently mapping planned resources for the sector to improve planning and resource allocation. With regard to weaknesses in the local management of medicine, the ministers disagree that donors' and the authorities' follow up has been scarce. According to the Ministry, donors who have been involved in procurement and distribution have paid particular attention to these shortcomings. The ministers agree that Malawi is dependent on funding from the global health funds, and that the country's population is vulnerable to fluctuations in their support. However, considering the country's economic situation, the ministers believe it is unrealistic to expect Malawi to reduce its dependence on these funds in the near future. 5 The Office of the Auditor General's final remark opinion, the audit still shows significant shortcomings in the attainment of goals in terms of strengthening the health system with human resources, drugs and medical supplies, medical equipment and infrastructure. The OAG believes that the reduced supply of medicines due to pilferage and weaknesses in the management of hospitals and health centres has significant consequences for the population's health care. The same applies to reduced availability of health personnel due to absence. In the OAG's opinion, neither Norway nor other donors pay sufficient attention to these phenomena. The Ministry should, in cooperation with other donors and the authorities in Malawi, take the initiative to improve local management of medicines and find means to increase employee presence. The OAG believes that it is fully possible to include funds from sources including GAVI and the Global Fund in the SWAp budgets and accounts. The inclusion of the funds from the Global Fund for procurement of medicines in the accounts for fiscal year proves this. The OAG maintains that it is essential that funds be made visible in the budget and accounts so as to make it possible to hold the authorities accountable for the use of state funds. In the OAG's opinion, planned measures or reforms in public financial management that promise an improved situation with time should not be a sufficient reason for granting budget support. The OAG therefore believes that the guidelines should be updated and clarified in line with the Storting's intentions so that they promote good public administration practices. This report will be submitted to the Storting. The OAG agrees that Malawi has achieved many positive results in the health sector. In the OAG's Approved at the Office of the Auditor General's meeting on 31 January 2013 Jørgen Kosmo Arve Lønnum Martin Engeset Per Jordal Synnøve Brenden Berit Mørk 12

15 Annex 1 The Office of the Auditor General's letter to the Minister

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17 Exempt from public disclosure, cf. Section 18 (2) of the Act Relating to the Office of the Auditor General The Office of the Auditor General's investigation of Norwegian development aid to the health sector in Malawi Please find enclosed a draft of Document 3:8 ( ) The Office of the Auditor General's investigation of Norwegian development aid to the health sector in Malawi. The document is based on a report submitted to the Ministry of Foreign Affairs with our letter of 2 November 2012, and the Ministry's response on 30 November The Minister is requested to give an account of how the Ministry will follow up the Office of the Auditor General's remarks and recommendations, and whether, if applicable, the Ministry disagrees with the Office of the Auditor General. The Ministry's follow-up will be summarised in the final document submitted to the Storting. The Minister's entire response will be enclosed with the document. Response deadline: 15 January For the Board of Auditors General Jørgen Kosmo Auditor General Enclosure: Draft Document 3:8 ( ) The Office of the Auditor General's investigation of Norwegian development aid to the health sector in Malawi. 1 The original letter in Norwegian has been translated into English. Document 3:8 ( ) The Office of the Auditor General's letter to the Minister 15

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19 Annex 2 The Minister's response

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21 The Minister of Foreign Affairs and the Minister of International Development Office of the Auditor General of Norway P.O. Box 8130 Dep 0032 Oslo Exempt from public disclosure Section 2, paragraph two of the Freedom of Information Act The Office of the Auditor General s investigation of Norwegian development aid to the health sector in Malawi 1 Main findings The conclusions and recommendations made by the Office of the Auditor General concerning the budget support may give the impression that administration of the general budget support granted to Malawi has been examined in its entirety. It is important to emphasise that the OAG has only reviewed certain parts of the documentation. Substantial parts of the embassy s work to follow up the general budget support have not been examined (cf. item 2.3 below). The Ministry views the OAG s presentation of target attainment as regards reduced mortality and strengthening the health system as somewhat oversimplified. As discussed below, we believe Malawi s results in the health sector are among the best in Africa. 2 The OAG s remarks 2.1 Child and maternal health trends and access to basic health care The health sector targets have largely been derived from the UN Millennium Development Goals (MDGs) for These health goals are very ambitious, and Malawi is one of few African countries on track to achieve some of the MDGs. For example, child mortality was reduced from 76 children per 1,000 in 2004 to 66 in In the same period, maternal mortality was reduced from 984 to 675 per 100,000 births. Deaths among children afflicted with malaria have been reduced from 7 per cent to 3 per cent, while the number of underweight children has been reduced from 22 per cent to 13 per cent. These are good outcomes, even though the goal for underweight children was 7 per cent. The overall development in this area is considered very good. The OAG notes substantial weaknesses in the Malawian authorities efforts to strengthen the country's public health system. It is important to bear in mind that Malawi, one of the 10 poorest countries in the world, has a national per capita income that is less than The original letter in Norwegian has been translated into English. Document 3:8 ( ) The Minister's response 19

22 one-fiftieth of Norway s, measured in purchasing power. The major weaknesses in the country s healthservices due to Malawi s extreme poverty, form the background for the health development aid that Norway and other donors provide to the country. In this context, the results achieved in the health sector are good, such as the progress in number of doctors per capita, even though exact targets have not been met. It is worth noting that the health targets linked to the budget support have been achieved. These targets were formulated with a view towards what would be realistic, given the available resources. 2.2 The Ministry of Foreign Affairs follow-up and oversight The Ministry of Foreign Affairs agrees that the follow-up exercised by Norway and the other donors vis-à-vis the local external audit has not been sufficient during the period in question. Norway and the other donors should have exercised more rigorous supervision, and reacted more definitively to inadequate responses from the authorities to the audit reports. The Central Control Unit in the Ministry has opened a separate case for each of the three circumstances the OAG has highlighted. These areas concern the lack of supporting documentation for disbursements in the Ministry of Health (NOK 1.3 million), failure to adjust the health sector accounts (NOK 9 million) and missing vouchers for fuel expenditures (NOK 2.5 million). The cases are being followed up in accordance with the guidelines for handling suspicion of financial irregularities. The OAG points out the considerable resources provided to the health sector in Malawi, including from the global health funds. However, these funds are not recorded in the health programme s budgets and accounts. The global funds are subject to rules under which their resources must be kept separate from the authorities and other donors funds. The funds have used parallel structures for e.g. procuring and delivering medicines. The Malawian authorities do not exercise direct control over these funds, and it would be very complicated if such funds were to be entered in budgets and accounts. However, good overviews of such cash flows can be prepared, and this is also being done. In the Ministry s opinion, it is not correct, as the OAG states, that donors have paid little attention to the issue of parallel measures. Donors are working with the Malawian authorities to keep track of such contributions. The authorities are collaborating, e.g. with US aid organisations, on plans and reports for parallel-funded measures. Each year, the authorities prepare an Aid Atlas containing such information. Overviews of parallel support form a basis for planning, even if it is not practical to include such figures in the budget. The Ministry agrees that parallel funding is a problem for the authorities with respect to planning and oversight. This is one of the main reasons why Norway grants such a large part of its development aid to the sector as sector aid, i.e. pool funding together with other donors. The Norwegian Embassy participates in the dialogue with the authorities to gain the best possible overview of parallel funding. At the same time, Norway is limited in what it can do in individual countries since other donor countries prefer other forms of development aid. The Ministry is therefore working systematically on these issues in its ongoing dialogue with the steering committees on which we serve, and in connection with board meetings. 20 Document 3:8 ( ) The Minister's response

23 2.3 Budget support and sector support in relation to the Storting s intentions In paragraph 2.3, the OAG questions whether the allocations of budget support and sector budget support to Malawi are in compliance with the Storting s intentions. The Ministry of Foreign Affairs believes the OAG does not have sufficient basis for posing such a question since a performance audit of budget support has not been carried out. The OAG has only looked at a sample of documentation relating to the budget support in connection with the performance audit of the health sector programme (SWAp-POW). More specifically, the OAG has neither assessed the Embassy s projects relating to strengthening public financial management nor evaluated target attainment of the budget support indictors for public financial management. These are key points in the Ministry s follow-up of the Storting s intentions in this area. The Ministry of Foreign Affairs accepts that there are weaknesses and risks associated with financial management in Malawi. However, our assessments of the situation and development over time indicate that the risk is within what is acceptable when mitigation measures are initiated, e.g. through financial management projects. In accordance with the Storting's intentions, Norway emphasises strengthening the country's National Audit Office and anti-corruption work. The reports referred to by the OAG also show positive development in several areas within public financial management. Due to suspicion of misuse of funds in connection with procurements for the sector, the sector budget support was frozen in November The decision to resume pool-funded support of the health sector programme (SWAp-POW) in July 2012 was made following careful assessments and the introduction of new joint measures to fortify aspects including financial management, auditing and procurement. 2.4 Guidelines for budget support The OAG believes that the guidelines should have clear criteria for the quality requirements the recipient country's public system for financial management must satisfy in order to be eligible for budget support. This is based on the Standing Committee on Foreign Affairs comments in Recommendation No. 269 ( ) to the Storting. The Ministry has noted that the Committee mentions "clear criteria for expected quality" (our emphasis). The Ministry would note that there are various ways of addressing the need for setting clear requirements for the quality of financial management in recipient countries. In our opinion, one particularly practical way is to set requirements based on the situation in the individual countries, under which specific reforms must be carried out to strengthen financial management. Norwegian guidelines and practices have had such a basis. The Ministry does not consider it appropriate to establish minimum standard criteria for financial management before providing budget support to a country. Financial management systems are complex and diverse, and it will be difficult to formulate general standards that can serve such a purpose in a sound manner. In the Ministry's opinion, reform programmes in financial management will in any case be crucial in budget support cooperation. Like Norway, other major donors such as the UK and the European Commission also do not stipulate minimum standards across countries. The Ministry is monitoring developments in the area and will, in collaboration with professional expertise in Norad, assess the need for updating the guidelines. 2.5 Inefficiency in resource flows to hospitals and health centres It is true that there are weaknesses as regards the efficiency of resource flows to the facilities where services are produced. This is a typical problem in developing countries. Document 3:8 ( ) The Minister's response 21

24 It should be emphasised that the survey the OAG commissioned covering the availability of selected medicines was carried out in At this time, the country received no development aid via the health sector programme (SWAp-POW) as a result of donors reaction to suspected irregularities in the central medicine depot (Central Medicine Stores). Since the distribution of medicines is a continuous process, where deliveries will stop should funding disappear, the situation in 2011 and 2012 will not necessarily be suited to reviewing the results of health sector support from Norway and other donors. Because of the critical shortage of medicines resulting from the health sector support freeze, Norway and other donors supported emergency procurement of medicines through UNICEF. The first deliveries of these emergency packages started at the end of January The OAG points out that the use of subsistence and lodging allowances for travel and seminars can create the wrong incentives. This issue is well known in developing countries, and in 2011 the Evaluation Department in Norad undertook an independent study of the use of travel compensation and per diem in a number of countries. In the wake of this study, the Ministry has, among other things, prepared new checklists for executive officers when they assess budgets in aid projects. The uneven distribution of resources in the health sector is a problem. This is an issue of concern for the authorities and is also the basis of an ongoing effort by the Ministry of Health to map planned resources for the sector, to achieve better planning and resource allocation. The Ministry of Foreign Affairs does not agree that the weaknesses of local drug management have not been followed up by donors and the authorities to any extent. This issue was specifically followed up by USAID, UNICEF and other donors involved in the procurement and distribution of medicines, and was an important issue in connection with preparations for the new phase of health sector support. 2.6 Contributions from global health funds While the OAG points out the good results achieved through the support of the global funds, it also believes that, with a coverage rate of 67 per cent, the country still has a long way to go before achieving its goal of HIV/AIDS treatment for all who need it. The Ministry would like to point out that Malawi has managed to increase its HIV/AIDS treatment coverage from 3 per cent in 2004 to 67 per cent in 2011, despite the huge challenges the country's health sector faces. These are good results. It is true that Malawi is dependent on the global health funds to finance vaccines and HIV/ AIDS medicines, and that the population is vulnerable to fluctuations in support from the global funds. However, the Ministry believes that it is not realistic to expect the country to greatly reduce its dependence on these funds in in the near future, given the country's critical economic situation. 3 The OAG s recommendations The Ministry of Foreign Affairs believes that there have been positive developments in the availability of health personnel in Malawi. Together with other donors, the Ministry will continue its support to ensure that the good outcomes in the area will continue. The Ministry agrees that efforts concerning medicines and medical equipment should be bolstered and believes that the resumption of sector budget support will help alleviate the precarious situation which was particularly evident in The OAG recommends that the Ministry strengthen its expertise and its capacity to assess issues relating to public financial management, particularly at the embassies in 22 Document 3:8 ( ) The Minister's response

25 countries receiving budget support. This recommendation is proferred despite the fact that the OAG has not made an overall assessment of how this work has been followed up in Malawi. The Ministry's assessment of expertise and capacity in this field going forward is part of a comprehensive assessment that will include Norad s professional expertise in the area. The Ministry agrees that accounts provided by the recipient countries' authorities and the contents of the annual audit reports should have been followed up better. In connection with the negotiations for support for the next phase of the sector programme, the authorities and donors agreed on several new measures. The annual audit reports will be subject to an additional (double) audit, and senior financial advisers are being engaged to review annual accounting and procurement audits, and to advise the Ministry of Health and donors on follow-up. The Ministry of Foreign Affairs is considering increasing the Embassy's capacity in this area. The measures referred to above will also contribute to strengthening expertise and capacity in Malawi's Ministry of Health. In addition, agreement has been reached on a number of measures described below. Furthermore, the Ministry, along with other contributors, will consider additional measures on an ongoing basis to strengthen the expertise and capacity in Malawi's public financial management. The OAG requests that the Ministry of Foreign Affairs consider greater use of field visits. The Embassy has participated in field visits in connection with the annual reviews of the health support. In line with the Paris Declaration on aid effectiveness, the Embassy has chosen to limit the number of bilateral field visits. Together with other donors, the Ministry will consider whether there is a basis for more systematic collection of information, including field visits on the part of the donors to review sector support. The OAG requests that the Ministry consider whether budget support and health sector support should be provided absent significant improvements in the country's financial management. Such assessments are done on a continuous basis, both through the biannual reviews of the budget support and through the annual reviews of the health sector. Prior to entering into new agreements on budget support, all new agreements are subject to a thorough assessment of whether the conditions for providing budget support are satisfactory. This assessment, which includes public financial management, emphasises description of the situation, improvements over time and risk. In 2011, a new, comprehensive multi-year programme was prepared for the work on public financial management and economic governance in Malawi. The programme is a joint effort between the authorities and donors aimed at improving coordination and prioritisation of tasks within public financial management, in addition to stepping up efforts in general. Funded through a joint donor fund managed by the World Bank, the programme includes specific criteria and performance improvements in financial management over time. These will be coordinated with performance indicators for the budget support. It is the Ministry's assessment that the programme contributes to a significant strengthening of efforts in the area. Prior to the resumption of the health sector support, a thorough joint assessment was made of the need for strengthening financial management in Malawi s Ministry of Document 3:8 ( ) The Minister's response 23

26 Health. This led to agreement on a number of improvement measures based on the weaknesses demonstrated in connection with the freezing of sector support. The most important was the appointment of a senior financial management adviser, preparation of annual plans for improving financial management and procurement, a plan for improving the procurement system, creation of a technical working group to ensure follow-up of the improvement plans, and appointment of an external procurement comptroller. Procedures were also agreed for planning, reporting, monitoring, auditing and control. Furthermore, it was agreed that donors will support the Ministry of Health with additional advisers in this area if necessary. The Ministry would note that there are various ways of addressing the need for setting clear requirements for the quality of financial management in recipient countries. In our opinion, one particularly practical approach is to set requirements on the basis of the situation in the individual countries, whereby specific reforms must be carried out to strengthen financial management. Norwegian guidelines and practices have had such a point of departure. The Ministry does not consider it appropriate to establish criteria in the form of minimum standards for financial management before providing budget support to a country. Financial management systems are complex and diverse and it will be difficult to formulate general standards that can serve such a purpose in a beneficial manner. In the Ministry's opinion, financial management reform programmes will in any case be crucial in budget support collaboration. Like Norway, other major donors such as the UK and the European Commission do not stipulate minimum standards across countries. The Ministry is monitoring developments in the area and will, in collaboration with professional expertise in Norad, assess the need for updating the guidelines The global health funds are working to increase self-funding by recipient countries. Norway supports this effort. Nevertheless, we do not believe it is realistic to expect Malawi to greatly reduce its dependence on the funds in the near future, given the country's critical economic situation. Sincerely, (Signed) Espen Barth Eide Espen Barth Eide (Signed) Heikki Eidsvoll Holmås Heikki Eidsvoll Holmås 24 Document 3:8 ( ) The Minister's response

27 Annex 3 Report: The Office of the Auditor General's investigation of Norwegian development aid to the health sector in Malawi

28 The audit is conducted in accordance with the Act and Instructions relating to the Office of the Auditor General, and with guidelines for performance auditing that are consistent with and are based on ISSAI 300, INTOSAI's international standards for performance auditing.

29 Table of Contents Word list and abbreviations 31 1 Introduction 34 2 Objectives and audit questions The objective of the investigation Audit questions Audit period and delimitation, etc Methodological approach and implementation 38 4 Audit criteria Paramount goals and policy for Norwegian development cooperation Goals for Norwegian health aid Norwegian health aid to Malawi Public administration and oversight of health aid 42 5 Goal attainment in the SWAp-POW and for budget support Introduction Development aid for health purposes Goal attainment within the SWAp-POW Utilisation and availability targets in the health service programme Goal attainment within the health indicators for budget support 56 6 The global health funds' programmes in Malawi Background The funds' programmes in Malawi The funds' implementation models in Malawi The funds' goal attainment and results Adaption of funds to the disease burden Parallelism Sustainability 66 7 Resource flows in the health system Funding and economic and administrative structure in the public health system Human resources and salaries and wages The districts' operating resources Medicines and vaccines Flow of funds to medical equipment Infrastructure 89 8 Follow-up and oversight Follow-up and oversight of bilateral funds: general budget support and SWAp-POW The Ministry of Foreign Affairs and the Embassy's monitoring and oversight to ensure that funds are spent as intended The Ministry of Foreign Affairs' oversight of funds via the global health funds Assessments Goal attainment for the SWAp-POW and budget support Goal attainment for the Global Fund and GAVI Resource flows The Ministry of Foreign Affairs' follow-up and oversight 112 Annexes 1: Elaboration of the method in the survey of availability, leakages and distribution of medicines, as well as operating resources for travel, conducted by LATH Umoyo 116 2: Availability of medicines at 5 selected hospitals and health centres in 2007/ : Summary of findings and follow-up dialogue between donors and the MoH for audits of fiscal years and (auditor's report and "management report") 119 4: Progress report, Norwegian summaries of progress reports and reviews for the SWAp-POW 121 Reference list 122

30 Tables Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Table 8 Table 9 Table 10 Table 11 Table 12 Table 13 Table 14 Health aid to Malawi in million USD ( ) 46 Budget support to Malawi in million USD ( ) 48 Target achievement for main objectives 1 and 2 in the SWAp-POW 51 Total number of employees in selected categories of health care staff in and proportion of vacancies (per cent) in 2011 in state entities and CHAM 53 Development and status for indicators on personnel coverage at the health centres, nurses with midwifery skills, qualified doctors and nurses 53 The health indicators in the budget support for the period Total allocated and released funds from the Global Fund to Malawi (million USD) for the period Total allocated and released funds from GAVI to Malawi in (million USD) for the period The number of sites offering ARV, and the number of people receiving ARV, for the period The availability of medical personnel at 13 different facilities (excluding administrative staff) 74 Distribution of operating resources for the health sector in the districts by sub-categories. Consumption as a share of total current expenditure 78 Internal leakage of medicines as a proportion of the total number of doses dispensed from medicine stocks to outpatient departments/ outpatients, total for four months in fiscal year Annual expenditure on the construction of staff housing, million Malawian kwacha, Score for Malawi in PEFAassessments Figures Figure 1 Figure 2 Figure 3 Figure 4 Figure 5 Figure 6 Figure 7 Figure 8 Figure 9 Norwegian development assistance to the SWAp-POW and other Norwegian health aid, in million NOK ( ) annual disbursements (columns) and cumulative (line) 46 Mortality per 1,000 among infants and children under five years of age and mortality per 10,000 births for mothers, measured in 2004 and The funds' implementation models in Malawi 61 The relative performance of the Global Fund's programmes in Malawi divided by type of disease for the period The relative performance of the National Aids Commission and the Ministry of Health's programmes for the period Coverage rate per year for the pentavalent vaccine in Malawi for the period , in per cent 65 An economic and administrative overview of the health sector in Malawi 72 Attendance percentage of those who were expected to be present according to the shift schedules 75 Actual presence, expected and unexpected absence at 13 facilities, medical personnel 75 Figure 10 Distribution of disbursement of current expenditure to the districts through fiscal year (kwacha) 78 Figure 11 Distribution of medicine expenditure between district hospitals and subordinate facilities, in per cent, fiscal year Figure 12 Average number of days in fiscal year with stock-outs of different antibiotics at different levels of the health service 83 Figure 13 Average number of days in fiscal year with stock-outs of malaria medicine, HIV tests, condoms and oral rehydration salt tablets at different levels of the health service 84

31 Figure 14 Inventories of five types of antibiotics at eight health centres on day of visit, number of months' average consumption 84 Figure 15 Inventories of five antibiotics at seven district hospitals on day of visit, number of months average consumption 85 Figure 16 Proportion (percentage) of medicines/materials that are billed and assumed delivered from regional medicine depots, but have not been recorded on the hospital's stock cards, fiscal year Fact Boxes Fact Box 1 Fact Box 2 Fact Box 3 Fact Box 4 Fact Box 5 Fact Box 6 Fact Box 7 Characteristics of the two global health initiatives 60 Mismatch between human resource summaries 73 Procurements made by CMS where the cheapest tenderer has not been selected 81 Example of poor auditing of central government accounts 100 Example bank draft to the permanent secretary in the MoH without supporting documentation, and lack of adjustment of accounts 103 Example missing vouchers for the purchase of fuel 103 Example follow-up of funds from the Global Fund and GAVI that did not appear in the budget and accounts 104

32

33 Word list and abbreviations ACB ACT AEDES AMPROC ARV CABS CBO CCM CHAI CHAM CMS DALY DFID DHMT DHO DHS DPT EHP EPI GAVI GFATM HMIS Anti-Corruption Bureau Artemether/Lumefantrine, malaria medicine The European Agency for Development and Health, consulting firm American Procurement Company, international consulting firm headquartered in Washington, DC with regional headquarters in Uganda, responsible for the procurement audits of the SWAp-POW for the years Anti-retroviral medicines, collective term for medicines to combat AIDS Common Approach to Budget Support Community-based organisations Country Coordinating Mechanism, country coordinating mechanism for the Global Fund's programmes in recipient countries Clinton Health Access Initiative, international NGO that works with HIV/AIDS Christian Health Association of Malawi Central Medical Stores, the central medicine depot Disability-Adjusted Life Year, a measure of overall disease burden, expressed as the number of years lost due to ill-health, disability or early death. The United Kingdom Department for International Development District Health Management Team District Health Office Demographic and Health Surveys Vaccine against diphtheria, pertussis (whooping cough) and tetanus Essential Health Package, basic health care services that are free of charge Expanded Programme on Immunisation, Malawi's vaccination programme administered by the Ministry of Health GAVI Alliance (formerly the Global Alliance for Vaccines and Immunisation) The Global Fund to Fight AIDS, Tuberculosis and Malaria, the Global Fund Health Management Information System Document 3:8 ( ) Report 31

34 HSSP Health Sector Strategic Plan, health sector programme for the period HSA IFFIm IFMIS KFW Medical assistant MK MoF MoH MOLG NAC NAO LGFC NGO OIG OPC ODPP PAF PEFA Pentavalent PEPFAR PMTCT POA POW Health Surveillance Assistants, unskilled health care assistants International Finance Facility for Immunisation, whose purpose is to mobilise and accelerate funding to GAVI by issuing bonds on the capital market Integrated Financial Management Information System Kreditanstalt für Wiederaufbau, German Development Bank Medical assistant is a category of health care worker who performs administrative and routine clinical tasks for physicians and other health staff Malawian Kwacha, the Malawian currency Ministry of Finance Ministry of Health Ministry of Local Government and Rural Development National Aids Commission National Audit Office, the Supreme Audit Institution (SAI) in Malawi Local Government Finance Committee, agency for supervision and oversight of the districts' use of funds Non-Governmental Organisation Office of the Inspector General, the Global Fund's internal audit Office of the President and Cabinet Office of the Director of Public Procurement Performance assessment framework, indicators for budget support Public Expenditure and Financial Ability Assessment, a framework for assessment of public financial management The pentavalent vaccine consists of five antigens against diphtheria, tetanus, pertussis, Haemophilus influenzae type b and hepatitis B The United States President's Emergency Plan for AIDS Relief, US President George W. Bush's initiative for international prevention and treatment of AIDS Preventing Mother-to-Child Transmission Procurement Oversight Agent, donors' representative for oversight of procurements Programme of Work, a health sector work programme funded through SWAp 32 Document 3:8 ( ) Report

35 SAI SLA SWAp USAID UNAIDS UNICEF TWG Supreme Audit Institution Service Level Agreement, agreement between CHAM hospitals and public hospitals Sector Wide Approach, referred to as SWAp-POW United States Agency for International Development Joint United Nations Programme on HIV and AIDS United Nations Children's Fund Technical Working Group Document 3:8 ( ) Report 33

