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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

April 2013: 

President's Emergency Plan For Aids Relief: 

Drug Supply Chains Are Stronger, but More Steps Are Needed to Reduce 
Risks: 

GAO-13-483: 

GAO Highlights: 

Highlights of GAO-13-483, a report to congressional requesters. 

Why GAO Did This Study: 

PEPFAR, first authorized in 2003, has supported significant advances 
in HIV/AIDS prevention, treatment, and care in over 30 countries, 
including directly supporting treatment for about 5.1 million people; 
however, millions more people still need treatment. PEPFAR has 
allocated more than half of its funding to care and treatment and has 
spent over $1.2 billion to purchase ARV drugs. In addition to 
supplying ARV drugs directly in some countries, PEPFAR also helps 
partner countries manage their drug supply chains. GAO was asked to 
review PEPFAR-supported ARV drug supply chains. GAO examined (1) 
actions PEPFAR has taken regarding ARV drug supply chains and (2) 
partner-country ARV drug supply chain operations. GAO reviewed PEPFAR 
and the U.S. Agency for International Development (USAID) guidance and 
supply chain studies; analyzed 16 supply chain evaluations conducted 
in seven countries and published in 2011 and 2012; interviewed 
officials from OGAC, USAID, and other agencies; and conducted 
fieldwork in three countries selected on the basis of program size and 
other factors. 

What GAO Found: 

The President’s Emergency Plan for AIDS Relief (PEPFAR) has worked 
with U.S. implementing agencies, international donors, and partner 
countries to increase the efficiency and reliability of antiretroviral 
(ARV) drug supply chains. It has done so by improving drug supply 
planning and procurement as well as in-country distribution of drugs 
(see figure). First, PEPFAR has consolidated supply chains for ARV 
drug procurement for more than 20 partner countries to enhance 
efficiency and reduce costs and has begun further consolidation with 
other U.S. global health programs. Second, PEPFAR has improved 
coordination among donors by creating an information-sharing network 
to help detect and resolve supply gaps and other supply chain 
weaknesses and by developing an emergency drug procurement mechanism. 
Third, PEPFAR has provided partner countries with technical 
assistance, such as assessment tools and training, to help them better 
manage drug supply planning, procurement, and distribution. 

Figure: Elements of PEPFAR Drug Supply Chain: 

[Refer to PDF for image: illustration] 

Information management: 

Continuous cycle: 
Planning; 
Forecast; 
Procurement; 
Delivery in partner country; 
Distribution; 
Consumption. 

Source: GAO analysis of documents from PEPFAR implementing partners. 

[End of figure] 

Evaluations of partner-country supply chains reflect weaknesses in 
inventory controls and record keeping, which may increase the risk of 
drug shortages, waste, and loss. The Department of State’s Office of 
the U.S. Global AIDS Coordinator (OGAC) has issued guidance for PEPFAR 
emphasizing the importance of effective information management for 
efficient ARV drug supply chain operations. However, 11 of the 16 
supply chain evaluations GAO reviewed cited weaknesses in partner 
countries’ inventory controls; 7 of these 11 evaluations also cited 
weaknesses in record keeping, including incomplete or inaccurate data 
on the consumption of ARV drugs. These weaknesses can increase the 
risks of drug shortages, waste, and loss of inventory. In one country, 
an evaluation team identified losses valued at about $265,000. Human 
resource constraints contribute to these weaknesses, and PEPFAR is 
addressing them through technical assistance and training. However, 
OGAC does not require PEPFAR interagency teams in each country to 
develop plans to strengthen inventory controls and record keeping. Nor 
does OGAC require country teams to track the progress partner 
countries are making in measuring ARV drug consumption, waste, and 
loss. Thus, OGAC cannot ascertain the extent of partner-country supply 
chain weaknesses and take appropriate action to mitigate risks. For 
PEPFAR and partner countries to continue expanding treatment programs 
to serve up to 23 million eligible people, further improving drug 
supply chains is critical, particularly the efficiency of elements 
managed by partner countries. These improvements will become 
increasingly important as partner countries assume more responsibility 
for managing supply chains. 

What GAO Recommends: 

The Secretary of State should direct OGAC to require country teams to 
(1) develop and implement plans to help partner countries improve 
inventory controls and record keeping; and (2) track the progress 
partner countries are making in measuring ARV drug consumption, waste, 
and loss. State generally agreed with the intent of both 
recommendations; GAO revised the second to make it broader and more 
feasible to implement in differing partner-country contexts. 

View [hyperlink, http://www.gao.gov/products/GAO-13-483]. For more 
information, contact David Gootnick at (202) 512-3149 or 
gootnickd@gao.gov, or Marcia Crosse at (202) 512-7114 or 
crossem@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

PEPFAR Has Taken Steps to Strengthen ARV Drug Supply Chains: 

Information Management Weaknesses in Some Partner Countries' ARV Drug 
Supply Chains Pose Risks of Shortages, Waste, and Loss: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Department of State: 

Appendix III: GAO Contacts and Staff Acknowledgments: 

Related GAO Products: 

Figure: 

Figure 1: Elements of a Health Care Drug Supply Chain: 

Abbreviations: 

2008 Leadership Act: Tom Lantos and Henry J. Hyde United States Global 
Leadership Against HIV/AIDS, Tuberculosis, and Malaria Reauthorization 
Act of 2008: 

AIDS: acquired immunodeficiency syndrome: 

ARV: antiretroviral: 

CDC: Centers for Disease Control and Prevention: 

DELIVER: USAID Deliver Project: 

Global Fund: Global Fund to Fight AIDS, Tuberculosis and Malaria: 

HHS: Department of Health and Human Services: 

HIV: human immunodeficiency virus: 

NGO: nongovernmental organization: 

OGAC: Office of the U.S. Global AIDS Coordinator: 

PEPFAR: President's Emergency Plan for AIDS Relief: 

State: Department of State: 

SCMS: Supply Chain Management System: 

USAID: U.S. Agency for International Development: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

April 26, 2013: 

Congressional Requesters: 

Now nearing the end of its second 5-year authorization,[Footnote 1] 
the President's Emergency Plan for AIDS Relief (PEPFAR) has made 
significant contributions to international treatment goals for 
HIV/AIDS. [Footnote 2] As of September 2012, the Department of State's 
(State) Office of the U.S. Global AIDS Coordinator (OGAC) reported 
that PEPFAR's multibillion dollar investments in partner countries' 
programs had provided treatment for about 5.1 million people, more 
than half of all individuals enrolled in treatment in low-and middle-
income countries.[Footnote 3] As part of this assistance, PEPFAR 
purchased over $1.2 billion in antiretroviral (ARV) drugs during 
fiscal years 2005 through 2011 to treat people living with HIV. OGAC 
is leading PEPFAR's shift from an emergency program primarily 
providing direct treatment to one that increasingly supports partner 
countries' capacity to manage their treatment programs. In passing the 
Tom Lantos and Henry J. Hyde United States Global Leadership Against 
HIV/AIDS, Tuberculosis, and Malaria Reauthorization Act of 2008 (2008 
Leadership Act), Congress directed OGAC to continue to expand the 
number of people receiving HIV care and treatment support while also 
making it a major policy goal to build partner-country capacity to 
deliver services and promote a transition toward greater 
sustainability of country-owned HIV/AIDS programs.[Footnote 4] On the 
basis of recent international guidelines, an estimated 15 million 
people in low-and middle-income countries are eligible for ARV 
treatment. Moreover, 23 million would be eligible if programs expanded 
eligibility to include groups such as all pregnant and breastfeeding 
women and certain high-risk populations, consistent with 
recommendations in recent updates to World Health Organization 
guidelines.[Footnote 5] 

In the House committee report on the 2008 Leadership Act, Congress 
directed OGAC to work with others[Footnote 6] to develop effective, 
reliable public-sector drug supply chain management systems owned and 
operated by partner countries and to provide ongoing technical 
assistance and sustained support to ensure the functioning of such 
systems.[Footnote 7] In addition to helping partner countries develop 
and manage their own supply chains for ARV drugs and other health care 
commodities,[Footnote 8] PEPFAR supplies ARV drugs directly in some 
countries through supply chains operated by contractors. PEPFAR's 
efforts to develop and augment partner countries' supply chain systems 
are critical to support continued progress in the fight against 
HIV/AIDS because inadequate or poorly functioning supply chains pose 
risks to individual as well as to public health outcomes. Patients on 
treatment receive daily doses of ARV drugs on a continuing, lifelong 
basis. Skipped doses due to gaps in supply and expired or otherwise 
unusable ARV drugs can lead to ineffective treatment and increased 
viral resistance, necessitating newer, more expensive drugs. 
Inefficient supply chains can also waste scarce public health 
resources. For example, overstocking of drugs can lead to waste as 
drugs expire and can no longer be used, potentially resulting in fewer 
patients receiving treatment. 

You asked us to review HIV/AIDS treatment programs supported through 
PEPFAR. This is the last of three reports responding to your request. 
[Footnote 9] In this report, we examine (1) actions PEPFAR has taken 
regarding ARV drug supply chains and (2) partner-country ARV drug 
supply chain operations. 

