Top Ministry of Health officials have stolen more than Sh5 billion in an NYS-style mega corruption scandal involving diversion of funds, double payment for goods, and manipulation of the Integrated Financial Management System (IFMIS).
A leaked internal audit report says the theft, which is five times the infamous Sh791 million National Youth Service scandal, also involved payments of millions of shillings to phony suppliers in the financial year (2015/2016).
The auditors say the amounts lost could be higher because they have yet to complete work on the ministry’s transactions for the year.
“The small sample covered is an indicator that there could be a wider scheme wherein the ministry incurred huge losses to the detriment of service delivery to the public,” the audit report addressed to Health secretary Cleopa Mailu says.
Top on the list of fraudulent transactions identified in the audit report was the diversion of Sh889 million meant to be disbursed to county governments to support the free maternity care programme and its use in the purchase of phantom mobile medical clinics for urban slums.
A large chunk of the money (Sh800 million) was paid to Estama Investment Limited, a company whose owners are not revealed in official records at the Registrar of Companies, to supply 100 portable medical clinics that have yet to be delivered four months after the financial year ended.
Estama was paid the money in three instalments, including Sh400 million on June 27, a transaction for which the payment voucher could not be found during the audit. Even more questionable is the fact that Estama raised a separate purchase order for Sh200 million on June 30 and got paid the same day.
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Could not explain
Izaq Odongo, the head of curative and rehabilitative services at the ministry and on whose behalf payments for the clinics were signed, said the equipment arrived at the port of Mombasa but has not been distributed a year since being shipped in.
He could not explain the delay or even why the ministry made the full payment before the equipment was delivered.
The Principal Secretary in the Ministry of Health, Nicholas Muraguri, did not deny the existence of the audit report, but dismissed the author as “incapable of understanding how government works,” even as he threatened her with espionage and snooping on her private communication.
“I mean, you don’t know government. We can get what you write even before you publish it, including getting print-shots and screenshots of the story. Someone can be reading your messages while sitting here. If there is a need to hack Nation’s system we can. We can even confirm how much money is in your account now,” the PS said when asked to respond to the audit queries.
READ: Kenyans outraged at PS's threat to journalist over story on Sh5b NYS-type scam
The audit also found that Estama was paid despite not meeting the Kenya Revenue Authority’s requirements on the use of electronic tax register (ETR) receipts, tax compliance and PIN number.
“This raises a red flag on whether the firm met the legal requirements to be considered for a government contract,” the audit report says.
Estama was among private companies, civil servants and government departments that benefited from Sh889 million that was diverted from the free maternity programme at the expense of county governments.
Another entity that received the cash is Esaki Ltd, a company associated with former Ethics and Anti-Corruption Commission (EACC) chairman Philip Kinisu, which was paid Sh150.1 million of the diverted funds.
The ministry’s Global TB Fund Round 5 (Sh118.1 million), Vivo Ltd (Sh18.7 million), “Director KMTC” (Sh66.5 million) and “Director KEMSA” (Sh25 million) were the other beneficiaries of the diverted funds.
Dr Mailu had not responded to our queries on the mega scam by the time of going to press.
The audit says a whopping Sh515.7 million was lost through outright theft and double payments made under the National Aids Control Programme.
The amount was ostensibly used to buy food and rations, whose storage or use the audit could not confirm. Some Sh265.7 million of the total amount was paid to Co-op Bank — an action that the audit found to be expressly fraudulent.
“Co-op Bank cannot be a supplier of food and rations and yet the real payees were not disclosed,” the auditors say, adding that the department could not produce payment vouchers to help establish who the bank was instructed to pay.
The remaining Sh249.9 million was paid to four suppliers, including Life Care Medics (Sh201 million), for items that had been procured and paid for through Kenya Medical Supplies Authority (Kemsa).
The auditors have particularly flagged irregularities surrounding the procurement, noting, for instance, that while goods were purportedly purchased and paid for at the ministry headquarters, the same were received and stored in Kemsa warehouses, where a parallel procurement for similar goods had been made, “making it difficult to probe the two and raising the prospects of possible double payments for the same supply.”
The ministry also closed the financial year 2015/16 with Sh2.4 billion pending bills, which the auditors found to have mainly arisen from illegal overspending made in contravention of the Constitution and the Public Finance Management Act.
The auditors say the mountain of pending bills is particularly questionable because the government runs a cash-based accounting system — meaning that accruals or prepayments are not allowed.
“Based on the foregoing, the financial statements presented to the Auditor-General contain material mis-statement of approximately Sh2.4 billion in form of pending bills,” the auditors wrote to Dr Mailu in a separate memo dated October 10, 2016.
The Sh2.4 billion overspending is captured in a series of transactions running into hundreds of millions of shillings.
The ministry, for instance, spent in excess of Sh413.6 million to construct buildings, partly aided by illegal expansion of authorised allocations by a massive Sh350 million.
The audit says ministry officials manipulated IFMIS to effect the fraudulent transactions where two counties and 10 firms were paid money that the report says was not intended for the allocation.
The payments are classified as arising from unavoidable and unforeseen circumstances — a move the auditors say is suspect.
“Unless there was a disaster rendering people homeless, construction of buildings cannot be classified as unavoidable and unforeseen circumstances and hence the supplementary estimates under this account were contrary to the provisions of the Constitution and PFM Act, 2012,” the audit report says.
The trail of payments is spread countrywide, pulling in Bungoma and Lamu counties which received Sh100 million each, while Lizol Chem Company was paid Sh28.6 million for construction of buildings under the special provision.
Other recipients of the money were Mindray Med Kenya (Sh159 million), Bulecon Associates (Sh42 million) and Mecoy Consultant (Sh37 million).
The report also points to loss of millions of shillings in grants to the Kenya Medical Training Centre (KMTC) where the ministry overspent Sh268.8 million and presented records that were in conflict with the electronic trail available on IFMIS, pointing to fraud.
KMTC’s records show it has pending bills (the cover for overspending) of Sh184 million while the excess expenditure is captured on IFMIS as Sh268.8 million.
“This raises a red flag on possible misappropriation of funds which might have caused the overexpenditure,” the audit says.