Economy

Afya House, doctors fraud schemes cost KNH Sh1.5bn

KNHAENew

The Kenyatta National Hospital (KNH) in Nairobi. A damning Ministry of Health internal audit report seen by the Business Daily shows the hospital lost more than Sh1.5 billion in the 2014/15 and 2015/16 fiscal years. PHOTO | FILE

Kenya’s largest referral health facility, Kenyatta National Hospital (KNH), lost more than Sh1.5 billion in a series of fraudulent transactions that were dominated by illegal staff compensation and diversion of its funds at the parent ministry.

A damning Ministry of Health internal audit report seen by the Business Daily shows the money was lost in the 2014/15 and 2015/16 fiscal years, with the auditors saying more may have been lost through improper accounting and careless debt management.

The biggest chunk of the hospital’s funds (Sh1.4 billion) was swindled in a grand scheme of extraneous allowances and locum fees — paid to doctors hired on a temporary basis — which the audit found inappropriate.

“The locum of approximately Sh410 million and extraneous allowance of Sh717 million were inconsistent in that, if the health personnel were working extra hours (the criteria for paying extraneous allowance) there would be no need for locum,” the report says, adding that “allowances totalling Sh1.4 billion, among others (which appear ineligible) were part of what contributed to the highly inflated and unsustainable wage bill.”

Open to scrutiny

Health secretary Cleopa Mailu yesterday said that his ministry was treating corruption allegations within its ranks with the “seriousness it deserves”.

Dr Mailu was reacting to yesterday’s Business Daily exposé that made public an internal audit report’s finding that top Ministry of Health officials may have stolen up to Sh5 billion of taxpayer funds in a single financial year.

“We are open to internal and external scrutiny to ensure transparency and proper utilisation of allocated funds,” said Dr Mailu.

READ: Revealed: Taxpayers lose Sh5bn in NYS-style Afya House theft

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The questionable payments at KNH saw the facility’s wage bill rise to Sh7.4 billion, consuming 57 per cent of the hospital’s total expenditure of Sh13 billion in the fiscal year ended June 2016.

KNH paid a whopping Sh4 billion in allowances or 119.6 per cent of its Sh3.4 billion basic salaries bill — a position the audit found abnormal because a large part of the allowances is driven by double payments and medical staff absconding duty, leading to the hiring of temporary replacements.

KNH has 200 doctors and 1,718 nurses but 95 per cent of services in the accident and emergency department were rendered by locum medical staff, raising audit queries.

“This raises a red flag as to whether the doctors and nurses employed permanently do attend to their duties,” the report says, adding that the prevalent absenteeism is an indicator that the professionals are engaged in private practice.

The hospital’s doctors, for instance, were found offering private consultancy services at KNH’s Kenya Prime Care Centre, formerly Private Wing, for which they are paid millions of shillings as independent contractors.

The health workers attempted to cover their truancy by clock-ins, which were later cancelled, and by signing in-and-out simultaneously at the time of starting work.

Besides the payment of unnecessary locum, the bloated allowances caused payment of Sh78.2 million in medical benefits despite the fact that KNH fully covers its staff medical bill and provided Sh212.8 million to this end in year under review.

Another Sh84.6 million in house allowances was paid in excess of the Salaries and Remuneration Commission’s (SRC) set limits.

KNH’s chief executive, Lily Koros, said she was not aware of the ineligible allowances.

“The story on Sh1.4 billion loss in allowances is outrageous and I haven’t heard it anywhere,” she said in response to queries raised in the audit report.

Besides the ineligible allowances, the auditors found that KNH suffered non-remittance of a Sh113 million grant, which was spent fraudulently by the parent ministry.

Of the amount, Sh52.1 million was paid to private firms in contravention of Section 43(1)(a) of the Public Finance Management Act that prohibits “reallocation of funds appropriated for transfer to another government entity or person.”

The balance of the cash or its use could not be traced owing to lack of records.

KNH also procured and paid for an ICT system dubbed funSoft that has since been found to be defective and is yet to be commissioned more than two years since the contract completion date (June 2013).

The audit also revealed imprudent cash, debt and asset management processes which it says expose taxpayers to the risk of losing billions of shillings.

KNH, for instance, understated its cash position by a cumulative Sh4.6 billion.

The concealed cash itself represents a massive provision for bad and doubtful debts amounting to Sh5.3 billion.

“The high percentage provision of the bad debt … raises a red flag on credit policy which appears to permit possible fraud schemes,” the audit report says.