To address these objectives, we reviewed reports and guidance issued 
by PEPFAR and its partners, including PEPFAR country and regional 
operational plans for fiscal year 2012. We analyzed nine U.S. 
government global health supply chain studies and identified six key 
elements and three supporting processes of effectively functioning 
supply chains. We used these elements to conduct a content analysis of 
16 evaluations relevant to PEPFAR-supported supply chains. To identify 
these 16 evaluations, we reviewed 68 evaluations and selected the most 
recent, those published in 2011 and 2012, which cover seven countries 
supported by PEPFAR.[Footnote 10] We also compared the actions taken 
by PEPFAR to the performance metrics and supply chain best practices 
identified in U.S. Agency for International Development (USAID) 
reports. We reviewed agreements between PEPFAR and partner-country 
governments, including partnership framework agreements between the 
United States and 22 PEPFAR partner countries or regions.[Footnote 11] 
In addition, we conducted fieldwork in three PEPFAR partner countries--
Kenya, South Africa, and Uganda--in June 2012 to obtain information 
about the management of partner-country supply chains and efforts 
taken to improve them. The results of our fieldwork cannot be 
generalized to all PEPFAR partner countries but provided insights into 
various aspects of specific supply chain operations. We selected these 
countries based on PEPFAR budget and spending allocations, disease 
burden estimates, and PEPFAR's role in procurement of treatment 
commodities and supply chain management. We interviewed 
representatives of the contractor that manages the bulk of PEPFAR's 
ARV drug procurement, and PEPFAR officials from OGAC, the Centers for 
Disease Control and Prevention (CDC) of the Department of Health and 
Human Services (HHS), and USAID. For additional details on our scope 
and methodology, see appendix I. 

We conducted this performance audit from May 2012 to April 2013 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Background: 

OGAC sets overall PEPFAR policy and strategies and coordinates PEPFAR 
programs and activities, allocating funds to PEPFAR implementing 
agencies, primarily CDC and USAID.[Footnote 12] As of fiscal year 
2012, these agencies executed PEPFAR program activities through agency 
headquarters offices and interagency country and regional teams 
[Footnote 13] in more than 30 countries and regions with PEPFAR-funded 
programs.[Footnote 14] OGAC coordinates the activities of these 
country teams through its approval of operational plans,[Footnote 15] 
which document work plans, budgets, and the anticipated results of 
HIV/AIDS-related programs. OGAC provides annual guidance on how to 
develop and submit operational plans. In fiscal years 2009 through 
2012, OGAC approved country operational plan budgets totaling over $16 
billion. 

USAID and CDC obligate the majority of PEPFAR funds through grants, 
cooperative agreements, and contracts with implementing partners, such 
as U.S.-based nongovernmental organizations (NGO) and partner-country 
governmental organizations and NGOs. With regard to supply chains for 
treatment programs, USAID and CDC typically provide assistance in 
different ways. USAID purchases the majority of ARV drugs and is the 
primary funder of supply chain services to partner countries through 
centralized contracts with large international NGOs, for-profit 
development assistance firms, and NGOs in partner countries. CDC 
provides funding to purchase ARV drugs and related commodities, 
including laboratory equipment and test kits, through cooperative 
agreements. Both USAID and CDC provide technical assistance to partner 
countries to support supply chain management. 

Health care drug supply chains involve the following six key elements 
(see figure 1): 

* product selection: selecting drugs based on national treatment 
guidelines and approval; 

* forecasting and supply planning: estimating the quantity of drugs 
needed to ensure an uninterrupted supply; 

* procurement: contracting with suppliers to obtain drugs within 
agreed-upon production and delivery time frames and costs, including 
freight; 

* warehousing: maintaining appropriate security and environmental 
conditions (e.g., temperature and humidity); 

* inventory management: monitoring for shortages and waste due to 
expired products, keeping accurate records of available and 
anticipated stock, and preparing orders for distribution; and: 

* distribution: managing the flow of drugs from the point of 
production to the end user for consumption (i.e., facilities where the 
drugs are dispensed to patients). 

Figure 1: Elements of a Health Care Drug Supply Chain: 

[Refer to PDF for image: illustration] 

Continuous cycle: 
Product selection; 
Forecasting and supply planning; 
Procurement; 
Warehousing; 
Inventory management; 
Distribution. 

Processes involved in all or most elements: 
* Information management; 
* Human resources management; 
* Quality assurance. 

Source: GAO analysis of guidance documents provided by PEPFAR 
implementing partners; GAO and Photo Disc (photos). 

[End of figure] 

All or most of these six elements involve the following three 
processes: 

* information management: generating and analyzing the data needed to 
manage the supply chain from both a cost and service standpoint (for 
example, gathering consumption and inventory data to determine how 
much of a drug to order); 

* human resource management: training and supervising staff 
responsible for placing orders, monitoring stock, and providing drugs 
to patients, and ensuring that key positions are filled; and: 

* quality assurance: ensuring that drugs are approved for use in a 
partner country, meet certain standards, undergo testing, and are 
monitored as they move through the supply chain. 

PEPFAR Has Taken Steps to Strengthen ARV Drug Supply Chains: 

PEPFAR has taken three key steps to make ARV supply chains for 
treatment programs more efficient and reliable for all PEPFAR partner 
countries. First, PEPFAR and USAID have consolidated supply chains for 
PEPFAR's ARV drug procurement, enhancing efficiency and reducing 
operational costs. Second, PEPFAR has improved donor coordination by 
creating a network to facilitate information sharing and by developing 
an emergency procurement mechanism. Third, PEPFAR has provided partner 
countries with technical assistance, such as assessment tools and 
training, to help strengthen their supply chains and manage them more 
effectively. 

PEPFAR Has Consolidated Supply Chains for ARV Drug Procurement: 

PEPFAR has consolidated supply chains for ARV drugs across partner 
countries to increase the efficiency of ARV drug procurement and 
shipping. In 2005, USAID contracted with the Partnership for Supply 
Chain Management, a nonprofit consortium of over a dozen 
organizations, to create the Supply Chain Management System (SCMS) 
project, which pools procurement across more than 20 partner countries 
on a voluntary basis. According to USAID, this central procurement 
system provides those countries having less procurement capacity and 
smaller markets with the opportunity to benefit from the lower prices 
and consistent supply associated with bulk purchases. SCMS 
consolidated forecasts and established long-term supplier contracts to 
obtain favorable pricing and delivery conditions. SCMS has provided 
HIV/AIDS treatment supply chain services for PEPFAR-supported 
programs, procuring and distributing $1.43 billion in HIV/AIDS-related 
products, including $858 million in ARV drugs, as of March 31, 2013, 
according to USAID; these products include 74 percent of the ARV drugs 
purchased using PEPFAR funding in fiscal year 2012. 

In addition, USAID has taken initial steps to consolidate supply 
chains for PEPFAR with USAID's other global health programs to reduce 
overall management time and operational costs. These steps include 
reviewing its current supply chains and developing a consolidation 
proposal.[Footnote 16] Specifically, USAID announced in June 2012 a 
plan to offer a new, consolidated contract that is to combine supply 
chains managed by SCMS with those managed by the USAID DELIVER PROJECT 
(DELIVER), which works with over 20 national and international 
organizations to procure non-ARV health care commodities, such as 
condoms, for PEPFAR and other USAID health programs.[Footnote 17] 
According to USAID, consolidating these supply chains will help ensure 
an uninterrupted supply of health commodities for PEPFAR and the other 
programs, reduce costs to the U.S. government, and mitigate risk 
through collaborative strategies that will include forecasting, 
warehousing, and distribution. 

PEPFAR Has Improved Coordination of ARV Procurement with Other Donors: 

PEPFAR has also coordinated with other donors to improve those 
elements of the supply chain that operate within the control of 
partner countries. In particular, it has developed an information-
sharing network and established an emergency procurement mechanism. 

* Information-sharing network. In June 2006, PEPFAR developed an 
information-sharing network with the Global Fund to Fight AIDS, 
Tuberculosis and Malaria (Global Fund) and the World Bank called the 
Coordinated Procurement Planning Initiative. Since then, other key 
organizations, including OGAC, USAID, the Global Fund, three UN 
entities, and two NGOs,[Footnote 18] have used the network to identify 
and address ARV drug supply chain weaknesses. SCMS facilitates 
information sharing within the network. The network has taken a number 
of steps to improve supply forecasting and procurement to support the 
availability of ARV drugs and other health care commodities needed by 
HIV/AIDS patients. For example, network members have met quarterly to 
discuss potential gaps in delivery of ARV drugs and solutions to these 
gaps, including emergency disbursement of funds to procure drugs and 
avoid shortages. In addition, the network developed tools that alert 
key donors to treatment interruption crises and enable members to 
share best practices regarding potential approaches to address and 
mitigate these crises. 

