LOOTING OF NHIF SH3.5B CASH

The National Hospital Insurance Fund (NHIF) has failed to account for nearly three quarters of the Sh4.3 billion it received from the national government to finance a medical insurance scheme for the military and civil servants, Auditor-General Edward Ouko says in a newly released report on the state of the agency’s finances.

Mr Ouko says in the audit report he submitted to Parliament last week that the NHIF had failed to account for Sh3.5 billion it spent on the medical scheme in the financial year ended June 30, 2013. 

The report says accounting for the funds was made even more difficult by the fact the NHIF’s management could not provide basic information such as the number of beneficiaries covered by the insurance scheme and returns from the health service providers confirming the identity and number of officers attended to.

The report, which National Assembly Majority Leader Aden Duale tabled in the House last Thursday, says auditors were unable to ascertain whether the Ministry of Public Service and the disciplined forces got value for the billions pumped into the medical scheme.

The government set aside Sh4,324,546,417 for the medical insurance scheme that is administered by the NHIF.

Mr Ouko says that while there was evidence showing that the ministry released Sh4,324,546,417 to the NHIF and proof that Sh3,501,806,538 of the amount was disbursed to contracted service providers as benefit-expenses, there were no service delivery records. 

“Reconciliations from the ministry on the number of beneficiaries covered in the insurance scheme and accountability returns from health facilities on the number of civil servants and disciplined services attended to have not been made available for audit review,” the report says.

“In the circumstances, it has not been possible to confirm the propriety of the expenditure of Sh3,501,806,538 included in the benefit-expenses in the Statement of Comprehensive Income for the year ending June 30, 2013,” Mr Ouko says in the report dated April 28, 2014.

The government launched a new health insurance scheme for civil servants and members of the disciplined forces in early 2012, offering State employees medical cover for the first time.

Beneficiaries of the scheme can access health services from public, mission and selected private hospitals.

The scheme covers about 220,000 government employees, members of the disciplined forces, their spouses and three children under the age of 18. Teachers are excluded from the scheme.

The insurance scheme, which took effect on January 1, 2012, covers treatment, life and funeral expenses for the beneficiaries.

Under the life segment of the scheme families of deceased employees receive a lumpsum in the event of their death and are paid additional money to cater for burial expenses.

Mr Ouko separately found that during the year under review, the NHIF management spent Sh542.5 million without the approval of the minister and the Treasury as required by law.

The expenditure relates to payments made to a consulting firm that worked on drawings and designs for the Karen Resource Centre. The money is included in the property, plant and equipment balance of Sh12.5 billion.

The Auditor-General says that the declared balance consists of work in progress worth Sh1.4 billion, including additions of Sh542.5 million in the 2012/13 budget contrary to Section 12 of the State Corporations Act.

The law bars State corporations or agencies from incurring expenditure for which no provision has been made in the budget.

“Section 12 of Cap 446 states that no corporation shall without prior approval of the minister and the Treasury, incur any expenditure for which no provision has been made in an annual estimate prepared and approved in accordance with Section 11. The fund is therefore in breach of the law,” Mr Ouko says.

The audit further queries the accuracy of declared NHIF assets, saying the land valuation of Sh298.6 million included Sh93.7 million in respect of LR 24968/2 measuring 10 hectares situated in Karen.

“Ownership of this particular parcel of land is in dispute and the matter is in court,” Mr Ouko says of the plot that the fund acquired in 2001/2 at a cost of Sh93.7 million to build the resource centre.

The NHIF management then commissioned consultants to conduct feasibility studies on the project. The audit report shows that the consultants did the work and submitted their report together with a fee note of Sh734.5 million.

“As similarly reported in the previous year’s report the fee notes were not, however, honoured by the fund, apparently because the management had not received prior approval for the works from the parent ministry. This situation resulted in a dispute which has been referred to arbitration,” the report says.

Information made available to the auditors showed that the arbitrator, after reviewing the matter, awarded the consultants Sh352.1 million. The fund, he said, disputed the award and moved to the High Court for redress.

Mr Ouko said the fund has since paid the consultants Sh407.1 million, representing the principal amount and interest in accordance with the arbitration consent order made in the High Court in April 2009.

“In the circumstances, it has not been possible to ascertain the ownership status of the parcel of land in dispute and that the property, plant and equipment balance of Sh12.3 billion as at June 30, 2013 is fairly stated,” the report says.

Like in the previous audits, Mr Ouko says the NHIF has not been able to justify a 337 per cent cost escalation for the multi-storey car park in Nairobi’s Community Area. The facility was built at a contract sum of Sh909.7 million.

The NHIF contracted a construction firm to develop the facility in May 2002 with a completion deadline of August 2003.

Records show that the contract sum was later revised upwards to Sh1.18 billion, approximately 30 per cent above the original sum of 909.7 million.

“Although records indicate that the car park was completed in July 2008 at a cost of Sh3.34 billion, a further amount of Sh626.6 million and Sh4.7 million was incurred in 2009/10 and 2010/11 respectively — increasing the total expenditure to Sh3.9 billion or representing an increase of approximately 337 per cent over and above the contract sum of Sh909.7 million,” Mr Ouko says.

The auditor has once again questioned the NHIF’s Sh2.5 billion investment in securities, including Sh49.5 million that the agency had deposited in Consolidated Bank on June 26, 2001.

Mr Ouko says there is evidence showing that the entire deposit was offset against a guarantee executed by the former fund’s chief executive officer on behalf of Euro Bank.

“It is not clear and the management has not explained the circumstances under which the Fund’s deposit was used as a guarantee by the chief executive officer,” Mr Ouko says.

The audit report has also questioned the recoverability of trade and receivables balance of Sh602 million as well as the validity and accuracy of the trade and other payables balance of Sh692.8 million.