•NHIF is broke and can barely sustain its operations.
•It reported an operating loss of Sh3.6 billion during the year under review.
The National Hospital Insurance Fund is on the spot for paying retired staffers Sh21 million as a Christmas gift and appreciation token despite the entity’s sorry financial state.
Auditor General Nancy Gathungu flagged the irregular payment in her latest report on the entity’s books of accounts for the year ending June 30, 2019.
She said the management team did not provide justification or the basis for the payment, putting CEO Peter Kamunyo's administration on the spot.
“Consequently, the propriety of the expenditure totalling Sh21,762,000 paid as Christmas gift and included under staff welfare could not be confirmed,” Gathungu said.
NHIF is broke and can barely sustain its operations, and reported an operating loss of Sh3.6 billion during the year under review.
The fund, Gathungu said, irregularly expended Sh908 million during the year under audit.
NHIF, the audit says, irregularly paid Sh156 million as legal expenses to private law firms contrary to an April 2014 circular by the Attorney General.
The auditor said the transaction was irregular as the approval and issuance of no objection from the Attorney General’s office on the engagement of the private legal firms was not given.
“In the circumstances, the propriety of legal expenses totalling Sh156,424,194 could not be confirmed,” Gathungu said in the report released recently.
Still, on legal fees, the fund irregularly paid Sh336 million to a law firm for drawing 6,700 contracts with health providers engaged under the National Health Scheme benefits.
The contracts were to be drawn at a negotiated total instruction fee of Sh432.8 million.
The law firm was to further charge Sh43.3 million for company search, printing, binding, travels costs and stamp duty and distribution of the contracts.
But the audit revealed that the law firm in November 2018 reviewed the terms of engagement and added 309 contracts for drafting, staging an additional expense of Sh26.7 million as legal fees.
“There was no consent from NHIF for the variation. Further, the legal service was not in the approved procurement plan for the 2018-19 financial year,” Gathungu said.
The Public Procurement and Assets Disposal Act, 2015, states that all procurement processes shall be within the approved budget of the procuring entity.
It also provides that procurement shall be planned by the procuring entity concerned through the Annual Procurement Plan.
“The law firm was not in the prequalified list of suppliers in contravention of Section 93(1) of the Public Procurement and Assets Disposal Act, 2015,” the auditor said.
The law provides that an accounting officer of a procuring entity, where applicable, may conduct a prequalification procedure as a basic procedure prior to adopting an alternative procurement method.
This should be the case other than open tender for the purpose of identifying the best few qualified firms for the subject procurement.
“Under the circumstances, the fund was in breach of the law and the propriety of legal fee of Sh336,339,000 paid to the law firm could not be confirmed,” Gathungu said.
The auditor also revealed that the NHIF also irregularly single-sourced a firm to install the fund’s Integrated Revenue Management System at Sh495 million.
“No evidence of competitive bidding was provided for audit verification,” Gathungu said, citing a violation of procurement law.
The law requires that accounting officers of state entities bring the invitation to tender to the attention of all those who may wish to submit tenders.
Gathungu held that no evidence was provided to support that the underlying circumstances met the conditions set for direct procurement.
“Under the circumstances, the Fund was in breach of the law and may not have obtained value for money on the procurement of the system,” she said.
Also queried was the payment of Sh6.7 million to 12 officers employed during the year as no documents were provided to support the recruitment.
The auditor said she was not provided with the advertisements of the vacancies, shortlisting, interviewing and recruitment reports for audit verification.
“Consequently, the propriety of the expenditure totalling Sh6,680,160 included under staff cost for the year ended 30 June 2019 could not be confirmed.”
One of the NHIF’s settlement accounts was also overdrawn, reporting a negative bank balance of Sh8,350.
“Management has not provided an explanation for overdrawing the bank account contrary to Section 28 (4) of the Public Finance Management (National Government) Regulations, 2015.”
The regulation states that an accounting officer of a national government entity shall not cause a bank account of the entity to be overdrawn.
-Edited by SKanyara