36 1 Introduction The Millennium Declaration was adopted at the Millennium Summit in 2000 by all UN member countries. The Declaration stipulates eight specific Millennium Development Goals (MDGs) for combatting various aspects of poverty. These goals serve as a guideline for Norwegian development policy. A unanimous Standing Committee on Foreign Affairs has repeatedly, including in Recommendation No. 269 ( ) to the Storting, stated that support for the implementation of the MDGs, particularly in the areas of health and education, should be prioritised in Norwegian development cooperation. Norway has taken particular responsibility to help realise two of the health-related goals: MDGs 4 and 5 on reducing child mortality by two-thirds and maternal mortality by three-quarters, respectively, between 1990 and Work on these goals is closely linked to MDG 6 on combatting AIDS, tuberculosis and malaria. Norway's commitment consists of policy initiatives and substantial financial transfers through bilateral and multilateral channels. Over the past ten years, significant progress has been noted in the global effort to achieve the health-related goals. For some goals, however, less progress has been made, including the goal of reducing maternal mortality by three-quarters, which will not be achieved with the current pace of development. There is also varying progress on health targets between regions and between countries. The situation for both child and maternal mortality remains severe in South Asia and Sub-Saharan Africa. The years saw a substantial increase in resources for health aid for the world as a whole. Norway also significantly increased its aid to the health sector in developing countries during this period, although the percentage that went to health was more stable. In 2010, Norwegian health aid amounted to about NOK 3 billion. Norway's development assistance in the health sector in recent years has consisted of significant contributions to global funds such as the GAVI Alliance (formerly the Global Alliance for Vaccines and Immunisation) and the Global Fund to Fight AIDS, Tuberculosis and Malaria, as well as major bilateral initiatives through partnership agreements between Norway and India, Pakistan, Nigeria, Tanzania and Malawi, respectively. As a result of the political and economic focus on the health goals, certain countries have seen a sharp increase in development assistance in this area. In Malawi, health aid tripled from 2002 to 2009, and the total health aid to the country, which is registered in the OECD Creditor Reporting System, totalled NOK 9 billion in this period. Similarly, development aid to the health sector in Zambia and Tanzania tripled and quadrupled, respectively, during the same period (measured in constant values). The national health systems in many of Norway's partner countries have been in a state of persistent crisis. Support for strengthening national health systems has been an important component of Norwegian health aid. This is in line with the main objectives of Norwegian development assistance, which is economic and social development, measured in terms of the increased capacity of developing countries to safeguard the basic human rights of their own citizens, cf. Recommendation No. 269 ( ) to the Storting. A substantial increase in resources in countries with weak health systems presents a risk of inefficient use of resources. The risk may also have increased since health aid has evolved from traditional project assistance to more general forms of support such as health sector support, general budget support and to multilateral players where Norwegian public administration has a more limited role and opportunity to track the funds. The risk increases when general forms of assistance are used in countries with limited absorption capacity and weak public financial management systems. There is also a risk that the large global funds, even if they achieve significant results in the short term, can help to undermine the national health systems' ability to provide better health care to the entire population. This can happen when they turn attention toward specific areas such as individual diseases at the expense of primary 34 Document 3:8 ( ) Report

37 health care. The funds have also been criticised for contributing to fragmenting development efforts by establishing parallel structures for health care services. Malawi has been selected as a case for this audit. The risk factors described above are prevalent in Malawi. Malawi is an important partner and the country where health aid has long constituted the main part of the Norwegian country programme. Norway has been among the biggest donors in the health sector in Malawi and has been a key player in donor coordination in the sector. Malawi is also one of the five selected countries with which Norway has bilateral partnership agreements. In the period , Malawi received NOK 940 million in bilateral health aid from Norway and NOK 400 million in general budget support. The country has received approximately NOK 650 million ( ) from GAVI, while the Global Fund has disbursed approximately NOK 2.7 billion in the period ) GAVI: USD 98.5 million, the Global Fund: USD million. Amount converted to Norwegian kroner using average annual rates for the respective periods. Average rates for the Global Fund and GAVI were 6.2 and 6.6 kroner/usd. Document 3:8 ( ) Report 35

38 2 Objectives and audit questions 2.1 The objective of the investigation The objective of the audit is to assess goal attainment and effectiveness in large health initiatives in Malawi that are directly or indirectly funded by Norway, and public administration's follow-up and oversight of the use of the funds. The term effectiveness refers primarily in this context to the extent to which the resources, in the form of grants (operating resources), medical equipment, medicines and vaccines, supplies and human resources, that have been made available to the public Malawian health care system, flow through the system and reach the health facilities responsible for the production of health services. The health initiatives referred to are particularly Norway's support of the Sector Wide Approach Programme of Work (henceforth: "SWAp-POW"), general budget support (Common Approach to Budget Support CABS) and the two major global health fund (GAVI and the Global Fund) programmes in Malawi. While the global funds' programmes in Malawi have no special Norwegian funding, Norway is the second largest donor to GAVI and also a major donor to the Global Fund. 2.2 Audit questions The following audit questions are addressed in the audit: 1 To what degree have the objectives for the major Norwegian-funded health initiatives in Malawi been reached? 1.1 To what degree have the objectives for the SWAp-POW been reached? 1.2 To what degree have the objectives for the health indicators for the general budget support been reached? 1.3 To what degree have the objectives for GAVI's programmes in Malawi been reached? 1.4 To what degree have the objectives for the Global Fund's programmes in Malawi been reached? 2 Are the resource flows efficient with respect to reaching the health facilities? 2.1 To what degree do grants for current expenditure and investments reach the health facilities? 2.2 To what degree do funds for wages for personnel reach the recipients and to what degree are the personnel present? 2.3 Is procurement and distribution of medicines and supplies carried out in an efficient manner? 2.4 To what degree do resource flows from the global health funds reach the health facilities? 2.5 To what degree is development aid from the global health funds adapted to national needs and requirements? 3 How do the Ministry of Foreign Affairs and the Embassy follow up and ensure that the funds are spent as intended? 3.1 How have the Ministry of Foreign Affairs and the Embassy in Malawi followed up and ensured that the funds through the SWAp-POW and general budget support are spent as intended? 3.2 How have the Ministry of Foreign Affairs and the Embassy in Malawi followed up and ensured that funds from GAVI and the Global Fund are spent as intended? 2.3 Audit period and delimitation, etc. The period covered by the audit was from 2004 to 2011, since the two major bilateral initiatives were running during this period. Most of the disbursements in connection with the global funds' development aid also took place in this period. In Malawi, the budget and fiscal year runs from 1 July to 30 June. Much of the data in the report relates to the budget and fiscal years. When the report refers to , it thus refers to fiscal year and not the period that includes the two calendar years 2010 and Document 3:8 ( ) Report

39 As mentioned, the audit covers sector budget support to the SWAp-POW, general budget support, and GAVI and Global Fund programmes in Malawi. For general budget support, goal attainment is covered in the health indicators, but not the performance indicators for public financial management, which are also formulated for the programme. The audit does not consider the goal attainment of the Norwegian-supported projects and programmes in the area of good governance, including support to the Anti- Corruption Bureau, the National Audit Office, Reserve Bank of Malawi and National Statistical Office. The currency in Malawi is the Malawi kwacha, MK. Amounts are mainly denominated in US dollars (USD) or Norwegian kroner (NOK). Before the devaluation of the kwacha in May 2012, one Norwegian krone was worth about 30 kwacha (1 USD = 160 MK). Unless otherwise stated, current values for kwacha are operated with. In some places, the values are given in constant (inflation-adjusted) 2011 values. When amounts are converted from kwacha to USD the average exchange rate for each year has been used. The source has then been the annual audit reports for the SWAp-POW. Document 3:8 ( ) Report 37

40 3 Methodological approach and implementation The audit covers two major bilateral initiatives (the SWAp-POW and general budget support (CABS)) as well as GAVI Alliance and Global Fund programmes in Malawi. The two Norwegian initiatives and parts of the health funds' support is funding that goes directly into the general fiscal budget (Norway's general budget support) and the health budget (the funds' and Norway's support to the SWAp-POW). Here they are combined with Malawi's own and other donor funds in funding the public health service. The funds are not earmarked for specific efforts like traditional project aid has often been. A result-oriented performance audit of this type of general aid funds therefore faces a challenge with viewing the sector as a whole while keeping the focus on tangible results. The audit is based on a combination of document analysis, analysis of statistics, interviews and observation. One of the approaches in the audit is whether the resource flows in the form of medicines, allocations/operating resources and personnel/payroll funds fully reach the health facilities and are used to produce public health services for the population. Local consultants have been engaged to collect primary data on access to medicines and allocation of funds for medicines at the local level. In collaboration with the National Audit Office in Malawi, the human resource situation was studied and observed at 13 hospitals and health centres. Interviews On the whole, the interviews were conducted during two field visits to Malawi in October November 2011 and March 2012, as well as a trip to Geneva in March The following stakeholders have been interviewed: the Norwegian Embassy in Malawi, Ministry of Health (MoH) and secretariat of the SWAp-POW in Malawi, Ministry of Finance (MoF) in Malawi, Local Government Finance Committee, District Health Management Team (DHMT) in the Dowa District, CHAM (Christian Health Association of Malawi), National Aids Commission (NAC), the Global Fund's local agent, UNICEF, World Health Organization, Department for International Development (the British aid department, DFID), Kreditanstalt für Wiederaufbau (German Development Bank, KfW), College of Medicine, the National Audit Office in Malawi, Doctors Without Borders, Norwegian Church Aid, Banja La Mtsogolo and Packahere Institute (recipients of grants from NAC) and the Global Fund's and GAVI's headquarters in Geneva. The interviews with the Embassy are verified. Audit question 1: To what degree have the objectives for the major Norwegian-funded health initiatives in Malawi been reached? Audit question 1 was partly answered with a document analysis of key documents, including audit reports, financial data, evaluations of the SWAp-POW, annual reports and minutes of annual meetings on budget support, research reports and programme documentation from the health funds. The compilation and analysis of statistics has also been crucial for elucidating issue 1. The quantitative data were obtained from Norad (Norwegian Aid Statistics), the OECD Creditor Reporting System, Aid Atlas (donors' self-reporting of contributions to the MoF in Malawi), a resource survey conducted by the Clinton Health Access Initiative (CHAI) of 2012, Malawi Demographic and Health Survey (DHS) of 2004 and 2010, and available figures from the global health funds' websites. Interviews with NAC and the global funds have also helped to highlight the achievement of objectives for the health funds. Audit question 2: Are the resource flows efficient with respect to reaching the health facilities? Audit question 2 was mainly answered with the aid of statistics and analysis of documents. Interviews and observation were also used. The health personnel statistics were provided by the MoH and CHAM (see Chapter 5.1 about CHAM), while health expenditure statistics for the districts were received from the Local Government Finance Committee. Key documents used include evaluations of the SWAp-POW, various assessments and studies. External audit reports and assessments, including the Global Fund's internal audit (2012), Lewis (2011) and RSM Tenon (2011), were used to elucidate procurements and the distribution of drugs and medical supplies. 38 Document 3:8 ( ) Report

41 Example of storage of documentation. Source: Office of the Auditor General of Norway A consultant assignment carried out for the OAG by Liverpool Associates of Tropical Health Umoyo (LATH Umoyo) has been crucial for answering issue 2. Through the assignment, the following areas were examined: 1 leakage of drugs and medical supplies at selected hospitals and clinics 2 availability of selected medicines/supplies at selected hospitals and clinics 3 distribution of expenditure on medicines between district hospitals and clinics in selected districts 4 distribution of expenditure on training and travel at health facilities in selected districts In all, the study visited 23 health facilities in Malawi's three regions. The sample covers health facilities at all levels health centres, district hospitals and central hospitals and has taken geographical distribution, population density and distance to nearest hospital (on the part of the health centres) into consideration. Health centres and hospitals in CHAM were also included in the study. Several of the selected medicines are different types of antibiotics that are considered commercially attractive. Malaria medicines, anti-retroviral medicines (ARV) and the pentavalent vaccine, which are medicines/vaccines largely funded by the global health funds, were also studied. Out at the health facilities, the consultants used different data sources such as stock cards, delivery notes, orders, invoices, and patient records to examine the medicine situation. In general, there were major data deficiencies, including in stock cards, orders, invoices and patient records. Missing data, deficient recordings, faulty entries, illegible entries, incorrect computations, etc. were found. As a result, the number of health facilities in several of the analyses number less than 23. Also, the data recorded for some of the types of medicines investigated was so deficient that it could not be included in the analyses. The report lists the number of facilities and medicines included in the analyses. Annex 1 describes the procedure for the above four points in greater detail. The basis for the OAG's access to this type of study is the set of agreements between Norway and Malawi. This was also cleared with the Norwegian Ministry of Foreign Affairs. A collaboration with the National Audit Office (NAO) in Malawi on the collection of data on health personnel and presence has also helped to illuminate audit question 2. The OAG collected data on employees by job category from MoH employee records. These were processed and prepared for comparison with data from employee lists at hospitals, shift schedules and Document 3:8 ( ) Report 39

42 for recording the presence of health personnel. Actual presence was observed through unannounced visits at different times at the health facilities. The team from the NAO conducted initial interviews with the management of health facilities, in order to keep track of how many people actually worked in the various departments. The data collection involved 13 facilities at all levels, cf. health centres, district and central hospitals. The bulk of the data collection was undertaken by the NAO following an initial collection of data at one of the district hospitals with the audit team from both Supreme Audit Institutions (SAIs). The OAG specified criteria for the selection of facilities (geography, levels, institutional affiliation), while the NAO selected specific facilities using these criteria. Both countries' SAIs have access to the data. The analysis of the data used in this report was carried out by the OAG. For practical reasons, it was necessary to undertake data collection at the central hospital included in the sample over a period of several days. Although the visits were unannounced, there may have been some notification between the departments that increased attendance relative to what it otherwise would have been. It cannot be excluded that this effect also prevailed between visits, respectively, before and after lunch at the same facility and between facilities in the sample since unannounced audit visits are relatively uncommon. Another source of error for the personnel and presence survey is a phenomenon in Malawi called "excess bodies", which consists of borrowing and lending personnel and established posts between facilities. This phenomenon will have the greatest significance for the discrepancy between different administrative sources for the total number of employees at a hospital or health centre and less for the discrepancy between the number of employees expected to be present, and how many are actually present. The audit has attempted to take the phenomenon into account. Audit question 3: How does the Ministry of Foreign Affairs and the Embassy follow up and ensure that the funds are spent as intended? Audit question 3 was answered through a combination of document analysis, responses to the Ministry of Foreign Affairs' and the Embassy's questionnaire letters, and through interviews. Key documents have been preliminary assessments, allocation documents, programme documentation, audit reports, cf. the discussion under audit question 2, written correspondence relating to the audit reports of the SWAp-POW, various evaluations, the Ministry of Foreign Affairs' guidelines for budget support and assessments of public financial management in Malawi according to the PEFA framework (Public Expenditure and Financial Accountability Assessment). Use of secondary data The data consists partly of secondary data. These data are evaluated for relevance and quality through various control procedures. The control procedures include, among other things, an assessment of the methods used. For example, data from the assessments of Malawi's public financial management (Public Expenditure and Financial Accountability Assessment, PEFA) was used because this is an internationally recognised framework for such assessments. Similarly, data from population surveys (Demographic and Health Survey, DHS) was used for health data when possible. DHSs are reputable surveys conducted regularly in many developing countries. The DHS surveys in Malawi are conducted in cooperation between the National Statistical Office of Malawi and international expert communities. Other control procedures included a review of consultants or organisations that have conducted assessments or evaluations. Several reviews undertaken under DFID's direction were used. DFID is regarded as a leader among international aid organisations on assessments of risks associated with financial management. Available data often have weaknesses in a country like Malawi, which has a low level of education, weak institutions and low administrative capacity. In the audit, secondary data were also compared with and checked and assessed against other sources. One example of conflicting data is the number of medical degrees awarded (2010), which varies between 32 and 291 according to different sources, cf for more details. Any fundamental uncertainty concerning data, as, e.g., the case for maternal mortality, is addressed in the text. 40 Document 3:8 ( ) Report

43 4 Audit criteria 4.1 Paramount goals and policy for Norwegian development cooperation In Recommendation No. 269 ( ) to the Storting on Climate, Conflict and Capital. Norwegian development policy adapting to change, the Standing Committee on Foreign Affairs stipulates that the main goal of Norwegian development aid is economic and social development, measured by the increased capacity of developing countries to safeguard the fundamental human rights of their own citizens. Combatting poverty is crucial and is the objective that requires the greatest resources. In Recommendation No. 269 ( ) to the Storting, the Committee refers to the fundamental principles set out in Recommendation No. 93 ( ) to the Storting on Fighting Poverty Together, and the obligations Norway has undertaken to prioritise the UN Millennium Development Goals (MDGs) in the period up to The Committee notes that the MDGs serve as guidelines for Norwegian development policy, and that a unanimous Committee has repeatedly confirmed that development assistance for the implementation of the MDGs, not least within health and education, shall have priority in Norwegian development cooperation. In Recommendation No. 269 ( ) to the Storting, the Committee assumes that the established principles and policies concerning, among other things, poverty orientation, recipient orientation and national ownership remain unchanged. In the Committee's view, each developing country's own needs and requirements must be a fundamental starting point for considering the type of initiatives that should be prioritised. The Paris Declaration of 2005 and 2008 followup plan from Accra on Aid Effectiveness, which Norway has ratified, states that donors should base their support on the recipient countries' national development strategies, institutions and procedures. 4.2 Goals for Norwegian health aid In Recommendation No. 269 ( ) to the Storting, the Standing Committee on Foreign Affairs points out that Norway has assumed a special responsibility for Millennium Development Goals 4 and 5 on reducing child mortality rates and improving maternal health, respectively. The Committee also refers to the immunisation programme GAVI and the global funds. The goal of reducing child mortality specifies that the mortality of children under five years of age shall be reduced by two-thirds by 2015 (base year = 1990). The goal of improving maternal health is divided into two subsidiary targets, the first entails reducing the maternal mortality ratio by three-quarters by 2015 (base year = 1990), and the second is to achieve universal access to reproductive health. In the discussion of Report No. 13 ( ) to the Storting Climate, Conflict and Capital, the Standing Committee on Foreign Affairs stipulated that strengthening national health care systems by emphasising capacity building is a priority task. In public health work, great importance should also be attached to rights to services and initiatives that are particularly important for children, youth, women and vulnerable groups, including sexual and reproductive health and HIV prevention. Also in the discussion of Report No. 35 ( ) to the Storting Fighting Poverty Together, the Standing Committee on Foreign Affairs underlined that health should be a key theme in Norwegian development cooperation in the years to come, cf. Recommendation No. 93 ( ) to the Storting. The report states that a reduction of maternal mortality requires greater efforts for reproductive health. This means that Norwegian aid to maternal health measures shall contribute qualitatively and quantitatively to better access to health services during pregnancy, and during and after birth. The Committee notes in its discussion of the report that there is a need for improving reproductive health and promoting increased access to, and knowledge of, the proper use of effective contraception. 2 2) Recommendation No. 93 ( ) to the Storting, p. 11. Document 3:8 ( ) Report 41

44 In Recommendation No. 269 ( ) to the Storting, the Committee's majority stipulated that Norway's development aid for achieving the UN Millennium Development Goals for education and health shall be strengthened annually through bilateral aid channels, while at the same time the majority is open to a larger share of the escalation of funds to these areas going through multilateral channels such as the UN, World Bank and the global health funds. In Recommendation No. 269 ( ) to the Storting, the Committee refers to the criticism levelled at the global funds and the new foundations for contributing to the fragmentation of development aid efforts. The Committee notes that in the report the Government stresses that the funds involve many different partners and are different from traditional development players in that they are particularly concerned with results. The Committee notes that Norway plays a central role in GAVI and the Global Fund and is pleased that the Government can report that, in just a few years, these funds have gained prominent roles in their areas in terms of both size and performance. 4.3 Norwegian health aid to Malawi In the audit, the objectives, planned outcomes and performance requirements of the specific measures, as stated in the agreements and related documentation, served as the basis for evaluating the effectiveness of the measures. The measures include: Norwegian support of the SWAp-POW in Norwegian budget support GAVI and the Global Fund's programmes in Malawi in the period Public administration and oversight of health aid Section 10 of the Appropriations Regulations stipulates that expenditure appropriations shall be allocated in such a way that the use of resources and instruments are effective in relation to the intended results. With grants to public or private entities that are otherwise not subject to state control, the qualification shall be made that the entity that administers the grant shall be granted oversight to ensure that the funds are spent as intended. The Regulations and Provisions for Financial Management in Central Government are the central government's internal regulations and are adopted by Royal Decree. The regulations are derived from the Appropriations Regulations and are based on management by objectives and results as a guiding principle. Section 4 of the Regulations on Financial Management in Central Government defines the basic management principles by which all agencies are to operate. Agencies shall: establish objectives and performance requirements within the framework of disposable resources and premises set by the superior authority ensure that established objectives and performance requirements are achieved, resource use is efficient and that the agency is run in compliance with applicable laws and regulations, including requirements as to established administrative practices, competency and ethical conduct ensure sufficient management information and a proper basis for decisions Management, monitoring, control and administration must be adjusted to the agency's distinctive characteristics as well as risk profile and significance. Section 14 of the Regulations requires all agencies to establish systems and routines containing internal controls to ensure that: a) financial limits are not exceeded and expected revenues are received b) achievement of objectives and results are in a satisfactory relationship to established objectives and performance requirements, and that any substantial variance is prevented, disclosed and corrected to the extent necessary. c) use of resources is efficient d) accounts and information on results are reliable and accurate f) financial management is properly organised and is executed in compliance with applicable laws and rules g) malpractices and financial crime are prevented and disclosed In Budget Recommendation No. 3 ( ) to the Storting, the Standing Committee on Foreign Affairs underlined the need for goaloriented and effective oversight of the aid funds, 42 Document 3:8 ( ) Report

45 regardless of which agencies the development aid is channelled through. According to the Development Cooperation Manual (2005), the embassies were responsible within their geographical remit for satisfactory quality assurance of Norwegian development aid, regardless of its financial size. The Ministry of Foreign Affairs' own main instructions stipulate the foreign service's responsibility for internal control. Partner countries have the primary responsibility for implementing development aid measures and reporting on progress and results. Nevertheless, the embassies shall be active partners and, in close dialogue with partner countries and other donors, ensure that the results are in accordance with the programme's set goals. The embassies will also ensure that aid funds are spent as planned. The Embassy is obliged to carry out a written assessment of all contractual information received on the progress of aidfunded programmes. Current information includes reporting on progress and completed audits. The Embassy's administration of grant funding is subject to the Government's policy of zero tolerance for corruption and the associated guidelines for handling financial irregularities. The Development Cooperation Manual applied to the embassies' administration of aid until March After this, the Ministry's new grant management system was adopted (the programme regulations). Budget, sector and programme support falls under the regulations' management regime I on project and programme support, while grants to the global health funds fall under management regime II on general grants. The regulations specify the activities the administration should implement for grants under the different administration regimes. This audit assumes that Norway's oversight right vis-à-vis the global health funds is limited, but that Norway can supervise the funds' internal audit and oversight activities through participation in the governing bodies of the organisations. The audit assumes that the Ministry ensures that the recipient has a sound system of internal control so that objectives and performance requirements are followed up, resource use is efficient and activities comply with applicable statutes and regulations. The embassies are to follow up and report on the UN and global programmes' role at the country level. The embassies' assessments are to be brought into the Ministry's dialogue with the organisations. In Recommendation No. 93 ( ) to the Storting, the Standing Committee on Foreign Affairs' majority states that countries that support democratic governance and sound public administration systems, should receive less development assistance in the form of discrete grants and more through budget support. In Recommendation No. 172 ( ) to the Storting, cf. Document No. 1 ( ), the Standing Committee on Scrutiny and Constitutional Affairs points out that budget support gives the authorities in each country the ability to prioritise the use of development funds based on their own judgement. The Committee accept that budget support can have an effect and make sense in some cases. With budget support, however, it is more difficult to verify the use of the funds, to check whether they are used for priority poverty reduction and development strategy purposes, and that corruption is avoided. The Committee believes it is important that the Ministry of Foreign Affairs has a spotlight on this kind of support and ensures that the necessary conditions are met. The Ministry must be particularly careful to ensure that local control and audit systems function satisfactorily. In Recommendation No. 269 ( ) to the Storting on Climate, Conflict and Capital. Norwegian development policy adapting to change, the Standing Committee on Foreign Affairs notes that the Government, as countries establish better systems for budgeting and financial management, aims to provide a growing share of government-to-government cooperation as general budget support or programme support to priority sectors. While the Committee sees the administrative opportunities for simplification in such support, it stresses that experience with misuse of funds and corruption suggests that Norway ensure that the quality of financial management and national SAI schemes in each country are adequate for such support. The Committee refers in this context to the final document of the Paris Declaration's follow-up conference in Accra in the autumn of 2008 which dealt, among other things, with strengthening the capacity of recipient countries. In the Committee's view, it is essential that clear criteria be set for the expected quality of the countries' financial management when budget support is considered. There must be a mutual understanding between donor and recipient that the criteria will be Document 3:8 ( ) Report 43