* Emergency procurement mechanism. In 2010, PEPFAR established a 
funding mechanism called the Emergency Commodity Fund, whose primary 
aim has been supporting emergency purchases of ARV drugs when threats 
arise to the continuity of patient treatment or critical prevention 
programs. According to USAID, this funding mechanism has been used to 
assist five countries with emergency ARV procurement when they faced 
problems with Global Fund grants.[Footnote 19] PEPFAR country 
operational plans for fiscal year 2012 reported that six other 
countries came close to experiencing shortages of ARV drugs and other 
HIV-related commodities due to Global Fund delays. For example, the 
Democratic Republic of Congo's ministry of health requested that the 
U.S. government ensure a buffer stock of ARV drugs because the Global 
Fund, which was the source of a majority of the country's commodities, 
had become slow in processing grants and was experiencing difficulties 
forecasting drug supply and keeping ARV drugs in stock. PEPFAR has 
also provided technical assistance to the Global Fund to improve its 
procurement system, with the goal of reducing the need for further 
emergency support from PEPFAR. According to USAID officials, in 
September 2012, PEPFAR helped the Global Fund develop a proposal for 
its own emergency procurement mechanism. As of March 2013, the Global 
Fund had not notified PEPFAR whether it had established this mechanism. 

PEPFAR Helps Partner Countries Improve Their Supply Chains: 

As partner countries assume greater responsibility for managing supply 
chains, PEPFAR is moving from a direct supply role to a more advisory 
role. PEPFAR's long-term aim is to develop effective, reliable partner-
country-owned and -operated supply chain systems at the national, 
regional, district, and local levels. At present, PEPFAR's role in 
supporting partner-country HIV program supply chains ranges from 
direct control of major supply chains to providing training and 
technical assistance. PEPFAR generally relinquishes control of the ARV 
drugs once they reach a partner country's central warehouse; from that 
point on, partner countries are responsible for ensuring that the 
drugs reach patients. 

PEPFAR determines the level and type of supply chain assistance 
primarily on the basis of each country's treatment program and supply 
chain capacity and the state of its HIV epidemic. For example, in some 
countries, PEPFAR may directly procure almost all ARV drugs and 
centrally control supply chains through an implementing partner such 
as SCMS. In other countries, PEPFAR may provide no procurement support 
for ARV drugs and only training and technical assistance for specific 
elements of the partner country's supply chains, which carry out all 
supply chain functions with funding from PEPFAR, other donors, and/or 
the partner-country government. 

PEPFAR country teams provide technical assistance to support public 
and private drug supply chains for medical supplies, including USAID-
purchased commodities. This assistance includes tools to assess supply 
chains and identify any weaknesses, and other types of training and 
advice. 

Supply Chain Assessment Tools: 

USAID and its implementing partners have developed and begun 
implementing tools for identifying any needed improvements in partner 
countries' supply chains. The following are examples of two such tools: 

* The Supply Chain Capability Maturity Model is used to identify 
performance problems by rating each element of a supply chain against 
best practices. The tool also helps identify and prioritize areas in 
need of strengthening and provides a method for tracking progress. In 
2012, USAID piloted the Supply Chain Capability Maturity Model in 
three countries--Botswana, Paraguay, and South Africa--and used it to 
assess their supply chains. In addition, USAID used the tool to 
recommend targeted solutions in South Africa. 

* The Supply Logistics Internal Control Evaluation was developed to 
assess the effectiveness of internal controls to mitigate supply chain 
risk in each element of the supply chain in countries across sub-
Saharan Africa.[Footnote 20] This tool generates a series of score 
cards representing the estimated risk in a system and identifying 
strengths and weaknesses. Beginning in 2011, this tool was piloted in 
several countries, including Benin, Mozambique, and Zambia. 

Other Assistance: 

PEPFAR also provides other training and advice to help partner 
countries strengthen their supply chains, such as audit checklists to 
improve supply chain management and training in how to use them, 
warehousing assistance, and stakeholder coordination to help partner 
countries identify workable solutions to supply chain problems. For 
example, in Nigeria, PEPFAR's fiscal year 2012 plan includes 
organizing and hosting a workshop with multiple stakeholders to assist 
the government in identifying private-sector warehouse operators that 
could operate a new central warehouse with the capacity to serve the 
country's treatment program.[Footnote 21] 

In all three partner countries we visited, PEPFAR has taken steps 
through its technical assistance to increase efficiencies by 
strengthening specific steps in the supply chain process. 

* In South Africa, PEPFAR, through SCMS, helped the government 
institute procurement reforms that enabled it to cut in half the 
prices it pays for ARV drugs. Although South Africa was the largest 
single market for these drugs, it had been consistently paying prices 
well above the international standard.[Footnote 22] 

* In Uganda, USAID reports that the country team has helped the 
Ugandan government and local NGOs successfully implement a simplified 
distribution network by streamlining the supply chain to create clear 
lines of responsibility and accountability. Previously, there were 
more than four ARV drug supply chains serving three types of 
facilities from three separate warehouses, and some facilities 
received supplies from more than one supply chain. USAID reported that 
these overlapping supply chains involved duplication of efforts and 
led to confusion in ordering and reporting. In addition, PEPFAR is 
supporting the national rollout of a new web-based ARV bimonthly 
reporting and ordering system, whose purpose will be to enable 
stakeholders to track the status of ARV supplies in all treatment 
sites and provide early warning of shortages to authorities at the 
central level. 

* In Kenya, the country team has helped the national government 
establish clear and consistent distribution lines from the two central 
entities that procure ARV drugs and create a system whereby stock can 
be shifted at the central level to avoid supply gaps. 

Information Management Weaknesses in Some Partner Countries' ARV Drug 
Supply Chains Pose Risks of Shortages, Waste, and Loss: 

OGAC guidance stresses that effective information management is 
essential for the efficient operation of ARV drug supply chains. 
However, 11 of the 16 evaluations of partner-country supply chains 
that we reviewed identified weaknesses in inventory controls;[Footnote 
23] 7 of these 11 evaluations also cited weaknesses in record keeping, 
including missing or inaccurate drug consumption data.[Footnote 24] 
These weaknesses may increase the risks of shortages, waste, and loss. 
[Footnote 25] Human resource constraints contribute to these 
weaknesses, and PEPFAR is making efforts to address them over the long 
term. OGAC operational plan guidance calls on PEPFAR country teams to 
describe plans to assist their respective partner countries in 
developing effective and sustainable treatment programs. However, this 
guidance does not specifically require country teams to develop plans 
to strengthen partner countries' inventory controls and record keeping 
that adversely affect the availability of reliable data on drug 
consumption, waste, and loss. In addition, because OGAC does not 
require country teams to monitor partner countries' progress in 
measuring ARV drug consumption, waste, and loss, OGAC may not be able 
to reliably ascertain the extent to which supply chains in partner 
countries are affected by shortages, waste, and loss and take 
appropriate action to mitigate these risks. 

Information Management Is Critical to Ensuring Efficient ARV Drug 
Supply Chains: 

PEPFAR guidance directs country teams to assess the extent to which 
partner countries experience shortages of drugs and report steps the 
teams take to address this problem.[Footnote 26] OGAC's Next 
Generation Indicators Reference Guide recommends that country teams 
track the percentage of ARV distribution sites that report on 
inventory consumption, quality, losses, and adjustments on a monthly 
basis.[Footnote 27] Several U.S. and partner-country officials and 
implementing partners we spoke with agreed that drug consumption data, 
particularly at the health facility level, are essential for 
ascertaining and meeting demand. Two implementing partners involved in 
managing health care commodities also noted the importance of record 
keeping for avoiding wasted or lost drugs.[Footnote 28] 

In two of the partner countries we visited, good record keeping, 
particularly the collection of reliable consumption data, led to 
increased efficiency. For example, in South Africa, a USAID initiative 
to monitor the consumption of ARV drugs at storage sites and health 
facilities reduced shortages of ARV drugs over a 2-year period and 
enabled health facilities to identify and cancel excess 
orders.[Footnote 29] In Kenya, a USAID official responsible for 
HIV/AIDS programs reported that PEPFAR had improved inventory 
management and consumption monitoring for PEPFAR-and country-managed 
supply chains. According to the official, PEPFAR coordinated 
information sharing at the national level and across major facilities 
to identify and resolve supply chain issues, virtually eliminating ARV 
drug shortages. 

Inadequate Inventory Controls and Record Keeping in Some Partner-
Country Supply Chains May Increase the Risks of Shortages, Waste, and 
Loss: 

From our review of 16 supply chain evaluations conducted in seven 
PEPFAR partner countries since 2011, we identified inadequate 
inventory controls for monitoring drug supply, as well as missing or 
inaccurate record keeping, as key weaknesses in ARV drug supply chains 
controlled by partner countries. These weaknesses can increase the 
risks of drug shortages, waste, and loss. 

