Auditor-General Nancy Gathungu has told MPs the ball is in their court on whether to terminate the controversial Sh104.8 billion Social Health Authority (SHA) system after her office exposed the rot in the contract.
The development comes after the lawmakers pushed Ms Gathungu on why she fell short of recommending for the termination of the questionable integrated healthcare information technology system (IHTS).
This is after the auditor released a report with damning revelations on the system, raising serious concerns over the government’s decision to proceed with the project.
The system is a key infrastructure for the implementation of the Social Health Insurance Fund (SHIF), a successor to the defunct National Health Insurance Fund (NHIF).
Appearing before the Senate County Public Accounts Committee on Tuesday, senators hard-pressed Ms Gathungu on why she did not recommend prosecution of the State officers involved in the scandal as well as revealing their names.
Nairobi Senator Edwin Sifuna called for the termination of the contract, saying the country cannot continue using a system that is proceeds of crime.
He asked the auditor-general what handicap is preventing her from making recommendations like prosecution of those involved in the saga, saying as it is, the report has no real consequence.
“The recommendations should have had actual consequences on officers who breached the law,” said Senator Sifuna.
“It seems the only people the system is working for are those who get the commissions. We should terminate it and face the consequences later,” added the ODM party secretary-general.
Homa Bay Senator Moses Kajwang’ added that the SHA has turned out to be a special purpose vehicle for looting public resources.
“We must not let the small thieves go scot-free thinking it is only the President who will take the responsibility,” said Mr Kajwang’.
However, Ms Gathungu said she has already pronounced herself in the report in terms of breaches in the contract and her hands are “tied beyond that”.
She pointed out that the ultimate responsibility rests with Parliament, which is the accountability institution to appropriate action after her recommendations.
“The ultimate role and responsibility of prescribing what to be done rests with Parliament and it is only fair that we call you out,” Ms Gathungu said.
“If there was a breach of law in procurement, then the procurement or accounting officer involved should be held responsible,” added the committee chairperson Senator Moses Kajwang’.
According to the report, the government contravened several laws in procuring the multi-billion system without paying key attention to the value for money component.
For instance, the report revealed, despite massive public investment, the government has little control over the system.
According to Ms Gathungu, a clause in the contract says that the consortium will deliver the system as a service solution but end users will only be allowed to connect to the system, to be hosted by the consortium, without installing the software in the end users’ devices.
But as they say that the devil is in the details, the contract goes on to say that the ownership of the system, its components and all intellectual property rights shall remain in the ownership of the consortium except for the infrastructure which is to be transferred to the procurement entity.
This essentially means that the government does not own the system and only has limited control of the same, limiting its authority and oversight.
“The ownership of the system, system components, and all intellectual property rights shall remain in the ownership of the consortium,” reads the report.
Further, the contract prohibits the government from developing another system or a product with similar functionalities to compete with the system being procured.
This, the auditor-general said, puts the government at risk in the event of growing needs for technological changes.
“Clause 16.2.5(c) of the general conditions of the contract states that the procuring entity shall ensure neither the procuring entity nor the government health agencies nor the procuring entity authorised users shall access all or part of the system in order to build a product or service which competes with the system or undertake similar functionalities to the system or attempt to do so,” the report adds.
According to the report, the project's financing model anticipates more than Sh111 billion in revenue over 10 years, derived from SHA member contributions, health facility claims, and track and trace solution charges.
This is after the consortium proposed the adoption of a funding model which entails charging fees from member contributions to SHA, claims from health facilities and charges for track and trace solutions at a rate of 2.5 percent, 5 percent and 1.5 percent, respectively for 10 years.
The consortium involved in the project boasts three firms including Apeiro Limited, and Konvergenz Network Solutions Limited; companies recently registered in Kenya.
Ms Gathungu said that what the clause means is that membership contributions to SHA and claims from health facilities have guaranteed the repayment of the project.