46 checked during the cooperation period, and the results must be expected to be satisfactory or show positive development if budget support is to be maintained. In Report No. 35 ( ) to the Storting, the Government emphasises that close and visible follow-up from donors is essential for preventing misuse of aid funds. Systematic use of field visits, reviews and audits signal that donors are actively monitoring how the recipient spends aid funds, and that any abuse will be revealed. Norway has a duty to respond if development aid programmes are not carried out in accordance with agreed plans or do not produce the expected results. A sharp and unequivocal response to the abuse of aid funds is highlighted as important in prevention work. On suspicion that the recipient is deviating from what was agreed, specific investigations of the circumstances shall be initiated. If misuse is documented, sanctions shall be immediately initiated, such as dismantling the agreement and possible claims for repayment of funds. The Ministry of Foreign Affairs' guidelines for budget support refer to sector budget support as a form of budget support. The audit assumes that the SWAp-POW counts as sector budget support. 44 Document 3:8 ( ) Report

47 5 Goal attainment in the SWAp-POW and for budget support 5.1 Introduction Malawi is a landlocked country in southeast Africa that borders Tanzania to the north, Zambia to the west and Mozambique in the east and the south. The country is divided into 28 districts in three regions, and is, with its 15.3 million inhabitants (2011) 3, one of Africa's most densely populated. Annual population growth is 2.8 per cent, and each woman gives birth to an average of 5.3 children. The country is one the poorest in the world, with a gross national income (GNI) per person of USD 340 in The country is ranked 171 of 187 countries on the UN Human Development Index (HDI). 5 Approximately 80 per cent of the population lives in rural areas, where they grow maize, cassava, rice, beans and tobacco. The main food is maize, and tobacco is the main source of income, accounting for more than half of export earnings. Agricultural products account for about 35 per cent of the country's GDP, while mining accounts for about 10 per cent. 6 The declining price of tobacco in 2008, as well as the rising prices of essential imports such as fuel, fertilizer and seed, have contributed to a large trade deficit. After 30 years of dictatorship, Malawi held its first free elections in In 2004, Bingu Wa Mutharika was elected president the first time. During Mutharika's first period the country experienced positive development with significant economic growth and social equalisation. After he was re-elected in 2009, the political situation in the country gradually became more tense and relations with donors worsened. Vice-President Joyce Banda was inaugurated as president after Bingu Wa Mutharika's died in the spring of Malawi's poverty reduction strategy for (The Malawi Growth and Development Strategy II) is the authorities' overall plan for socio-economic growth and development. The strategy's main goal is to reduce poverty through sustainable eco- 3) The World Bank, Retrieval date 21 September ) If adjusted for differences in purchasing power parity (PPP-adjusted), Malawi has a GNI of 870 from 2011, World databank, World Bank. 5) HDI includes health and education indicators in addition to the economic well being. 6) UNDP, Retrieval date 21 September nomic growth and development of infrastructure. The strategy also serves as the starting point for all donors. The country has been hard hit by the AIDS epidemic, and it is estimated that around 11 per cent (2010) of the adult population is infected with HIV. Average life expectancy is in excess of 52 years. This is nevertheless an improvement since the beginning of the 2000s, when approximately 14 per cent of the population was infected with HIV and life expectancy was under 40 years. 7 Malawi's public health system is divided into three levels with a system for referral of patients between the levels. Health centres and rural hospitals constitute the first level, while a district hospital in each district is the second level and four central hospitals are the third level. In addition to these are the facilities run by religious organisations, mainly CHAM (Christian Health Association of Malawi), which operates about 20 major hospitals, 30 rural hospitals and over 100 health centres. CHAM accounts for about per cent of Malawi's health services. CHAM facilities are integrated into the public health system and receive support from the government in exchange for offering free basic health care services (Essential Health Package EHP). The Ministry of Foreign Affairs informed that some institutions have removed user fees for maternal/child services, but in general, patients at CHAM hospitals and clinics have to pay the user fee. The state funds the salaries for health care personnel at CHAM facilities. There are also some smaller commercial clinics and medical offices in the larger cities. These are not covered by the audit. In fiscal year , expenditure on Malawi's SWAp-POW amounted to MK 44 billion or nearly NOK 1.5 billion. The year before it was MK 30 billion, approximately NOK 1 billion. The composition of the health budget is described in Chapter ) The World Bank, Retrieval date 21 September Document 3:8 ( ) Report 45

48 Figure 1 Norwegian development assistance to the SWAp-POW and other Norwegian health aid, in million NOK ( ) annual disbursements (columns) and cumulative (line) NOK million per year NOK million accumulated The SWAp-POW Other health aid Accumulated SWAp-POW Accumulated other health aid Source: Norad s statistics bank (OECD DAC codes 121, 122 and 130) 5.2 Development aid for health purposes Norway has provided development assistance to the health sector in Malawi for a long time, both to the Malawian SWAp-POW and through other health projects. No sector budget support was disbursed in In the period , Norway disbursed approximately NOK 940 million in health aid to Malawi. Figure 1 shows the annual and cumulative Norwegian aid to Malawi's SWAp-POW and other Norwegian development aid to the health sector in Malawi in Altogether, Norway has given approximately NOK 380 million to the SWAp-POW and just over NOK 560 million in other health aid was the first year Norway gave more assistance to the sector programme than to other health purposes in Malawi. The Ministry of Foreign Affairs said in a letter that the Ministry views development aid to the sector as a totality. Norway's support for training doctors through the College of Medicine, as well as significant Norwegian support through NGOs such as Norwegian Church Aid, are important contributions to this totality. Table 1 Health aid to Malawi in million USD ( ) Total USA The Global Fund UK Norway GAVI Germany EU Japan Total Sources: Figures for 2004 to 2009 from the OECD CRS; figures for 2010 and 2011 from national reporting and from Malawi's Aid Atlas and the Ministry of Foreign Affairs 8) Of the NOK 560 million, about 60 million was disbursed to UNICEF for emergency procurement of medicines for the nation's hospitals and health centres in 2011, an amount that would otherwise have been given as health sector support to the Ministry of Health. 46 Document 3:8 ( ) Report

49 Dispensary at Mangochi District Hospital. Source: Office of the Auditor General of Norway Mangochi Health Centre. Source: Office of the Auditor General of Norway Under an agreement signed in the autumn of 2012, Norwegian support of the SWAp-POW will amount to NOK 60 million per year for the period See also It is somewhat unclear how much health aid Malawi has received from all donors in the period Table 1 provides an estimate of total health aid to Malawi. In all, Malawi has received approximately USD 1.5 billion. Several UN organisations are missing in the calculation in Table 1, and according to the MoF in Malawi, the country received about USD 55 million from UN organisations between 2004 and The table also shows that the US, the Global Fund and the UK have been the largest donors to Malawi's health sector, with Norway as the fourth largest donor. These four have accounted for approximately 90 per cent of health aid to Malawi Development aid through the SWAp-POW In 2004, the MoH in Malawi signed a Memorandum of Understanding (MoU) with several donors in the health area, including Norway. Under the agreement, plans were laid for the implementation of a work programme for the health sector in the period The programme was to be funded through a sectorbased approach whereby Malawi and donors combined their financial contributions in a Health SWAp pool. The SWAp-POW is in line with Malawi's poverty reduction strategy and aims to improve the health situation of all Malawians, reduce disease cases and prevent premature deaths. The work programme's priorities are geared towards a set of basic health care services (Essential Health Package EHP). These services are considered cost-effective and are to be directed at the main health problems in Malawi. In addition, they are to be free of charge to all Malawians. A total of 55 so-called interventions have been defined as an Essential Health Package that includes multiple vaccines, antenatal care, care in connection with birth complications, treatment of malaria and tuberculosis, and testing for and treatment of HIV/AIDS. 9 The SWAp-POW has two primary objectives: to increase the use and effectiveness of health services and to improve access to health services. The programme is divided into six so-called pillars or inputs: human resources drugs and medical supplies medical equipment infrastructure routine operations at service delivery level institutional development and administrative support functions The objectives and the results achieved under the programme are presented in Subchapter 5.3. Recorded contributions to the sector programme have increased from just over USD 50 million in to USD 380 million in The Malawian authorities' share of recorded contributions has varied from year to year. The 9) For a complete list, see for example Bowie and Mwase (2011). Document 3:8 ( ) Report 47

50 Table 2 Budget support to Malawi in million USD ( ) Total UK EU IMF World Bank AfDB Norway Germany Others Total Source: OECD CRS, except for the 2010 figures, which were obtained from the respective countries' websites and Aid Atlas proportion was lowest in with 40 per cent, and highest in , with 78 per cent. According to the accounting figures, the SWAp- POW has received about USD 1.4 billion in funding from to Donors have accounted for nearly USD 520 million. This means that of the total health aid to Malawi approximately USD 1.5 billion donors have channelled about a third to the SWAp-POW. Norway has contributed less to the sector programme (NOK 380 million) than to other health aid (NOK 560 million), cf. Figure Development aid as budget support In the period , Norway contributed NOK 400 million in budget support to Malawi. Table 2 shows budget support to Malawi from 2004 to During this period Malawi received a total of USD 853 million from the partners in the Common Approach to Budget Support, CABS. The UK was the largest donor in the period, with USD 276 million. Norway was the sixth largest budget support donor. The budget support has been primarily directed at achieving the goals of Malawi's poverty reduction strategy (Malawi Growth and Development Strategy, MGDS). Separate indicators for the health sector were developed within this strategy. Attainment of outcome targets for these indicators is presented in Chapter 5.5. In recent years, the share of state expenditure that has been spent on health care has been around per cent ) The Final Evaluation of the Health Sector Programme of Work (EHG 2010) states that the share is 13.6 per cent. The Ministry of Health's programme document for the next phase of the health sector programme (Health Sector Strategic Plan (HSSP) ) reported 10.2 per cent Freezing of Norwegian budget support and development aid to the SWAp-POW In 2010 and 2011, Norway decided to freeze health sector support and general budget support, respectively, to Malawi. Health sector support was withheld from December 2010 due to suspicions of misuse of funds in the central medicine depot in Malawi (Central Medical Stores, CMS) among others. The funds were approved for reallocation primarily to UNICEF for emergency procurement of medicines and where CMS was not to be used in the distribution - as well as to the College of Medicine and a family planning NGO, Banja La Mtsogolo. The case was opened by the Central Control Unit of the Ministry of Foreign Affairs regarding suspected irregularities relating to CMS' procurement and distribution of medicines and supplies. The Ministry is awaiting the results of the investigation under the auspices of Malawi's Anti-Corruption Bureau (ACB). In August 2012, a new agreement on Norwegian support was signed, providing the next phase of SWAp (Health Sector Strategic Programme) with NOK 180 million over the period , cf. paragraph 8.2. The Ministry of Foreign Affairs said in a letter that important control measures had been carried out that meant that the Central Control Unit in the Ministry approved that the aid was resumed. This decision was justified by several factors, including that CMS has become an independent foundation with a board that has taken important steps to strengthen management and control. Improvements in the control mechanisms for planning, procurement, distribution and storage of medicines and medical equipment have also been carried out. The Ministry also emphasises that the new management and oversight regime embodied in an agreement between the authorities and donors, the Joint Financial Agreement, is perceived as very extensive and sound. 48 Document 3:8 ( ) Report

51 The budget support was frozen in June 2011, partly following disagreements between the International Monetary Fund (IMF) and Malawi on macroeconomic reforms and concerns about the human rights situation in Malawi. 11 Resumption of the budget support will be assessed in the autumn of 2012 after the inauguration of the new president and negotiations between the new government and IMF in the spring and summer of 2012 that led to a new loan agreement between the IMF and Malawi. Prior to the agreement, Malawi devalued its currency and reformed its rules for buying and selling foreign currency. 5.3 Goal attainment within the SWAp-POW The description of goal attainment for the SWAp- POW is divided into three parts: development of the three main indicators for the SWAp-POW: reduced child and maternal mortality, reduced underweight among children and reduced mortality rate among persons afflicted with malaria development of the programme's two main goals of increased use of and effectiveness of health services and better access to health care achievement of targets within the six pillars of the SWAp-POW, where the pillars represent important inputs for the production of health services The Ministry of Foreign Affairs states that the goals of the programme were set high on purpose, and that many indicators were chosen to focus on neglected and/or complex tasks The main indicators for the SWAp-POW The SWAp-POW has three indicators that are to be used to measure the effects of the efforts in the health sector from the start of the programme in to the end in : reduce the proportion of deaths among persons afflicted with malaria from 7 to 3 per cent reduce the proportion of underweight children from 22 to 7 per cent reduce mortality among infants from 76 to 48 per 1,000 births, among children under 5 years of age from 133 to 76 per 1,000 children, and among mothers from 984 to 560 deaths per 100,000 births Malawi is on track to reach its target of reducing the percentage of deaths among persons afflicted 11) Letter from the embassy in Lilongwe, dated 23 June with malaria from 7 to 3 per cent. 12 Nevertheless, malaria remains the main cause of disease in Malawi and is, according to the World Health Organization, the main cause of death among children under 5 years of age. 13 From 2005 to 2008, there was an increase in both the number of cases, hospitalisations and deaths. 14 The main problems were the lack of medication and diagnostic equipment despite increased funding. 15 There has been a decline in the proportion of underweight children, but not enough to reach the SWAp-POW target of about 7 per cent. The proportion was 22 per cent in 2004, 16 and had fallen to 13 per cent in Figure 2 shows the trend in mortality among infants, children under the age of 5 and mothers in Malawi for the period , and how this development compares with the objectives of the SWAp-POW and MDG 4 (for children under the age of 5) and MDG 5 (for mothers). While there has been a downward trend for the three indicators, none of the objectives were achieved during the programme period. 18 Figure 2 Mortality per 1,000 among infants and children under five years of age and mortality per 10,000 births for mothers, measured in 2004 and Infants Under 5 years of age Target, SWAp-POW Millennium Development Goal Sources: DHS 2004 and 2010; EHG (2010), MoH (2004) Maternalmortality 12) EHG (2010A). 13) DFID (2011b), WHO's health profile for Malawi. 14) The goal of a percentage decrease can be reached despite rising cases and deaths, as long as cases increase more than deaths. 15) DFID (2011b). 16) DHS (2004). 17) DHS (2010). 18) EHG (2010A). Document 3:8 ( ) Report 49

52 Delivery room at Phirilongwe Health Centre. Source: Office of the Auditor General of Norway Infant mortality declined from 76 to 66 per 1,000 children, the target of the SWAp-POW was 48. The mortality rate for children under the age of 5 fell from 133 to 112 per 1,000 children. Here the target of the SWAp-POW was 76 per 1,000 children, while MDG 4 implies a mortality rate of 44 deaths per 1,000 children. If the trend between 2004 and 2010 continues, Malawi will not achieve MDG achieved, depends on the source and method of measurement used. The uncertainty surrounding the maternal mortality figures also means that there is confusion relating to MDG 5 on improving maternal health. In the figure, maternal mortality is shown per 10,000 births so that the mortality rates follow the same scale as for child mortality. The usual approach is to report maternal mortality per 100,000 births. The figures for maternal mortality in Malawi are highly uncertain. Figure 2 shows data from population surveys in 2004 and 2010 to estimate maternal mortality at the beginning and end of the SWAp-POW. These show a decrease from 984 deaths per 100,000 births in 2004 to 675 per 100,000 births in This is a higher figure than the World Health Organization (WHO) has estimated. WHO et al. (2010) estimates that maternal mortality in 2008 was 510 per 100,000 births. 20 Whether the SWAp-POW target of 560 deaths per 100,000 births is considered to be 19) Other mortality rates for children show a more negative development. For example, the mortality rate for children under one month increased from 2004 to 2010, from 37 deaths per 1,000 births to 41 per 1,000 births (DHS 2004 and 2010). 20) Statistics Norway has criticised WHO's estimates for being based on a model that places too much emphasis on socio-economic development and too little on the actual measurement of maternal mortality (Samfunnsspeilet/Statjstjcs Norway 2/2011). At the same time, maternal mortality is difficult to measure reliably in population studies. Women dying in childbirth is a relatively rare occurrence in Malawi it occurs in approximately 700 of 100,000 births. There is thus a risk that a representative sample cannot be obtained. Quarterly report form for supplied health services, Chiradzulu District Hospital. Source: Office of the Auditor General of Norway 50 Document 3:8 ( ) Report

53 The goal is to reduce maternal mortality by threequarters (75 per cent) by 2015 compared with 1990 levels. The estimates of what maternal mortality was in 1990 (baseline), ranges from 620 to 910 per 100,000 births. 21 This implies targets of 155 and 230 deaths, respectively, per 100,000 births in Regardless of which baseline is used, it is unlikely that Malawi will be able to reduce maternal mortality in line with the aspirations of the Millennium Declaration Utilisation and availability targets in the health service programme The overall objectives of the SWAp-POW were to increase the utilisation of and effectiveness of health services, and to improve availability of services. Table 3 shows objectives and results for 15 indicators for the two main goals. Table 3 Target achievement for main objectives 1 and 2 in the SWAp-POW 22 Indicator At start-up (2004) Target 2010 Target achieved? Objective 1: Utilisation and effectiveness Outpatient services (visits per 1,000 population per year) Proportion of 1 year-old children immunised against measles 800/1,000 population (3) 1,000/1,000 population 1,290/1,000 population ** (3) 62.6% (1) 90% 82.7% (2) NO Satisfied with health services Not measured (3) No target Not measured (3) UNKNOWN specified (3) Use of modern contraceptives 28.1% (1) 40% 42.2 (2) YES % of pregnant women and children who sleep under a mosquito net Pregnant: 19.3% Children: 20.2% 60% Pregnant: 43,1% Children: 47% (2) Institutional births 57.2% (1) 75% 73.2 (2) LARGELY Children under 5 years of age with 28.4% (1) 60% 43.4% (2) NO fever who received antimalarial drugs Pregnant women who received 46.5% (1) No target 55.0% (2) UNKNOWN antimalarial drugs specified HIV-positive pregnant women who 2.3% (3) 80% 66% (3) NO received ARV prophylaxis Objective 2: Availability Proportion of health facilities with 9% 60% 74% (3) YES basic health care services (EHP) Proportion of health facilities capable 7% (3) 100% 100%** (3) YES of offering PMTCT Prevention of Mother-to-Child Transmission (of HIV) Tuberculosis, detected Not measured 70% Data not comparable UNKNOWN (3) Tuberculosis, cured 74% (3) 85% 83% ** (3) LARGELY Health facilities offering BEmOC (Basic) Emergency Obstetric Care Doctor, nurse and HSA/population ratios Number: 2 Coverage: 2% Doctors: 1:101,000, possibly 1/290,000 * Nurses: 1:4,000 HSAs: 1:3,000 One facility per 125,000 population, i.e. 109 facilities (3) Doctors: 1:31,000 Nurses: 1:1,700 HSAs: 1:1,000 Number: 109 Coverage: 100% Doctors: 1:65,500 (4) Nurses: 1:3,330 (4) HSAs: 1:1,190 (4) *** * The estimated doctor/population ratio at start-up varies greatly between different sources, including 1: (EHG 2010, based on figures for the number of doctors in 2005) and 1:101,000 in the programme document for the SWAp-POW (MoH 2004). Estimates vary due, among other things, to different estimates of population size, and the doctor and population figures on which the doctor ratio estimates are based are not always given. In the table above, the estimate for 2004 of 1:101,000 (MoH 2004) is supplemented with an estimate of 1:290,000. It is based on population data from World Development Indicators and Global Development Finance (World Bank) and data on the number of doctors in 2004 (DFID 2010a based on Vacancy Analysis from MoH and CHAM). This estimate is consistent and comparable with the doctor ratio estimate in 2011 since the sources for population and doctor statistics are the same for both years. ** Figure for 2009 *** Figure for 2011 Sources: DHS 2004 (1), DHS 2010 (2), EHG (2010) (3), data from MoH/CHAM (4), MoH (2004), DFID (2010a), YES NO YES NO 21) Respectively DHS (1992) and WHO (2010). 22) Vaccination against measles and assisted births is included in the set of indicators for both the SWAp-POW and budget support. See Subchapter 5.5 on the budget support for the achievement of targets for these indicators. Document 3:8 ( ) Report 51

54 There are two main sources of data as they are presented for : a) demographic and health survey (DHS) from 2010, which is based on interviews with a representative sample of 25,000 households, and b) data from the MoH's Health Management Information System (HMIS). The two sources are not always consistent. In the table, DHS was used wherever possible. Because these data are most current, they can easily be compared with the DHS survey from 2004, and are considered more reliable than the administrative register data. For seven of the indicators outpatient services, modern contraception, HIV/AIDS treatment, 23 EHP services, transmission of HIV infection from mother to child, births in institutions, cured tuberculosis and basic emergency obstetric care the targets were achieved or almost achieved. The targets for five of the indicators one-yearolds vaccinated against measles, children and pregnant women sleeping under mosquito nets, 24 malaria treatment for children, HIV-positive pregnant women who received anti-retrovirals and ratio of health personnel to population were not achieved, although significant improvements were nevertheless noted. For three indicators, either the data that was available was insufficient to draw conclusions about goal achievement, or targets had not been specified The pillars in the SWAp-POW As mentioned in 5.2.1, the investment in the SWAp- POW is organised around six pillars: human resources, drugs and medical supplies, medical equipment, infrastructure, routine operations at service delivery level, and institutional development and administrative support functions. Pillar 1: Human resources 25 In 2004, the MoH and donors acknowledged that the personnel situation in Malawi was very critical. The SWAp-POW defined different measures for improving the health personnel situation: The doctor ratio was to rise from 1:101,000 to 23) 43.5 per cent took ARV medicines daily. In addition, 50.2 per cent took nevirapine, bringing the total for HIV medication to 93.7 per cent. The sample was very uncertain as to the number of pregnant women who were infected with HIV at birth, and the numbers therefore cannot be used to predict the coverage rate of pregnant women who received ARVs or other PMTCT services, cf. DHS (2010). Nevirapine is given as a single dose to prevent transmission of infection between mother and child. It remains unclear whether this is a good alternative to ARV medication. 24) According to the Abuja Declaration, 80 per cent of pregnant women and children under the age of 5 should sleep under mosquito nets to achieve the goal of cutting disease cases and deaths due to malaria in half by See DHS (2010), pp The goal of the SWAp-POW was 60 per cent. 25) Health human resources means the number of employees of the state health care system. 1:31,000 in The nurse ratio was to be increased from 1:4,000 to 1:1,700. A target of one Health Surveillance Assistant (HSA) per 1,000 population was set for HSAs. To achieve this, a number of activities were to be implemented, including increasing funding for filling established positions, increasing wages for employees at district, central and CHAM hospitals, and increasing training capacity (for both new and postgraduate training) by 50 per cent. Annual accounted for expenditure on salaries and wages rose from USD 21 million to USD 86 million during the programme period. This represents an increase of 310 per cent. 27 Table 4 shows that the change in the number of health personnel improved in the first years of the SWAp-POW. The ratios for doctors and nurses improved. But after 2009, the situation for doctor and nurse ratios changed again due to fewer personnel and high population growth. In 2011, the ratio for doctors employed by the MoH or CHAM was 1:65,500 (230 doctors for 15.3 million people), while the ratio for nurses was 1:3,330 (4,500 nurses). 28 The country is thus far from meeting the targets of 1:31,000 for doctors and 1:1,700 for nurses. The proportion of vacant positions is very high: two of three doctor positions and nearly three out of four nursing positions are vacant. These rates are as high or higher than in 2004, and this is due to the fact that the increase in the number of authorisations has been higher than the increase in the number of personnel. The increase in the number of authorisations is due to the fact that the standard for minimum staffing has changed over the period. There are many indications that the publicly funded health care system (including CHAM) is unable to exploit the increase in the number of graduates in key categories of health personnel such as doctors. Moreover, many of those who graduate accept positions abroad or with private clinics. Figures from CHAM show that doctors and nurses in the CHAM system have decreased from 2008 to ) See legend to Table 3 concerning the different doctor ratio estimates at the start of the programme. 27) Based on the annual amount as stated in the annual accounts (Audited Financial Statements) and converted to dollars at the rates stated in the financial statements. In Malawian kwacha, annual expenditure on wages rose from MK 2.7 billion to MK 13.4 billion during the programme period. This represents an increase of 357 per cent. Adjusted for inflation in kwacha, the increase is 179 per cent. 28) According to the final evaluation of the six-year plan for resolving the human resources crisis, Malawi had 265 doctors, 4,812 nurses, and 10,507 unskilled Health Surveillance Assistants in Document 3:8 ( ) Report

