12 December 2018

Kenya: NHIF Scandal - How Theft of Billions Unfolded From 2014

When National Hospital Insurance Fund NHIF systems administrator Gilbert Gathuo Kamau requested the acquisition of software to align all the insurer's revenue streams in January 2014, he set off a chain of events that has seen him charged alongside 17 other employees of the State-owned insurer for the loss of Sh1.88 billion.

Four years later, the insurer has splashed Sh1.88 billion in streamlining its revenue streams, which documents before the NHIF board indicate is nearly five times the cost of purchasing such a software.

How was this done? Through a clever word play which saw NHIF hire a revenue collector though the tender advertisement stated that the insurer intended to buy such a software.

MANAGE PAYMENTS

From floating a tender for the provision of an integrated revenue collection system, NHIF was now awarding a contract for the provision of integrated revenue collection services. And just like that, the winning bidder -- Webtribe Ltd which trades as JamboPay -- had bagged a deal that raked in commissions of Sh1.39 billion over four years before selling the same system to NHIF for Sh495.2 million in June this year.

Mr Kamau sent an internal memo to his boss, ICT General Manager Karingo Njoka, on January 5, 2014 with the request. Mr Njoka would push the request to NHIF's corner office, where Samuel Ole Kirgotty occupied the big seat.

Back then, NHIF would give its banking partners access to its database. The banks would then use the database to reconcile contributions made by NHIF members.

But with the emergence of several other payment options like M-Pesa, it was necessary to find a way to manage all payments and records made by members.

A series of different committee and top-brass manager approvals would follow, leading to the controversy that has now seen 18 NHIF employees charged alongside JamboPay founders Danson Muchemi and Robert Muriithi.

HELICOPTER RIDES

On February 21, 2014, a tender opening committee received seven bids from Ugandan Gestalt Gild, Mauritian Fintech, and five Kenyan firms -- Webtribe, Craft Silicon, Eclectics International, Essel Technologies and Akkad Enterprises. The committee members were Emmanuel Labat, Stella Nduku, Kennedy Ndegwa and David Nyabuti.

The baton was then handed to a five-member committee that evaluated the bids. It was chaired by Jacinta Mwangi, and had Kennedy Wakhu as its secretary.

One of the main suspects in the scandal, Mr Fredrick Sagwe Onyancha, who owns eight houses in Athi River and occasionally commutes on a helicopter, also sat on the committee alongside Gilbert Gathuo Kamau and Irene Rono.

The evaluation committee knocked out Eclectics International, Essel Enterprises and Craft Silicon for disclosing their financial bids in the same document as their technical bids, contrary to instructions given in the tender advertisement.

TWO-HORSE RACE

It then eliminated Akka Systems and Gestalt Gild for failing to provide reference letters from local firms they have served, and for not demonstrating working relationships with multiple banks and mobile money transfer firms.

The committee also noted that the two firms did not show how they would connect their revenue integration systems with the NHIF database.

This left JamboPay and Fintech in the two-horse race.

Fintech lost as its references were only from banks in Rwanda and Uganda. The firm, according to the evaluation committee, also failed to show that it was versed with the type of database NHIF uses.

Just like that, JamboPay was declared the only bidder that was able to provide what NHIF had sought.

An 11-member committee was quickly formed to go through the seven bids that were received by the February 21, 2014 deadline.

COMMITTEE MEMBERS

The committee was chaired by Millicent Mwangi, the then NHIF general manager for human resources and administration.

Its alternate chairman was Geoffrey Mwangi, who was then NHIF's acting general manager for finance and control. Procurement and supplies manager Pamela Marendi was the tender committee's secretary.

Other members of the committee were Darius Mbogo (property and administration manager), Lucy Rono (corporate secretary), Karingo Njoka (ICT general manager), Martin Ngare (acting quality assurance manager) and Margaret Nzwii (acting operations manager).

Alternate members were Gibson Muhuhu (public sector manager), Ruth Makallah (legal affairs manager) and Matilda Mwangemi (accreditation manager). On May 29, 2014 the tender committee sat and awarded the mega deal to JamboPay. The meeting was, however, attended by seven committee members and ICT assistant manager Emmanuel Labat.

Ms Rono, Mr Njoka, Mr Ngare and Ms Nzwii sent apologies for their absence from the meeting.

EXPIRY DATE

The committee resolved that only JamboPay's financial bid would be opened as it was the only firm that passed the technical evaluation phase.

It then awarded JamboPay a tender to provide integrated revenue collection services and allowed a Sh49.5 million one-off payment and a number of commissions that have raked in over Sh1 billion for JamboPay.

Director of Public Prosecutions Noordin Haji insists that the management tender committee members that awarded JamboPay the deal and the evaluation committee colluded to play a bait-and-switch game that saw NHIF hire the system rather than buy it.

On November 24, 2015, Mr Mwangi, the then finance and investment director, wrote to NHIF's procurement department recommending that the commissions be scrapped and replaced by a Sh24 million monthly payment to JamboPay.

COMMISSIONS

But JamboPay refused the deal and the commissions continued.

One year later, Mr Mwangi had risen to CEO and replaced Mr Kirgotty.

On February 5 last year, Mr Mwangi's successor in the finance and investment docket, Joseph Mbuvi, suggested that NHIF purchases the JamboPay system.

Mr Mwangi then wrote to the Public Procurement Oversight Authority (PPOA) on March 14, 2017 for permission to single-source the system from JamboPay. The PPOA gave the green light on April 4, 2018.

Trouble was that JamboPay's three-year contract was to expire in August 2017. An audit committee, however, gave JamboPay two six-month extensions to enable it to continue collecting revenue as the procurement process was sorted out.

MATERIAL FACTS

In the audit committee were Mr Mwangi, Mr Mudzo Nzilii, Mr Yusuf Ibrahim and Mr Elly Opot.

Mr Haji initiated their prosecution on Monday for allegedly extending the JamboPay deal without disclosing material facts that would have revealed it to be a bad deal.

NHIF bought the system from JamboPay for Sh495.2 million on June 4, 2018. Mr Mwangi, Ms Makallah, Ms Marendi and Mr Mbuvi now have their heads on the chopping board as the DPP holds that they violated procurement laws in single-sourcing JamboPay's system. Mr Muchemi, Mr Muriithi and Webtribe have been charged with fraudulent acquisition of public property.

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