Audit exposes loss of Sh4bn in fishy cash deals

What you need to know:

  • The audit report seen by the Nation says the initial cost of the NHIF project was Sh909.7 million, but was later varied to Sh3.3 billion, representing a 337 per cent increase above the original contract price.

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, raising serious questions about how government institutions spend public money.

The 2011/2012 state corporations audit report seen by the Nation on Sunday says the cost of building the NHIF multi-storey car park at Upper Hill increased from the original cost Sh900 million to Sh3.9 billion without proper justification.

And even after the colossal amount had been spent, the National Hospital Insurance Fund — whose core mandate is to provide medical cover for its members — was yet to receive a certificate of completion.

The audit also questions a decision by NSSF to invest more than Sh1.1 billion of workers’ money in public forests, which are gazetted areas, and which cannot be owned or developed.

And during the National Dialogue Conference on the rising wage bill last week, President Kenyatta criticised NSSF’s investment policy. He said the fund meant to help retirees was investing in “quarries and in stocks” instead of giving soft loans to its members to own homes they would retire to.

The audit report seen by the Nation says the initial cost of the NHIF project was Sh909.7 million, but was later varied to Sh3.3 billion, representing a 337 per cent increase above the original contract price.

“Although records available indicate that the car park was completed in July 2008 at a cost of Sh3.3 billion, a further amount of Sh626.6 million and Sh4.7 million was incurred in 2009/2010 and 2010/2011 respectively on the park,” Mr Ouko says.

Original contract

The auditor says this increased the total cost of the project to Sh3.97 billion as at June 2011, representing an increase of about 337 per cent over the original contract sum of Sh909 million.

“Further and as similarly observed in 2010/2011, 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,” the report says.

On NSSF, the Auditor-General said it invested in 18.41 hectares of land at a cost of Sh1.1 billion knowing the land was part of Karura Forest Reserve and Ngong Forest.

“The properties being in gazetted areas as indicated above cannot be owned, possessed, utilised or accessed and any development on such land would be illegal,” the report says.

Mr Ouko said although the land cost NSSF Sh1.1 billion, the fund did not make any provisions for impairment loss in the financial statement during the year in question.

The audit has also raised questions on why NSSF opted to sell its plots in Kikambala, Kilifi County to the lowest bidder at Sh633 million and not the highest who had quoted Sh697 million, a deal that he says could have cost the fund Sh64 million.

Mr Ouko has also questioned NHIF’s decision to pay Sh63 million in consultancy fees without following the laid down procedure.

The audit says the money was paid to top up Sh407 million for feasibility study for the planned construction of a resource centre, which had cost Sh93 million.

“There was no evidence that the expenditure was in the budget, contrary to the State Corporations Act, which states that no corporation shall without prior approval of the minister and Treasury, incur any expenditure for which no provision has been made in an annual estimate,” Mr Ouko said.

“In the circumstances, the Fund is in breach of the law.”

Has not explained

The report questions how Sh49.5 million that was deposited at the Consolidated Bank and was supposed to be used in investments in securities was off-set by the bank against a guarantee executed by the former NHIF chief executive officer on behalf of Euro Bank Ltd.

“It is not clear and the management has not explained, the circumstances under which the Fund’s deposit was used as a guarantee by the CEO,” Mr Ouko says.

The report adds that more than Sh251 million invested by NSSF in Euro Bank and expected to have matured on February 28, 2002 has not been redeemed because the bank was placed under receivership.

He says rental income amounting to Sh30 million collected from tenants in Bruce House, Hazina, View Park Towers and Nyayo Estate by various property agents had not been remitted to the Fund as at June 30, 2013.

Auditor-General Edward Ouko. On NSSF, the Auditor-General said it invested in 18.41 hectares of land at a cost of Sh1.1 billion knowing the land was part of Karura Forest Reserve and Ngong Forest.