Audit reveals Sh7.2bn rot in Kemri

The Kenya Medical Research Institute (Kemri) is on the spot after investigations revealed that millions of shillings in donor funding could have been lost.

Two audit reports point to either missing or misappropriated funding from the Sh7.2 billion given by the US Centre for Disease Control (CDC).

Kemri is being accused of lacking proper book-keeping, co-mingling of funds between research and non-research activities, inability to have inventory controls for drugs, which all led to the loss of funds.

In May, The EastAfrican exclusively exposed the scandal that threatened to bring Kenya’s premier health research institution to its knees after it depleted funds for crucial projects prematurely.

Subsequently, in May the Kemri board invited the office of the Auditor-General to scrutinise the spending of funds between August 2010 and August 2015.

Early this month, an Atlanta-based audit firm was commissioned to conduct investigations into the scandal. The team met with the Kemri board on September 9 to discuss the fraud and, among other things, demand repayment of the missing amounts to CDC.

Kemri received the Auditor-General’s report on August 13 this year, prompting the board, chaired by Dr Lilian Apadet Osamong, to write a brief to the Health Cabinet Secretary James Macharia on September 14.

And although the board insists there was “no evidence that funds have been lost”, the audit reveals shocking  financial negligence in the heavily funded joint Kemri/CDC programme that has seen millions of shillings misused, misappropriated or missing.

For example, according to the brief to the CS, 19 staff were paid close to Sh8.7 million without any secondment letter.

“The board recommended that money be recovered from the affected staff and refunded to CDC because they are not provided for in the current Kemri/CDC agreements,” Dr Osamong said.

Kemri’s book keeping procedures have also been questioned after it emerged that the Enterprise Resource Planning (ERP) report provided to the auditors may not be reliable because some payment vouchers could have been posted twice in the system.

“Based on analysis of third party projects expenditure reports, the ERP system indicates an expenditure of Sh4 billion against receipts of Sh3.4 billion showing an apparent over-expenditure of Sh966 million.”

The auditors also said the research firm used documents not defined in its system to expense with items like transport, payroll and airtime worth Sh1.9 billion.

“There are more than 12,000 payments amounting to Sh3.8 billion in the system that are not posted in the ledger,” part of the special audit findings read.

Kemri also allowed the spending of Sh9.6 million for travel and training without approval or authorisations.

For instance, an official was paid Sh750,360 as an incentive to “boost her morale” while another pocketed Sh947,816 as honoraria payment.

A source familiar with the American’s enquiry, who spoke in confidence, said: “Overspending on personnel costs saw payments to hundreds of workers not in the payroll or budgets. There was also inadequate certification and documentation of large withdrawals for petty cash.”

Kemri is also in the spotlight after some staff failed to adhere to procurement, accounting and cash management rules that saw more than Sh448.7 million paid out in procurement contracts without the organisation following its own regulations that allow for competitive bidding. This allowed suppliers who were not prequalified to do business with Kemri.

Kemri has been receiving funding from CDC in the last 15 years through a Co-operative Agreement (CoAg).

The board’s brief to the minister indicated that Kemri and CDC “have been collaborating for the last 36 years, with ground-breaking research findings that have shaped control of communicable diseases policies nationally and globally”.

When the scandal was revealed, Kemri suspended some senior managers including the director for the Centre for Global Health Research, Dr John Vulule, under whose docket the programmes fall.

Multiple interviews with Kemri staff, who requested anonymity, show that in the last five years things have gone from bad to worse.

“Senior officers who were vocal on such malpractices were frustrated or denied internal allocations to carry out their duties. The board has also increasingly been entangled in operational issues, leading to a failure to provide oversight,” said the source.

It has also emerged that Kemri was placed by CDC in high risk status three years ago after problems were found in the management of the CoAg. It was, however, removed from the list in August 2014, the time when the last five-year agreement started.

CDC Country Director Kevin De Cock said that co-mingling of funds was not allowed and the millions of dollars in CDC funds missing were of concern to the organisation.

Mr Cock said they value the collaboration with Kemri but the financial management was a cause for concern. He said discussions were ongoing with Kemri to avoid having “a repeat of this experience”.

US Ambassador to Kenya Robert Godec told the Sunday Nation that although the matter is under investigation, initial reports indicate funds running into millions of dollars are either missing or unaccounted for.

“The US embassy and CDC take seriously the responsibility to ensure that US government funds are fully accounted for. Any funds that are determined to have been lost must be paid back to CDC, and those found guilty of misuse, theft or mismanagement held accountable,” Mr Godec said.

Last week, members of the Kemri Kisumu centre demonstrated over unpaid salaries for the last three months as it emerged that Kemri was not comfortable with the stringent conditions set by CDC to receive the additional Sh600 million three-month funding till November 16.
Kemri Director Solomon Mpoke said the management was aware of the unrest in Kisumu which, he added, was occasioned by delays in execution of a new contract with CDC.

“Although the Kemri board is grateful for this award, it noted certain concerns which it is currently discussing with the CDC. The terms and conditions stipulated in the award could imply monthly contracts for the highly-skilled research scientists. This can in turn present serious logistical challenges in implementation given that no meaningful research can be conducted within a short period,” Prof Mpoke said.

He admitted that the audit had highlighted various systemic and control weaknesses in the operations of the joint programme.

“The auditor cautioned that the ERP system had challenges and hence questioned the reliability of the reports. Indeed, some of the figures provided were generated by the ERP system. The board has asked the Auditor-General to further review and investigate the ERP system.

These findings will inform the final decision and the board will not hesitate to recover any monies should that be verified to have been lost,” Prof Mpoke said.

Despite the questions raised, the Kemri board chairperson, in her brief to the CS, said there was no evidence of loss of funds.

“We wish to emphasise that from our analysis of the special audit report from the Auditor-General, there was no loss of funds advanced to Kemri by CDC.

The main issues seem to point towards systemic challenges which the board is seriously taking up with a view to strengthening,” Dr Osamong said.

The board highlighted some of the measures it had taken to strengthen the systems such as sending some staff on compulsory leave, changing bank signatories to the Kemri/CDC accounts, strengthening accounting controls and eliminating co-mingling of funds. The board emphasised the problems encountered were specific to the Kemri/CDC programme and other projects were not affected.  

Formed in 1979, Kemri has in the past been dogged by allegations of financial impropriety, leading to the prosecution of former director Davy Koech, but has, over the years, been tightening systems and cleaning its image.

For more on this story, read The EastAfrican