.@Kemsa_Kenya which buys drugs for all public health facilities in Kenya is on the spot after a special audit unearthed procurement and financial irregularities that put at risk over Sh100B of donor funds. - @dailynation
A special audit of the parastatal conducted from October 2019 has recommended an overhaul of the entire procurement system at Kemsa and wants a new accountability system that has an end-to-end supply chain visibility platform installed to prevent losses and wastage.
In one of the most disturbing findings of the review, it has emerged that despite being given the monopoly to sell exclusively to government agencies, Kemsa has been overcharging counties by up to 77% for some essential drugs.
In non-pharmaceutical items, it had a freer run, and was overcharging counties to as high as four times the market price, raising queries on just why counties need the agency in the first place.
This lends credence to allegations by Health Cabinet Secretary Mutahi Kagwe that his ministry is a den of thieves run by procurement cartels.
The joint audit report done by @USAIDKenya @GlobalFund — that mainly fights Aids, tuberculosis and malaria — has documented several malpractices at Kemsa among them stock management challenges at its warehouses.
In the past, the two development partners conducted separate audits. This is the first time they have undertaken a joint audit. The audit was initiated on October 23, 2019 and the report is dated December 2019.
The donor agencies officially transmitted the report electronically to Kemsa on May 4, 2020 after it was completed. Requested @Kemsa_Kenya to set up an official meeting to consider its findings and agree on how the recommendations will be implemented.
.@USAIDKenya @GlobalFund requested @Kemsa_Kenya to have its board chair and the Principal Secretary @MOH_Kenya in attendance.
The audit comes at a time when investigators from @EACCKenya is conducting a separate probe on procurement at the agency.
The two development partners put together a multi-disciplinary, highly experienced team of financial, supply chain, legal and contracting experts to conduct the audit. It reviewed Kemsa's management systems.
It also looked at legal, governance, financial, organisational, procurement and management processes. USAID and the Global Fund have invested substantial resources in Kemsa, giving it at least Sh100 billion over the last five years.
USAID is currently supporting the Kemsa medical commodities project (MCP), with funding of about Sh69 billion (USD650M) for procurement of all commodities funded by the US government for the five-year period between 2015 and 2020.
Kenya is one of Global Fund's “high-impact” countries with active signed grants of Sh40.7B for the period between January 2018 to June 2021. The Global Fund has supported HIV, TB and malaria programmes in Kenya since 2002, disbursing to the country cumulatively Sh120.8B to date.
Despite receiving billions of shillings, Kemsa is on the verge of bankruptcy.
The report says it computed a few financial ratios among them the liquidity, profitability, debt-to-equity and activity ratios to determine its financial health and the verdict was shocking.
The review established that Kemsa's financial health is weak. The ratios illustrate Kemsa's low financial stability and vulnerability to any changes in the market.
It also found a risk of loss, leakage and wastage of drugs though its supply chain system since the current system does not support traceability and accountability. Kemsa only undertakes post-delivery monitoring in areas where substantial risk has been identified.
The audit also fingered @Kemsa_Kenya for failing to adjust its annual inventory count for the year ended June 2019, which saw it hide at least Sh220M in its books. The @OAG_Kenya also raised queries about this variance in past audits.
The review team noted that the variance had not been adjusted in the organisation's books of account. Kemsa indicated that the variance will be adjusted for during the next audit.
This Sh220M inventory scandal is likely to open the lid on just what ails the agency.
On pricing, the audit sampled out various prices Kemsa was charging counties and compared it with market prices. And here is where the scandal lies. Kemsa is expected to be the cheapest in the market given the economies of scale it enjoys.
But a sample of about 25 products among them pharmaceutical items, non-pharmaceutical items and linen items revealed price variations of up to 77%, illustrating just how much it was stealing from counties.
For instance, a tin of 1,000 pills of a drug coded PM07AMT001 was retailing at Sh233 on the market but Kemsa was selling it at Sh405, which is 42% higher.
A pack of 25S of another non-pharmaceutical item coded NMO1GAU007 was sold to counties at Sh430 while the market rates were Sh99.25 at the time of the audit. This is four times more.
The audit also took issue with the move by Kemsa to drop internal audit recommendations without implementing them. The other problem it found was the board composition.
During the audit period, the report noted that, prior to filling the two vacant positions that were on the board, the board's ability to provide strategic direction was constrained.
The board could not meet on a regular schedule to provide continuous oversight to the organisation. This resulted to two of the committees having the same meeting chair to meet required quorum.
This was the case for the Audit and Risk Committee and the Finance and Strategy Development Committee. The audit notes that this decision resulted in significantly impaired independence of the audit committee.
Internal audit reports were lacking follow-up and resolution of identified issues and recommendations raised by the internal audit and risk department and most of the decisions were signed off by @Kemsa_Kenya CEO Jonah Manjari.
Whereas Kemsa is legally bound to supply the complete range of health products and technologies required by facilities across the country, like any other procurement and supply chain organisation, it cannot assure 100% availability of all required drugs at all times.
The report found that @Kemsa_Kenya warehouses only have half of the various types of drugs and medical supplies required by counties most of the time, putting the lives of Kenyans who depend on public health facilities at risk.
Kemsa is unlikely to reach the desired order fill rate of 100% or improve turnaround time to the target 4-10 days, yet customers have no other option when Kemsa fails to meet these standards.
Sales to counties in 2018/19 for instance accounted for 90% of Kemsa's revenues.
Due to this, it has asked Parliament to change the law to free counties to make the decision to buy drugs that cannot be strategically sourced by Kemsa elsewhere.
The requirement for health facilities to order only from Kemsa faces challenges of stock outages and long turnaround times.
Massive corruption at @Kemsa_Kenya exposed following a joint audit by @USAIDKenya @GlobalFund that now threatens their funding to the state medical agency which is also being investigated by @EACCKenya over massive fraud bit.ly/3eaVj0h
