Top bosses at Kemsa might be prosecuted after a comprehensive audit report revealed the purchase of Covid-19 items was designed to siphon funds.
The report by Auditor General Nancy Gathungu was made public only hours before DPP Noordin Haji makes an announcement on Thursday about whether the officials will be charged.
Gathungu revealed systematic flaws at Kemsa involving irregular Sh8.3 billion procurement.
“The items were procured at a higher price as compared to the current market pricing implying that Kemsa may realise a loss of Sh2.3 billion if the products are to be sold at the current market price,” the report concludes.
Gathungu says suspended Kemsa CEO Jonah Manjari and other top officials engaged in excessive procurement and awarded multimillion-shilling tenders to questionable companies in disregard of the law.
Gathungu presented the report — the first to be produced since her appointment — to the joint Senate committees on Health and the Covid-19 situation.
The committee is investigating alleged procurement issues at the drugs authority.
The DPP is on Thursday expected to spell out a raft of actions to be taken against those found culpable following a probe by the Ethics and Anti-Corruption Commission.
In a report to a Senate committee last week, EACC Chief Executive Office Twalib Mbarak said the investigations established criminal culpability by public officials in the purchase of the items.
“The commission recommended charging of suspects with various offences under the Anti-Corruption and Economic Crimes Act and Public Procurement and Asset Disposal Act and PFM Act,” Mbarak said in a report to the Senate.
However, the names of the culpable officers have remained secret.
In the audit report, Manjari, in particular, is accused of engaging in unsolicited procurement, driven by supplier rather than demand, issuing commitment letters without a budget and spending Universal Health Care and capital budget funds without authority.
While appearing before the Health Committee of the National Assembly, Manjari said no money was lost in the procurement of the Covid-19-related equipment.
“Under my watch, no money was lost and I did not oversee any loss of funds. All commodities supplied have been utilised and those not utilised are intact,” he told the Health Committee of the National Assembly.
However, he claimed to have received requests from Health CS Mutahi Kagwe and PS Susan Mochache on how tenders should be awarded
“There were requests from CS Kagwe, PS Mochache and a Brigadier. They, at one point, came to Kemsa and we were told we needed to respond or else they’ll take over the warehouse,” he said.
Further, the report said, Kemsa failed to conduct market surveys for the items, thereby obtaining them at exaggerated prices. It also handpicked non-prequalified suppliers with inadequate experience in the market and exposed public funds due to excess procurement of the items.
“The management of Kemsa violated provisions of the Public Procurement and Assets Disposal Act, 2015 in all material aspects,” Gathangu said.
The audit revealed at least three companies that were awarded contracts worth more than Sh1.3 billion had been existence for less than one year; they showed no experience and had not been prequalified by Kemsa.
This, according to the report, pointed to possible collusion between the management of Kemsa and the firms. It invited the EACC and DCI to investigate them.
Kilig Ltd, for instance, was incorporated on January 22, this year and was awarded Sh9 million within three months of it existence to supply Personal Protective Equipment (PPEs). David Murathe, Jubilee vice chairman, has confirmed being friends with the owner but denied controlling the company.
Murathe was one of 52 persons of interests who were questioned by EACC detectives.
Shop ‘N’ Buy Ltd and Nanopay Ltd were registered on February, 14 this year and August 22, 2019, respectively, yet they were awarded contracts worth ShSh900 million and Sh349.7 million, respectively, to supply K95 face masks and PPEs.
“The special audit notes that these companies had been in existence for less than a year before being awarded the contracts and cannot therefore be deemed to have the necessary qualification and experience in supply of specialised medical equipment or products,” Gathangu said in the report.
As such, Kemsa violated Sections 57, 46, 71 that bar accounting officers of a public entity from engaging suppliers who are not prequalified.
Gathangu called for withholding any further processing of Covid-19-related claims until an independent audit confirms their legitimacy.