55 Table 4 Total number of employees in selected categories of health care staff in and proportion of vacancies (per cent) in 2011 in state entities and CHAM Vacancies in per cent 2011 Doctors * 67 Clinical officers Medical assistants Nurses 3,166 4, Lab technicians X-ray technicians Health Surveillance Assistants (HSA) 4,886 4,826 4, ,000 ** 29 ** Total for 11 priority categories (excl. HSA) 5,197 7,358 No data available (2009 : 8,369) * In a letter dated 30 November 2012, the Ministry of Foreign Affairs pointed out that the MoH in Malawi said that there were 450 doctors in Malawi (2012). This figure includes volunteers from the United Nations and other non-governmental organisations. ** The figure for the proportion of vacant Health Surveillance Assistants in 2011 (29%) does not take into account the 7,000 "temporary" Health Surveillance Assistants, i.e. those that were funded by the Global Fund until July Sources: DFID (2010a), Annex J and Annex J2; figures for 2011: Ministry of Health Vacancy Analysis and CHAM-data Table 5 Development and status for indicators on personnel coverage at the health centres, nurses with midwifery skills, qualified doctors and nurses Proportion of health centres that met the minimum requirement for number of employees (five) (%) Target Achieved? Yes Proportion of nurses with midwifery skills (%) Yes Number of medical degrees awarded each year No Number of nursing degrees awarded each year Yes Sources: EHG (2010a), College of Medicine The goal of the SWAp-POW for unskilled Health Surveillance Assistants (HSAs) was 1 per 1,000 population. At the end of 2011, MoH figures show that there were 11,764 Health Surveillance Assistants, which with updated population statistics is equivalent to 1 per 1,190 inhabitants. Of these, 7,000 HSAs were paid with funds from the Global Fund funding that was to cease on 1 July Table 4 shows that there has been an increase in the number of employees in other categories, such as clinical officers and medical assistants, 29 as well as X-ray and lab technicians, but the increases are from very low levels. 29) A clinical officer (CO) is a category of health personnel found in eastern and southern parts of Africa. A CO is licensed to perform general medical tasks such as diagnosis, disease treatment and interpretation of medical tests, perform routine medical and surgical procedures, as well as make referrals to other practising health personnel. To become a CO candidates must have completed a minimum of four years of medical training (after primary school) that includes an internship at an accredited institution or hospital. (Source: Clinical_officer.) Medical assistant is a category of health personnel who perform administrative and routine clinical tasks for doctors and other health care staff. Typical tasks include recording patient information, taking basic tests, assisting the doctor in the examination of patients and preparing blood samples for lab tests, etc. Overall, nearly 19,000 health care workers including unskilled workers were employed in the public sector and CHAM, an increase of 83 per cent from Pillar 1 also had other indicators with associated targets as shown in Table 5. The table shows that three of the indicators the proportion who meet the minimum number of employees, the proportion of nurses with midwifery skills and the number of nursing school graduates have been achieved, and the indicator for newly qualified doctors was not achieved. According to statistics obtained from the College of Medicine, the number of doctors graduating in 2010 totalled 40, while the target was 64. In 2012, there were 46 medical students in the graduating class. The Ministry of Foreign Affairs reported in Prop. 1 S ( ) Proposition to the Storting (draft resolution) that 291 doctors graduated in 2010 from the College of Medicine without citing the source for the number. 30) DFID (2010a). Document 3:8 ( ) Report 53

56 Pillar 2: Drugs and medical supplies Pillar 2 is related to the availability of drugs and medical supplies. The objective of the pillar was to strengthen the procurement, distribution and storage systems for drugs and medical equipment. About 20 per cent of the resources of the SWAp- POW has gone to this pillar. Overall, in the period , approximately USD 280 million was spent on this pillar. The value of donated drugs from sources such as the Global Fund comes in addition, since this is generally not included in the accounting figures. The objective of this pillar was that in , the health care system was to have 100 per cent availability of eight tracer medicines. The eight are: tetanus vaccine, oxytocin (a hormone used to start contractions and get milk production started in mothers), fluid replacement, cotrimoxazole (an antibiotic used to treat bacterial infections), diazepam (a sedative and anticonvulsant drug), HIV tests, tuberculosis medicine and malaria medicine. According to the final evaluation of the SWAp-POW, the health facilities' own reporting and the MoH's national censuses show that the availability of the eight tracer medicines (measured as a proportion of all health centres/hospitals that had stocks of the medicine on the day of the visit) in was between 94 and 100 per cent. These findings are not consistent with other sources, which report that the medicine situation is difficult, with a high incidence of stock-outs. The final evaluation for the SWAp-POW also concludes that independent studies show a less positive picture. 31 Empty medicine stores have been a key topic in the dialogue between donors and the MoH throughout the programme period. 32 There were several reports of a shortage of medicines and vaccines in Malawi in Chapter 7.4 presents findings from an investigation of the availability of medicines that the OAG had carried out in 2012 as part of this audit. Pillar 3: Medical equipment The objective of this pillar was to establish a standard list of essential medical supplies at health facilities at all levels and to contribute to the procurement and maintenance of this equipment. According to the final evaluation of the SWAp- POW, development within this pillar is tracked by 31) EHG (2010b). 32) Aide memoire and summaries from annual and biannual meetings on the SWAp-POW. 33) "Crisis looms as Global Fund forced to cut back on Aids, malaria and TB grants" in Guardian, 23 November 2011 and "Central hospitals heading for disaster with drug shortage" in Malawi Nation, 29 December Sterilisation equipment, Lungwena Health Centre. a single indicator: percentage of health facilities with equipment in accordance with the standard list. This list has been defined, but the equipment situation has not been recorded in the period so it is therefore not possible to tell how the situation has developed during the programme period. 34 The goal was also that 90 per cent of the health facilities should meet the standard requirements. While 6.6 per cent of the resources in the SWAp- POW were to be spent on this pillar, the figures show that spending on equipment constituted 3.4 per cent of total expenditure for the period Only USD 38 million, or two-thirds of the resources budgeted under this pillar, were actually spent. This means that both the investment level and maintenance were lower than intended. Pillar 4: Infrastructure The infrastructure pillar under the SWAp-POW was meant to help increase access to the basic health facilities. This was to take place in part through the construction and upgrading of health facilities. Six per cent of the resources in the SWAp-POW, an amount totalling over USD 72 million, was spent under this pillar. Underutilisation within this pillar was substantial throughout the implementation period from 2004 to About 40 per cent of the funds that were budgeted were expended. 34) EHG (2010a). 35) MoH (2004). Source: Office of the Auditor General of Norway 54 Document 3:8 ( ) Report

57 One of the goals under this pillar was to increase the proportion of health facilities with functioning water, electricity and communications. 36 In addition, it was a goal that the central, district and CHAM hospitals should have sufficient funds to invest in and maintain infrastructure. 37 According to the final evaluation of the SWAp-POW, the water, electricity and telecommunications targets were reached. 38 According to self-reporting by the facilities, the proportion of health facilities with functioning connections for water, electricity and phone service has risen from 30 to 76 per cent, while the target was set at 60 per cent. In the period , the number of health facilities in Malawi as a whole remained virtually unchanged. 39 Including hospitals and health centres belonging to the Malawian authorities and CHAM, the number of facilities totalled approximately 570 in both 2003 and in The number of health centres increased slightly from 2003 to While there were 392 centres in 2003, the figure was 410 in 2009 and 422 in The reason for the increase is primarily the upgrading of a number of maternity centres and offices for dispensing medicines (dispensaries) to health centres. 41 Pillar 5: Routine operations at the service delivery level Pillar 5 is a collective item for operating resources of hospitals and health centres, both public and those belonging to CHAM. USD 227 million was spent on this pillar. This represents about onefifth of the total resources of the SWAp-POW. While the majority was spent on transport, consumables in the health facilities and food for patients are also important expenditure items. One of the goals of the SWAp-POW was that 80 per cent of the districts should have functioning ambulances, i.e. at least 20 of 28 districts in all. 42 This was not followed up during the programme period, and the final evaluation could not come to a final conclusion on whether this indicator was reached. 43 Several studies have shown that transport is one of the main obstacles to access to 36) The final evaluation of the SWAp-POW also contains an indicator for functioning ambulances. In both the programme document and the audit reports, transport (both investment and operating expenses) are submitted under Pillar 5. Transport costs actually constitute about two-thirds of Pillar 5 in the accounts. Transport is therefore discussed under Pillar 5 on routine operations at the service delivery level. 37) MoH (2004). 38) EHG (2010). 39) EHG (2010c). 40) Calculation based on EHG (2010c) and figures submitted by the MoH in Malawi. 41) EHG (2010c). 42) EHG (2010a). 43) Euro Health Group (2010c) health care. 44 For example, about 60 per cent of women in the 2010 population survey responded that the cost of private transport prevents them from seeking health services. This pillar also includes a goal of increasing the overall number of agreements between the government and CHAM regarding provision of EHP services (service level agreement, SLA). The goal was a total of 150 such agreements. In 2004 there were 55 SLAs, whereas in 2012 it had increased to 66. Pillar 6: Institutional development and administrative support functions The main objective of this pillar was to increase the central administrative level's support to the operational level. The main means of doing this would be through establishing a joint sector approach for Malawian authorities and donors (the SWAp) and decentralising the health sector. 45 One of the objectives of the pillar was to increase the MoH's ability to regulate the health sector and support health care services in the districts. 46 District goals included improving support functions for and supervision of health centres, and integrating health services at the district level. This meant, among other things, establishing a system for referrals of patients to higher levels. The accounts show that the use of resources under this pillar have increased considerably. Overall consumption during the programme period has been about twice as high as planned in the programme document (MK 19 billion and MK 9.5 billion, respectively). In US dollars, this corresponds to a total consumption of USD 170 million up to and including fiscal year In the final assessment for the SWAp-POW the pillar was evaluated on the basis of two sets of indicators: one on reporting from the district health offices and health facilities, and one for public funding of the health sector. For reports from district health offices, it was a goal that all reporting should be timely, i.e. monthly, quarterly and annually. At the start of the SWAp-POW, 10 per cent of the offices had managed this, while in 2009 the proportion had risen to 80 per cent. The final evaluation 44) ITAD (2009) Qualitative Research for a Value for Money Study on DFID's Work in Malawi, DHS (2010). 45) MoH (2004). 46) This pillar contains a long list of activities. For a complete list, see MoH (2004), pages Document 3:8 ( ) Report 55

58 concluded that it would be possible to reach the goal of 100 per cent, but that delays were still prevalent. Moreover, it was a goal that all health facilities were to report data. While 88 per cent reported in 2004, the target of 100 per cent was reached as early as Funding of the health sector was measured in part by how much of public spending went to health, and public health expenditure (including international aid) per person. Health expenditure as a share of total public expenditure in was about 13 per cent, while the target is 15 per cent. This is equivalent to USD 24 per capita, which is above the target of USD The Ministry of Foreign Affairs informed that health costs were estimated at USD 28.6 per capita in connection with the mid-term review of the SWAp-POW in Goal attainment within the health indicators for budget support The health indicators for the budget support agreement between Malawi and donors have changed somewhat over time. Nevertheless, they have been applied fairly coherently, which makes it possible to track the development of vaccination rate (against measles) attended births population per nurse ratio combatting HIV/AIDS Table 6 The health indicators in the budget support for the period T = target; A = achieved Vaccination 2005 T: 80% for full vaccination under 1 year of age A: 65% for all, 79.4% for measles 2006 T: 85% of one-year-olds vaccinated against measles* A: 82% 2007 T: 82% of one-year-olds vaccinated against measles, and that at least three of four districts should increase their vaccination rate A: 80%, and just eight increased the rate, while two reduced theirs 2008 T: 82%, and not more than two districts under 75% A: 84%, and all districts over 77% 2009 T: 82% A: 88% of one-year-olds vaccinated against measles 2010 T: Maintain 82%, and one district under 75% A: 88%, and Likoma under 75% even with outbreak of measles 2011 T: 82%, and two districts under 80% A: 96%, and one district under 80% Attended births M: 59% attended births, up from 58 (baseline) A: 57% according to DHS data, while HMIS shows 38 T: 40% of births with qualified staff present A: 40% T: 42% of births with qualified staff present A: 42% T: 45% A: 45% T: 48% of births with qualified staff present A: 52% T: 54% of births with qualified staff present A: 58% T: 60% births at clinic (new indicator) A: 65% Nurse ratio (population per nurse) T: Not defined A: Not reported T: 1:3,900** A: 1:3,653 T: 1:3,500 A: 1:3,304 T: 1:3,200 A: 1:3,062 T: 1:2,900 A: 1:2,800 T: 1:2,700 A: 1:2,643 T: 1:2,500 A:1:2,884/1:3,110*** HIV/AIDS T: Proportion of the population between 15 and 49 years of age with HIV/AIDS: 14% A: 14.2% T: 60,000 persons living with HIV/AIDS, and receiving ART (anti-retroviral therapy) A: 59,980 T: 33% of the health facilities can offer basic treatment against transmission of HIV/AIDS from mother to child A: 44% T: 55% of the health facilities can offer basic treatment against transmission of HIV/AIDS from mother to child A: 83% T: 90% of 544 health facilities that offer obstetric care, have a basic treatment package against transmission of HIV/AIDS from mother to child; 35% of HIV-positive mothers receive prophylaxis treatment A: 100%; 66% T: 70% of HIV-positive mothers receive prophylaxis treatment A: 71% T: proportion of population in need of ART (anti-retroviral therapy) who receive medicine: 53% (new indicator) A: 65% * Same indicator as for the programme of work for the health sector. The vaccination rate goal in the programme was set at 90 per cent. ** Same indicator as for the programme of work for the health sector. *** Number of sites and persons who received ARV in the period Sources: Aide Memoire from annual meetings for the budget support donors 56 Document 3:8 ( ) Report

59 Mangochi Health Centre. Source: Office of the Auditor General of Norway New target figures are set for the indicators each year. The performance of the four indicators is summarised in Table 6 with the target (T) and the results achieved (A). Several of the indicators were also used during the SWAp-POW (see above), but the target figures for the same indicator have been different in the two programmes. This is because the time horizon has been different, one year at a time under the budget support and six years in the SWAp-POW. The target for the vaccination rate against measles among children under 1 year of age in the period between 2005 and 2011 stood at over 80 per cent. Reporting on the budget support indicators shows that the objectives have largely been achieved. In 2011, the vaccination rate reached 96 per cent, according to the Malawian MoH's reporting system. According to the survey (DHS) conducted in Malawi in 2010, the proportion was 83 per cent, i.e. considerably lower than MoH figure. In Table 6, the official figure is used to show the development from year to year. But there is thus some uncertainty about the proportion of children who are vaccinated within one year of age. The Ministry of Foreign Affairs refers in letters to figures from the World Health Organization for 2012, where 93 per cent of children in the target group in Malawi were vaccinated against measles. The target for attended births has varied from year to year. This is partly because different years have looked at attended births (anyone was present), births with qualified personnel present (either at home or in hospitals) and births at clinics. There have also been some changes in the data sources that have been used. It is nevertheless clear that the proportion of attended births has increased in the relevant period: According to administrative data, there has been an increase from 38 per cent attended births in 2005 to 52 per cent of births attended by skilled health personnel in According to population surveys, the proportion of attended births in 2004 was measured at 56 per cent. In 2010, this portion rose to 72 per cent. 47 The nurse ratio has increased slightly in the period The target has evolved over time, from 3,900 inhabitants per nurse in 2006 to 2,500 in While there were 4,000 inhabitants 47) DHS (2004 and 2010). Document 3:8 ( ) Report 57

60 per nurse in 2005, the number dropped to 2,800 in In 2011, it was reported to be 2, As discussed in Chapter above, the ratio is 1:3,330 using updated population figures and the number of nurses actually working in state and CHAM institutions. For several years, combatting HIV/AIDS in a budget support context has been measured with the indicator for the proportion of health facilities that have a minimum package of health services to prevent transmission from mother to child. This is also an indicator in the SWAp-POW. There has been clear progress in this area. In 2005, only 7 per cent of health facilities had such services. The goal of 100 per cent coverage was achieved as early as In 2011, the indicator was changed to anti-retroviral therapy (ART) against HIV/AIDS. In 2011, 65 per cent of those in need of anti-retrovirals (ARV) received such medicine, while the target was 53 per cent. The Global Fund is responsible for all funding of ARV in Malawi. Since 2011, the indicator has therefore been based on input from a player not involved in the collaboration on budget support. 48) EHG (2010a). 49) CABS March 2012 review, Aide memoire, June ) See also EHG (2011a). 58 Document 3:8 ( ) Report

61 6 The global health funds' programmes in Malawi 6.1 Background When the Millennium Development Goals (MDGs) were developed in the late 1990s, it became apparent that there was a need for new methods to achieve the goals, including funding mechanisms that ensured all countries fairer access to support. At that time a few countries, including Tanzania, received most of the support, GAVI informed in an interview. Also, the limitations of the UN system with its restrictions on limiting participation in governing bodies to Member States was, according to Meld. St. 11 ( ) Report to the Storting (white paper) Global health in foreign and development policy, a contributing factor to the creation of new funding mechanisms with a narrower mandate against communicable diseases, such as GAVI and the Global Fund. The Global Fund Created in 2002, the Global Fund to Fight AIDS, Tuberculosis and Malaria is a public-private partnership to prevent proliferation and promote the treatment of HIV/AIDS, tuberculosis and malaria in areas of the world where the needs are greatest. The Fund's mandate was to create an efficient, simple, fast, result-oriented and innovative mechanism for disbursement. Transaction costs were to be as low as possible, and there was to be good insight into the process. As of September 2010, the Global Fund accounted for a fifth of the total international funding for combatting AIDS and two-thirds of the total funding for tuberculosis and malaria programmes. As the Fund has increased in both volume and scope, the number of employees in the Secretariat increased from 150 employees in 2005 to nearly 600 employees in In 2011, the Fund disbursed support totalling USD 2.64 billion. 52 As of 2010, it is estimated that fund-based programmes have helped save up to 6 million lives ) The Global Fund to Fight Aids, Tuberculosis and Malaria. Third replenishment 8 ( ). 52) The Global Fund Annual Report ) The Global Fund to Fight Aids, Tuberculosis and Malaria. Third replenishment 8 ( ). Norway is committed to providing NOK 3.5 billion to the Fund in the period Of this, NOK 2.1 billion has already been disbursed. 54 Until 2013, Norway will therefore provide a further NOK 1.4 billion. 55 GAVI GAVI Alliance (formerly the Global Alliance for Vaccines and Immunisation) was established in 2000 as a public-private partnership in which UNICEF, the World Health Organization and the World Bank are key partners. GAVI is primarily a funding mechanism that transfers money for vaccination of children. GAVI works to ensure that all children in poor countries receive a full vaccine programme. The Fund focuses on the introduction of new vaccines and support to ensure functioning vaccination services. 56 It is thus an important contributor to achieving MDG 4 on combatting child mortality. At the end of 2010, the Fund had contributed to vaccinating 288 million children, thereby averting 5.4 million deaths. 57 Total annual Norwegian aid to GAVI was NOK 631 million in The Storting has decided to increase its contribution to GAVI to NOK 1 billion in Altogether, Norway has given NOK 3.4 billion to GAVI for the period See Fact Box 1 on the two health funds on the next side. 54) Retrieval date 15 December ) Prop. 1 S ( ) Proposition to the Storting (draft resolution) Ministry of Foreign Affairs. 56) Prop. 1 S ( ) Proposition to the Storting (draft resolution) Ministry of Foreign Affairs. 57) Prop. 1 S ( ) Proposition to the Storting (draft resolution) Ministry of Foreign Affairs. 58) Retrieval date 15 December Document 3:8 ( ) Report 59

62 Fact Box 1 Characteristics of the two global health initiatives Both funds are global funding mechanisms. They are organised as foundations and have both private and public donors. The support for both funds is directed at the health-related Millennium Development Goals, MDGs 4 and 6. Both funds also provide monetary support for strengthening health systems. In collaboration with the World Bank, the funds are working to develop a joint programme for supporting health systems. The donor profile of the funds is as follows: The Global Fund: 95 per cent support from various countries, 5 per cent support from the private sector and innovative funding initiatives. The Bill & Melinda Gates Foundation is the largest private donor. GAVI: 76 per cent support from various countries, 24 per cent support from funds, companies and individuals per cent of the support comes from the Bill & Melinda Gates Foundation, which is the largest donor. None of the funds have country offices and partner country authorities are primarily the recipients of support. Both are headquartered in Geneva. The support provided is based on applications. Both funds are very concerned with results, and disbursement of support is in various ways linked to results. Both funds base their support on the Paris Declaration, which emphasises local ownership and use of national institutions and systems. 6.2 The funds' programmes in Malawi The Global Fund's programmes in Malawi At December 2011, the Global Fund had seven ongoing programmes in Malawi: three involving HIV/AIDS, two involving malaria, one involving tuberculosis and one for strengthening the health system. The Global Fund is currently undergoing a reform process under which the number of programmes will be cut to one programme per disease per country. Table 7 provides an overview of the funding the Global Fund has allocated and disbursed to Malawi. Table 7 Total allocated and released funds from the Global Fund to Malawi (million USD) for the period Programme Allocated funds Disbursed funds HIV/AIDS Health system support Malaria Tuberculosis Total * * Retrieval date 13 October Source: The Global Fund's website The Table shows that the Global Fund has disbursed a total of USD million to Malawi in the period In all, the Fund has approved USD 929 million in support to Malawi. Programmes to combat HIV/AIDS have received the most support. Fully 70 per cent of the funds from the Global Fund to Malawi have gone to HIV/AIDS programmes. Of this, slightly more than half has gone to medicines GAVI's programmes in Malawi GAVI has provided four kinds of support to Malawi since its inception in Table 8 shows GAVI's allocated and disbursed funding to Malawi by the various types of support. Table 8 Total allocated and released funds from GAVI to Malawi in (million USD) for the period Programme Allocated funds Disbursed funds Vaccines Safe vaccination Vaccination services Health system support Total* * In addition, Malawi has received USD 0.5 million for vaccine introduction. The figures were obtained from GAVI's website: Retrieval date 18 October Source: GAVI's website The table shows that GAVI has disbursed a total of USD million to Malawi in the period The pentavalent vaccine (five vaccines in one: DTP-HepB-Hib, which stands for diphtheria, tetanus and pertussis, plus hepatitis B and 59) Interview with NAC in Lilongwe on 2 November Document 3:8 ( ) Report

63 Haemophilus influenzae b) has received the most support. 87 per cent of the support GAVI distributed to Malawi as of October 2012 has gone to vaccines. Around 10 per cent of the funds went to health systems, while the remaining funds went to safe vaccination and vaccination services. Malawi has been promised support from GAVI to introduce two new vaccines against pneumonia (the pneumococcal vaccine) and against diarrhoea (the rotavirus vaccine). The pneumococcal vaccine was introduced at the end of 2011, while the rotavirus vaccine will be introduced in The funds' implementation models in Malawi Figure 3 provides a picture of how the funds' support is channelled in Malawi. The models for the Global Fund and GAVI will be described under paragraphs and 6.3.2, respectively. See for explanations of the joint pools for HIV-AIDS and the SWAp-POW (HIV-AIDS pool and SWAp pool) The Global Fund's implementation model in Malawi The Global Fund supports two principal recipients in Malawi, the MoH and the National AIDS Commission (NAC). Grants are channelled through two so-called pool funding mechanisms, the HIV/AIDS pool and the SWAp pool. NAC is the secretariat for the HIV/AIDS pool, and is the principal recipient of the funds that go to HIV/ AIDS. The Global Fund is the biggest contributor to the HIV/AIDS pool, and its contribution amounted to 77 per cent in November The World Bank, the UK and the Malawian Figure 3 The funds' implementation models in Malawi The Global Fund GAVI Form of support HIV/AIDS Malaria Tuberculosis Health system Vaccines Health system HIV-AIDS-pool SWAp-POW AIDS Commission (NAC) The Ministry of Health is NAC s largest sub-recipient, mainly of AIDS medicines Ministry of Health The Ministry of Health works with UNICEF and WHO on the execution of the vaccine programme NAC has approx. 130 sub-recipients, which are various organisations and districts Subrecipients: 28 districts Subrecipients: NGOs Subrecipients: firms, companies Hospitals and health centres Educational institutions Subsubrecipients Subsubrecipients Subsubrecipients Subsubrecipients Subsubrecipients NAC has approx. 2,000 locally based organisations that are sub-sub-recipients of support 60) The number was quoted in an interview with NAC in Lilongwe on 2 November Document 3:8 ( ) Report 61

64 government are other contributors to the pool. Norway withdrew from the pool in The MoH in Malawi is the principal recipient for the other programmes, which are directed at malaria, tuberculosis and strengthening of the health system, respectively. Funding for the tuberculosis and malaria programmes goes directly into the SWAp pool, while health system support is distributed further to three higher education institutions as well as the Christian Health Association of Malawi (CHAM). All of these have received support for infrastructure. NAC is the principal recipient of the Global Fund's support for HIV/AIDS programmes. NAC is under the Office of the President and Cabinet (OPC), and not under the MoH. In an interview, NAC stated that one of the reasons for creating a separate unit for HIV/AIDS, was that HIV/AIDS was perceived as being a cross-sectoral issue, and not just a health problem. In an interview, the Global Fund elaborated that the Malawian MoH does not have the capacity to coordinate the country's AIDS effort either. National AIDS Commission (NAC) NAC distributes its funds to a number of subrecipients (GRO). As of 2011, there were approximately 130 sub-recipients (GRO) of NAC funds. These can be both private and public entities as well as various types of organisations. The MoH is NAC's largest sub-recipient, receiving around per cent of NAC's total funds (including medicines), NAC said in an interview. Most of this funding goes to AIDS drugs (ARV). The public recipients also include Malawi's 28 districts. The districts are recipients of grants that they manage for their own use, while the community-based organisations (CBOs) seek support via the districts and not directly from NAC. These CBOs are considered sub-sub-recipients of funds from NAC. In an interview, NAC said that a total of approximately 2,000 local organisations are recipients of support from NAC (as of 2011). Cumulatively, there have been more than 3,000 recipients of support from NAC since With its large number of sub-recipients, NAC's implementation model is perceived by the Embassy as challenging and impractical. According to the Embassy it is difficult for NAC to follow up so many grant recipients. 61 NAC stated in interviews that they want to reduce the 61) From interview with the Embassy in Lilongwe. number of recipients in the long term, and that the phase-out will take place gradually. In total, approximately 95 per cent of the grants go to sub-recipients (GROs), while 5 per cent go to CBOs. While NAC does not pay the organisations' salaries, they can use the funds for compensation of expenses such as transport, food and lodging GAVI's implementation model in Malawi GAVI's support to Malawi is channelled through its vaccine programme (Expanded Programme on Immunisation EPI), which is part of the MoH. The country's health authorities are accordingly a recipient of support from GAVI. GAVI's main partners are UNICEF and the World Health Organization along with the head of Malawi's vaccine programme. These three partners collaborate daily. Vaccinating in Malawi is done both at the hospitals/ health centres and through outreaches, which means that unskilled Health Surveillance Assistants (HSAs) go to the villages and give vaccines there. In an interview, GAVI estimated that about 80 per cent of children are reached through health centres, while 20 per cent are vaccinated by the outreaches. 6.4 The funds' goal attainment and results The Global Fund's goal attainment in Malawi The Global Fund summarises the progress of the various programmes through performance reports and score cards. 62 Each programme receives an overall score, called a total grant performance, in connection with the disbursement of grants, which happens at intervals of 3, 6 or 12 months. The programmes are ranked A1, A2, B1, B2 or C, where A1 is the best grade and C is unacceptable. 63 In addition, a programme can for various reasons not be given any grade at all. Figure 4 shows the various programmes' relative performance categorised by disease for the entire programme period In figure 4, the scores for three different HIV/AIDS programmes and two malaria programmes are combined. In all, the figure is based on 38 ratings 62) See Grant performance reports and Grant Score Cards, theglobalfund.org/en/grant/list/mlw. Retrieval date 20 January ) A1 is more than 100 per cent target attainment, A2 is between 90 and 100 per cent target attainment, B1 is between 60 and 89 per cent target attainment, B2 is between 30 and 59 per cent target attainment, while C is less than 30 per cent target attainment. 62 Document 3:8 ( ) Report