Eleven of the 16 supply chain evaluations we reviewed found that 
partner countries had inadequate inventory controls to prevent 
shortages, waste, and loss of ARV drugs.[Footnote 30] For example, an 
evaluation of Côte d'Ivoire's supply chain indicated that inadequate 
supervision of drug transfers among treatment facilities and other 
inventory control weaknesses resulted in significant amounts of 
medication that could not be accounted for and were not available to 
intended beneficiaries. In another example, an evaluation team in 
Zambia found a lack of adequate inventory controls at all levels of 
the drug supply chain. The team was unable to rely on documentation at 
the facilities and had to conduct a physical count to determine the 
status of facilities' drug inventories. The team identified ARV drug 
losses totaling about $265,000, or nearly 9 percent (by value) of the 
total ARV drug stock at the facilities the team visited;[Footnote 31] 
the loss calculation covered a 15-month period from January 2011 to 
March 2012. Lacking basic inventory control tools and procedures, 
these facilities ran the risk of not knowing whether the drugs had 
been dispensed to patients or distributed to other storage sites, or 
if they were inventory losses. 

Seven of these 11 supply chain evaluations we reviewed also indicated 
that some treatment facilities where drugs are dispensed had missing 
or inaccurate records.[Footnote 32] As a result, these facilities had 
difficulty forecasting their drug needs, ensuring that the drugs 
ordered would be sufficient to meet demand, or knowing what drugs were 
lost to theft or inadvertent waste. Three of these evaluations 
specifically mentioned a lack of accurate consumption data. For 
example, an evaluation of supply chains in Mozambique indicated that 
facility-level pharmacies had no monitoring or reconciliation of ARV 
drugs once they left the storage shelf; thus, there were no controls 
to ensure that the ARV drugs arrived at the dispensing table or were 
administered to the patient. The Mozambique evaluation team could not 
reconcile ARV drug consumption data with prescriptions at facility-
level pharmacies. The Mozambique evaluation also indicated that 
procedures for characterizing the unit of drugs dispensed were not 
always standardized across facilities: some facilities tracked ARV 
drugs as pills, while others tracked them as bottles. Inconsistent 
units make it more difficult to collect consumption data and may cause 
errors in determining the quantity of new drugs to be ordered. An 
evaluation report on Kenya's public health supply chain indicated that 
more than half the treatment sites visited by evaluators did not 
maintain or update stock cards for ARV drugs. This made it difficult 
for the facilities to know what new drugs to order and increased the 
risk of undetected loss or theft. 

Human Resource Constraints Contribute to Some Partner-Country Supply 
Chain Weaknesses: 

Eight of the 16 country supply chain evaluations we reviewed cited 
human resource constraints as contributing to weaknesses in inventory 
controls and record keeping at health facilities, storage sites, or 
both.[Footnote 33] For example, heavy workload, inadequate training, 
and insufficient oversight may have led to poor performance by staff 
responsible for inventory control and record keeping, and in at least 
one country, their fear of shortages may have led to hoarding of 
drugs.[Footnote 34] Furthermore, poor compensation and working 
conditions may have led to absenteeism, turnover, and pilferage. 

Ten of the 35 fiscal year 2012 PEPFAR country and regional operational 
plans also identify human resource constraints that may contribute to 
inventory control and record keeping weaknesses, including, for 
example, a lack of qualified staff and difficulty retaining and 
motivating such staff because of heavy workloads and low salaries. In 
Côte d'Ivoire, for example, the PEPFAR country team reported that even 
trained pharmacists lacked basic skills in and understanding of supply 
chain management and logistics issues. As a result, they were often 
reluctant to fill out all the paper-based data collection sheets, 
registers, and other forms that were fundamental tools for tracking 
drug consumption in that country. 

Weaknesses in data systems can exacerbate human resource constraints 
and contribute to unreliable information at some treatment facilities. 
For example, according to a USAID official in Kenya, some rural 
facilities do not have electronic data collection systems or even a 
stable electricity supply and must therefore rely on paper-based 
systems. Such systems can be labor intensive to maintain and prone to 
error. In addition, a representative of an implementing partner in 
South Africa with whom we spoke noted that there can be significant 
data quality issues in paper records, particularly for facilities that 
are using paper records while trying to provide treatment to large 
volumes of patients and as changes in treatment guidelines expand the 
number of patients eligible for treatment. In at least one instance, 
according to an evaluation we reviewed, a computerized information 
system was not well integrated into the record-keeping process, and 
this resulted in errors. Addressing these errors can add to staff 
workload. 

PEPFAR's ongoing training initiatives and technical assistance efforts 
have begun to address some of these human resource challenges. For 
example, the supply chain assessment tools are being used to help 
identify and address supply chain weaknesses, including inventory 
control and record-keeping weaknesses, in the countries where they are 
being piloted. An SCMS official implementing the Supply Chain 
Capability Maturity Model in South Africa stated that part of the 
process is getting staff and managers to understand that the 
information generated by the tasks they perform is important for 
managing their supply chain; the official said that this is because 
the information feeds into or flows from what their colleagues do, and 
there are consequences (e.g., shortages) if information management 
tasks are not performed properly. Expanding the application of these 
supply chain assessment tools to additional countries will take 
several years, according to OGAC officials. The evaluations and 
country operational plans we reviewed identify various other training 
and recruitment efforts to address human resource constraints in 
supply chain management. Several of the evaluations and operational 
plans also cite efforts to make data collection and sharing more 
efficient by enhancing automation or moving to Internet-based 
information management systems. According to a USAID official, the 
training and technical assistance under way are long-term efforts, 
whose results will not begin to be apparent for at least 5 years. 

OGAC Does Not Require Country Teams to Develop Plans for Mitigating 
Risks or to Track Partner Countries' Progress: 

Although 11 of the 16 evaluations we reviewed highlight the risks of 
drug shortages, waste, and loss due to inadequate inventory controls, 
[Footnote 35] OGAC has not taken all of the steps in a risk management 
framework that are important for mitigating such risks.[Footnote 36] 
In particular, it has not required country teams to develop a plan for 
mitigating all of these risks or to track progress in mitigating them. 

OGAC country operational plan guidance calls on PEPFAR country teams 
to describe plans to assist their respective countries in developing 
effective and sustainable treatment programs. OGAC has generally 
instructed teams to promote the development of national HIV supply 
plans and strengthen partner countries' ability to forecast, procure, 
manage, and distribute HIV-related commodities. However, OGAC does not 
specifically require country teams that support partner-country supply 
chains to develop and implement plans to strengthen partner countries' 
inventory controls and record keeping to reduce the risks of 
shortages, waste, and loss in ARV drug supply chains. We reviewed 
country operational plans for the seven countries covered by the 
evaluations we analyzed and found that most of these documents 
discussed plans for improving inventory controls and record keeping to 
help countries reduce the risk of shortages. However, only two 
mentioned the risks of waste or loss in their discussions of these 
plans. Without plans that address all of the elements of risk to 
supply chains, OGAC cannot ensure that country teams are appropriately 
targeting assistance to avoid shortages, waste, and loss in partner-
country supply chains. 

OGAC's Next Generation Indicators Reference Guide requires country 
teams to collect information on progress partner countries are making 
in developing reliable supply chains. Specifically, the country teams 
are required to collect information on access to high-quality, low-
cost medications generally, and more specifically on the percentage of 
treatment facilities that experienced ARV drug shortages in the 
previous 12 months. This guide also recommends that country teams 
track the percentage of ARV drug distribution sites that report on 
drug consumption and losses, but this is not a required indicator. 
According to OGAC, monitoring this information is important but not 
indispensable to basic program tracking. Six of the seven country 
operational plans we reviewed provided information on assessing or 
attempting to address shortages, and five of the seven discussed using 
ARV consumption data to do so. However, only two discussed using 
consumption data to help reduce the risk of waste or loss, and none 
provided information on the percentage of distribution sites that 
report on drug consumption and losses. Monitoring partner countries' 
progress in measuring consumption, waste, and loss is vital to basic 
program tracking, because without data on progress in reducing waste 
and loss, OGAC cannot fully assess whether partner countries can 
operate supply chains independently and efficiently. This is 
increasingly important as partner countries are expected to assume 
greater responsibility for managing their supply chains. 

Conclusions: 

PEPFAR is at a critical juncture as it transitions from directly 
managing supply chains to primarily providing guidance and advice. 
PEPFAR has taken steps toward greater integration with partner-country 
health systems, overall health system strengthening, and greater 
partner-country responsibility for addressing HIV/AIDS. If PEPFAR can 
increase efficiency by reducing shortages, waste, and loss, it would 
be better able to expand treatment to more of the 23 million people in 
low-and middle-income countries living with HIV/AIDS and in need of 
treatment or who are in at-risk groups eligible for treatment. Because 
PEPFAR generally relinquishes control of the supply chain once the 
drugs reach a country's central warehouse, it is essential that 
partner-country governments develop the capacity to manage their drug 
supply chains without excessive risks of shortages, waste, or loss of 
inventory. 