Senators demanded the companies that supplied Kemsa and have been paid be forced be take back their items to save the taxpayer from further losses.
“There is no way you can register a company on January 22 and you are awarded a tender worth Sh900 million within three months. Which qualification do you have? When were you prequalified?” Narok Senator Ledama Ole Kina asked as he pushed the auditor to reveal the directors of the companies.
According to the report, rains started beating Kemsa when Manjari commenced procurement of the items without an approved budget, contrary to Section 53 (8) of the PPADA, 2015 that requires accounting officers of public entity to ensure sufficient funds are in place before commencing the procurement process.
The CEO disregarded an advisory by Health PS Susan Mochache and went ahead to spend Sh4.6 billion meant for UHC to procure Covid-19 items.
“This is a clear indication of comingling of UHC and Kemsa capital funds both of which were irregularly used to fund Covid-19-related expenditures,” Gathangu said.
“Contrary to the decline and advisory by PS at the MOH, the chairman for Kemsa [Kembi Gitura)] wrote to CS for the MOH in a letter dated August 20, 2020, indicating that Kemsa had utilised the universal health coverage budget to fund the Covid-19-related procurements,” the report reads.
Further, the special audit reveals Manjari and other Kemsa officials irregularly used an irregular direct procurement method by issuing commitment letters to suppliers before the procurement process, including price negotiations, would follow after deliveries.
“Kemsa commenced procurement of Covid-19-related items on March 18, 2020,using retrogressive method without putting in place systems and procedures to guide the use of retrogressive procurement contrary to Section 69 (2) and Section 45 (1) of the PPADA, 2015,” the auditor said.
This was done without a market survey contrary to Section (8) of Public Procurement and Asset Disposal Act, resulted in over pricing of the items by the suppliers leading to loss of public money.
For instance, a review by the auditor on pricing by a supplier, M/S Gladlab Suppliers Limited, noted that the company’s letter of intent to supply surgical face masks ear loops was at a price of Sh95 a piece as at April 8 this year.
The face masks were received at Kemsa on April 9 at a cost of Sh4,750 for 50 pieces
On the same day, a letter was received by Kemsa from the supplier indicating that they wanted to supply the surgical mask ear loop for $30 (Sh3,183) for 50 pieces.
Later, the firm was invited to supply of surgical masks. The evaluation committee tender shows that they had negotiated the prices from Sh4,750 to Sh4,500.
“The supplier was awarded to supply the masks at Sh4,500 which is higher than the 30 USD or Sh3,183. It was not clear why the accounting officer gave authority to procure at estimated cost of Sh90 per piece or Sh4,500 while there was an agreed upon USD 30 or Sh3,183.
Manjari failed to subject the samples of the items to quality assurance department for testing before issuing commitment letters contrary to a memo issued by the director of procurement
The report also cited Kemsa officials for inefficient stock management procedures. It shows at the time of audit, Covid-19-related stock worth Sh7.6 billion was at a Kemsa warehouse. Out of which, stock worth Sh6.2 billion was lying there.
“This is an indication that there was no justification for procuring the items on the basis of urgency,” Gathangu said, adding that from the market survey done by Kemsa, the authority will only realise Sh4 billion out of the Sh6.2 billion, leading to a loss of Sh2.3 billion.
(Edited by V. Graham)
Manajari comments
While appearing before the Health Committee of the National Assembly, Manjari said no money was lost in the procurement of the Covid-19-related equipment.
“Under my watch, no money was lost and I did not oversee any loss of funds. All commodities supplied have been utilised and those not utilised are intact,” he told the Health Committee of the National Assembly.
However, he claimed to have received requests from Health CS Mutahi Kagwe and PS Susan Mochache on how tenders should be awarded
“There were requests from CS Kagwe, PS Mochache and a Brigadier. They, at one point, came to Kemsa and we were told we needed to respond or else they’ll take over the warehouse,” he said.