Petition: Sh21b siphoned from NHIF through bogus claims

The National Health Insurance Fund (NHIF) was defrauded Sh21 billion through fictitious claims for the financial year that ended June 2022, a petition tabled in parliament says.

The petition by Bernard Muchere, a fraud risk management consultant, indicates that NHIF coffers lost the billions 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 Kenya Prisons Services schemes lost Sh4.1 billion, civil servants scheme (Sh2.9 billion), Linda Mama (Sh2.3 billion), parastatals (Sh780.7 million), Eduafya (Sh683.9 million), county schemes (Sh525.3 million) and retirees scheme (Sh191 million).

Other schemes - HISP OVC and the HISP OPPSD - lost Sh31.2 million and Sh6.5 million respectively.

The petition, which is set to be debated soon after parliament resumes from recess, indicates that IBNR is a type of reserve account used in the insurance industry as a provision for claims and/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 United States 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," the petition says.

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Muchere said that he had conducted an audit on the financial statements of NHIF for the year under review and had been able to unearth fraud.

The petitioner claims that during the preparation of the financial statement for the 2021/2022, NHIF management created IBNR claims aggregating to over Sh21 billion backdated to the 2019/2020 FY.

"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," he states.

The petitioner also noted that after an analysis of the audited financial statements for FY under review and preceding years, there was no evidence of data upon which IBNR claims which were created were based and that IBNR reserves were fraudulently created to enable the siphoning of NHIF funds.

"...This caused a major crisis in the contributors' medical coverage, resulting in most patients being denied treatment with vital consequences," the petition reads in part.

And after a further interrogation of the audited financial statements for the statements for the 2019/2020, 2021/2021 financial years, Muchere notes that IBNR reserves were "non-existent" but "they propped up in the financial year ending June 2022."

"This brings to question, the authenticity of the arbitrary cumulative figures of Sh19,972,497,763 purportedly brought forward from the financial years preceding 2021/2022 and the source of data, the basis for the IBNR claims," he observes.

"There was also no evidence of data upon which Sh1,136,707,671 IBNR claims created in 2021/2022 were based...therefore, based on findings I can conclusively state that the "IBNR reserves" were fraudulently created to enable siphoning of Sh21,109,205,434.00 NHIF funds," Muchere says.

The petitioner claims that an analysis of the statement of financial position of the Annual Reports and Financial Statements for the Fiscal year ended June 30, 2022 established that the audited financial statement was fictitiously restated, whereby, part of the Sh18,697,004,746 cumulative retained earnings, Sh12,310,791,402 was converted to IBNR claims reserves.

He say since there is no evidence of a sinking fund bank account wherein the retained earnings were supposed to be deposited, it follows that the retained earnings were only book entries.

This, Muchere says, means that IBNR claims reserves were created from book entries and that no liquid money was set aside.