Kemsa used Covid-19 as a cover for mess, Auditor General reveals

Wednesday, September 30th, 2020 17:50 |
Auditor General Nancy Gathungu. Photo/PD/File

Troubled Kenya Medical Supplies Agency (KEMSA) used the Covid-19 pandemic as a perfect cover to break procurement laws, and order goods worth billions of shillings in bulk from little known companies and briefcase entities, an audit report by the office of the Auditor General has revealed.

The firms, some even not in the list of thousands of pre-qualified companies with a history at Kemsa, with no financial track record nor capacity to deliver were nonetheless handpicked by the drugs agency to supply Covid-19 medical kits.

The revelations are contained in an explosive forensic audit report presented to a Senate Joint Committee on Health and the Covid-19 Situation in Kenya on Wednesday by Auditor General Nancy Gathungu, indicting top management of Kemsa board for violating various procurement laws leading to loss of public funds.

The report notes that for instance, some of the companies that got paid, in a supplies frenzy that has created several Covid-19 dollar millionaires had only existed less than six months.

At least four firms, according to the special report, were awarded contracts worth Sh1.3 billion by the Kemsa to deliver items that were not covered by the state agency’s 2019/20 approved budget as of June 4, 2020.

“KEMSA used Direct Procurement method to source for COVID -19 related items. It was noted that commitment letters were issued to suppliers and then the procurement process was to follow after deliveries were made,” the auditor report details.

“We established circumstances where Companies that had been in existence for less than one year, were awarded contracts to supply Covid-19 items,” it adds.

Among the firms indicated by the Auditor’s probe is Nanopay Limited, registered by the registrar of companies on 22nd August 2019, which Kemsa, procured to supply KN95 Facemask at a cost of sh 350 million.
The firm delivered its medical supplies items and was paid on 6th August 2020.

Shop 'N' Buy Ltd, also registered on 14th February 2020 and contracted by medical supplies to deliver KN95 Facemasks and Personal Protective Equipment (PPEs) at a cost of sh 900 million.

Another company, Kilig Ltd, a new kid on the block, registered on 22nd January 2020 just weeks before Africa reported its first coronavirus case.

Kilig Ltd was procured to provide Personal Protective Equipment (PPEs) at sh 9 million.

Despite, delivering Covid-19 related Kemsa warehouses, its payment just like Shop 'N' Buy Ltd is still pending.

“These companies had been in existence for less than a year before being awarded the contracts and cannot, therefore, be deemed to have the necessary qualification and experience in the supply of specialized medical equipment/products,” the special audit report by Auditor General Nancy Gathungu notes.

“It was also established that there was no evidence that the initiation of the procurement process for Covid-19 related items under KEMSA capital budget was triggered by a need assessment to establish the demand for these products,” the report further adds.

According to the Auditor, there was incriminating evidence that KEMSA initiated a procurement process without planning and budgeting, using direct procurement in the disguise of urgency when indeed the products are still lying at KEMSA Warehouses for as long as six months.

“The procurements were therefore not conducted in the best interest of KEMSA and the public but could have been influenced by suppliers and Management of KEMSA,” Gathungu further says in the report.

“There is a need for further investigations on all companies engaged by KEMSA to establish acts of procurement frauds and collusion,” the auditor recommends in the report.

The joint Senate committee had requested the Auditor-General vide a letter Referenced: SEN / SCH / KEMSA /CORR/ 2020/09/ (1), dated 15 September 2020, to conduct a forensic audit on the procurements undertaken by the Kenya Medical Supplies Authority (KEMSA) in response to COVID-19 Pandemic.

In particular, the Committee co-chaired by TransNzoia Senator Michael Mbito and his counterpart Sylvia Kasanga had required the Auditor-General to conduct the audit and report to them on whether: KEMSA adhered to the Public Procurement and Asset Disposal Act, 2015 (PPADA, 2015) in the procurement of medical supplies for purposes of combating the COVID-19 pandemic.

In addition to, whether it adhered to the Public Finance Management Act, 2012 (PFMA, 2012) in the procurement of medical supplies; and whether there was value for money in the procurement of medical supplies through KEMSA, for purposes of combating the pandemic.

On the cases of overpricing items by suppliers, the auditor noted pricing list by various suppliers, for instance, revealed, M/S Gladlab Supplies Limited, the company's letter of intent to supply surgical face mask earloop was at a price of Sh.95 apiece as at April 8th, 2020.

“On the same day, 9 April 2020, a letter was received by KEMSA from the supplier stating that they would like to supply the surgical face mask earloop with the price of 30 USD per box of 50 pieces, therefore, the price per box of 50 pieces would translate to shs.3,183,” the auditor narrates.

However, in a letter referenced KEMSA/PROC/DP136/2019-20 of 19 May, 2020, M/s. Gladlab Supplies Limited was invited to tender for the supply of surgical mask disposable 3 ply ear-loop, Tender number KEMSA/DP136/2019-20 with a closing date of 21 May, 2020.

The Evaluation Committee's minutes of 22 May, 2020 indicated that they negotiated from Sh. 4,750 to 4,500.
“The supplier was awarded to supply the masks at Sh.4,500 which is higher than the agreed price of USD 30 or Sh.3,183 in a letter to the Accounting Officer dated 9 April 2020 hence a pricing difference of Sh.1,317 per box of 50 pieces,” the audit report says.

“It was also not clear why the Accounting Officer in a letter dated 21 May 2020 from the Director of Procurement gave authority to procure using Direct Procurement method quoting an estimated cost of Sh.90 per piece or Sh.4,500 white there was an agreed-upon price of USD30 (Sh.3,183),” it adds.

In view of the above significant inconsistencies, the auditor said the price determination for the supply of 30,000 units of surgical mask disposable 3 ply ear-loop is questionable.

According to the report, an analysis of the price on the letter of intent of 9 April 2020, and the award price reveals that public funds of up to Sh39.5 million were potentially lost.

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