PEPFAR has strengthened supply chains in a number of ways and is 
continuing to take steps to make them more reliable and efficient. In 
addition, it is important that PEPFAR's efforts to address partner 
countries' human resource constraints are sustained over the long term 
to show results. However, at some distribution and treatment sites, 
weaknesses in inventory controls and record keeping limit the ability 
of some partner-country health systems to track consumption, putting 
them at risk for shortages, waste, and loss. OGAC does not require 
PEPFAR country teams to develop plans to address these weaknesses or 
to monitor progress in reducing these risks. Without such plans or 
monitoring, OGAC cannot fully assess partner-country progress toward 
the goal of self-sufficient supply chain management. 

Recommendations for Executive Action: 

To help ensure that drug supply chains in PEPFAR partner countries 
function efficiently and mitigate the risks of shortages and wasted 
and lost drugs, we recommend that the Secretary of State direct the 
U.S. Global AIDS Coordinator to take the following two actions: 

* require that country teams develop and implement plans for assisting 
countries to address inadequate inventory controls and record keeping; 
and: 

* require that country teams track the progress partner countries are 
making in measuring ARV drug consumption, waste, and loss. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to State, USAID, and CDC. 
Responding jointly with USAID and CDC, State provided written comments 
(see appendix II for a copy of these comments). State and USAID also 
provided technical comments, which we incorporated, as appropriate. 

State agreed with the intent of our first recommendation to improve 
partner countries' inventory controls and record keeping for drug 
supply chain management. State agreed that inventory controls are not 
optimized in all PEPFAR countries and indicated that it will further 
assess these controls and focus technical assistance on improving them 
where they are found lacking. State also noted that PEPFAR has engaged 
with partner countries in supply chain capacity development through 
careful assessment of each country's supply chain context and the 
degree to which PEPFAR is positioned in the country to support a long-
term technical assistance effort. Noting that PEPFAR operates in many 
different environments and supports a range of HIV/AIDS activities 
with diverse sets of stakeholders, State commented that PEPFAR country 
teams should continue to place supply chain improvement as a high 
program priority in countries where PEPFAR has a large financial 
investment in supporting HIV treatment; in countries where PEPFAR's 
investment is more limited, State commented that country teams should 
work with other donors and the partner government to ensure that any 
supply chain weaknesses or risks, including those related to inventory 
and record keeping, are addressed. State also commented that there are 
other, often greater supply chain weaknesses that result in an 
inadequate supply of ARV drugs, such as delayed Global Fund 
disbursements or poor procurement planning by partner-country 
governments. We found that these delays and planning issues are 
significant challenges and note that PEPFAR is already taking steps to 
address them through, for example, developing an information-sharing 
network with other donors to identify and address potential gaps in 
supply and establishing an emergency procurement mechanism to fill 
these gaps. However, PEPFAR guidance does not explicitly address the 
need for plans to improve inventory controls and record keeping to 
mitigate the risks of waste and loss as ARV drugs move through the 
supply chain in partner countries to the patients who need them. We 
believe that such plans are necessary to ensure that efforts to 
mitigate these risks are systematically implemented and progress in 
mitigating them is documented. 

In the draft we sent for comment, we recommended that country teams 
track the percentage of ARV distribution sites reporting on inventory 
consumption, waste, and loss. State agreed with the intent of this 
recommendation, but noted some constraints that would make it 
difficult to implement: in countries where PEPFAR works with a large 
number of treatment sites, it would be costly to collect data from all 
of them; and in countries where PEPFAR provides limited support, 
requiring site-level data collection could be perceived as overly 
onerous by partner-country governments and at odds with PEPFAR's 
efforts to promote country ownership of supply chain management. 
Nevertheless, tracking the percentage of ARV drug distribution sites 
reporting on inventory consumption, waste, and loss is an indicator 
that PEPFAR currently recommends that country teams implement, 
although it does not require them to do so. State proposed ways to 
deal with the constraints it identified, such as sampling site data 
and working with partner countries like South Africa to provide 
targeted technical assistance where needed. Specifically, State noted 
that PEPFAR has begun a more systematic investment in health supply 
chain metrics to identify risks and weaknesses in partner-country 
supply chains and assess progress in reducing risks and enhancing 
performance. State further noted that, as PEPFAR reviews and updates 
its guidance, it will incorporate measures to evaluate the capability 
of partner-country supply chains to identify risks and assess 
progress, and that new indicators will include inventory management. 
In response to State's comments, we revised our recommendation to 
reflect that another, more flexible indicator besides the one OGAC had 
already developed may also be appropriate. We believe that requiring 
country teams to track the progress partner countries are making in 
measuring ARV drug consumption, waste, and loss in whatever way is 
most appropriate in those countries would be beneficial in two ways: 
(1) it would provide a measure of accountability for partner countries 
as they transition to assuming greater responsibility for managing 
their supply chains, and (2) it would provide OGAC with flexibility in 
the differing contexts of PEPFAR involvement in each country. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
Secretary of State and the U.S. Global AIDS Coordinator and interested 
congressional committees. The report also will be available at no 
charge on the GAO website at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-3149 or gootnickd@gao.gov, or contact Marcia 
Crosse at (202) 512-7114 or crossem@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions 
to this report are listed in appendix III. 

Signed by: 

David Gootnick: 
Director, International Affairs and Trade: 

Signed by: 

Marcia Crosse: 
Director, Health Care: 

List of Requesters: 

The Honorable Lamar Alexander: 
Ranking Member: 
Committee on Health, Education, Labor, and Pensions: 
United States Senate: 

The Honorable Tom Coburn, MD: 
Ranking Member: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable Richard Burr: 
Ranking Member: 
Subcommittee on Primary Health and Aging: 
Committee on Health, Education, Labor, and Pensions: 
United States Senate: 

The Honorable Michael B. Enzi: 
Ranking Member: 
Subcommittee on Children and Families: 
Committee on Health, Education, Labor, and Pensions: 
United States Senate: 

The Honorable Johnny Isakson: 
Ranking Member: 
Subcommittee on Employment and Workplace Safety: 
Committee on Health, Education, Labor, and Pensions: 
United States Senate: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

This is one of three reports responding to a congressional request to 
review HIV/AIDS treatment programs supported through the President's 
Emergency Program for AIDS Relief (PEPFAR). This report examines (1) 
actions PEPFAR has taken regarding antiretroviral (ARV) drug supply 
chains and (2) partner-country ARV drug supply chain operations. 

To obtain background information and establish a framework for 
understanding drug supply chains serving PEPFAR, we identified key 
participants in PEPFAR supply chain management programs by reviewing 
laws and regulations relating to these programs. We also identified 
six supply chain elements and three processes common to effective drug 
supply chains by analyzing guidance documents on supply chain 
performance assessment processes, tools, and metrics, and an expert 
review focused on supply chain best practices. Specifically, we 
analyzed seven guidance documents obtained from PEPFAR implementing 
partners that procure drugs and one produced by the World Health 
Organization in conjunction with the U.S. government and other 
multilateral organizations. The expert review we also analyzed was a 
best-practices supply chain study for the U.S. Agency for 
International Development (USAID). We determined that a supply chain 
element or process was key if the same, or similar, element or process 
appeared in at least four of the nine sources we reviewed. 

To examine actions PEPFAR has taken regarding ARV drug supply chains, 
as well as to describe partner-country ARV drug supply chain 
operations, we reviewed reports and guidance issued by PEPFAR and its 
implementing partners, including all 35 PEPFAR country and regional 
operational plans and all 22 PEPFAR country partnership frameworks for 
fiscal year 2012. We also reviewed studies, reports, and assessment 
tools on the drug supply chains used by PEPFAR-supported treatment 
programs that were prepared by USAID; the Centers for Disease Control 
and Prevention (CDC); key implementing partners such as the Supply 
Chain Management System (SCMS); multilateral agencies such as the 
Global Fund to Fight AIDS, Tuberculosis, and Malaria and the World 
Health Organization; and PEPFAR partner countries. 

Furthermore, to examine partner-country supply chain operations, we 
analyzed selected evaluations relevant to PEPFAR-supported supply 
chains and synthesized their findings, conclusions, and 
recommendations. To select these evaluations, we reviewed documents 
obtained through site visits, USAID Office of the Inspector General 
audits, and a database of evaluations compiled for a related GAO 
engagement.[Footnote 37] We identified 68 evaluations published from 
2008 through 2012 containing some assessment of drug supply chain 
systems or a selection of components in those systems in countries 
supported by PEPFAR. We then eliminated all evaluations published 
before 2011, yielding 16 evaluations. Our final set of 16 evaluations 
included findings, recommendations, and/or actions taken related to 
supply chains in these seven countries: China, Côte D'Ivoire, Kenya, 
Mozambique, South Africa, Uganda, and Zambia. 

We analyzed each of the 16 evaluations to identify any findings, 
recommendations, or actions taken related to the six supply chain 
elements and three processes we had previously identified. We used 
this analysis to identify any weaknesses within each supply chain 
function and related actions taken to address them. We also reviewed 
fiscal year 2012 PEPFAR country operational plans for all 32 countries 
and three regions that prepared these plans in that year. 

