Nairobi News


Inside story of Sh5 billion scandal at Ministry of Health

Senior Ministry of Health officials have refused to co-operate in shedding light on an internal audit prepared for the Auditor-General and which has unearthed a possible loss of Sh5 billion at the ministry.

The money — enough to buy 16 state-of-the-art cobalt cancer fighting equipment to add to the only one available at the Kenyatta National Hospital — is suspected to have been stolen in the last financial year or paid to phoney companies, according to a leaked report addressed to the Cabinet secretary, Dr Cleopa Mailu.

First reported by the Business Daily, the scandal mimics and overshadows that of the National Youth Service (NYS) where Sh791 million was paid via the manipulation of the Integrated Financial Management System (Ifmis).


Ironically, the financial system was put in place to rid the government payments of inefficiency but has instead turned into a conduit for siphoning taxpayers’ money.

One of the companies which received the money is owned by the family of Mr Philip Kinisu, the former chairman of the Ethics and Anti-Corruption Commission, who resigned in August to avoid scrutiny over its business dealings with NYS.

Mr Kinisu had failed to disclose to the National Assembly’s Justice and Legal Affairs Committee that he had an interest in a company that did business with the NYS.

The other single largest receiver of the payments is Estama Investments Ltd, which got Sh200 million supposed to have been for free maternity meant for county hospitals.

A search at the Registrar of Companies shows that Estama had not paid taxes in the past two years and, therefore, its details were not available on digital records. Companies that have not paid tax since 2014 do not have digital records and their details must be sought manually.

The suspicious payments will put on the spot former Health Cabinet Secretary James Macharia and Principal secretaries Khadijah Kassachoon and Nicholas Muraguri who were in office when the suspicious payments were made.


Also on the spotlight will be the current CS, Dr Mailu, who was moved to the ministry 10 months ago.

In one of the internal memos, the head of the internal audit unit, Mr Bernard Muchere, complains that the head of the Accounting Unit had instructed his officers “not to allow auditors access to documents” without permission.

“Despite discussing the matter with you and agreeing that the situation will change, access to documents is still lukewarm,” says Mr Muchere in a letter dated September 20, 2016.

The scandal also involves the diversion of Sh889 million meant for free maternity in hospitals that are run by the counties and the referral hospitals. This money was diverted to other purposes rather than pay the counties.

In the recent past, governors have protested at delays in releasing the money to county hospitals, with some threatening that they will start charging mothers for the service that the Jubilee administration said should be offered free of charge in all public hospitals.


“These funds were allocated to be transferred as GOK grants to various institutions and counties for free maternity … This amounts to misapplication of funds which is a violation (of the law),” says the audit report.

Estama Investments, which was one of the beneficiaries, was also awarded another Sh800 million tender to supply portable medical clinics in June 2015. Dr Kassachoon was the principal secretary in the ministry at the time.

While three payments were made between January and June 2016, the invoices attached to the payments do not meet the Kenya Revenue Authority requirements of ETR receipts, tax compliance and PIN number.

“This raises a red flag on whether the firm had met the legal requirements to be considered for a government contract,” says the audit report.

In some cases, the Ifmis platform was manipulated and double payment of goods made. Some money was also diverted from their original vote without the right approvals.

For instance, the audit describes two supplementary votes of Sh900 million — one under the National Aids Control Programme and another under the Curative and Rehabilitative Health Services as “possible fraud schemes”.


The auditors could not understand why, for instance, Sh265.7 million was paid to Co-operative Bank of Kenya for the supply of “food and rations” from the National Aids Control Programme’s Food and Rations recurrent vote.

“The Co-operative Bank of Kenya cannot be a supplier of food and rations and hence the real payees were not disclosed,” says the report dated August 29, 2016.

“The payment vouchers were not availed for audit in order to establish who the bank was instructed to pay.”

More money under this vote — Sh249.9 million — was paid on April 4 to four firms: Dentmed Kenya Ltd (Sh2.9 million), Life Care Medics Ltd (Sh201 million), Ryovac Industries Ltd (Sh4.9 million) and Sundales International (Sh41 million).

The audit found that similar food and rations had been procured through the Kenya Medical Supplies Agency (Kemsa) using the Global Fund’s money and that the National Aids Control Programme was coordinating the distribution.

Although the above payments were made by the Ministry headquarters, the report says the foods were received and stored in Kemsa warehouses.