MPs Shocked by Revelation of Sh21 Billion Siphoned from NHIF Coffers Through Fictitious Claims
Members of Parliament were left stunned after learning how Ksh 21 billion was illegally withdrawn from the National Hospital Insurance Fund (NHIF) through fake claims.
According to accountants, the theft was orchestrated using Incurred But Not Reported (IBNR) claims, a method referred to as “creative accounting,” which is a sophisticated way to siphon public funds without triggering suspicion. This tactic can only be identified by accounting experts.
The extent of this theft revealed in a petition before the National Assembly, surpasses other government corruption cases that have resulted in convictions, including those involving county governors.
The delay in bringing the masterminds to justice highlights how individuals are leveraging advanced methods to embezzle public funds and avoid detection by government agencies.
It remains unclear where the billions siphoned from NHIF ended up, but the scandal occurred just months before the August 2022 general elections.
The petition, submitted by Bernard Muchere, a former internal auditor at the National Treasury and now a Fraud Risk Assessment consultant, implicates the Ministry of Health, the NHIF board, and the National Treasury.
During his appearance before the Public Petitions Committee, Muchere accused the government of involvement in the scandal, noting that the fraudulent payments caused a crisis in medical coverage, leaving many patients untreated with severe consequences.
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In his testimony, Muchere asserted that the IBNR reserves were created fraudulently to facilitate the theft of NHIF funds, with Vihiga MP Ernest Ogesi, chairing the session, pledging that the committee would thoroughly investigate the matter.
Muchere had to explain the technical aspects of IBNR claims to many MPs who were unfamiliar with the complex mechanisms used by fraudsters to steal public funds.
His petition relied on NHIF’s audited financial statements for the year ending June 30, 2022, as well as those from previous years (2017-2021), alongside Kenya’s constitution, the NHIF Act, the Public Finance Management Act, and the State Corporations Act.
Muchere revealed that an actuarial firm, Kenbright Actuarial, and Financial Services, played a key role in backdating the creation of IBNR claims, totaling Ksh 21 billion, for the 2019/20 and earlier financial years.
The funds were diverted from NHIF schemes supporting vulnerable groups, including orphans, the elderly, and persons with disabilities.
Among the fraudulent payments were Ksh 9.7 billion from the National Health Scheme, Ksh 4.01 billion from the National Police Service and Kenya Prisons Service, Ksh 2.9 billion from the civil servants’ scheme, Ksh 2.3 billion for the Linda Mama program, and Ksh 780.7 million from the parastatal scheme.
Other payments included Ksh 683.92 million from the EduAfya scheme, Ksh 525.3 million from the county scheme, Ksh 190.2 million from the retirees’ scheme, Ksh 31.3 million from the Health Insurance Subsidy Program (HISP) for orphans and vulnerable children, and Ksh 6.5 million from HISP for persons with severe disabilities.
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The government initially launched HISP in 2014 to support these vulnerable groups under a cash transfer program managed by the State Department for Social Protection.
Suspicion was raised when neither the NHIF CEO nor the chairperson of the board addressed or explained the basis for IBNR claims in the NHIF’s 2021/22 annual report.
IBNR is typically used in the insurance industry to account for claims that have occurred but have not yet been reported, particularly in regions prone to natural disasters like the Gulf Coast of the U.S.
NHIF’s process for handling claims is done manually and through the Electronic Health Management Information System (EHMIS), which processes claims in real time. However, the petition highlights that NHIF’s system prevents the occurrence of IBNR claims since they are reported before treatment.
Muchere pointed out that there is no evidence of how Kenbright Actuarial and Financial Services was hired or how it determined the “claim-generating events.”
Interestingly, NHIF’s audited financial statements for 2020/21 and earlier did not feature any IBNR reserves, which only appeared in the financial year ending June 30, 2022.
Muchere also noted that the audited financial statements for 2020/21 were falsified to convert Ksh 12.31 billion of NHIF’s cumulative retained earnings into IBNR reserves.
The committee will investigate whether an “unorthodox restatement” of retained earnings was done in line with National Treasury requirements, where the 2019/20 retained earnings were adjusted from Ksh 18.25 billion to Ksh 2.9 billion to create Ksh 15.37 billion in IBNR claims reserves.
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Since there was no evidence of a sinking fund to deposit the retained earnings, it suggests that these entries were merely on paper.
The irregular payments led to a financial crisis within NHIF, which left the organization unable to cover medical bills for legitimate contributors, forcing many patients to go without treatment.
This fraudulent activity benefited fictitious patients, leaving many ill Kenyans in dire straits, said Muchere, calling on MPs to hold those responsible accountable.
The NHIF has since been renamed the Social Health Insurance Authority (SHIA) following a legislative amendment and is currently undergoing a transition.
Muchere, an expert in fraud risk assessment, highlighted the systemic fraud risks within NHIF that, if left unmanaged, will continue to expose the institution to financial theft and deepen patient suffering, regardless of the recent rebranding.
His analysis of NHIF’s annual reports and financial statements revealed no substantial evidence supporting the IBNR claims, which were fraudulently created to embezzle funds.
Parliament must determine whether the Health Cabinet Secretary approved the fraudulent claims, Muchere added.
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He warned that offsetting these fake IBNR claims with NHIF contributors’ funds resulted in a massive financial shortfall that caused NHIF to scale back its services drastically.
The petitioner requested Parliament compel the NHIF board and CEO to present accurate financial statements that reflect the actual state of affairs and to investigate which healthcare providers benefited from the IBNR claims.
If found inauthentic, Muchere urged the recovery of the stolen funds from these beneficiaries.
The MPs will also probe whether NHIF’s board developed and approved the IBNR claims, as this policy change triggered the multi-billion-shilling fraud.
The petition argues that the payment of these claims violated the Public Finance Management Act, the State Corporations Act, and the NHIF Act, all of which require the board to provide financial statements that give a true and fair view of the organization’s financial state.
The National Treasury faces scrutiny for requiring the creation of these ineligible IBNR claims, as documented in NHIF’s financial statements for the year ending June 30, 2022.
The petition also criticizes the Office of the Auditor-General for failing to verify if NHIF funds were lawfully and effectively used to settle the IBNR claims as mandated by the constitution.
MPs Shocked by Revelation of Sh21 Billion Siphoned from NHIF Coffers Through Fictitious Claims
