Economy

Contributors face further losses in NHIF car park

carpark

The NHIF car park building in Nairobi. The Sh3.9 billion used by NHIF to build a multi-storey car park at Upper Hill in Nairobi cannot be justified, a report of Auditor-General Edward Ouko has said. Photo/Salaton Njau

Contributors to the National Hospital Insurance Fund (NHIF) could end up losing more in a car park which is yet to be given a clean bill of health by the Nairobi City Council.

The car park was completed two years ago for more than three times the projected cost but was yet to be given a completion certificate by City Hall to show that the building plans were followed to the letter during its construction.

“The escalation of costs of the car park by 337 per cent over and above the original cost has not been justified while at the same time the final completion certificate for the project had not been issued to the fund as at June 30, 2012,” Auditor General Edward Ouko said in a qualified opinion dated June 3, 2013 and tabled in Parliament by Leader of Majority Party Adan Duale last week.

The storeyed car park cost Sh4 billion against the Sh910 million agreed with a local contractor in May 2002 with an August 2003 completion target.

Mr Ouko said more money was paid for the car park from 2009 despite records showing it was completed in July 2008 at Sh3.3 billion.

“A further amount of Sh626.63 million and Sh4.7 million was incurred in 2009/10 and 2010/11 respectively on the parking, increasing its total expenditure to Sh3.97 billion as at June 2011,” Mr Ouko said in the report.

Players in the real estate market say the massive inflation of the project cost was most likely driven by corruption at the fund, noting that developers would have built a larger and grander facility with Sh3.9 billion.

However, NHIF’s delay in completing the project may have inflated the cost due to increase in prices of building materials over the years.

With high-end office blocks in Nairobi costing from Sh60,000 per square metre, the Sh3.9 billion spent by NHIF would have put up an upscale office block with 65,000 square metre space.

“It costs between Sh60,000 and Sh70,000 to develop a square metre of high-end office space in Nairobi,” said Mr Steven Oundo, a former chairman of the Architectural Association of Kenya.

The fund’s car park cost represents, for instance, 58.2 per cent of the estimated Sh6.7 billion set to be spent on the 39-storey Hazina Trade Centre which features modern office spaces.

The pricey car park is one of the controversial projects for which the auditor has accused NHIF of financial improprieties.

Mr Ouko also questioned NHIF’s low valuation of its property, plant and machinery at Sh12 billion in its books despite holding hectares of land in Nairobi’s upmarket Karen worth Sh300 million.

“However, the ownership of this particular parcel L.R 24968/2 is in dispute and the matter is pending in a court of law,” the audit finding states.

The auditor found that NHIF provided for an impairment of Sh1.3 billion in its securities portfolio, signaling huge risks in the fund’s investment strategy.

(Read: NHIF scam report tabled in House despite opposition)

He revealed that part of Sh49.5 million deposited in June 2001 at the Consolidated Bank in Nairobi was used to offset a guarantee executed by former fund CEO on behalf of Euro Bank limited.

“It is not clear and the management has not explained the circumstances under which the funds deposits was used as a guarantee by the then chief executive officer,” the report states.

On the trade and other receivables, the auditor general also questioned the correctness of trade and other receivables totalling Sh190 million.

“These balances have been outstanding for a considerably long period of time and only provisions for bad and doubtful debts of Sh160 million have been made in the accounts,” Mr Ouko observed.

He also questioned a difference of Sh312 million in claims payable to Kenyatta National Hospital. The fund showed only Sh19 million was due against Sh331 million in KNH’s financial statement.

The auditor also raised concern over Sh12 million and Sh879 million which were listed as provision for lost revenue and civil servants scheme respectively.

“Although the management has explained that the revenue lost had been insured, there was no evidence that the insurance company had compensated the fund. Further, the money for the civil servants scheme had no strong supporting schedules,” Mr Ouko said.

The auditor also said the Sh2.2 billion contract for provision of medical cover for civil servants and members of the disciplined forces signed with the government on January 5, 2012 was done without following the law.

“The fund has not explained how the scheme was to be administered because the Act does not give mandate to undertake the products contained in the contract,” the report says.

The contract was signed for 219,789 civil servants and disciplined officers but only 211,215 civil servants had been registered with service providers.

Mr Ouko said NHIF has not obtained for audit review independent confirmations from the government on how two health providers suspended for being allocated more than 43 per cent of the beneficiaries were assigned.

“The management has not explained whether the two firms —Clinix and Meridian — are currently suspended or their services were terminated. The likely liability arising out of this situation has not been clearly disclosed in the account,” Mr Ouko said.

He said NHIF wrote to the two health providers letters of termination on June 14, 2012. The two were suspended after a committee of Parliament investigated the deal.

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