65 that have been given to the various programmes in the period The grade for each programme in the figure has been converted to a percentage to make it possible to compare the performance of the programmes, although some programmes have far more ratings than others. The number of ratings is as follows: HIV/AIDS has received 24 ratings, malaria 5 ratings, tuberculosis 5 ratings and support for health system 4 ratings. Figure 4 The relative performance of the Global Fund's programmes in Malawi divided by type of disease for the period % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % HIV/AIDS Malaria Tuberculosis Health system A1 A2 B1 B2 C Source: The Global Fund. The figure combines three HIV/AIDS programmes and two malaria programmes, of which one has been concluded. The figure is based on 38 surveys in all In general, the figure shows that the grade B1, which means satisfactory and implies a goal attainment rate of between 60 and 89 per cent, is awarded the most frequently for almost all diseases and programmes. HIV/AIDS programmes show the best goal attainment: Nearly 30 per cent of these ratings exceed the target requirement. The tuberculosis programme is the worst performing programme, with 60 per cent unsatisfactory (B2) or unacceptable (C) grades. Only the malaria and tuberculosis programmes have received the poorest score, and only the HIV/ AIDS programmes have achieved top scores. Half of the grades received by the programme for the support of health systems are acceptable (B1), and half unsatisfactory (B2). Because there are two principal recipients of the Global Fund's programmes in Malawi NAC for the HIV/AIDS programmes and the MoH for the other programmes Figure 5 shows the relative difference in achieved results between these. Figure 5 The relative performance of the National Aids Commission and the Ministry of Health's programmes for the period % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % AIDS Commission A1 A2 B1 B2 C Source: The Global Fund. The figure is based on 38 surveys in all. Ministry of Health The figure shows that the programmes administered by NAC generally score better than those under the MoH. While NAC programmes achieve the best grade (A1) for nearly 30 per cent of their ratings, none of the MoH programmes achieved better than grade B1. The MoH received an unsatisfactory (B2) or unacceptable (C) grade for half of its ratings. The Global Fund also stated in an interview that the MoH lags consistently behind NAC in terms of results and grant management. The Global Fund says that NAC has been viewed as an exemplary recipient, while the MoH has been perceived as being compartmentalised, with little coordination between departments. According to the Fund, one explanation for this is that NAC has salaries that enable it to retain managers, and they do not have to rotate people between sectors, as is the case in the central administration in Malawi. The Embassy also notes that NAC has been efficient in implementing its programmes and has been in a better position to work with preventive activities than the MoH, through its ability to operate through grants to a large number of sub-recipients around the country The Global Fund's results An evaluation from 2009 of what the Global Fund has achieved in Malawi, points to significant results with respect to the number of people receiving life-prolonging anti-retroviral treatment Document 3:8 ( ) Report 63

66 2004 just under 11,000 people received ARV, the figure had risen to almost 277,000 people in The coverage rate has therefore also increased significantly, from 3 per cent in 2004 to 67 per cent in MoH figures for 2011 show that the coverage rate varies between the different parts of the country: in the central-eastern part of Malawi the coverage rate is 98 per cent, while it is 45 per cent in the south-eastern part. Moreover, the coverage rate is much lower, 32 per cent of children under age 15. In a letter, the Ministry of Foreign Affairs referred to 2010 figures from the World Health Organization indicating that the average ARV coverage rate for all low- and medium-income countries was 47 per cent. Patients waiting in queue for medicines, Lungwena Health Centre. Source: Office of the Auditor General of Norway (ARV). 64 While a very limited number of people had access to treatment in 2004, around 300,000 people were receiving treatment at the end of 2011 according to the Global Fund. 65 The development of HIV/AIDS treatment is illustrated in table 9, which shows the number of sites that offer anti-retroviral treatment, the number of people receiving treatment, and estimated coverage (how many people are being treated as a percentage of those who need it). The table shows that there has been a large increase in the number of sites that offer ARV, and the number of people who receive them. While in In the population survey from 2010, the number of adults (age for women and age for men) living with HIV in Malawi was 11 per cent, down one percentage point from The Ministry of Foreign Affairs said in a letter dated 30 November 2012 that the percentage of HIVinfected persons in Malawi has dropped even more, to 10 per cent GAVI's results in Malawi Many deaths occurring during the first few years of life could be avoided by vaccination at an early age. 66 With support from GAVI, Malawi replaced the DTP vaccine with the pentavalent vaccine in per cent of all children under two years of age received three doses of DTP or pentavalent vaccine in This equals more than 2.1 million doses of vaccine. In comparison, vaccine coverage for DTP3 in GAVI-supported countries averaged 79 per cent. 68 In interviews, GAVI stated that as a result of a combination of factors: a population that is relatively easily reachable Table 9 The number of sites offering ARV, and the number of people receiving ARV, for the period Sites offering ARV * Patients who are living and 10,761 29,087 59, , , , , ,897 receiving ARV ** Coverage rate for ARV in per cent * ARV are considered necessary with CD4 < 250 cells/mm 3. ** Many patients who received ARV are no longer living and are not counted. Source: MoH in Malawi 64) Impact Evaluation Study: Health Impact of the Scale-up to Fight AIDS, TB and Malaria with Special Reference to the Global Fund. Country Report Malawi. August ) Interview with the Global Fund in Geneva in March ) DHS (2010). 67) DHS (2010). 68) Prop. 1 S ( ) Proposition to the Storting (draft resolution), Ministry of Foreign Affairs. 64 Document 3:8 ( ) Report

67 along with the use of mobile vaccination clinics in rural communities, Malawi has a high vaccine coverage rate compared with a number of other countries in Africa. 69 GAVI also attributed the success of the programme to the fact that the vaccine programme in Malawi has qualified management and a well-functioning cooperation between Malawi's health authorities, UNICEF and the World Health Organization. GAVI also noted that vaccines do not have a large potential black market like the one that exists for medicines. This simplifies the situation for both storing and distributing vaccines. Figure 6 shows that the coverage rate for the pentavalent vaccine rose from 64 to 93 per cent in the period Figure 6 Coverage rate per year for the pentavalent vaccine in Malawi for the period , in per cent Hundreds 100 % 90 % 80 % 70 % 60 % 50 % 40 % Coverage of pentavalent vaccine Source: GAVI s website (WHO/UNICEF estimate) While the coverage rate for the pentavalent vaccine has fluctuated in the period, it has stayed at over 90 per cent since Figures for 2009 also show that only one of Malawi's 28 districts had less than an 80 per cent coverage rate, while no districts had a coverage rate below 50 per cent. 70 According to the World Health Organization, a child is considered fully vaccinated if he or she has received a BCG vaccination against tuberculosis; three doses of DPT to prevent diphtheria, tetanus and pertussis; three doses of polio vaccine; and one dose of measles vaccine. These vaccinations should be received during the first year of life. 69) Notes from the OAG's (accounting department) interview with GAVI 28 February ) GAVI's website, Retrieval date 16 December Multiple sources show that Malawi has achieved a high level of vaccination. 71 Annual reports for 2010 submitted by the health authorities to GAVI cited a national immunisation rate of 95 per cent. 72 The most recent population survey from 2010 showed a national immunisation rate of 81 per cent of all children between one and two years of age, while the corresponding figure in 2004 was 64 per cent. In 2010, 72 per cent were fully vaccinated during their first year of life. The proportion of children who have not received any vaccines also shows a decrease from 2004 to 2010, from 4 to 2 per cent. 6.5 Adaption of funds to the disease burden The needs and requirements of the individual developing countries must serve as the fundamental basis for assessing the types of initiatives that should be prioritised, cf. Recommendation No. 269 ( ) to the Storting. Estimating the burden of disease involves providing comprehensive, consistent and comparable information on disease and injury at the regional, national and global levels. 73 DALY is a method for measuring a country's disease burden. DALY stands for Disability Adjusted Life Year and shows the number of years lost due to premature death or incapacity. DALY combines information on morbidity and mortality. One DALY represents one year lost in an otherwise healthy life. The Global Fund In 2008, HIV/AIDS represented 29 per cent of the total disease burden in Malawi, while malaria and tuberculosis accounted for 9 and 2 per cent, respectively. These three diseases were respectively 1st, 3rd and 6th on the list of causes of disease burden. 74 HIV/AIDS is thus the most common cause of death and disease in Malawi, while for children under five, malaria is the most frequent cause of death. 75 UNAIDS notes that in 2009, 920,000 people in Malawi were living with HIV, and there were 51,000 AIDS-related deaths that year. For 71) Roll-Hansen et al. (2009) Towards universal childhood immunisation. An evaluation of measurement methods. Statistics Norway. 72) Annual progress report (2010). 73) Obtained from the Norwegian encyclopedia Store norske leksikon: Retrieval date: 23 April ) Bowie, Cameron and Takondwa Mwase (2011) Assessing the use of an essential health package in a sector wide approach in Malawi. 75) The National Malaria Control Programme. Malaria strategic plan , Scaling up malaria control interventions. Lilongwe, Malawi: NMCP. Document 3:8 ( ) Report 65

68 malaria, there were over 6,500 recorded deaths, while the estimated number of actual deaths was almost 13,000. For tuberculosis, the figure was estimated at 11 per 100, The latter figure does not include people who had HIV as well as tuberculosis. In the Embassy's opinion, the Global Fund's grant to Malawi is well-adapted to Malawi's disease burden. HIV/AIDS is by far the leading cause of death for the entire population of the country. Malaria is also one of the major causes of death, and tuberculosis is important in combination with HIV/AIDS, said the Embassy. Considering the extent and effect of the disease, the Embassy considers the HIV/AIDS area's share of the resources to be reasonable in relation to the disease burden. The Embassy believes that the Global Fund is an appropriate channel for Norway to use in the effort to achieve the MDGs. Channelling funds through the Global Fund significantly reduces the administrative burden for Norway. The Global Fund can absorb relatively large funds. Moreover, it is set up to combat specific diseases that r epresent important parts of the disease burden. This is in line with Norwegian priorities. GAVI 77 Vaccination directly helps to reduce a country's disease burden by preventing child mortality. Meld. St. 11 ( ) Report to the Storting (white paper) points out that GAVI's goal is to help prevent 3.9 million deaths by vaccinating 250 million children by In Malawi, GAVI has been funding two of the vaccines in the pentavalent vaccine, Hib b and HepB, since The three other vaccines in the pentavalent vaccine, DPT (diphtheria, pertussis and tetanus) were already part of Malawi's vaccination programme and are fully funded by the Malawian authorities. 6.6 Parallelism One of the objectives of the Paris Declaration is that donors are to make use of the country's existing systems. 76) The Global Fund's website: Country/Index/MLW. Retrieval date 15 May ) Information on vaccines was obtained from the World Health Organization Fact Sheet: fs294/en/ and Retrieval date 9 May The Global Fund The Global Fund uses parallel systems for procuring and distributing AIDS medicines (ARV), and since the end of 2010 for procuring and distributing malaria medicine. According to the Global Fund, the parallel systems have been selected to ensure efficiency in medicine delivery, which CMS has been unable to ensure. This means that as of 2011 there were at least three different distribution systems for medicines purchased with support from the Global Fund in Malawi. At health facilities, however, the drugs are stored together. In addition, a Belgian company (AEDES) began working with CMS on a skills development programme in The Global Fund said in an interview in 2012 that it would take at least five to ten years to bring CMS up to an "appropriate level", provided all goes according to plan with the skills development programme. It is the wish of the Global Fund that all medicines are stored and distributed through a common system. The Embassy said in an interview that it is a problem for the Global Fund and NAC that the national system of medicine distribution (CMS) functions so poorly. Short-term considerations therefore warrant the use of parallel systems to distribute AIDS and malaria medicine to save lives and health. The result, according to the Embassy, is that as of 2012 there were multiple distributors of medicines and health supplies, as well as several NGO systems, such as the Clinton Health Access Initiative (CHAI) and Doctors Without Borders, in Malawi. According to the Embassy, the Global Fund is far from solely responsible for creating this parallelism in the distribution system. GAVI GAVI does not use any parallel systems in Malawi. All of the GAVI-supported vaccines are distributed together with the other vaccines in Malawi's vaccine programme. 6.7 Sustainability Recommendation No. 269 ( ) to the Storting on Climate, Conflict and Capital. Norwegian development policy adapting to change maintains that the main goal of Norwegian development assistance is economic and social development, measured in terms of the increased capacity of developing countries to safeguard the basic human rights of their own citizens. 66 Document 3:8 ( ) Report

69 Combatting poverty is crucial and is the objective that requires the greatest resources. The Global Fund The Global Fund is one of the largest donors to health in Malawi, both with respect to the battle against HIV/AIDS, malaria and tuberculosis, and with respect to support for health systems. The latter support has largely gone to strengthening human resources and infrastructure. The Global Fund is the largest contributor to the HIV/AIDS pool; in the period the Fund funded approximately 67 per cent of the pool. During the same time period the state funded 4 per cent of the pool. In an interview, NAC said that sustainability is a major challenge, and that the Commission is working continuously to get the Malawian authorities to increase their share. The Global Fund is solely responsible for funding all ARV in Malawi. Over 300,000 people in Malawi received ARV in 2012, and the number is likely to increase to 400,000 in 2014, the Fund stated in an interview. However, there has been a significant decline in the price of ARV, from around USD 1,000 per person per year in 2000 to around USD100 per person per year in This is due both to increased competition and increased demand, according to the Global Fund in an interview. ARV are part of the free EHP services, but are far from cost-effective, as EHP programmes are meant to be, according to Bowie et al. (2011). Yet, Bowie et al. believe that this can be justified as long as the Global Fund continues to fund ARV. The Global Fund is also a key donor in terms of training and remunerating Health Surveillance Assistants. In an interview, the Embassy said that the Global Fund pays wages to 7,000 trained Health Surveillance Assistants and a 26 per cent wage supplement to an additional 5,000 Health Surveillance Assistants through support for strengthening health systems. This agreement expired on 1 July The Embassy expressed concern about what will happen after this to the delivery of health services in rural areas unless the MoH prepares a plan for future funding. GAVI In an interview, the management of the Expanded Programme on Immunisation (EPI) pointed out that sustainability is a major challenge for the vaccination programme. The programme also requires additional funding for the introduction of the new vaccines against pneumococcus (pneumonia) in and rotavirus (diarrhoea) in Representatives from the immunisation programme also pointed out the sensitivity of vaccination. With annual cohorts of more than 600,000 children there will be serious consequences if the programme fails to work each and every year. 78 The Embassy said that when Malawi applied for the new and expensive rotavirus and pneumococcal vaccines in 2009, the economic outlook for Malawi was much brighter than it was at March An annual economic growth rate of eight per cent was projected. The financial sustainability of these vaccine programmes was deemed to be good, and it appeared likely that Malawi would be able to take over the funding after five years. As of March 2012, the situation is completely different and the prospects are bleaker, the Embassy maintains. The Embassy believes that in the current economic situation, Malawi cannot be expected to make greater efforts to ensure economic sustainability for the vaccine programme than it already does. GAVI said the organisation is likely to continue to fund developing countries for many years to come. While Malawi will not manage to take over funding in the short term, it may be able to do so years from now. GAVI is working on two fronts to ensure the sustainability of the vaccination programmes: Firstly, GAVI requires co-funding of the vaccines its supports, and even though the poorest countries do not pay much at present, GAVI believes co-funding sends an important signal to the countries. Low-income countries such as Malawi are to pay USD 0.20 per dose. GAVI said that Malawi has paid its share. The audit shows that the Malawian authorities paid between USD 0.3 million and USD 0.5 million for the pentavalent vaccine in the period The country has increased its share of funding from 3.5 per cent in 2008 to 8.4 per cent in On average for the whole period Malawi paid 6.4 per cent of the pentavalent vaccine, while GAVI covered the remaining 93.6 per cent. 78) From 1 November 2011 interview between the Office of the Auditor General and representatives who worked on the vaccination programme from MoH, UNICEF and the World Health Organization. Document 3:8 ( ) Report 67

70 Secondly, GAVI is working to bring down the prices of vaccines. In a 2010 evaluation 79 GAVI was criticised for not having done enough to bring prices down, and GAVI said in an interview that it was a naive assumption on its part to believe that vaccination prices would automatically fall because GAVI was a major purchaser. According to GAVI, increased demand did not lead to a decrease, since there were few suppliers (often only one). Instead, GAVI had to work diligently to get more vaccine providers. As of 2012, there were four participants/providers of pentavalent vaccine, and the price of the vaccine is on the way down. According to GAVI, it has also been important to prepare long-term forecasts of the need for vaccines over for several years. This has enabled GAVI to enter into long-term agreements with suppliers, who in turn have been able to offer lower prices thanks to the security inherent in a multi-year agreement. Bowie and Mwase (2011) argue that like ARV, the pentavalent vaccine is not cost-effective, despite the fact that they are part of EHP services. According to these researchers Malawi can switch back to the far cheaper DTP vaccine if GAVI's support should come to an end. While the pentavalent vaccine costs USD 298 per DALY, the corresponding price for the DTP and measles vaccine is only USD 7. By comparison, the price of anti-retrovirals (ARV) is USD 922 per DALY ) Second GAVI evaluation report (2010). 80) All EHP measures under USD 150 per DALY are considered costeffective by Bowie and Mwase (2011). 68 Document 3:8 ( ) Report

71 7 Resource flows in the health system As shown in Chapter 1, there has been a significant increase in resources for health-related purposes in the past ten to twelve years in many African countries, including Malawi. One question is whether the systems for managing the resource flow are adequate enough to ensure that increased resources translates into better health care in the rural areas, where the vast majority of Malawians live. This chapter explains the flow of resources in the publicly funded health service in Malawi, from donors to the Malawian authorities and through various stages depending on the source of the funding. It also deals with the type of resources that are involved: health human resources, drugs and medical supplies, funds for medical equipment and infrastructure, and the operating resources of district hospitals and their subordinate rural hospitals and health centres. 7.1 Funding and economic and administrative structure in the public health system Development and distribution of the health budget As defined in Malawi, the public health budget is divided into roughly three equal parts: salaries, wages and remunerations medicines and medical consumables medical equipment, development of infrastructure, other current expenditures such as transportation and food, and IT and institutional development Total annual costs in the SWAp-POW increased from MK 13 billion in to MK 46 billion in at constant 2011 values. Some of the increase is due to the fact that the value of AIDS and malaria medicines from the Global Fund have been included from fiscal year , see the discussion in Chapter 8.2. The expenditure breaks down to approximately two-thirds via the MoH budget chapter and onethird via the districts' budget chapters (see below) Flow of public funds to health-related purposes The structure of and cash flows to the health sector in Malawi are complex, and there is no overview or description of the economic and administrative structure of the sector. The description below is therefore not comprehensive, but is intended to explain the basic features and illustrate the complexity of the system. Part of the complexity is due to many players on the donor and recipient sides respectively. Another reason for the complexity is that the country has an ordinary fiscal budget structure for the health sector with a budget chapter, programmes, items and chart of accounts in accordance with ordinary public financial management, and that outside of this, a different architecture exists for the SWAp-POW (the pillars) with a corresponding structure for budgeting and accounting. When a financial report is submitted according to the ordinary fiscal budget structure, this cannot be used to submit a financial report for the SWAp- POW. All disbursements or transactions must be recoded and go through a new manual registration to reflect the structure of the SWAp-POW. This entails considerably more work and is a not insignificant source of error. Public health expenditure in Malawi is spread across 30 different budget chapters. These are the budgets of the MoH and Department of Nutrition, HIV and AIDS under the Office of the President and Cabinet (OPC), and for each of the 28 districts. The Ministry of Health's budget (Chap. 310) covers: salaries and wages for all health administration and public health institution employees (all levels), including salaries and wages for all health personnel at all CHAM institutions current expenditure at the four central hospitals and the MoH ordinary vaccines (not GAVI-funded vaccines) and the drugs and medical supplies that are purchased at the central level by the MoH or via UNICEF, and which are then donated to hospitals and health centres capital expenditures at all levels (buildings and medical equipment) Document 3:8 ( ) Report 69

72 UNICEF, which is in charge of procurement for Malawi, and further to the suppliers). Until very recently, only the pure monetary contributions from the funds have been included in the budgets. Source: Colourbox Funds to the districts (Chapters ) consist of operating resources outside of payroll funds for district hospitals, health centres and other institutions under the district level. This covers the district hospital's own procurement of medicines and supplies and other current expenditure which is discussed below. The Department of Nutrition, HIV and AIDS (chap. 94) and its subordinate National AIDS Commission (NAC) has a budget that consists primarily of funds in a joint pool of about USD 65 million per year ( ), which consists almost exclusively of aid funds, particularly from the Global Fund. Norway was a donor to the pool until In addition to the funds via the fiscal budget, there are significant resources for health purposes that are not reflected in the budget, so-called off-budget aid. It is very difficult to have an overview of all contributions, projects or programmes that are not included in the budget, but some sources exist. In the Aid Atlas survey, Malawi's MoF identified 247 different health projects, of which 208 were outside the fiscal budget. For example, all health projects with funding from USAID are not reflected in any of the health-related budget chapters described above. In 2010, different recipients in Malawi (including public hospitals) received health aid from USAID totalling nearly USD 60 million, which according to the MoF's overview was not included in the fiscal budget. This is equivalent to about 30 per cent of the SWAp-POW's total budget for that same year. Aid that bypasses the fiscal budget, is not limited to donors such as USAID, but also includes large parts of the grants from the global health funds. Since the grants cover medicines and vaccines that do not cause monetary transactions in Malawi, they have until recently not been reflected in budgets and accounts in Malawi (payment for, e.g., vaccines goes directly from GAVI to According to a 2012 overview prepared by the MoH with the support of the Clinton Health Access Initiative (CHAI), 46 different players currently fund an estimated health projects and programmes in Malawi. These are implemented by 125 unique players in nearly 200 constellations. NAC and its grant recipients come in addition. Total funding in the public and not-for-profit health sector amounts, according to the overview, to USD 545 million (fiscal year ). Of this, the Malawian authorities account for 15 per cent, while USD 464 million is from other donors. This is considerably more than what appears in the Aid Atlas, cf. 5.2, where the total health aid to Malawi was stated to be USD 230 million. SWAp-POW funding Funding of the SWAp-POW consists of a joint pool where Norway and other donors' sector budget support funds (operating resources) are combined with Malawi's own funds. 81 These donors have joint reporting and auditing discrete contributions from different donors to individual parts within the sector programme. While this requires separate reporting and auditing, the funds are exchanged to local currency in an intermediate account and go into the Malawian MoF's main account (MG1) an investment part ("Development part I" and "Development part II") with development aid money (particularly from the African Development Bank) and Malawi's own funds for investing in health infrastructure, respectively discrete funding called "below-the-line" funds from different donors to individual parts within the SWAp-POW, for which separate project accounts are established in banks where the MoH can use the funds completely independently of the MoF Funding for the SWAp-POW from donors who are willing to transfer the funds to the joint pool is collected in a separate foreign currency account in the Reserve Bank of Malawi (Foreign Currency Deposit Account). Payments in USD for goods and services from foreign suppliers are directly charged to this account. The remaining 81) The proportion of the SWAp-POW's budget that is Malawi's own contribution contains a certain percentage derived from the general budget support that the country receives from sources including Norway and the World Bank. 70 Document 3:8 ( ) Report