We compared the actions PEPFAR took to strengthen supply chains with 
performance metrics and supply chain best practices identified in 
USAID reports. Specifically, we identified performance metrics, best 
practices, lessons learned, and supply chain models in relevant 
guidance, evaluations, and assessment tools. Furthermore, we compared 
the actions to five basic guiding principles of risk management: (1) 
management and personnel identify risks; (2) they analyze risks; (3) 
after analyzing the risks, they create a plan that identifies 
different possible courses of action to mitigate the identified risk; 
(4) when a plan for risk mitigation is approved, management and 
personnel implement the risk mitigation action plan; and (5) they 
track risks and mitigation action plan implementation to determine if 
the plan was successful in mitigating the risk.[Footnote 38] We also 
compared the actions with Standards for Internal Control in the 
Federal Government, which identify risk management as critical to the 
ability of managers to run organizations and achieve their objectives. 
[Footnote 39] We searched the country operational plans for the seven 
countries covered by the evaluations we reviewed as well as PEPFAR 
guidance for developing operational plans to determine whether these 
documents included plans to mitigate the risks identified by our 
analysis of the evaluations. 

In addition, we conducted fieldwork in three PEPFAR partner-countries--
Kenya, South Africa, and Uganda--in June 2012 to obtain information on 
drug supply chain operations. We selected these countries based on 
their relatively large PEPFAR budget and spending allocations, 
relatively high disease burden estimates, variation in PEPFAR's role 
in supply chain management, and other factors, including feasibility 
of travel. We selected these countries from a list of countries with 
the largest PEPFAR budgets, including those with greater than $100 
million in their annual budgets and greater than $25 million spent on 
ARV drug procurement between fiscal years 2009 and 2010. We further 
narrowed our sample by limiting the selection to countries with the 
highest HIV prevalence rate using April 2012 estimates from the Joint 
United Nations Programme on HIV/AIDS. By applying these criteria, we 
obtained a list of four countries. We then selected South Africa and 
Kenya because they had SCMS regional distribution centers, and we 
selected Uganda because it was the only remaining country that could 
provide examples of non-SCMS procurement models. We interviewed 
representatives of SCMS, the contractor that manages the bulk of 
PEPFAR's ARV drug procurement; representatives of PEPFAR implementing 
agencies, including officials from OGAC, USAID, and CDC in the 
countries we visited and in Washington, D.C. We also interviewed 
partner-country government officials in each of the three countries. 
The results of our fieldwork cannot be generalized to all PEPFAR 
partner countries but provided insights into various aspects of 
specific supply chain operations. 

We conducted this performance audit from May 2012 to April 2013 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Department of State: 

United States Department of State: 
Comptroller:
1969 Dress Avenue: 
Charleston, SC 29905: 

April 22, 2013: 

Dr. Loren Yager: 
Managing Director: 
International Affairs and Trade: 
Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548-0001: 

Dear Dr. Yager: 

We appreciate the opportunity to review your draft report,
"President's Emergency Plan For Aids Relief: Drug Supply Chains are 
Stronger, but More Steps Are Needed to Reduce Risks" GAO Job Code 
320913. 

The enclosed Department of State comments are provided for 
incorporation with this letter as an appendix to the final report. 

If you have any questions concerning this response, please contact 
Leigh Ann Monk-Reyes, Program Support Officer, Office of the U.S. 
Global AIDS Coordinator at (202) 663-2753. 

Sincerely, 

Signed by: 

James L. Millette: 

cc: 
GAO — David Gootnick; 
S/GAC — Eric Goosby; 
State/OIG — Evelyn Klemstine. 

Department of State Comments on GAO Draft Report: 

President's Emergency Plan For Aids Relief: Drug Supply
Chains are Stronger, but More Steps Are Needed to Reduce Risks 
(GAO-13-483, GAO Code 320912): 

Thank you for the opportunity to comment on your draft report 
entitled, "President's Emergency Plan For AIDS Relief: Drug Supply 
Chains are Stronger, but More Steps Are Needed to Reduce Risks, GA0-13-
383, Job Code 320912." 

The GAO report included two recommendations for the Department of 
State's Office of the U.S. Global AIDS Coordinator (S/GAC). 

The Department of State's Office of the U.S. Global AIDS Coordinator 
and the PEPFAR implementing agencies appreciate the work conducted by 
the GAO to produce these findings and the report. 

First, GAO recommends that the Department of State direct the Office 
of the U.S. Global AIDS Coordinator to require country teams to 
develop and implement plans to help partner countries improve 
inventory controls and record keeping. 

S/GAC agrees with the intent of the recommendation to improve 
inventory controls and record keeping for drug supply chain 
management. PEPFAR has been actively engaged in providing 
comprehensive support to countries in which it has large scale 
programs — particularly where PEPFAR has been supporting treatment 
scale-up. PEPFAR sees its investment in developing and improving all 
parts of a partner country's supply chain as integral to HIV/AIDS 
program success and ultimately in reducing HIV incidence. As PEPFAR 
has engaged with partner countries in supply chain capacity 
development, it has done so through careful assessment of each 
country's supply chain context, and the degree to which PEPFAR is 
positioned to support a long term technical assistance effort. 

In responding to the GAO's first recommendation, we propose that in 
countries where PEPFAR has a strong role in drug procurement, an 
assessment of the host country supply chain is conducted using 
existing supply chain assessment tools that would determine the most 
significant weaknesses in the supply chain that threaten the 
productivity and quality of HIV prevention, care and treatment 
programs. Over the past several years, PEPFAR has prioritized 
assessments and plans for supply chain improvement, but will work to 
ensure that plans are robust and identification of weaknesses in the 
supply chain are systematically addressed. Should inventory controls 
and record keeping centrally or at the site level be identified as 
lacking, technical assistance will be focused on these parts of the 
supply chain. In countries where PEPFAR provides technical support but 
is not central to drug procurement, PEPFAR country teams will 
determine how to support supply chain assessments, and determine if it 
is the appropriate donor to lead in technical support in this area of 
system strengthening. 

PEPFAR operates in many different environments with diverse sets of 
stakeholders and supports a range of HIV/AIDS activities. In countries 
where PEPFAR support is limited to technical assistance and does not 
include the provision of ARVs or service delivery to support treatment 
scale-up, other donors are better positioned to lead on supply chain 
improvements. PEPFAR looks to these donors that have more substantive 
investments in country and/or partner country governments to 
facilitate improvements in supply chain systems management. We 
recommend in countries where PEPFAR has a large financial investment 
in and is supporting scale-up of core HIV interventions (including 
treatment, PMTCT, counseling and testing, and male circumcision), that 
PEPFAR country teams continue to place supply chain improvement as a 
high program priority. If complete drug supply chain improvements 
plans have not already been developed, we will recommend that 
assessments and plans be drafted with specific supply chain 
improvement activities identified. In those countries where PEPFAR has 
a small targeted technical assistance role, we recommend that teams 
provide an overview of drug supply chain challenges, and a description 
of how the host country is being supported to address these 
challenges. This information may be then used in dialogue with the 
Global Fund, other donors in countries and the partner government to 
ensure that any weaknesses or vulnerabilities in the supply chain, 
such as inventory and record keeping are addressed. 

Through the PEPFAR investments in supply chain to date, we have seen 
that inventory controls are not optimized in all PEPFAR countries; 
however, these controls are frequently not the most significant supply 
chain weakness. For example, delays in Global Fund disbursement or 
inadequate procurement budgeting, forecasting and execution by the 
partner government that result in late ARV procurements may be a root 
cause of poor supply chain management. We recommend that PEPFAR 
country teams assess the supply chain capabilities of partner 
countries and identify those elements of the supply chain that present 
the highest risk of product loss and/or non-availability to the 
patient. Based on these analyses, working in partnership with the 
country government, PEPFAR can support the design and implementation 
of remedial measures to address weaknesses in supply chains. 
Improvements in supply chains should not be limited to a focus on 
inventory controls, but may include other factors negatively impacting 
drug availability such as optimizing transport routes to reduce supply 
chain costs. 

Second, GAO recommends that the Department of State direct the Office 
of the U.S. Global AIDS Coordinator to track the percentage of ARV 
drug distribution sites that report on inventory consumption, waste, 
and loss. 

As with the first recommendation, S/GAC agrees with the intent of this 
recommendation but would offer amendments that would increase the 
feasibility of implementation. PEPFAR believes strongly that proper 
management of drug supply is a key component of quality programs, and 
also recognizes that inventory controls and records are important to 
the overall integrity of a supply chain system. As currently framed, 
there are some key constraints that would make the implementation of 
site level drug monitoring system difficult and costly to implement — 
namely the volume of sites that would be required to report, and the 
role of PEPFAR in a partner country's treatment scale up program.
In countries where the PEPFAR program is large, it would be costly to 
collect the necessary inventory consumption, waste and loss data from 
a large number of HIV treatment sites. In such cases, we recommend the 
consistent use of alternative methods such as end-user verification 
tools and sampling inventory and internal control procedures of high 
volume sites to provide adequate inventory consumption data. PEPFAR 
expertise in supply chain management is focused on consistent use of 
such techniques to optimize supply chain data and to identify where 
problems persist and how technical support can be best targeted to 
work through identified problems. 

