NHIF in hot water for paying Sh336m to unqualified law firm

NHIF building

The National Hospital Insurance Fund building in Nairobi in this photo taken on February 9, 2022.

Photo credit: Jeff Angote | Nation Media Group

The National Health Insurance Fund (NHIF) is once again at the eye of a storm after it paid Sh336.3 million to a law firm that had not been pre-qualified to bid for tenders with health providers in the latest scandal unearthed by Auditor-General Nancy Gathungu.

Curiously, the drafting fully paid for by the taxpayers was not part of the NHIF’s approved procurement plan for 2018/2019—the period within which the payment was done.

This is contrary to the Public Procurement and Assets Disposal Act of 2015. No money had been allocated to pay for legal service and, therefore, it went against the Public Finance Management (PFM) Act.

Ms Gathungu, in her report of the audited financial accounts tabled last week, further shows that NHIF paid Sh156.4 million in legal fees to private law firms whose names she has not revealed, without the consent of the Attorney-General (AG).

The audit report is currently before Parliament. The April 16, 2014, circular issued by the AG, requires approval from the Ag before government agencies engage private legal firms.

The law firm contracted to draft the contracts charged NHIF Sh43.3 million more for company search, printing, binding, travel costs, stamp duty and distribution of the contracts to the various hospitals and other health providers.

The audit report indicates that Sh432.8 million was the negotiated instruction fee to draw 6,700 contracts. Out of this amount, Sh336.3 million was paid to the law firm. This means that each contract costs the taxpayer about Sh65, 000 to draft.

The audit report further notes that, on November 5, 2018, the law firm reviewed the terms of engagement and added 309 more contracts for drafting at an additional cost of Sh26.75 million without NHIF’s approval.

“Under the circumstances, NHIF was in breach of the law and the propriety of the legal fee paid to the law firm could not be confirmed,” the audit report says.

The audit report also shows that the NHIF board spent Sh32.1 million in sitting allowances among other expenses for 35 full board meetings and seven meetings for its audit committee in a year. In the process, Sh12.5 million was spent for the meetings in sitting allowances alone. This means that the board violated its own approved calendar of five full board meetings and four audit committee meetings for the period under review.

Interestingly, the sitting allowances were not supported with signed minutes as required by the law. The Auditor-General has also questioned the Sh21.8 million the NHIF management paid its staff as Christmas gifts and a token of appreciation to its retirees during the year under review.

The report notes that the management failed to provide justification or the basis for the payment, an indication that public funds may have been lost.

About Sh6.7 million paid to 12 officers employed during the year has also been questioned.

The audit report notes that the NHIF management did not provide documents relating to the hiring process—advertisements of the vacancies, shortlists, interviews and recruitment reports—to support the recruitment.

The audit also questioned how NHIF paid a whopping Sh340.5 million to Moi Teaching and Referral Hospital (MTRH) without a signed loan agreement between the two institutions.

From the report tabled last week, the loan was advanced by NHIF to the institution at an interest rate of three percent per annum without any agreement or documentation, which means that NHIF may not recover the amount in case of default.

The audit report further indicates that the loan did not reflect in MTRH financial statements for the 2018/19 financial year and the subsequent financial years, raising questions whether the failure to include it in the hospital's books was deliberate or whether it will be paid.

As this continues to happen at the fund, the spotlight shifts to the NHIF board, which has oversight responsibility over the management. The NHIF board is currently chaired by former Kikuyu MP Lewis Nguyai.

President Kenyatta controversially appointed Mr Nguyai as NHIF board chairman in a special gazette notice of February 2021 to replace Ms Hannah Muriithi, who had served since April 2018.

Mr Nguyai was the owner of the collapsed Mediplus Limited, a company that was at one time contracted by NHIF to offer government employees medical cover. However, Mediplus Limited did not meet its part of the bargain, forcing some hospitals, among them the Agha Khan Hospital, to sue the firm for failing to pay for the services rendered.

Yesterday, Mvita MP Abdulswamad Sharif, who chairs the Public Investments Committee (PIC) of the National Assembly, said the audit report raises serious issues that NHIF will have to explain.

“As a committee, we shall have a session with the management of NHIF over these audit queries as raised by the Auditor-General. If it is discovered that public funds were irregularly used, we shall recommend to the House appropriately,” said Mr Sharif.

Section 93 (1) of the Public Procurement and Assets Disposal Act allows for pre-qualification of firms in lieu of open tendering. This, the law says, is to identify the best few qualified firms for procurement. Failure to observe the procurement plan as provided for in the law could also land NHIF into problems.

Section 45 (3) of the procurement law provides that all procurement processes shall be within the approved budget of the procuring entity and factored into its annual procurement plan.

NHIF was appointed as the driver to spearhead the roll-out of universal health coverage (UHC) in the country. In a bid to fulfil one of its key commitments to Kenyan citizens, the government has released Sh6 billion to NHIF for implementation of the UHC programme.

However, there can be no UHC without NHIF being managed well. This is not the first time financial scandals are hitting the 56-year-old state agency. Although the government undertook policy interventions to streamline NHIF operations and seal the corruption loopholes, very little has changed.

The fund has, on numerous occasions, been flagged for fraud and abuse of office, which have hampered provision of quality services. These bottlenecks and other organisational weaknesses have undermined its efficacy.

Previous scandals have dented the image of the fund with its previous chief executives charged in court over the loss of public funds.

In 2013, former CEO Richard Kerich was dragged before the courts on charges of conspiracy to defraud the fund of Sh117 million. In 2021, the High Court ruled that Mr Kerich has a case to answer. The case is ongoing.

In 2018, Mr Kerich’s successor, Mr Geoffrey Mwangi, alongside several others, were charged in court over the loss of Sh1.5 billion at the fund. The case is yet to be determined.

In February this year, a petitioner went to court to have the current CEO, Mr Peter Kamunyo, who replaced Mr Mwangi, fired on allegations of promoting corruption and other irregularities.

The charges facing Mr Kamunyo include embezzling public funds, backdating of salaries and making irregular appointments and transfers of staff members without following the procedure. The case, which is before the Employment and Labour Relations Court, is yet to be determined.

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