73 inventory is sold as needed, and revenue in local currency (Kwacha) is transferred to a new account. From this account the kwacha is transferred to the MoF's main account (MG1 82 ). From this point the health sector aid loses its "identity" as development aid and is mixed with other funds under the MoF's control. From the main account the funding is transferred to the health sector in two ways: either via different operating accounts for the ministry and for the central hospitals, or to the 28 districts' different operating accounts for the district hospitals and subordinate facilities, see below. HIV/AIDS pool A different model is employed for funding for the prevention and treatment of HIV/AIDS. Donors, with the Global Fund as the largest by far, transfer their funds to a so-called HIV/AIDS pool. This was also the case with Norway's funds while Norway was a donor. The Malawian government's own funds and international aid funds are combined in the pool. HIV/AIDS funding outside the pool is relatively modest. NAC administers this pool. The implementation model of the Global Fund and NAC is described in more detail in Chapter 6.3. NAC currently provides grants to approximately 130 different public and private players with the status of so-called "sub-recipients" for activities within treatment, prevention, mitigation and capacity building. The largest grant recipient is the Malawian MoH, which in fiscal year received approximately 15 per cent of the grant funds. In addition, the Ministry receives HIV/ AIDS medicines funded by the Global Fund, for which NAC is the principal grant recipient. NAC also provides grants to district authorities for equipment (e.g. bicycles) and pilot programmes for social assistance to families hard hit by HIV/ AIDS. Moreover, the Commission gives grants to community-based organisations (CBOs). Altogether, NOK 50 million has been disbursed to a total of 3,200 such organisations. During fiscal year , a total of NOK 5.5 million was disbursed to 650 different village organisations. Flow of funds to the districts Each district hospital with associated smaller clinics (rural hospitals and health centres) is administratively and medically managed by a District Health Office (DHO). DHO consists of a District Health Officer, who is supported by a District Health Management Team (DHMT). 82) Malawi Government Treasury Single Account (MG1). DHO reports to a District Commissioner, who is a civil servant appointed by and responsible to the Ministry of Local Government (MOLG). The health management's primary chain of command goes to the District Commissioner and MOLG, even if he/she also reports in a professional medical context to the MoH. The district's budget chapter includes operating resources for all sectors delegated to the districts. Totals are still earmarked for each sector. The released operating resources for the health sector are transferred from each district's main account in the Reserve Bank of Malawi to a separate operating account for health expenditure in a commercial bank. This is the end point of the cash flow, since all disbursements to suppliers of goods and services to the district hospital or its subordinate communities are made from this account. The administration at the district hospital is responsible for health centres and smaller hospitals in the district. It is responsible for all disbursements and accounting for its subordinate health facilities. In other words, these facilities do not handle cash, but get all of their supplies in the form of goods or services from the district hospital. Medicines are ordered by the district hospital from the state medicine depot (CMS), but are delivered directly to health centres. The districts also buy from private suppliers, often at substantially higher prices than the CMS operates with. The regulations require that such purchases are approved in advance. Medicines and vaccines that are funded by other means than the district's operating resources, are also delivered directly to health facilities from CMS' regional stores or through parallel distribution systems such as UNICEF, see Chapter Each month, DHO is to report on the consumption of operating resources (via the District Commissioner) to the Local Government Finance Committee (LGFC) and MoF. The system means that credit is granted for a new month when the consumption report from the previous month is submitted by the deadline (the 10th of every month). The credit for the next month will be granted by the MoF (Accountant General) to a commercial bank with which the DHO in a district has an account agreement. The bank will then release the funds by redeeming cheques or processing giros from DHO until the credit limit is reached. At the end of the month, the commercial bank is refunded disbursed funds from the Document 3:8 ( ) Report 71

74 Reserve Bank of Malawi, which draws on the district's group account in the Reserve Bank of Malawi. The system of a monthly credit limit was introduced as a measure against major overuse. Complex health architecture There is consequently a wide range of stakeholders, funding systems and models, and complex mutual relations in the health sector. An attempt is made to illustrate them in Figure 7. Figure 7 An economic and administrative overview of the health sector in Malawi Norway Funding The Global Fund GAVI UK Flanders Germany MoF MoH OPC/GOM WB Bilateral donors UNDP CDC/USA Management and implementation SWAp-pool MoH HIV-AIDS-pool NAC College of medicine, Malawi College of Health, Kamuzu College of Nursing, CHAM Central hospitals Below the line Discrete Discrete District hospitals Health centres MoLG AIDS coord. in the district GROs, incl. NGOs CHAM hospitals CBOs Implementing partners Local Health Surveillance Assistants (HSA) USAID PEPFAR Other bilateral organisations: Norwegian Church Aid, CHAI, Doctors Without Borders et al. Funding 72 Document 3:8 ( ) Report

75 7.2 Human resources and salaries and wages The combined expenditure on salaries and wages for the various levels of the publicly-owned health system (including central MoH) and in CHAM have increased in current values from MK 2.7 billion to MK 13.4 billion in the period , or from MK 4.9 billion to MK 13.8 billion at constant 2011 values. Increasing salaries and wages has been a key instrument for remedying the critical shortage of health personnel, see Chapter Skilled health personnel in state institutions have been given a special pay supplement of 52 per cent of base salary and unskilled Health Surveillance Assistants have received an additional 25 per cent. 83 Two sources of inefficient use of salaries/human resources in the health sector that have been highlighted in literature and in the media, are nonexistent employees or "ghost workers", and nonlegitimate or excessive absenteeism, which reduces the availability of health care staff (Lewis 2006) Non-existent employees The problem of disbursing wages to people who actually do not work in the health service, may be the result of poor administrative practices, but also deliberate fraud. There is limited knowledge about the extent to which the ghost worker phenomenon manifests Fact Box 2 Mismatch between human resource summaries As part of the audit, updated information was obtained from the MoH on the medical personnel at 13 different health facilities from basic health centres with two employees to one of the country's four central hospitals. 83 These were compared with a) information from the management of the various health centres/hospitals and b) information from the management of individual departments (shift schedules). The chart below shows that the number of medical personnel at the 13 institutions varies between these sources. For some facilities, such as Queen Elisabeth Central Hospital and Salima District Hospital, large gaps exist between the different sources; for the former the gap is from 474 to 843 employees. There are also large variations measured in per cent for many smaller health centres. Number of health personnel at various facilities according to different sources Unit Staff according to MoH Staff according to hospital management Staff according to head of department Queen Elisabeth central hospital Machinga district hospital Mlomba health center Nsanama health center Ntaja health center St. John-hospital Mzimba (CHAM) Jenda health center 3 no data 11 Luwelezi health center 2 no data 7 Mtwalo health center 3 no data 4 Salima district hospital Khombedza health center Lifuwu health center Senga Bay health center (CHAM) Total Sources: Office of the Auditor General of Norway, MoH The audit found no clear explanations for the lack of coherence between the sources. Part of the explanation may be that authorisations for one hospital are used by another hospital. This creates a very complex human resource situation at the individual hospitals and for the sector overall. This was also raised in the audit for the SWAp-POW for fiscal year , which pointed out several districts where wages are paid to individuals who are no longer employed, and in one case also to someone who was deceased. In an interview, the MoH in Malawi stated that the administrative system for the allocation of established posts will be reviewed in Includes unskilled nursing positions. Employees in administrative functions, including e.g. security guards, are not included. Document 3:8 ( ) Report 73

76 itself in Malawi. In 2008, the authorities in Malawi conducted a payroll audit covering the entire public administration. The audit revealed that there were 152 employees in the public health sector who were either unknown at the place where the payment was made, or who had resigned or been dismissed, died, retired or was serving sentence. 84 This represents just under 1 per cent of the employees in the sector. In 2011 a new method for disbursing salaries to government employees was introduced, both to streamline the disbursement process, but also to eradicate the problem of ghost workers. All state employees were required to open a payroll account in a bank, and salaries will now be transferred electronically directly into the individual's account. Previously, salaries were paid in cash. It was then common for designated personnel to bring envelopes with cash to individual hospitals and health centres, where the management would distribute them to the employees. In a letter, the Embassy said that the problem of ghost workers has been discussed in many contexts, including in the press, and that in the MoH undertook a comparison of payroll disburse ment with lists of actual employees. A number of discrepancies were then dealt with. An evaluation shows that a planned IT system for payroll and personnel management (HRMIS) has not been realised, and that no uniform method is used for collecting personnel information for the central authorities who are responsible for payroll disbursements Availability of personnel As part of the audit, the actual presence of health personnel was examined at 13 different hospitals and health centres. Table 10 shows the actual availability of health personnel on a random visit day in March Of those who collectively appeared on shift schedules, 67 per cent (792 of 1,185) were expected to be present at the day shift on the day of the visit. For some health centres this difference is larger than one would expect since a health centre usually has employees present during the day and only have minimum staffing levels after hours, which also applies to most departments at a district hospital. Of those who were expected to be present, 86 a total of 81 per cent (642 of 792) were actually present on the day of the visit (average of morning and afternoon). Figure 8 shows how the 13 facilities are distributed with respect to the availability of those who were expected to be present on the day of the visit. At three of the health centres, actual staffing on the day of the visit was in line with the shift schedules. Attendance at the remaining ten facilities ranged between 58 and 93 per cent. At the central Table 10 The availability of medical personnel at 13 different facilities (excluding administrative staff) Facility Filled positions (MoH) Employees listed on work schedules Employees expected at day shift on day of visit Employees present on day of visit Queen Elisabeth Central Hospital Machinga District Hospital Mlomba Health Centre Nsanama Health Centre Ntaja Health Centre Jenda Health Centre Luwelezi Health Centre Mtwalo Health Centre St. John Hospital Mzimba Salima District Hospital Khombedza Health Centre Lifuwu Health Centre Senga Bay Health Centre Total Sources: Ministry of Health (MoH), Office of the Auditor General of Norway 84) OPC (2008), pp ) DFID (2010a) pp ) "Expected attendance" means that an employee is listed on the day shift schedule for the day of the week when the audit team visited the institution. The shift schedule applies for a week. People who are on scheduled courses, holiday or sick for extended periods, are not included among those expected to be present. 74 Document 3:8 ( ) Report

77 Figure 8 Attendance percentage of those who were expected to be present according to the shift schedules 100 % % % % % 50 % 40 % 30 % 20 % 10 % 0 % Machinga Mlomba HC Machinga Nsanama HC Mzimba Luwelezi HC Mzimba St Johns HC Machinga Ntaja HC Salima Khombedza RHC Blantyre Queen Elisabeth CH Salima Lifuwu RHC Machinga DH Mzimba Mtwalo HC Salima DH Mzimba Jenda HC Salima Sengabay CHAM HC Source: Office of the Auditor General of Norway Figure 9 Actual presence, expected and unexpected absence at 13 facilities, medical personnel 100 % 90 % 80 % 70 % 60 % 50 % % 30 % 20 % 10 % % Nsanama Machinga Salima Senga bay CHAM Queen Elisabeth Ntaja Lifuwu St Johns Hospital Jenda Mtwalo Khombedza Mlomba Luwelezi % expected absence % unexpected absence % actually present Source: Office of the Auditor General of Norway hospital, 305 health care staff were present of the 365 that were expected to be there according to the work schedules. Figure 9 shows that the actual availability of personnel is significantly less than the number of employees indicates. At six of the facilities, 45 per cent or more of employees were not available on the day the audit team visited the facility, due to expected and unexpected absence. During the unannounced visit to Salima District Hospital in March 2012, the audit team noticed a significant difference between the morning and afternoon shift with respect to work attendance and general activity level. While there was a high level of activity before lunchtime at , there was much less activity in the afternoon, although the day shift lasted until Many employees left the hospital at lunchtime or early afternoon. Many employees also arrived later than the start of the day shift at This Document 3:8 ( ) Report 75

78 salary (fixed salary). 87 Following cuts made in 2011, the Malawian government rate is NOK 500 per day (for e.g. a doctor) for the first five days, after which it is reduced to NOK 130 per day. 88 In its performance report for 2010 the Embassy wrote that "the negative allowance culture is not unique to Malawi (where allowances are incomeenhancing, but not capacity-enhancing) but have major consequences in a country with weak capacity in the first place." The Embassy also writes that this will be followed up in discussions with the MoF. Subsistence and lodging allowance paid directly by the Embassy for attending courses, seminars and the like are now covered by guidelines agreed to by donors in High level of activity in the morning, Lungwena Health Centre. Source: Office of the Auditor General of Norway reduces the availability of personnel who are already in short supply Training, seminars, and subsistence and lodging allowance as reasons for absence In a study using data from 2008, Mueller et al. (2011) found that more than half of the absence was justified by training activities and meetings. Of those who had participated in training activities, the hospital staff spent an average of 16 days on such activities during a three-month period, while employees of health centres had spent 10 days on average. The study also refers to an interview with the management of the hospitals. They said that there is no time to make use of what the employees learn through training, because new training activities are constantly taking place. Moreover, the study points out that such activities have major financial consequences for health care workers, and referenced a statement from a hospital manager that there is great demand for training activities when there are financial incentives attached to them. Current subsistence and lodging allowance rates provide strong incentives for participation in courses or other activities that warrant allowances. Subsistence and lodging allowance varies by job level; for nurses, doctors and clinical officers the allowance for three days equals a month's In a letter, the Ministry of Foreign Affairs pointed out that many of these courses are required training in rolling out new programmes, or in connection with changing job duties for certain professions. Health care workers in Malawi have great responsibility, and many tasks are performed by occupational groups with relatively little basic education. The need for training is therefore vital. The lack of specialists in the system also makes it difficult to implement this training in the workplace. In a 2009 study of the income and expenses of Malawian health care workers funded by the German Agency for International Cooperation (GIZ), it emerged that various allowances accounted for about a third of the average monthly household income for a health care worker. 90 Of the total wages for a job as a health care worker, allowances constituted an average of 43 per cent. The study also indicates that the average household income of skilled health care workers is just over five times higher than the average expenditure 91 of a Malawian household. 87) Chief Secretary to the Government, the Office of the President and Cabinet: Circular dated 25 March 2011: Expenditure Control Measures. Furthermore, the following salary grade is applied: Doctors: F, nurses: I, clinical officers: H. 88) Chief Secretary to the Government, the Office of the President and Cabinet: Expenditure Control Measures, dated 25 March 2011 and Supplementary Expenditure Control Measures, dated 5 May The measure from May also means that allowance should normally not be paid for more than five days per employee per month. 89) The rates vary depending on whether accommodation and breakfast and other meals are covered by the organisers, and are different for stays in the major cities and the country at large, but they do not vary with position level. The rate for a day when neither accommodation nor any meals are covered, is equivalent to NOK 380 per day in the major cities and NOK 200 in the rest of the country. "Development partners' harmonization of daily subsistence allowance (DSA) and transport re-imbursements for implementing partners". The conversion is based on the exchange rate at the time the data was collected (NOK 1 = MK 30). 90) Bowie et al. (2009). 91) Since it is difficult to measure household income in Malawi, expenditure is measured instead, cf. the Integrated Household Survey (IHS), National Statistical Office. 76 Document 3:8 ( ) Report

79 A study conducted by researchers at the Christian Michelsen Institute (CMI) on remuneration in the public sector in Malawi and other countries, shows that travel expenses in the period 2006/ /11 amounted on average to 9.2 per cent of the country's state budget. The remunerations, and particularly those related to travel, make up such a large percentage of the total wages for government employees (29 per cent) that it does not function as reimbursement for actual expenses, but as a pay supplement. The researchers conclude that "Taken together, most of the irregularities and malpractices observed amount to bad governance, not only because public funds are wasted but also because they distort and reduce the efficiency of public administration, and ultimately cause hardship for poor citizens at the grassroot" (Søreide, Tostensen and Skage, 2012: p. 49). As part of the survey, documentation of expenditures for domestic travel and training for fiscal year was collected in seven districts. Analysis of the documentation showed that, on average, the subsistence and lodging allowance accounted for 95 per cent of total expenditure for domestic trips and training. If these seven districts are representative of all districts, this indicates that more than 17 per cent of the total operating resources for health care in the districts is disbursed as subsistence and lodging allowance to the staff of the district hospitals and subordinate facilities, see Chapter The districts' operating resources A number of countries have inadequate systems for public financial management, often combined with a weak or unstable revenue base. One consequence of this is that a public budget does not always give a good indication of the actual use of resources in an area like health. One reason may be that there is no correlation between what is budgeted, and what is actually being released by the MoF. Even though there is consistency between budgeted and released funds, it may be that the MoF releases funds late in the fiscal year. It is not always possible then to consume the funds by the end of the budget year. In the next budget, unused funds can then be withdrawn or transferred to other purposes than the sector to which they were first budgeted. Another reason that the budget does not give any good indication of resource use is that at intermediate levels or locally, the authorities reallocate funds between the sectors for which they have been delegated responsibility. Funds budgeted for health purposes may, when they reach the local authorities, be reallocated, for example to education-related purposes. A third reason could be various forms of irregularities, or poor ability to undertake, for example, construction projects or acquisitions, resulting in underutilisation. Both the mid-term and final evaluations of the SWAp-POW pointed out that there is little knowledge about how the funds are allocated to the districts. The final evaluation stated: "During budget preparation and execution there is no monitoring or oversight as to how much funds trickle down to health stations in rural communities, even though they are crucial for the effective delivery of health services." 92 The evaluation suggests that there is a disparity between the health centres' impact on the provision of health care and the resources at their disposal. The evaluation points to studies from 1991 and 1995, stating that a typical district hospital consumed 70 per cent of the district's operating resources while subordinate health centres and rural hospitals only received 30 per cent. As mentioned in 4.5.1, the operating resources of the districts constitute approximately 1/3 of the public health budget. It is to cover current expenditure excluding salaries and wages at the district hospital and its subordinate facilities, rural hospitals and health centres. The OAG wanted to examine the following concerning the operating resources of the districts: the degree of correlation between budgeted and released operating resources of the districts distribution of released operating resources during the year correlation between released and consumed funds distribution of operating resources with respect to types of expenditure the distribution of funds between the district hospital and subordinate rural hospitals and health centres Budgeted funds versus released funds An analysis of the figures for funds released to the districts for fiscal year shows that the amounts of released funds are identical with the budgeted funds (audited budget) for almost all the 28 districts. In the three cases where there were discrepancies, released funds were higher 92) EHG (2010), p Document 3:8 ( ) Report 77

80 Figure 10 Distribution of disbursement of current expenditure to the districts through fiscal year (kwacha) 1,000,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000,000 0 Juli August September October November December January February March April May June Actual Average Source: LGFC: Districts Local Funding Report than budgeted funds. 93 In an interview, the Accountant General of the Malawian MoF informed that the health budget is designated as "ring fenced". That means it is to have priority with respect to funding and disbursements Release of funds through the year With respect to transfers throughout the year, the final evaluation of the SWAp-POW shows that there is a tendency for the transfers in the months of April and May to be two to three times higher than the average for all months (EHG 2010, p. 156). According to the evaluation this makes implementation of the budget difficult. The audit analysed the profile of transfers to the districts throughout the year. The analysis shows that disbursements in the final months are slightly above the monthly average in the final months of the year, see Figure 10. However, it is unlikely that this happens on a scale that prevents the districts from spending the funds before the end of the fiscal year. In fiscal year the districts spent a total of 99 per cent of their released funds Operating resources distributed by types of expenditure The audit undertook an analysis of how the operating resources, except payroll funds, are divided among expenditure items. The analysis was done for fiscal year and covers 23 of the country's 28 districts. Table 11 shows that the three largest expenditure categories are drugs and medical supplies, domestic travel and expenditures for operating vehicles. Table 11 Distribution of operating resources for the health sector in the districts by sub-categories. Consumption as a share of total current expenditure. 23 of 28 districts, fiscal year Expenditure item Share of overall current expenditure (per cent) Domestic travel 17.1 International travel 0.3 Electricity, phone service 5.2 Office equipment and services 8.1 Drugs and medical supplies 37.8 Food 7.3 Training 1.2 Operation of motor vehicles 12.1 Maintenance of vehicles 3.7 Infrastructure and maintenance 5.0 Other* 2.2 Total (rounded off) 100 * Includes rental expenses, training materials, technical services, insurance, agricultural inputs, grants, or other goods and services. Source: LGFC Cost Centre End of Year Report ) SWAp Financial Monitoring Report for the Year Ended 30th June 2011, Ministry of Health. 94) SWAp Financial Monitoring Report for the Year Ended 30th June 2011, Ministry of Health. Most districts are between 95 and 105 per cent. Only one district has expended less than 90 per cent of released funds (Thyolo, 83 per cent). These represent 2/3 of total current expenditure, with drugs and medical supplies accounting for 38 per cent and domestic travel 17 per cent. There 78 Document 3:8 ( ) Report

81 understanding the totality of this aspect to know that most CHAM facilities are located in the districts and rural areas. Figure 11 Distribution of medicine expenditure between district hospitals and subordinate facilities, in per cent, fiscal year % 80 % Documentation for current expenditure, Chiradzulu District Health Office. Source: Office of the Auditor General of Norway 60 % are relatively large variations between the districts with regard to the distribution of types of expenditure. The percentage of total operating resources that goes to travel and operation of vehicles ranges between 17 and 46 per cent. The share of the operating resources spent on drugs and medical supplies varies between 11 and 50 per cent. 40 % 20 % 0 % Rumphi Mchinji Kasungu Dedza Balaka Chiradzulu Mangochi Please also refer to the discussion under on the proportion of the districts' operating resources going to subsistence and lodging allowance for staff at district hospitals and subordinate facilities Distribution of funds between the district hospital and subordinate health centres With the current model of public financial management in Malawi it is not possible to analyse how the district's total operating resources are divided among district hospital and the various subordinate health centres and rural hospitals. But since the medicines are delivered directly to the various facilities who order them (via DHO), it is possible to analyse orders/requisitions, documentation relating to deliveries and invoices to determine the breakdown of the funds spent on medicines. The audit team conducted an examination of the distribution of expenditure on medicines in seven districts in fiscal year Figure 11 shows the distribution between district hospitals and subordinate health centres/rural hospitals. In five of the districts the health centres and rural hospitals consume approximately 20 per cent of the medicine budget. Over 90 per cent of the population in these districts live in rural areas and are served by these subordinate facilities. In a letter, the Ministry of Foreign Affairs points out that the data do not include CHAM's facilities. According to the Ministry, it is important for 95) Expenditure on domestic travel and training amounts according to the results in Table 11, 17.1 per cent per cent = 18.3 per cent. 95 per cent of 18.3 per cent amounts to 17.3 per cent. Percentage for health centres and rural hospitals Percentage for district hospitals Source: Office of the Auditor General of Norway 7.4 Medicines and vaccines A significant portion of the resources in the health sector is spent on drugs and medical supplies, for convenience referred to hereafter as medicines. Expenditure on medicines accounts for just over one third of the budget of the SWAp-POW. Efficient procurement and efficient distribution and dispensing of medicines is therefore important for ensuring good use of resources. The values involved, and the fact that medicines are a scarce commodity, entails a risk of various forms of leakage en route from the manufacturer to the patient. Leakages constitute an economic problem in that scarce resources disappear. Leakages reduce the availability of a medicine in a hospital or health centre and also constitute a medical problem. They also impair the capacity to provide a uniform range of health services since inefficient procurement reduces the amount of medicines that are available, and since medicines that in principle are to be offered free to all, instead are often stolen and sold in the informal market. In 2006, the MoH in Malawi commissioned a study of the leakages of medicines in the public health system. The study stated that stock-outs and leakages were a significant problem: Document 3:8 ( ) Report 79

82 "The public health sector in Malawi has a big problem with leakage of medical supplies including medicines from its health facilities including the Central Medical Stores. These leakages grossly contribute to the virtually unacceptable high consumption figures of various medicines and other medical disposables such as different types of gloves as well as the rampant stock-outs of very vital/essential supplies. Malawi therefore has to bear a huge economical burden of supplies it can hardly afford and unwarranted lack of confidence in its public health service system due to stockouts. The stock-outs are also believed to be an exacerbating cause of rampant illegal vending that threatens human life. ( ) Whilst the foregoing is well known by the relevant authorities, the Government does not have a clear picture of the magnitude of the problem especially in view of the fact that the leakage covers the entire supply chain from CMS to the Health Centre/Health Post at the community level." 96 The report has not been discussed by the respective working groups for medicines and public financial management and procurement during the programme period. A review of the meeting minutes of the working group for public financial management shows that the only reference to the study is from a meeting in October 2009, when USAID suggested that the study should be given a second look. 97 The programme document for the next term of the SWAp-POW (HSSP ) provides for the appointment of a high-level group to consider the recommendations of the study and identify cost-effective measures. In a letter, the Ministry of Foreign Affairs points out that several steps were taken to improve the situation after the report was prepared. Some managers were replaced. For a period in 2006, CMS was placed under the management of a firm. Many of the measures implemented to strengthen the systems in accordance with the report, have been related to the findings in the Leakage Study, although it has not been followed up systematically. USAID/Deliver has worked with the authorities on several measures, and a pharmacy programme has been established at the College of Medicine. 96) Ministry of Health/O&M IT/S and Management Services Limited: Assessment of Drug and Medical Supplies Leakages from Medical Stores and Public Health Facilities. Final Report, November ) The medicines working group has not worked and held no meetings after April 2007, see (EHG 2010d) Final evaluation of the Health Sector Programme of Work ( ), Annexes, annex 13. Hospitals and clinics receive medicines in two different ways: Medicines are purchased from CMS, or, when CMS cannot deliver, from private wholesalers. CMS requires the purchase price plus a premium of 12.5 per cent to cover CMS' own costs. The idea is that CMS is to operate as a revolving fund using the proceeds from the sale of medicines to central hospitals and districts to purchase new supplies. The central and district hospitals are to pay invoices from CMS with operating resources allocated by the MoH. Health centres and rural hospitals order/ requisition through the district, but receive their medicines directly from the regional warehouses. It is the district hospital that is to pay for them using the operating resources earmarked for medicine purchases. Donated medicines (such as AIDS and malaria medicine) are distributed through the CMS system or other parallel systems, distributed according to lists that are prepared by the MoH Does procurement of medicines and supplies take place in an efficient way? In this context, efficient procurement refers primarily to getting the most medicines for the money, provided that they are of satisfactory quality and delivered on time. Good planning, including a strategic approach, sufficient capacity and expertise and competitive tendering based on equal treatment of tenderers are considered prerequisites for the implementation of efficient procurement. 98 CMS has primary responsibility for the procurement of medicines and medical equipment. CMS has had problems over several years, both in the financial area and in terms of internal control (Lewis 2011); see also RSM Tenon (2011), Cant (2011), OIG (2012). For procurements, Lewis (2011) points out that CMS lacks a good strategy for procuring medicines, has little ability to predict future medicine needs partly because it does not have access to reliable consumption data and has few qualified personnel. There are several documented cases where procurement rules have been broken by both MoH and CMS. This has caused procurements to be more expensive than necessary (RSM Tenon, 2011), and inefficient use of SWAp funds. Fact Box 3 summarises the cases where RMS Tenon's 98) See inter alia Lewis (2011) and the original SWAp-MOU's Annex L, Procurement Implementation Arrangements and Procedures for Pooled Partners (Annex M in revised edition from 2009). 80 Document 3:8 ( ) Report

