House team probes how NHIF lost Sh21b in fraudulent claims

The National Hospital Insurance Fund building, Nairobi. [File, Standard]

The National Hospital Insurance Fund (NHIF) lost Sh21 billion through fictitious claims during the 2021-2022 financial year.

A witness told a parliamentary team that the fraudulent scheme was perpetrated by senior government officials.

The Public Petitions Committee commenced investigations yesterday following a petition lodged early this year.

Bernard Muchere, the petitioner, is a former internal auditor at the National Treasury and currently a fraud risk assessment consultant.

Muchere argues that the billions were lost through made-up incurred but not reported (IBNR) claims by unscrupulous individuals.

As a result, various schemes under the health insurer lost billions while service delivery was hampered.

The National Police Service and the Kenya Prisons Service schemes lost Sh4.1 billion, while Sh2.9 billion was stolen from the civil servants scheme.

According to the petition, Linda Mama lost Sh2.3 billion, State parastatals Sh780.7 million, Eduafya (Sh683.9 million), county schemes (Sh525.3 million) and retirees scheme (Sh191 million).

Schemes for the vulnerable children and orphans lost Sh31.2 million, while ShSh6.5 million went missing from the fund for the elderly and the disabled.

The petition indicates that IBNR is a type of reserve account used in the insurance industry as a provision for claims or events that have transpired but have not yet been reported to an insurance company.

“IBNR is used by insurance companies, particularly along the eastern Gulf Coast of the US where hurricanes and other natural disasters are common. After a storm hits, an actuary estimates potential damage to infrastructure and the claims that may be anticipated. Based on this analysis, money is then set aside in a reserve to pay for claims,” reads the petition.

Yesterday, Muchere sought to make the legislators understand how fraudsters milked public coffers dry using “creative accounting”.

He submitted that upon undertaking a fraud examination on NHIF financial statements, he established that during the preparation of financial statements for the 2021/22 financial year, the management fraudulently created IBNR claims accumulating to over Sh21 billion.

The claims, he said, were created with the aid of Kenbright Actuarial and Financial Services firm, and were later backdated to the 2019/2020.

The committee further heard that the claims were then charged to the NHIF members’ contributory schemes like the Health Insurance Subsidy Programmes for Orphans and Vulnerable Children, and the Older Persons and Persons with Severe Disability.

To unearth the fraudulent dealings, Muchere relied on audited financial statements for the years 2021/2022, 2020/2021, 2019/2020, 2018/2019 and 2017/2018.

In his audit, Muchere claims that the NHIF chief executive and the chairperson of the board avoided mentioning and explaining the basis for the IBNR claims, which he thought was a red flag.

“The unbudgeted claims were charged to NHIF members’ contributory schemes, causing a huge financial crisis that made NHIF unable to pay hospital bills for genuine contributors... This caused a major crisis in the contributors’ medical coverage, resulting in most patients being denied treatment with vital consequences,” he said.

Session chair Ernest Ogesi (Vihiga) promised the committee would resolve the matter expeditiously.

“This is a grave matter and as a committee we will make sure we summon all those mentioned. There is a need for them to shed light on what they know about the claims before us.”