State House official approved Sh400m payments to Afya House contractors

President Uhuru Kenyatta’s chief of staff authorised Sh400 million payments to Ministry of Health suppliers that are part of the Sh5 billion contracts which have raised audit queries, the final interim audit report tabled in Parliament on Tuesday revealed.

Joseph Kinyua directed the Ministry of Health to wire Sh200 million to pay for consultancy and inception works at Nanyuki County Hospital, according to the updated internal audit report dated November 18, 2016.

A further Sh100 million each was given to Bungoma and Lamu county hospitals to fund their upgrade, says the report authored by the head of internal audit at the Ministry of Health, Bernard Muchere.

The auditor raises the red flag on payments drawn from the Health ministry’s supplementary budget in the period to June 2016.

“The directives were communicated to the ministry by the Chief of Staff and Head of Public Service vide letter ref No. OP/CAB26/1/3A dated 24th January 2016,” says management responses to audit queries raised on the payments.

The auditor, whose initial internal audit report was first reported in the Business Daily, raised queries on the legality and regularity of payments at the ministry totalling Sh5 billion, says the payments to consultants were unprocedural as cash was released from the ministry headquarters instead of being sent to the Nanyuki County Hospital where the expenditure was incurred.

“Verification of the vote book shows that the ministry paid suppliers directly on behalf of the Nanyuki County Hospital, contrary to management response that the money was transferred to Nanyuki County Hospital,” the auditor says in the report.

State House spokesperson Manoah Esipisu was yet to respond to our queries on the legality of the executive order issued by Mr Kinyua by the time of going to press.

The Constitution provides that only the Controller of Budget can authorise payments drawn from taxpayers’ cash.

Only Parliament has the constitutional mandate to re-allocate national budget votes.

While appearing before a parliamentary committee on Tuesday, Mr Muchere said a forensic audit would be needed to establish how much money was lost due to irregular payments at the Health ministry.

The auditor further says in the audit report that the “expenditure on consultancy may not qualify as ‘unforeseen and unavoidable’” as was classified in the supplementary budget.

The audit report raised fears of double payments saying “non-residential buildings had budgetary provisions in the same head and item but figuratively under programme although the account description was the same.”

The report adds that “the authenticity of the pending bills is questionable” given that a review of the Health ministry’s books of accounts showed that pending bills totalling Sh1.4 billion had been cleared on October 30, 2015.

Raised questions

The auditor also raises queries on the compliance of the ministry’s payments with the Public Finance Management Act. According to Article 226(5) of Kenya’s Constitution, public officials bear direct personal liability for any public funds lost, wasted or misapplied during their term in office.

“If the holder of a public office, including a political office, directs or approves the use of public funds contrary to the law, the person is liable for any loss arising from that use and shall make good the loss, whether the person remains the holder of the office or not,” says Article 226(5) of the Constitution.

The Afya House audit has revealed payments made to prominent people, including President Kenyatta’s sister, Nyokabi Kenyatta Muthama, and cousin Kathleen Kihanya, whose companies won contracts worth tens of millions of shillings under the “Disadvantaged groups” category.

READ: Mailu defends Afya House contract given to Uhuru kin

The 32-page final interim audit report contains a blow-by-blow account of the financial health of Afya House, with the auditors dismissing many of the responses given by management.

For example, a Sh265.7 million payment into an account belonging to the Health ministry at the Co-operative Bank for a letter of credit for Life Care Medics Ltd was found to be irregular.

Billionaire businessman Paul Wanderi Ndung’u and Robert Ngatia Waweru are the co-owners of Life Care Medics Ltd, which was paid Sh201.01 million on April 4, 2016 for supplies.

READ: How Paul Ndung’u amassed wealth and power in a decade

In the management response, the ministry said “letters of credit are standard practice for payment of goods, particularly imported goods.”

But the auditor disputed this, saying the move was against Treasury Circular No 13 dated August 1, 1997, which provides guidelines on issuance of letters of credit.

“Please note that the use of letter of credit may be applied for payments to overseas suppliers in respect of purchases made from either donor or GoK funds,” says the circular signed by then Finance permanent secretary Simeon Lesrima.

The auditor concluded that “the letter of credit is a guarantee and not a payment” and flagged the fact that Life Care Medics is a local company and hence doesn’t qualify to use such instruments.

On over-expenditure of Sh413.6 million to 10 firms as well as Lamu and Bungoma counties, the auditors said spending more than is budgeted for “is contrary to Section 196(1&3) of the PFM Act.”

Mr Muchere further flagged the Sh200 million paid to Estama Investments from the free maternity kitty for ‘container clinics’ as violating the law, and didn’t pay any taxes to the Kenya Revenue Authority.

A total of Sh889.5 million of free maternity funds “were diverted to pay private firms,” the auditor says in the report.

“Therefore, the ministry circumvented the above provisions of the law by making payments of Sh200 million in respect of portable clinics from free maternity funds,” the team of auditors concluded.

“The invoices were not affixed with the ETR fiscal receipts, neither did they bear the PIN and VAT registration numbers. The management response did not provide any evidence on tax compliance.”