83 Fact Box 3 Procurements made by CMS where the cheapest tenderer has not been selected General facts about CMS procurements: According to RSM Tenon's assessment, CMS selected the correct supplier, i.e. the cheapest, in 4 of 28 cases. In 14 cases potential cost savings were identified had the cheapest supplier been selected. In all, more than USD 0.5 million USD could have been saved. Many of the procurements lack required documentation, and it is therefore difficult for RSM Tenon and MoH to speak with full confidence about potential cost savings. Specifically for procurement no. 031/SW/G/DMS/08/01: The case concerns an additional procurement in June 2009, altogether worth nearly USD 3 million. RSM Tenon had, due to poor filing procedures at CMS, no opportunity to see the original tender documents. They therefore had to rely on POA's (see below) investigations. The part of the procurement RSM Tenon has looked at, concerns the purchase of amoxicillin, rabies vaccine, eye drops and oral rehydration salt. In these four cases the cheapest suppliers were not selected, nor has it been possible to find documentation on why the more expensive suppliers were selected. The rabies vaccines could have been purchased for USD less, while the cheapest quote for amoxicillin was USD less than what was selected. A total of USD could have been saved on these four products. MoH confirms that they have no documentation for this tender, and it has no further explanation of why the more expensive suppliers were selected. Source: RSM Tenon (2011) audit of CMS' procurement found that the cost of medicine procurements was higher than necessary. The audit was commissioned by donors to the SWAp-POW after their representative, who oversees procurement, notified them of deficiencies in a number of purchases. Cant (2011) also points out that both the choice of procurement procedures and failure to disclose procurement documents for external review and oversight have been in violation of the rules of the SWAp-POW. CMS has entered a vicious circle with respect to funding. CMS lacks funds, primarily because the district hospitals largely do not pay their bills to the CMS. In November 2010, the central and district hospitals had an outstanding debt with CMS equivalent to approximately NOK 100 million. 99 As a result, CMS does not have the funds to buy enough medicines to establish an adequate inventory. Because CMS is unable to deliver medicines to the districts, they are often forced to purchase medicines from private providers. These medicines are far more expensive than medicines that CMS could have purchased through international tender processes. However, CMS has not held inter national tenders since Medicines purchased through private providers can be up to five times more expensive than international prices (Lewis, 2011). 99) Technical Working Group on Financial Management and Procurement, 9 November External oversight of procurements Several external control systems have been established to help make CMS's procurements more efficient: The Office of the Director of Public Procurement (ODPP) 100 reviews and approves ratings of tenders undertaken by, respectively, the Procurement Unit in the MoH (medicine procurements below MK 20 million, equivalent to NOK 700,000) and the Committee for Procurement of Medicines (procurements over MK 20 million). ODPP will also subsequently review the tender processes to verify that their recommendations were taken into account. Beyond that, annual audits of public procurements in the health field are carried out. In addition, an external control mechanism called POA (Procurement Oversight Agent), which will work in parallel with the ODPP, has been formed to represent donors. A working group assigned special responsibility to follow up matters relating to procurement and financial management has also been established through the SWAp-POW. 101 A review of several studies looking at procurements in Malawi, including through CMS, shows that all of these control mechanisms have serious flaws and deficiencies. The quality of the annual procurement audits (Cant 2011, Lewis 2011) has 100) Office of the Director of Public Procurement. 101) Technical Working Group on Financial Management and Procurement. Document 3:8 ( ) Report 81

84 Dispensing medicine to outpatients. Source: Office of the Auditor General of Norway been questioned in various quarters. A letter from SWAp donors 102 expresses doubts about whether the firm that conducts the annual procurement audits, Amproc, actually it is the company it claims to be. In the same letter, the quality of the procurement audits is described as unsatisfactory. Amproc's conclusions regarding the procurements are described as unrealistic and the basis for conclusions incomprehensible. Both the donors and Cant (2011) conclude that there is a need for significant improvement in the external procurement audit, and that a different firm must be engaged to conduct the annual audits. RSM Tenon (2011) points out that the agreement between Malawi and donors to the SWAp-POW is unclear about the roles and division of responsibilities between ODPP and the POA, giving rise to different interpretations of which procurements the POA is supposed to review. ODPP has chosen to interpret the rules as meaning that the POA is not to receive anything other than international procurements. In practice, this means that the POA has not been involved in CMS procurements since 2009, since CMS has not carried out international tender processes in recent years. CMS has also decided to divide the procurements so that the procurements will not be forwarded to the POA for review. RSM Tenon (2011) concludes that CMS' interpretation is incorrect, and that a number of procurements should have been submitted to the POA for review. The Ministry of Foreign Affairs informs that the POA control mechanism has, in the Ministry's view, worked well since the POA warned donors about deficiencies concerning a number of purchases. 102) Letter to the Malawian Ministry of Health dated 11 May The technical working group on financial management and procurement 103 is intended to help oversee technical aspects relating to procurements. The donors of funds to the joint pool for the SWAp-POW have two representatives in the working group. The group was supposed to meet four times a year, but this has rarely been the case. A review of the minutes from the group indicates that the group has largely met twice a year, and that four meetings were conducted in only one of six years. In the case of the Procurement Unit and the Committee for Procurement of Medicines, Lewis (2011) points out that both have had low attendance at meetings where procurements are discussed. The same study points out that both committees have little experience and capacity with respect to evaluating tenders, and that this can lead to poorquality decisions. Cant (2011) questions the ODPP's ability to conduct objective external oversight of health-related procurements Distribution and dispensing of medicines The ordinary distribution procedure is that once a month, the district hospitals order medicines by sending a requisition to CMS. The associated regional depot delivers the medicines to and invoices the hospital, provided that it has the medicines in stock. When a regional depot makes a delivery to the hospital's pharmacy/medicine store, the delivery note for the received medicines is to be signed, the quantity must be recorded on an accompanying stock card ("Received" column), and each time medicines are withdrawn, the quantity and recipient is to be noted in the "out" column. The inventory on the stock shelf is to be counted 103) Technical Working Group on Financial Management and Procurement. 82 Document 3:8 ( ) Report

85 Figure 12 Average number of days in fiscal year with stock-outs of different antibiotics at different levels of the health service Number of days Amoxicillin Cotrimoxazole Metronidazole Doxycycline Erythromycin Central hospitals District hospitals Rural hospitals/community hospitals Health centres Source: The OAG, analysis of stock cards. N: Amoxicillin = 20; Cotrimoxazole = 19; Metronidazole = 19; Doxycycline = 20; Erythromycin = 15 and checked each month against the stock card. The procedure is the same for health centres. Availability and inventories As shown in Chapter 5.4.1, the official indicators of availability showed a clear improvement in the availability of medicines. All the tracer medicines have been available at nearly all hospitals and health centres in the latter part of the programme period. The final evaluation of the SWAp-POW points out that independent checks only partially support this conclusion, and refers to visits made at CMS' central and regional warehouses, hospitals and health centres, where availability was shown to be lower. The figure shows that stock-outs are a significant problem. Although reservations concerning the data should be taken due to weaknesses in the registration system, the investigation confirms the findings of other studies that stock-outs of key medicines are a common occurrence. While the situation is generally better at the central hospitals, availability is worst at the health centres. Stock-outs were noted at health centres for three of the five antibiotic drugs for 113, 165 and 327 days of the year, respectively. Hospitals and health centres shall at all times maintain stocks of basic medicines and medical consumables covering three months of average consumption. In , Muller et al. conducted a survey of the stocks of medicines used for treatment of four major diseases. The survey covered a total of 54 health centres and hospitals and showed insufficient inventories at a significant number of facilities, see Annex 2. In the spring of 2012 the audit team visited a total of 23 health facilities at all levels to check the availability of selected medicines (malaria, HIV/ AIDS, antibiotics, etc.) and health products (HIV testing, condoms, rehydration tablets, pentavalent vaccines) on both the day of the visit and over the course of one year (fiscal year ). Figure 12 shows the number of days per year with stock-outs of various antibiotics in the surveyed health facilities. Stock card for amoxicillin, Mbela Health Centre. Source: Office of the Auditor General of Norway Document 3:8 ( ) Report 83

86 Figure 13 Average number of days in fiscal year with stock-outs of malaria medicine, HIV tests, condoms and oral rehydration salt tablets at different levels of the health service Number of dayts Malaria (LA) HIV-test (Determine) HIV-test (Unigold) Oral Rehydration Salt (ORS) Condoms Central hospitals District hospitals Rural hospitals/community hospitals Health centres Source: The OAG, analysis of stock cards. Number N: malaria = 21 (since not all facilities have data for all types of packages, the average for the facilities that have data applies); HIV test Determine = 18;HIV test Unigold = 17, oral rehydration salt tablets = 17; condoms = 18 For AIDS medicine (T30) the entries on the stock cards were too incomplete to estimate availability. For malaria medicine (lumefantrine/artemether, LA), which is available in different packages, the average stock-out for the different types of packages was just over 170 days for health centres and rural hospitals, somewhat less at district hospital (93 days), while the central hospitals had almost no shortage of these medicines, cf. Figure 13. According to the stock cards, stocks of HIV tests were, on average, empty for almost one-third of the year, taking into account all facilities. The audit team also examined stocks of medicines in March Figure 14 shows consistently low inventory levels of antibiotic drugs that were included in the survey. The majority of health centres had less than one month's inventory on the day of the visit. The guidelines in Malawi say that the facilities are to have stocks equal to three months' consumption. The situation is roughly similar for the district hospitals, cf. Figure 15. For three kinds of antibiotics, one hospital (per medicine) meets the requirement for three months' inventory. The survey shows that there are also problems with malaria medicine stocks. Between three and Figure 14 Inventories of five types of antibiotics at eight health centres on day of visit, number of months' average consumption Number of health centres Amoxicillin Cotrimoxazole Metronidazole Doxycycline Erythromycin Under 1 month 1 to 3 months Over 3 months Source: Office of the Auditor General of Norway, analysis of stock cards 84 Document 3:8 ( ) Report

87 Figure 15 Inventories of five antibiotics at seven district hospitals on day of visit, number of months average consumption 6 Number of district hospitals Amoxicillin Cotrimoxazole Metronidazole Doxycycline Erythromycin Under 1 month 1 to 3 months Over 3 months Source: Office of the Auditor General of Norway, analysis of stock cards six out of eight health centres, depending on the package in question, had either empty or low stocks of malaria medicines on the day of the visit, i.e. less than one month's supply. For the district hospitals the situation was about the same as for the health centres. For the two HIV tests the survey shows that stocks were empty or low at six out of eight health centres, while three out of six district hospitals had empty or low stocks of the two tests. A review from November 2011 conducted by the British consulting firm ITAD showed that stocks of HIV tests in were empty for more than five months of the year. In a letter, the Ministry of Foreign Affairs points out that the lack of medical supplies was well known in the period the OAG has reviewed. The Ministry believes that this must also be considered in light of the particular conditions in Malawi during this periode. Lack of foreign currency and fuel complicated the procurement and distribution of medicines. Pilferage and leakages between CMS and hospitals/health centres The investigation then looked at pilferage or leakages between CMS depots in the regions and the health facilities. Figures for quantities of various medicines that each hospitals or health centre had signed in as received on the stock card were compared with what CMS had billed. It was possible to obtain invoices in only a minority of cases. For those cases where there was an invoice, the results are summarised in Figure 16. In the figure, only the facilities that have been billed for larger quantities than that recorded as received on the stock card are included. Some facilities also recorded larger quantities of medicines on the stock card than they were billed for, and thus have "positive leakage". They are not included. In the figure, data for medicines is based on three to seven facilities, while for HIV tests and rehydration tablets there is data for two and three facilities, respectively. Figure 16 Proportion (percentage) of medicines/materials that are billed and assumed delivered from regional medicine depots, but have not been recorded on the hospital's stock cards, fiscal year % 45 % 40 % 35 % 30 % 25 % 20 % 15 % 10 % 5 % 0 % Amoxicillin Cotrimoxazole Doxycycline Erythromycin Source: Office of the Auditor General of Norway Metronidazole Determine HIV-test Oral rehydration salt tablets Document 3:8 ( ) Report 85

88 distributed to hospitals and health centres. The survey covered fiscal year Some of the medicines in the sample that was surveyed, primarily antibiotics, were susceptible to theft due to their value on the informal market. An antibiotic (doxycycline) had a pilferage rate of 66 per cent, while a second (cotrimoxazole) disappeared at a rate of over 40 per cent. CMS said in its reply that the audit results were not realistic because they were based on a documentation of warehousing and management which unfortunately was incomplete. The audit report was submitted by the NAO in early 2012, but as of October 2012 it still had not been submitted to the Parliament by the President's office. The reason is that there are no funds for printing. Many empty shelves in the dispensary at Nkalo Health Centre. Source: Office of the Auditor General of Norway For antibiotic drugs in the sample, the difference between the amount billed by CMS and the amount recorded at the hospital/health centres ranges from per cent to 27 per cent. The leakage for the HIV test Determine is 45 per cent and almost equally high for rehydration tablets. The Malawi National Audit Office (NAO) conducted a survey of stock documentation including seven different medicines at CMS' central warehouse and its four regional warehouses that In September 2010, USAID learned that malaria medicine donated by USAID to Malawi had been stolen in Malawi and sold in other countries. In 2010 it also become aware of new thefts of malaria drugs funded by the Global Fund. As a result, USAID and the Global Fund stopped using the CMS as a distribution channel for malaria medicine. 104 Internal leakage at hospitals and health centres As reported in the media, etc., it is known that the magnitude of pilferage at hospitals may be considerable. 105 As part of the audit an attempt was therefore made to determine the extent of this type of pilferage. The amount of the various drugs delivered to health centres and outpatient departments at the various hospitals was compared for four selected months in fiscal year with the amount of medicine prescribed to patients at the outpatients' clinics/health centres. Not all facilities in the sample had such data (number of doses) for each of the four selected months. The totals for all facilities (the monthly Table 12 Internal leakage of medicines as a proportion of the total number of doses dispensed from medicine stocks to outpatient departments/outpatients, total for four months in fiscal year Difference between quantity delivered (stock card) and prescribed (Patient Records) doses Delivered to outpatient departments/outpatients according to stock card doses Leakage as a percentage of the quantity delivered to out patient departments/outpatients (according to stock card) N = number of hospitals/health centres Amoxicillin 1,044,880 1,512, % 7 Cotrimoxazole 1,044,606 1,454, % 11 Doxycycline 331, , % 13 Erythromycin 212, , % 6 Metronidazole 678, , % 12 Source: Riksrevisjonen, analyse av lagerkort og registre for dagpasienter 104) USAID OIG (2012). 105) E.g. BBC Panorama 24 November 2008 and Malawi Observer, 29 November Document 3:8 ( ) Report

89 Distribution of medicines from CMS' regional warehouse, Blantyre. Source: Office of the Auditor General of Norway Medicines are sold in the informal market. Source: Office of the Auditor General of Norway observations) where these data were available are shown in Table It is evident from the table that over 70 per cent of what is recorded as dispensed from the medicine stores at the hospitals/health centres to the outpatient departments cannot be accounted for. Although reservations must be taken regarding the underlying data, it clearly emerges that the leakage is of a considerable magnitude. This is supported by statements from several respondents who were interviewed. The top administrative manager for the health service in one district stated: "Pilferage of drugs and supplies is indeed a problem. Sometimes you may feel that all is well and yet somebody somewhere is taking away drugs without your knowledge. And you go to records you find that everything is in order. Oftentimes you wonder that we have been buying all the drugs and all the necessary supplies but in two or three days' time they are not there and you wonder what is really happening. So you tend to wonder as what is happening." The consultants who did the registration, observed at a district hospital that employees intentionally gave patients smaller doses than were recorded on their patient cards. The consequence of stock-outs is significantly higher costs for the hospital: they must turn to commercial players (private pharmacies and suppliers) to buy medicines at a much higher price than they have to pay when purchasing from CMS Is the distribution of vaccines effective, and the chain of refrigeration good? Malawi's Expanded Programme of Immunisation (EPI) is a part of the Malawian Ministry of Health. While the Malawian authorities and GAVI fund all the vaccines in the country's routine immunisation programme, UNICEF organises the actual purchasing. UNICEF itself does not fund any vaccines, but is helping to fund the cold chain (refrigerated storage system for central, regional and local warehouses and The drugs in the sample are probably attractive in terms of revenue opportunities at street level, to private pharmacies and to private clinics. 106) The figures in the table are for those facilities that have data for all four selected months for both medicine delivered from warehouses and for patients. The intention has been to exclude facilities where poor recording practices provide data that indicate pilferage. In the table all facilities with monthly observations where, according to the stock card, no amoxicillin has been delivered but where, according to the patient registry, amoxicillin has been dispensed to a given number of patients, have been removed. This reduces the number, N, in the table for some medicines. If such observations were included, N would increase to between 10 and 15 without the results changing by more than one percentage point, except for amoxicillin: 4 per cent. Refrigerators and cold storage for vaccines, Nkalo Health Centre. Source: Office of the Auditor General of Norway Document 3:8 ( ) Report 87

90 data on received vaccines and vaccines given, and thus was able to calculate its inventory and how long it would last with normal consumption. Malawi has not experienced any shortage of pentavalent vaccines at the central level or at regional depots in the last ten years. Locally, there have been periodic problems caused by deficiencies in systems for requisitioning and distributing vaccines between facilities, as well as due to lack of fuel. 7.5 Flow of funds to medical equipment There is little systematic knowledge about the equipment situation at the health centres and hospitals. In 2010, a study was conducted of Emergency Obstetric and Neonatal Care (EmONC) equipment at 309 facilities. One major finding was that none of the sets of equipment were c omplete. Resuscitation equipment was generally missing, and vital parts for neonatal care equipment were often lacking at both hospitals and health centres. 107 Nkalo Health Center. Source: Office of the Auditor General of Norway distribution between the warehouses at different levels) and ensure the logistics. All vaccines, both those funded by Malawian authorities, and those funded by GAVI, are distributed through a joint public cold chain. While many countries have a single common storage and distribution system for vaccines and medicines, Malawi does not. Although vaccine coverage in Malawi is high, both the Embassy and representatives of the EPI programme expressed concern for vaccination coverage going forward. This is mainly due to reasons such as: larger cohorts, which will reduce the percentage unless increasingly more vaccine doses are purchased, lack of fuel, which makes distribution more difficult, and the risk of what will happen to the 7,000 local Health Surveillance Assistants funded by the Global Fund until 1 July The Embassy believes future delivery of health services in rural areas could be jeopardised unless the MoH prepares a plan for how local health assistants are to be funded in the future. The pentavalent vaccine, which is largely funded by GAVI, was included in the sample of medicines and supplies that were surveyed with respect to inventory and leakage at 23 facilities. Only one hospital had documentation (stock cards) with A study of the situation in laboratories at selected health centres and hospitals was conducted in The survey looked at the availability and condition of laboratory equipment. While the situation was consistently good at the central hospitals, the survey revealed significant deficiencies at health centres and district hospitals. In health centres, the percentage that posessed indicator equipment, 109 ranged between 5 and 44 per cent. The equipment functioned as it should, where it was available, for half of the equipment indicators. For the remaining three equipment indicators, the percentage that worked ranged from 0 to 69 per cent. For district hospitals, the equipment was available at between 23 and 62 per cent of the hospitals in the sample, and was functioning in most cases where it was available. As regards the availability of supplies for laboratory tests, the survey showed that facilities on all three levels lacked items for conducting tests for malaria and tuberculosis. 30 per cent of health centres did not have distilled water, and 17 per cent of them lacked disinfectant. During a visit to Dowa District Hospital the audit team observed that the hospital's main X-ray machine was broken. According to the staff it had 107) MoH (2011b), p ) MoH & USAID DELIVER (2009). 109) Sterilisation machine, weight, microscope, haemacue (measures hemoglobin in the blood), alcohol lamp, wire loop. 88 Document 3:8 ( ) Report

91 Defective CD4 cell counter. Such counters analyse the level of white blood cells in connection with HIV/AIDS treatment. Source: Office of the Auditor General of Norway Chimoto Health Centre. Source: Office of the Auditor General of Norway been out of operation for a long time. The situation in the dental department was the most precarious. They had very little equipment available, and the treatment they could offer consisted largely of pulling teeth. 7.6 Infrastructure Funds for developing infrastructure, such as construction of new health centres and hospitals, rehabilitation of existing buildings and connections to water, electricity and telecommunication systems are managed centrally by the MoH by an entity that plans and funds procurements for construction and rehabilitation. Funds for investments and rehabilitation are budgeted and accounted for centrally in the ministry, not the districts. The funding for infrastructure distributed to the districts consists primarily of funds for regular maintenance. As mentioned in Chapter 5.4.1, there has long been a vast underutilisation of funds for investment in infrastructure. For the period as a whole, Malawi has only managed to spend 40 per cent of its budget, and in fiscal year the percentage fell to 25 per cent. The underutilisation is due to very slow procurement and unrealistic plans from the suppliers. 110 The number of health centres and hospitals has remained unchanged throughout the period. 110) MoH (2011b), s. 24. A challenge in recent years has been the construction of staff housing. The construction of such housing was envisioned as an important tool in mitigating the human resource crisis in rural communities. Table 13 shows the annual expenditure on construction of staff housing. There was no expenditure on this item in fiscal years and In the two preceding fiscal years the country managed to spend 27 and 44 per cent, respectively, of what was budgeted, which corresponded to USD 2.3 and 10.8 million. Table 13 Annual expenditure on the construction of staff housing, million Malawian kwacha, Fiscal year Budgeted Consumption Percentage used , % ,433 1, % Not specified for staff housing 0 0 % , % Source: Annual audited financial statements for the SWAp-POW In a letter, the Ministry of Foreign Affairs confirmed that it is correct that the number of health centres and hospitals has remained unchanged throughout the period. Such a description, however, does not account for the creation of new departments, expansions of existing enterprises, construction of related enterprises such as medicine stores, etc. The Ministry notes that in such a Document 3:8 ( ) Report 89

92 densely populated country as Malawi it is not certain that the most effective method of providing better services to the population is to build new hospitals and clinics. As mentioned in Chapter 5.4.1, one of Malawi's goals is to upgrade health centres and hospitals so that 60 per cent of the facilities have the three basic infrastructure services: water, electricity and telecommunications equipment. The final evaluation of the SWAp-POW concluded on the basis of the hospitals' and health centres' selfreporting that this goal has been reached (73 per cent). During a visit to Salima and Dowa District Hospitals, the audit team noted that these services worked at these two hospitals. Reports in the media show that water supplies are often cut, and that sanitary conditions are highly inadequate. 111 At Dowa District Hospital we observed direct discharge of drains into ditches between departments. We were informed that power outages occurred daily, and the generator that serves the hospital during black outs, is old and worn. There was also an acute shortage of diesel to run the generator, and the hospital was consequently often without electricity. This creates critical situations for vaccines in refrigerators and freezers since vaccines have reduced efficacy if they have been exposed to heat. Regarding the transport of patients from health centres to district hospitals or on to central hospitals, there is as mentioned in Chapter no data on the situation with regard to the availability and condition of ambulances. At Dowa district hospital the audit team was told that two of the district's six ambulances were used to transport goods. Two others were used by the hospital to transport patients, and two were stationed out in the district. The Dowa district has about half a million inhabitants. 111) "Malawi: Hospitals Struggle Amid Water Shortage", (2011) allafrica.com/stories/ html. 90 Document 3:8 ( ) Report