In many countries PEPFAR provides only partial support for ARV 
procurement (in some cases no procurement for drugs) making it 
difficult to require partner countries to provide data from all 
service delivery sites — many of which will be part of the public 
health delivery system struggling with adequate resource management. 
Requiring site-level data collection effort could be perceived as 
overly-onerous by host country partner governments and counter to 
efforts to PEPFAR efforts to promote country ownership. For example, 
in South Africa, Namibia and Botswana, the governments are procuring 
the ARVs so it is not within the purview of PEPFAR to require that 
they report inventory data to the USG. However, we recommend that in 
such circumstances, PEPFAR works with partner countries to use 
comprehensive supply chain diagnostics to establish the key weakness 
of the supply chain system, and then provides technical support where 
necessary to see the supply chain optimized This type of targeted 
supply chain assistance is currently being provided in South Africa, 
Namibia and Botswana. 

As with the first recommendation, inventory data and record keeping 
are important elements of an effective supply chain, but may not be 
the largest problem to be addressed in order to achieve consistency in 
drug procurement and distribution. PEPFAR promotes an approach that 
measures the impact of weak supply chain systems, including 
information systems, to the overall risk of product loss and/or non-
availability to the patient. PEPFAR has begun a more systematic 
investment in health supply chain metrics to identify risks and 
weaknesses in partner-country supply chains and to assess progress in 
reducing risks and enhancing performance. Some of these tools are 
noted in the GAO review (e.g. the supply chain capability maturity 
mode and the supply logistics internal controls evaluation tool, page 
10). PEPFAR proposes that the use of such supply chain performance 
measures - which include but are not limited to inventory management - 
become a standard feature in all countries receiving supply chain 
technical assistance with PEPFAR resources. 

As PEPFAR reviews and updates its guidance on indicators, we will 
include measures designed to measure the capability of partner-country 
supply chains to not only identify risks and weaknesses in these 
supply chains but to assess progress in reducing risk and enhancing 
performance. The indicators will include those related to inventory 
management. 

[End of section] 

Appendix III: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

David Gootnick, (202) 512-3149 or gootnickd@gao.gov, or Marcia Crosse, 
(202) 512-7114 or crossem@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Jim Michels, Assistant 
Director; Kay Halpern; Katherine Forsyth; Erika Navarro; Chad 
Davenport; David Dayton; and Steven Putansu made key contributions to 
this report. In addition, Todd M. Anderson, Brian Hackney, Etana 
Finkler, Grace Lui, and Jane Whipple provided technical assistance and 
other support. 

[End of section] 

Related GAO Products: 

President's Emergency Plan for AIDS Relief: Shift Toward Partner-
Country Treatment Programs Will Require Better Information on Results. 
[hyperlink, http://www.gao.gov/products/GAO-13-460]. Washington, D.C.: 
April 12, 2013. 

President's Emergency Plan for AIDS Relief: Per-Patient Costs Have 
Declined Substantially, but Better Cost Data Would Help Efforts to 
Expand Treatment. [hyperlink, http://www.gao.gov/products/GAO-13-345]. 
Washington, D.C.: March 15, 2013. 

Ensuring Drug Quality in Global Health Programs. [hyperlink, 
http://www.gao.gov/products/GAO-12-897R]. Washington, D.C.: August 1, 
2012. 

Defense Infrastructure: The Navy's Use of Risk Management at Naval 
Stations Mayport and Norfolk. [hyperlink, 
http://www.gao.gov/products/GAO-12-710R]. Washington, D.C.: July 13, 
2012. 

President's Emergency Plan for AIDS Relief: Agencies Can Enhance 
Evaluation Quality, Planning, and Dissemination. [hyperlink, 
http://www.gao.gov/products/GAO-12-673]. Washington, D.C.: May 31, 
2012. 

President's Emergency Plan for AIDS Relief: Program Planning and 
Reporting. [hyperlink, http://www.gao.gov/products/GAO-11-785]. 
Washington, D.C.: July 29, 2011. 

Global Health: Trends in U.S. Spending for Global HIV/AIDS and Other 
Health Assistance in Fiscal Years 2001-2008. [hyperlink, 
http://www.gao.gov/products/GAO-11-64]. Washington, D.C.: October 8, 
2010. 

President's Emergency Plan for AIDS Relief: Efforts to Align Programs 
with Partner Countries' HIV/AIDS Strategies and Promote Partner 
Country Ownership. [hyperlink, 
http://www.gao.gov/products/GAO-10-836]. Washington, D.C.: September 
20, 2010. 

President's Emergency Plan for AIDS Relief: Partner Selection and 
Oversight Follow Accepted Practices but Would Benefit from Enhanced 
Planning and Accountability. [hyperlink, 
http://www.gao.gov/products/GAO-09-666]. Washington, D.C.: July 15, 
2009. 

Global HIV/AIDS: A More Country-Based Approach Could Improve 
Allocation of PEPFAR Funding. [hyperlink, 
http://www.gao.gov/products/GAO-08-480]. Washington, D.C.: April 2, 
2008. 

Global Health: Global Fund to Fight AIDS, TB and Malaria Has Improved 
Its Documentation of Funding Decisions but Needs Standardized 
Oversight Expectations and Assessments. [hyperlink, 
http://www.gao.gov/products/GAO-07-627]. Washington, D.C.: May 7, 2007. 

Global Health: Spending Requirement Presents Challenges for Allocating 
Prevention Funding under the President's Emergency Plan for AIDS 
Relief. [hyperlink, http://www.gao.gov/products/GAO-06-395]. 
Washington, D.C.: April 4, 2006. 

Global Health: The Global Fund to Fight AIDS, TB and Malaria Is 
Responding to Challenges but Needs Better Information and 
Documentation for Performance-Based Funding. [hyperlink, 
http://www.gao.gov/products/GAO-05-639]. Washington, D.C.: June 10, 
2005. 

Global HIV/AIDS Epidemic: Selection of Antiretroviral Medications 
Provided under U.S. Emergency Plan Is Limited. [hyperlink, 
http://www.gao.gov/products/GAO-05-133]. Washington, D.C.: January 11, 
2005. 

Global Health: U.S. AIDS Coordinator Addressing Some Key Challenges to 
Expanding Treatment, but Others Remain. [hyperlink, 
http://www.gao.gov/products/GAO-04-784]. Washington, D.C.: June 12, 
2004. 

Global Health: Global Fund to Fight AIDS, TB and Malaria Has Advanced 
in Key Areas, but Difficult Challenges Remain. [hyperlink, 
http://www.gao.gov/products/GAO-03-601]. Washington, D.C.: May 7, 2003. 

[End of section] 

Footnotes: 

[1] Congress first authorized PEPFAR in 2003. See United States 
Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003, 
Pub. L. No. 108-25, 117 Stat. 711; and Tom Lantos and Henry J. Hyde 
United States Global Leadership Against HIV/AIDS, Tuberculosis, and 
Malaria Reauthorization Act of 2008, Pub. L. No. 110-293, 122 Stat. 
2918. 

[2] In this report, "treatment" refers to the services delivered to 
HIV-positive individuals who are receiving antiretroviral (ARV) drugs. 

[3] The ARV drugs used to treat these people were paid for by PEPFAR, 
other donors, and partner-country governments. 

[4] Pub. L. No. 110-293, §§ 301 and 403. 

[5] For a broader description of the guidelines for treatment 
eligibility, see World Health Organization, The Strategic Use of 
Antiretrovirals to Help End the HIV Epidemic (Geneva, Switzerland: 
2012). 

[6] These include the Partnership for Supply Chain Management Systems 
(an association of entities with supply chain expertise), PEPFAR 
partner countries, and nongovernmental organizations. 

[7] The report also directed OGAC to provide technical assistance and 
sustained support to ensure the functioning of existing supply chains 
operated by nonpublic-sector entities, including humanitarian and 
faith-based organizations. Committee on Foreign Affairs, Leadership 
Act of 2008, H.R. Rep. No. 110-546, Part 1, at 54 (2008) (Supp. Rep.). 

[8] For the purposes of this report, "supply chains" refers 
specifically to those that supply ARV drugs and other health care 
commodities needed by treatment programs. In some cases, these 
commodities flow through supply chains providing a wide range of 
health care commodities, and in other cases, they flow through supply 
chains dedicated exclusively to HIV programs. 

[9] The other reports are GAO, President's Emergency Plan for AIDS 
Relief: Per-Patient Costs Have Declined Substantially, but Better Cost 
Data Would Help Efforts to Expand Treatment, [hyperlink, 
http://www.gao.gov/products/GAO-13-345] (Washington, D.C.: Mar. 15, 
2013) and GAO, President's Emergency Plan for AIDS Relief: Shift 
toward Partner-Country Treatment Programs Will Require Better 
Information on Results, [hyperlink, 
http://www.gao.gov/products/GAO-13-460] (Washington, D.C.: Apr. 12, 
2013. 