But here is the catch. Clause 12.4 of the contract’s general conditions states that the projected revenues of more than Sh111 billion from the collections must be transferred to an Escrow account on a daily or weekly basis.
However, the agreement does not disclose details on the signatories to the account, raising additional transparency and accountability concerns.
An Escrow account is a temporary account that holds money or assets on behalf of two parties involved in a transaction.
Ms Gathungu raised concerns that the five percent deduction on hospital claims will in effect mean increasing healthcare costs through a similar charge to citizens every time they access healthcare services despite the huge financial outlay by the government with the promise to make healthcare affordable to the common mwananchi.
“This is a material fact which entails levying fees from the public but is not supported by evidence of public participation contrary to the principles of public finance as outlined under Article 201(a) of the Constitution which requires openness and accountability including public participation in financial matters,” she said.
The report went on to cast aspersions on the project’s financing and payment model, saying it was not supported by any baseline survey reports indicating its viability to meet the payment obligations.
The auditor-general also questioned the requirement of having over Sh111 billion projected revenue having to be transferred to an Escrow account.
Raising further eyebrows, however, the contract stipulates that disputes arising under the agreement will only be resolved by the London Court of International Arbitration, bypassing local legal mechanisms.
“Clause 39.1 of the contract agreement requires any dispute arising from the contract be settled by arbitration under the rules of London Court of International Arbitration,” reads the contract.
Ms Gathungu questioned the provision wondering why the clause exists despite the procurement having been conducted on the provisions of the Public Procurement and Asset Disposal (PPAD) Act, 2015, a Kenyan law.
She said that accordingly, any dispute should have been referred to the Public Procurement Administrative Review Board as per Section 28(1) of the PPAD Act, 2015.
Nonetheless, the mess surrounding the contract continued with Ms Gathungu fingering the government for direct sourcing of partners for the system contrary to the law, which requires a fair, equitable, transparent, competitive and cost-effective process in accordance with Article 227(1) of the Constitution.
The report indicated that the procurement was done through a specially permitted procurement procedure, raising issues of potential corruption.
Interestingly, the government initiated the procurement for the system without including the same in the procurement plan nor the medium-term budgetary expenditure framework for the financial year ending June 30, 2024.
The irregularities did not end there. According to the tender documents, the system was to be installed in public health facilities but the contract agreement did not disclose the number of health facilities where the system was to be installed.
In addition, the contract price includes training, support and customer education costs to the tune of ShSh7 billion.
However, the number of healthcare workers to be trained on the system and the mode of training to arrive at the costs was not disclosed in the contract agreement.
“This is contrary to Section 150(1) of the Public Procurement and Asset Disposal Act, 2015 which states that an accounting officer or his or her appointed representative shall be responsible for ensuring that the goods, works and services are of the right quality and quantity,” reads the report.
In September last year, the National Assembly Health Committee called on the office of the Attorney General not to approve the contract.
This is after preliminary investigations showed that the Ministry of Health had bypassed procurement laws as demonstrated by the awarding of the contract “to companies with no prior experience in implementing social health authority systems.”
However, the committee led by Endebess MP Robert Pukose later had a change of tune a month on, saying queries on cost and tendering process had been settled.
Meanwhile, speaking in Kakamega yesterday, President William Ruto said that the negative publicity on SHA comes from those who used loopholes to loot the NHIF, consuming up to 40 percent of the fund.
He cited misleading information in the media that the digital system running SHA will be paid for by the government, saying it is a fee-for-service facility.
The Head of State said the new digital healthcare system will curb fraud that paralysed the defunct NHIF, adding that no amount of propaganda will force the government to go back to NHIF, and thus give crooks another chance to continue stealing public funds.
“They do not want a technology system that works because they want to continue stealing from us. The stealing is over. Move on,” the President said.
“We are not going to give free money as was being done under NHIF to hospitals without accountability. We are only going to pay for services rendered,” he added.
President Ruto made the remarks during the funeral of Malava MP Malulu Injendi in Malava, Kakamega County.