93 8 Follow-up and oversight 8.1 Follow-up and oversight of bilateral funds: general budget support and SWAp-POW Introduction In Recommendation No. 93 ( ) to the Storting, the Storting's Standing Committee on Foreign Affairs endorsed the use of budget support for countries that are building a democratic form of government and sound public administration systems. Later, the Standing Committee on Scrutiny and Constitutional Affairs pointed out that with budget support it is difficult to verify the use of the funds, hence it is crucial that the Ministry of Foreign Affairs has a spotlight on such support and ensures that the necessary preconditions are met. The Ministry must ensure that local control and audit systems work satisfactorily, and the Committee notes that there must be clear criteria for the expected quality of the countries' management of public revenue when budget support is considered. To maintain the budget support, the results must be satisfactory or show progress. 112 In a letter dated 30 November 2012 the Ministry of Foreign Affairs refers to the assumption that sector support and general budget support can increase the risk of less efficient use of resources compared with traditional programme and project support. The Ministry believes there are several reasons to choose sector budget support and general budget support as a form of aid in the health sector in Malawi: "The Ministry assumes that health care is a public task that is largely carried out by public health enterprises. Consequently, most of the funding to the health sector will go through the government. Sector support and budget support provide access to a dialogue with Malawian authorities at the highest level. This led to the introduction of a stricter control regime for accounting, procurement and auditing (Joint Financial Agreement) in the health sector in It has also given the opportunity to provide technical assistance in the same areas. The Ministry believes that 112) Recommendation. No. 172 ( ) to the Storting from the Standing Committee on Scrutiny and Constitutional Affairs, cf. Document No. 1 ( ). when health aid is provided as health sector support, it provides a better overall view of the support to the sector, reducing the number of projects and thus increasing the potential for oversight, despite the limited capacity in the sector. Traditional project support and other parallel funding mechanisms give rise to many donors with different planning, accounting, reporting, audit and control requirements placing great demands on a limited staff, providing less opportunity for inspection and oversight and increasing the risk." In the following is presented: the criteria for the quality of public financial management as regards the Ministry of Foreign Affairs' guidelines for allocation of budget support how the Ministry of Foreign Affairs has reviewed the quality of Malawi's public financial management before allocating budget support other assessments of the quality of Malawi's public financial management how the Ministry of Foreign Affairs and the Embassy have ensured that development aid, in the context of weak public financial management, is used as intended Ministry of Foreign Affairs' quality criteria for public financial management with allocation of budget support The Ministry of Foreign Affairs has had guidelines for budget support since They were revised in 2004 and in The 2002 Guidelines state that the most important condition for providing budget support is that there is a thorough and practical poverty reduction programme and political will to implement it. It is stated in the document that this can be difficult to assess. It states that "the assessments of the political situation must not be too negative", and that development must not be negative. It is also important that sufficient donors are ready to participate. The recipient country must be willing to enter into a dialogue on and implement improvements in financial management systems. The guidelines from 2002 emphasise that there is a positive process in the recipient country; development does not need to have reached a certain level (benchmarks). Document 3:8 ( ) Report 91

94 The 2004 Guidelines state that budget support should normally only be given to countries where the political priorities are based on an acceptable strategy to reduce poverty. Attention should be paid to the country's willingness and ability to implement the strategy through the fiscal budget. It further follows that the quality of public financial management is essential in the evaluation of budget support. The preliminary assessment shall determine whether the recipient country's financial management is at a minimum level, and the improvements that have been or will be made. This applies to: clarity in roles and responsibilities publicly available information (openness and transparency) budget preparation, execution and reporting independent verification of integrity Benchmarks are to be used to assess public financial management as part of a budget support programme. Examples of such benchmarks are: "The recipient country shall have a budget act that specifies the responsibilities relating to public financial management", "Accounting policies and account code classifications are public and applied", "Decisions are documented and verifiable", "Effective measures have been taken to identify and eliminate corruption", "The accounts are audited by an independent body" and "Public authorities are held accountable for mismanagement and misuse of funds". The guidelines state that the different benchmarks can be weighted differently, and that even if a country does not meet all the requirements, it does not necessarily mean that the country should not receive budget support, provided that: a thorough evaluation of financial management and associated risks has been conducted the authorities have a credible programme for improving financial management potential benefits of budget support justify the risk these assessments are explicitly documented as part of the decision-making to provide support It further states that prior assessment of a budget support programme should include a systematic risk assessment in accordance with DFID's policies for managing financial risk in budget support. The risk assessment should identify risks, analyse the likelihood and impact and propose risk management. The final step in the preliminary assessment is an overall assessment as to whether the expected development outweighs the residual risk after the proposed risk management measures are implemented. According to the guidelines, the recipient country's efforts relating to public financial management, implementation of agreed reforms and necessary adaptation of technical support shall be monitored continuously. Two reports are to be prepared each year one joint report from donor countries and one from the Embassy. The joint report from the donor countries must include an assessment of progress and other relevant topics: annual accounts, audited accounts and report on how non-conformances have been followed up status report on reforms in financial management assessment of financial risk assessment of the country's accounting practices assessment of the country's system for public procurement report by anti-corruption body The Embassy's report is based on the donor countries' joint report, but must include the Embassy's own verification of the conclusions of the joint report. The report must include an assessment of the results achieved in relation to the objectives and expected results from the preliminary assessment, an updated risk assessment if new risks are identified, and conclusions with recommendations for changes to the work ahead. The 2007 Guidelines are based on the previous guidelines from 2004 and the principles of the Paris Declaration as well as OECD guidelines on budget support. According to the new guidelines, there are risks associated with all forms of assistance, and in some countries, the risk may be higher with budget support than other forms of development aid, partly because the country's public financial management may be weak. Channelling funds through public budgets and financial disbursement systems should still be considered, even in weak states, but with safeguards. Budget support is almost without exception given in combination with capacity development programmes. Because of the risks involved, a step-by-step approach is normally r ecommended for the introduction of budget support to the partner countries. The 2007 Guidelines do not refer to the specific benchmarks for quality of public financial management, as the 2005 version did. The introduction states that budget support should be considered in countries where the situation is satisfactory with regard to the following issues: implementation of poverty reduction strategy economic factors such as macroeconomic instability, corruption and public financial 92 Document 3:8 ( ) Report

95 management. Assessments of public financial management should use or refer to a specified framework for assessing the quality of public financial management, the PEFA system (Public Expenditure and Financial Accountability System). This is a system for assessing the status in six different areas of public financial management (credibility of the budget, comprehensiveness and transparency, policy-based budgeting, predictability and control in budget execution, accounting, recording and reporting, and external audit and parliamentary scrutiny), see also political issues such as human rights, multiparty elections and willingness to take action against corruption The guidelines state that there are no clearly defined risk limits that are acceptable for providing budget support, and that "Where the development arguments in favour of budget support are strong, a higher level of risk may be justifiable". The assessment should be future-oriented and focus on expected results and effects. According to the guidelines, the objectives and results should be measured by using benchmarks, and indicators should show progress. A selection of such indicators is often collected in the Performance Assessment Framework, which is a key document for results monitoring of budget support programmes The quality of public financial management in Malawi The Ministry of Foreign Affairs' assessments in 2004/2005 The SWAp-POW was the subject of a preliminary assessment in The assessment states that financial management and procurement capacity must be strengthened. It was pointed out that there is a high risk of development aid-related corruption in Malawi, and the reports from the National Audit Office in Malawi have pointed out cases of fraud, loss, poor accountability and lack of reconciliation of large balances in the central government accounts. Beyond this there is no assessment of the quality of public financial management. However, a number of measures for ensuring accountability and preventing misuse of funds are described. The measures consist of hiring a short-term financial management consultant and a long-term adviser on public procurement. Furthermore, the support is to be 113) SWAp Appraisal report (2004). followed up with biannual reviews and external audits of the accounts and of public procurement. The assessment also includes a description of the structure planned for the flow of funds from donors through the Reserve Bank of Malawi to the MoH and its subordinate facilities and local health authorities. The overall assessment is that the MoH has developed robust measures to ensure accountability at every level of implementation and to ensure efficient use of funds. Public financial management is also considered in the appropriation document 114. Financial management under the previous regime (before 2004) meant that aid funds were exposed to high risk. However, there were great expectations for the new president (2004). Donor countries were optimistic and believed Malawi would enter a period of relative macro-economic stability. The document refers to measures for mitigating the risk of misuse of funds: external auditor, longterm finance, financial management and procurement advisers, and that World Bank procedures would be used until further notice for procurements of goods and services, which entails international tender competitions for procurements above a certain threshold value. The Ministry of Foreign Affairs stated in a letter that all the recommended measures were implemented. As regards Norwegian support to the programme for joint general budget support, the preliminary assessment from 2005 states inter alia that there are signs of better public financial management, including tight fiscal policy, a more credible budget process and more efficient control bodies. But the assessment also points out that there are problems relating to the quality and timeliness of public accounts and audits, the incompleteness of the fiscal budget with respect to reflecting all public expenditure and revenue, roll-out of the IT system for financial management, etc. It stated that the authorities have initiated too many uncoordinated processes, and their ownership of many of the ongoing reform activities was questioned. The most serious risks are associated with weak financial management in the public sector and problems arising from the decentralisation of power. The preliminary assessment also points out that efforts were made by both the government in Malawi and donors to reduce the likelihood of most risks. Institutional weakness and capacity limits and hampers adequate implementation of some of the initiatives. In an annex to the preliminary 114) Malawi Health SWAp Appropriation Document (2004). Document 3:8 ( ) Report 93

96 assessment, reference was made to the large risk associated with weak public financial management in Malawi (major impact, moderate to high probability). 115 The appropriation document points out that financial management is weak despite the fact that there have been some improvements. 116 Public procurement continues to be an area with a lack of transparency, and the authority responsible for procurement is severely understaffed and inexperienced. To reduce the risks relating to public financial management, Norway and the other budget support donor countries support a number of institutions that will lead to more accountability and reform activities, where the most important is the Anti-Corruption Bureau, the national SAI, the Ministry of Economic Planning and Development and the National Statistical Office. In addition the risk is to be reduced by monitoring the development of performance indicators specifically directed at the quality of public financial management. The Embassy estimates, however, that the expected outcome and impact of budget support outweighs the risk that remains after risk management measures are implemented. The Embassy therefore recommends approval of the budget support. Recent assessments of the quality of public financial management in Malawi An appropriation document was prepared in 2008 in connection with an extension of the agreement on Norwegian support for the SWAp-POW. 117 The document refers to the mid-term review from the previous year, which highlighted the need for a better system for procurement and for accountability as critical challenges. At the next extension in 2009, a new preliminary assessment was prepared. 118 The assessment points to the lack of qualified personnel in financial management and failure to address the problem. It also shows the weaknesses in the medicine distribution system, which often causes stock-outs and expired medicines. The assessment also refers to the risk that is manifest when the MoH considers financial mismanagement to be a problem related to individuals instead of a systemic problem. Financial mismanagement is mentioned as a persistent problem. In the annex, reference is made to the 115) Preliminary assessment of three-year budget support agreement between Norway and Malawi (2005). 116) Appropriation document (2005). 117) Appropriation document, Malawi Health SWAp POW, addendum phase 1 (2008)). 118) Norad: Desk appraisal Malawi health SWAp (2008). Expired medicines, Chiradzulu District Hospital. Source: Office of the Auditor General of Norway fact that in its final review of support to the sector programme the World Bank concluded that the SWAp-POW had failed to address the weak financial management and administration. Overall, the assessment concludes that there are some very positive trends with regard to strengthening the health system and the supply of health care services. At the same time there are some areas that must be given greater attention and resources, where Norway, as one of the main donors to the SWAp-POW, can make a difference. Norad conducted a new preliminary assessment for the Embassy in 2010 when Norway was considering signing a new agreement on general budget support for the period The preliminary assessment refers to a so-called Public Expenditure and Financial Accountability Assessment (PEFA assessment) from 2008 that showed a positive trend for the quality of financial management in Malawi: Of 28 indicators, progress was made in 12, while 10 were unchanged. The Norad assessment cites the scores for the six areas of the PEFA assessment. The country achieved very good, good or average scores in four areas: a) credibility of the budget (correlation 94 Document 3:8 ( ) Report

97 between budget and accounts), b) comprehensiveness and transparency, c) policy-based budgeting and d) predictability and control in budget execution. In the e) accounting, recording and reporting and f) external audit fields Malawi received low or very low scores. Norad's assessment also refers to a review which showed that financial management was generally satisfactory, but that there were special challenges in areas such as budget execution, reform of the payroll system, procurement and auditing. The assessment concludes, however, that the technical capacity to manage public resources is sufficient to provide budget support. The overall conclusion is that the risks are more than outweighed by the budget support's expected results, and that Norway should therefore continue to provide budget support. In February 2011 the Embassy prepared an appropriation document that also concluded that the technical capacity to manage public resources is sufficient for providing budget support. According to the Embassy, progress in this area has largely been satisfactory. The document shows that challenges highlighted by recently performed special audits remain in place. The lack of qualified personnel is still a problem for financial management. This shortage of human resources is particularly problematic in rural areas, where it inhibits not only sound public financial management, but also improvements in the provision of services. The Embassy concludes, however, that the risks are more than outweighed by the expected results, and that Norway should therefore continue to provide budget support. Preliminary assessments and appropriation documents for Norwegian health sector support and budget support as presented above, contain descriptions of financial management with major weaknesses. However, progress has been tracked over time and the risk-reducing measures have been assessed as yielding a residual risk that is outweighed by the potential results. Other assessments of the quality of public financial management in the same period are presented below. Mid-term review of the SWAp-POW The mid-term review in 2007/2008 showed widespread weaknesses in financial management in the health sector: "There appears to be a widespread appreciation of the extent of the problems faced within the health sector with regard to financial planning, budgeting and reporting (p. 218). ( ) Serious financial management accountability issues have been highlighted in a series of external and internal audit reports. Deficiencies in stores control documentation and the lax control over stocks of general stores and drugs are repeatedly cited in all the reports of the internal and external auditors, indicating that this is a systemic problem affecting all the cost centres. The effects of this are that funds are prone to misuse as there is no system that will hold anybody accountable. Therefore, in these situations it is impossible to conclude that the funds were used exclusively for the purposes intended." (p. 220). PEFA In cooperation with the authorities in Malawi the budget support donors have carried out systematic assessments of the country's financial management in 2006, 2008 and 2011 (PEFA). The assessment covers six areas with a set of altogether 28 indicators. The six areas are: the degree of correlation between the budget and accounts (expenditure and revenue), both aggregate and the composition the budget's degree of comprehensiveness and transparency with respect to the inclusion of relevant expenditure/revenues and public access to basic information about the budget the budget process: degree of regularity and participation in the annual budget process predictability and control in budget execution: including payroll oversight, internal controls for non-salary-related expenses, efficient procurement, internal auditing accounting and financial reporting external audit and parliamentary scrutiny A value from A to D is assigned for each of the indicators. The results from the assessments are summarised in Table 14. Table 14 Score for Malawi in PEFA-assessments Number A Number B/B Number C/C Number D/D Number of values not awarded Source: Pohl Consulting (2011) Document 3:8 ( ) Report 95

98 The number of indicators with a low value of C or D was 18 in 2006, 14 in 2008 and 17 in Accounting/financial reporting, auditing and control have the lowest scores of the six areas PEFA covers. The Global Fund's internal audit In 2010 the Global Fund's Office of the Inspector General (OIG) undertook an audit of the Fund's grants to the MoH and NAC. 119 The Fund had then disbursed about USD 350 million. The positive results achieved in Malawi using the Fund's funds were recognised in the audit. It was also pointed out that the audit had identified significant weaknesses in the administration of grants, in procurement and administration of medicines and in financial management. The OIG pointed out that there was a need to strengthen the external audit of the SWAp-POW and budget control and to improve procedures and practices for dealing with financial documentation. The OIG had identified transactions in the period totalling USD 4 million that were ineligible expenditures, or lacked documentation. The OIG concluded that "despite the many positive results that have been made possible through grants from the Global Fund, there is significant risk associated with financial management, procurement and grant management." Consequently, the OIG cannot provide reasonable assurance that all funds are used as intended and in an efficient manner ("value for money"). The Fund demanded repayment of USD 4 million, of which USD 225,000 concerned the pool for the SWAp-POW. The rest concerned NAC. In a letter, the Ministry of Foreign Affairs stated that the audit report has been discussed at a special meeting of the CCM (Country Coordinating Mechanism). It emerged that the cases primarily concern lack of documentation for funds used early in the audit period. Norway has asked the financial adviser affiliated with the SWAp-POW to explore the issue further and offer advice to pool donors regarding follow-up of the matter. The Ministry of Foreign Affairs also shows documentation has been obtained for USD 680,000, and that the balance of approximately USD 3.3 million will be repaid over a two-year period from 1 July 2012 to a trust fund in the World Bank. Repayment has not been regulated in agreements for previous years. What has been 119) The Office of the Inspector General (The Global Fund to Fight AIDS, Tuberculosis and Malaria): Audit of Global Fund Grants to the Republic of Malawi, 3 August discussed in this case is repayment to a fund at the country level. The audit points out that the Integrated Financial Management Information System (IFMIS) at the MoH "does not generate key financial information. There is an urgent need to strengthen the capacity of systems through staff training, the implementation of audit recommendations and use the IFMIS to generate required information." Serious deficiencies in the filing of accounting documents in the Ministry were also pointed out. Reference was also made to the mismatches between amounts that were reported as disbursed by the MoH to various grant recipients, and the amounts the recipients, including several educational institutions, reported receiving. IMF assessment in 2011 At the invitation of Malawi's Ministry of Finance, the IMF performed an assessment in 2011 of ongoing reforms of the country's public financial management. 120 In the summary, the IMF stated that Malawi's authorities have made significant progress in reforming public financial management in the past four years. However, recent selfevaluations and PEFA evaluations had shown persistent weaknesses in the credibility of the budget process, the execution of the budget and accounting and financial reporting. On this basis, the IMF was to consider the key elements of the government's three-year public financial management reform programme and advise on further actions and priorities. The IMF was also asked to assess the integrity of the IFMIS. Concerning IFMIS, the IMF pointed out that functionalities had been implemented to strengthen the state's payment system, bolster expenditure control and contribute to better financial reporting. The IMF concluded that much work remains to consolidate these functionalities and derive full benefits from the system. The IMF also notes that illegal and criminal transactions had recently been carried out in IFMIS, which entailed a considerable financial loss to the state. IMF found serious weaknesses in the management and operation of the controls that the system was supposed to contain. In a letter, the Ministry of Foreign Affairs points out that it was Malawian authorities who discovered the irregular transactions, and that they had already launched an investigation when the IMF 120) IMF (2012), Fiscal Affairs Department: Malawi Public Financial Management Reforms. January Document 3:8 ( ) Report

99 review was done. The authorities are pursuing the matter through criminal proceedings and by preventing new cases. The advice from the IMF will be followed up through the public financial management reform programme, which is funded by a joint donor fund. The Ministry believes the case is a positive example of monitoring and cooperation between donors and the authorities. The IMF points out that while some progress has been made in financial reporting, several challenges remain that undermine the credibility of the authorities' financial reporting. This includes accounting data that is submitted late and is incomplete. Furthermore, the IMF points out weak systems for bank reconciliations and for forecasting cash flow. This limits the effectiveness of the management of government cash. With respect to the budget process, the IMF points out that considerable progress has been made in implementing a programme-based budgeting framework with a subprogramme structure and performance indicators. But there are weak links between fiscal macro aggregates, the ministries' strategic plans and budgeting in the medium term. This reduces the possibility of achieving a distribution of resources in line with the government's strategic goals. DFID assessment in 2011 DFID commissioned a risk assessment of financial management in the health sector in PEFA methodology was used here too to assess the situation in the six areas described above. The assessment concluded that the risk was high in two areas: a) predictability and control in budget execution, and b) external audit and parliamentary scrutiny. Furthermore, the risk was "significant" in the areas c) accounting and reporting and d) realistic budgeting. The risk was "moderate" in e) credibility of the budget, i.e. correlation between budget and accounts, and f) comprehensiveness and transparency, i.e. how much public expenditure on health is reflected in the budget. Two areas were given poorer scores, one received a better score, and the other two areas received the same score as in The following factors relevant to the quality of financial management were highlighted: At the district level the allocation of operating resources is heavily influenced by political and personal considerations and to a lesser extent on the basis of objective assessments of health needs. 121) DFID: Health Sector Wide Approach II and National Response to HIV and AIDS: Fiduciary Risk Assessment. Jeremy Cant, June Financial audits show persistent non-compliance with regulations and guidelines (slow and incomplete bank reconciliations, undocumented disbursements). There have been no meaningful steps to rectify these deficiencies. Violations of financial policies give rise to theft and misuse/ embezzlement, and donors have as long as there is doubt about the integrity of accounting data no guarantee that expenditures have been properly authorised and spent as intended. Weak oversight by management and limited internal audit: Finance managers do not undertake any effective controls. There is no culture for managers to be held accountable. The internal audit function has not been developed and is not able to assure management that the internal control is adequate and effective. Oversight of procurements is ineffective. There are problems in the supply chain for medicines and supplies. Weak chain of accountability: The NAO still has insufficient capacity, and parliamentary oversight is dependent on receiving audit reports on time, which often does not happen. There is a culture of not taking audit findings seriously. The result is that managers are not held accountable for mistakes and weaknesses. For NAC's part it was pointed out that the large number of beneficiaries threatened to make the national AIDS programme fragmented and inefficient. Long-term adviser's assessment In March 2011, a donor-funded long-term adviser who was placed in the MoH, undertook an assessment of the MoH's central financial management and administration (Cammack 2011). One important positive result that was highlighted, is that the "turnover", or the management of funds, increased by 130 per cent with an unchanged number of employees in finance and administration. Moreover, they had begun to produce financial reports with summaries of consumption and remaining funds in the budget. The weaknesses that were highlighted include personnel shortages, poor training in accounting and IT, procedures relating to payment vouchers, accounting deficiencies, settlement of advances, issuance of vouchers for fuel, bank reconciliations and weaknesses in the preparation of financial reports (consumption vs. budget). Concerning the flow of funds to the districts, the report points out that while it has improved, it is still erratic, and there is no monitoring of money and resources to front line services/clinics. Document 3:8 ( ) Report 97

100 Visit to CMS' regional warehouse, Blantyre. Source: Office of the Auditor General of Norway 8.2 The Ministry of Foreign Affairs and the Embassy's monitoring and oversight to ensure that funds are spent as intended Oversight access Under the agreements on general budget support and the SWAp-POW, Norway and Malawi are to cooperate fully to ensure that the goals and objectives of the programme are achieved. For that to happen, each party must ensure that the other party has the information that is reasonable to require in accordance with the programme. Malawi must permit representatives of Norway to visit any part of Malawi for purposes relating to the agreement, and to examine all relevant records, goods and documents. All procurement of labour, goods and services in the SWAp-POW must be done in accordance with the provisions of the joint agreement between donors and Malawi. No offer, gift, payment or other benefits of any kind, which would or could be construed as an illegal or corrupt act, shall be accepted directly or indirectly, as bribery or reward for the awarding of a contract. All such practices are grounds for termination of the agreement. Malawi shall upon request provide all relevant information about its procurement practices and procedures relating to procurement, and provide access to all relevant records and documents. The annual external audit, including the NAO's annual reports, will also serve as the audit of the annual sector budget support from Norway. Audits shall be carried out and delivered to Norway in accordance with the relevant provisions of the Memorandum of Understanding (MoU). Financial reporting and reporting on the attainment of targets relating to the programme shall be prepared and sent to Norway in accordance with the relevant provisions of the MoU. For general budget support, the audit is undertaken through the ordinary public audit in Malawi under the auspices of the Malawi National Audit Office (NAO). The Embassy informed that the audited financial statements are submitted by the NAO at one of the two regular meetings held 98 Document 3:8 ( ) Report

101 each year by the donor group and Malawian authorities. At the meeting, the NAO presents the audits that have been performed and how they are being followed up Norway's contribution to strengthening local control and audit systems In Recommendation No. 172 ( ) to the Storting, the Standing Committee on Scrutiny and Constitutional Affairs underlines that, in connection with budget support, the Ministry must be particularly careful to help ensure that local control and audit systems function satisfactorily. The Embassy in Malawi said that "it is the overall assessment of public financial management and economic governance that is decisive for the Embassy's assessment of whether budget support or sector budget support can be disbursed." An assessment of the NAO in Malawi is included in this assessment, and the quality of their work must be related to the quality of accounting systems and procedures, as well as the quality of anticorruption efforts and assessments of the level of corruption. The basis for the Embassy's ongoing assessments is information from the authorities in connection with biannual reviews of the budget support, the NAO reports that the Embassy receives, and external reports on public financial management. In particular, the external assessments used by the Embassy are the PEFA reports. Because the same method has been used over time, it has also been possible to measure progress in different areas. 123 The Embassy said that Norway has been aware of auditing deficiencies in Malawi. In young, poor nations, quality and capacity in public administration are a challenge, and building this capacity has been a key priority in Norwegian development aid, according to the Embassy. One of the prerequisites for the budget support is that Norway has supported capacity building in the public sector. In Malawi, the Embassy has given priority to providing support for capacity building in the areas of auditing, the battle against corruption, statistics and financial planning. The projects have been targeted at reducing risk in key areas and ensuring data and knowledge of the attainment of targets in key areas such as poverty reduction and health. The Embassy has therefore supported the Malawi National Audit Office (NAO) since ) Interview with the Embassy 9 March ) Letter from the Embassy to the Office of the Auditor General dated 3 August Main office of National Audit Office in Lilongwe.. Source: Office of the Auditor General of Norway to build capacity and expertise. Since November 2007, the OAG has contributed expertise to the project through long-term advisers and shortterm visits. In addition to this, other donors have provided support to the NAO. Knowledge of the NAO through the project and assessments from partners, the Swedish and the Norwegian SAIs, have also entered into the Embassy's assessment of the quality of the NAO's work. In a letter, the Ministry notes that the Embassy has worked comprehensively on risk mitigation measures to ensure that local control and audit systems work satisfactorily. In this work the Embassy has identified the following: capacity building in the national SAI, cf. discussion above capacity building in the Anti-Corruption Bureau and funding to increase its case processing capacity. The project is being carried out in cooperation with the UK capacity building in the Reserve Bank of Malawi in collaboration with the IMF and with the assistance of the Norwegian central bank capacity building in the National Statistical Office and Ministry of Economic Development and Planning with technical assistance from Statistics Norway The Ministry also notes that the Embassy has focused on strengthening its efforts in connection with the country's own audit and anti-corruption measures in line with the Storting's intentions. Norway has commissioned two special audits. One concerned procurement practices that included the CMS and was completed in 2011, see for further discussion and further followup. As a result of the special audit Norway and other donors instead channelled funds to buy medicine through UNICEF. Document 3:8 ( ) Report 99