[10] These seven countries are China, Côte d'Ivoire, Kenya, 
Mozambique, South Africa, Uganda, and Zambia. 

[11] The 2008 Leadership Act authorized but did not require the U.S. 
government to establish partnership frameworks with host countries to 
promote a more sustainable approach to combating HIV/AIDS, 
characterized by strengthened country capacity, ownership, and 
leadership. As of February 2013, partnership frameworks had been 
signed with the following 22 partner countries and regions: Angola, 
Botswana, the Caribbean region, the Central American region, the 
Democratic Republic of the Congo, the Dominican Republic, Ethiopia, 
Ghana, Haiti, Kenya, Lesotho, Malawi, Mozambique, Namibia, Nigeria, 
Rwanda, South Africa, Swaziland, Tanzania, Ukraine, Vietnam, and 
Zambia. 

[12] Other PEPFAR implementing agencies are the Departments of State, 
Defense, Labor, and Commerce, and the Peace Corps. Additional HHS 
offices and agencies involved in PEPFAR implementation are the Office 
of Global Affairs, the Food and Drug Administration, the Health 
Resources and Services Administration, the National Institutes of 
Health, and the Substance Abuse and Mental Health Services 
Administration. 

[13] For the purposes of this report, we refer to PEPFAR country and 
regional teams and their implementing partners collectively as "PEPFAR 
country teams." 

[14] This includes the three regions and 33 countries that submitted 
PEPFAR annual operational plans or performance reports for fiscal year 
2012. The 33 countries were Angola, Botswana, Burundi, Cambodia, 
Cameroon, China, Côte d'Ivoire, the Democratic Republic of the Congo, 
the Dominican Republic, Ethiopia, Ghana, Guyana, Haiti, India, 
Indonesia, Kenya, Lesotho, Malawi, Mozambique, Namibia, Nigeria, 
Russia, Rwanda, South Africa, South Sudan, Swaziland, Tanzania, 
Thailand, Uganda, Ukraine, Vietnam, Zambia, and Zimbabwe. The three 
regions were the Caribbean, Central America, and Central Asia. 

[15] Thirty-five of the 36 PEPFAR country teams submitted operational 
plans for fiscal year 2012. 

[16] Global Health Technical Assistance Project, USAID Supply Chain 
Architecture Expert Review (Washington, D.C.: April 2011). 

[17] In addition to PEPFAR, the combined supply chains will 
incorporate three other U.S. global health programs: Population and 
Reproductive Health, Avian Influenza and Pandemic Response, and the 
President's Malaria Initiative. 

[18] The three UN entities are the Joint United Nations Programme on 
HIV/AIDS, the United Nations Children's Fund, and the World Health 
Organization. The two NGOs are the Clinton Health Access Initiative 
and UNITAID, a global health organization that seeks to provide 
greater access to treatments and diagnostics for HIV/AIDS, malaria, 
and tuberculosis in low-income countries. 

[19] As of March 2013, PEPFAR had approved funding requests for 11 
countries. According to OGAC, it is not uncommon to address initial 
requests for funding without resorting to the emergency funding 
mechanism, for example, by moving up already scheduled SCMS orders or 
expediting orders funded by other donors. 

[20] The team that developed the tool and conducted assessments with 
it was contracted jointly by USAID and the Global Fund. 

[21] According to the plan, the Nigerian government could not operate 
a reliable, secure, and adequately resourced central commodity 
warehouse, but the government was willing to work with the private 
sector. 

[22] With more than 1.7 million people estimated to be on ARV 
treatment at the end of 2011, South Africa represents more than one-
fifth of the total world demand for ARV drugs. 

[23] These 11 evaluations include all seven countries represented in 
the evaluations we reviewed. 

[24] These seven evaluations include all seven countries represented 
in the evaluations we reviewed. 

[25] According to supply chain guidance and evaluations we reviewed, 
"shortage" is defined as insufficient inventory to meet demand; 
"waste," as expired or damaged inventory; and "loss," as unaccounted 
for inventory that could be lost to diversion or theft between the 
point of entry in the country and the end user. 

[26] PEPFAR, Fiscal Year 2012 Country Operational Plan Guidance 
Appendices (Washington, D.C., 2011) and PEPFAR, Fiscal Year 2013 
Country Operational Plan Guidance Appendices (Washington, D.C., 2012). 
In addition, the House Committee Report on the 2008 Leadership Act 
stated that one activity supported by PEPFAR is technical assistance 
to establish data management systems that are meant to ensure data 
quality and strengthen data reporting, especially in new partner 
countries where experience managing U.S. foreign assistance programs 
may be lacking. Committee on Foreign Affairs, Leadership Act of 2008, 
H.R. Rep. No. 110-546, Part 2, at 65 (2008) (Supp. Rep.). 

[27] Office of the U.S. Global AIDS Coordinator, The President's 
Emergency Plan for AIDS Relief, Next Generation Indicators Reference 
Guide: Planning and Reporting, Version 1.1 (August 2009), accessed 
March 20, 2013, [hyperlink, 
http://www.pepfar.gov/documents/organization/81097.pdf]. The guidance 
went into effect for the fiscal year 2010 planning and reporting cycle 
and was updated in February 2013. 

[28] Supply chain guidance documents we reviewed cited information 
management as a key crosscutting process supporting supply chain 
management. According to guidance issued by a major USAID health 
commodity supply chain contractor, whenever possible, planning for 
future supply should be based on consumption data--which the 
contractor defines as the quantities of a product actually put in the 
hands of a customer--to ensure sufficient supply and avoid oversupply. 
The guidance emphasizes the importance of collecting information 
nearer the end-point of the supply chain. Specifically, tracking 
supplies as they move from district warehouses to health facilities, 
or from facility storage rooms to dispensaries, will better reflect 
customer demand than information related to supplies moved from a 
central warehouse to the districts. See USAID | DELIVER PROJECT, The 
Logistics Handbook: A Practical Guide for the Supply Chain Management 
of Health Commodities, 2nd ed. (Arlington, Va.: John Snow, Inc., 2011). 

[29] According to a high-level USAID official in South Africa, the 
agency paid for a team of pharmacists to monitor and report on the 
status and consumption of ARV and tuberculosis drugs at provincial 
storage depots and health facilities. The team implemented a national 
database on the availability of drugs in stock, which allowed it to 
identify consumption patterns. Decisions could then be taken to plan 
procurement and redistribute drugs among the depots and health 
facilities as needed to avoid shortages. USAID reported that shortages 
of ARV drugs in South Africa decreased from 12 percent of the total 
volume of ARV drugs procured by SCMS countrywide in January 2010, when 
monitoring first started, to 2.4 percent in December 2011, when the 
assistance ended. The monitors also enabled the cancellation of 
unnecessary backorders by health institutions--a hoarding practice 
that SCMS had previously identified as an attempt to avoid shortages. 
The South African government has now taken over the funding for these 
monitoring positions. 

[30] These 11 evaluations include all seven countries represented in 
the evaluations we reviewed. 

[31] The sample of facilities reviewed in this evaluation is not 
generalizable to all facilities in Zambia. 

[32] These seven evaluations include all seven countries represented 
in the evaluations we reviewed. 

[33] These eight evaluations include six of the seven countries 
represented in the evaluations we reviewed. 

[34] An evaluation in Uganda found that health workers were fearful of 
not having sufficient drugs on hand when government health officials 
came to visit. Thus, they withheld drugs from patients to ensure a 
ready supply of drugs, for show, should the officials inspect their 
facilities. 

[35] These 11 evaluations include all seven countries represented in 
the evaluations we reviewed. 

[36] GAO, Defense Infrastructure: The Navy's Use of Risk Management at 
Naval Stations Mayport and Norfolk, [hyperlink, 
http://www.gao.gov/products/GAO-12-710R] (Washington, D.C.: July 13, 
2012). This report identified five basic guiding principles of risk 
management: (1) management and personnel identify risks; (2) they 
analyze risks; (3) after analyzing the risks, they create a plan that 
identifies different possible courses of action to mitigate the 
identified risk; (4) when a plan for risk mitigation is approved, 
management and personnel implement the risk mitigation action plan; 
and (5) they track risks and mitigation action plan implementation to 
determine if the plan was successful in mitigating the risk. These 
guiding principles were developed by studying the practices of several 
leading organizations engaged in risk management. 

[37] GAO, President's Emergency Plan for AIDS Relief: Agencies Can 
Enhance Evaluation Quality, Planning, and Dissemination, [hyperlink, 
http://www.gao.gov/products/GAO-12-673] (Washington, D.C.: May 31, 
2012). 

[38] GAO, Defense Infrastructure: The Navy's Use of Risk Management at 
Naval Stations Mayport and Norfolk, [hyperlink, 
http://www.gao.gov/products/GAO-12-710R] (Washington, D.C.: July 13, 
2012). 

[39] GAO, Standards for Internal Control in the Federal Government, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). 

[End of section] 

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