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I.

Introduction

Financial management is a vital element in any organization. There has been massive fund misappropriation in the National Health Insurance Fund. This is a government initiative whereby employees both in civil service and private sector make monthly installments. The monthly premiums are directly deducted from the registered individual. The fund is meant to cater for health bills for any outpatient services received when the individual falls ill. The organization entrusted to collect the money and subsequently disband it to foot a registered and compliant members bill when needed. It was identified to have developed loop holes. The financial management of the fund has been questionable lately. It therefore called for urgent review of the corporations books of accounts to ascertain the claims. This report will highlight and later give an insight into the funds financial statements. This will provide all the data that was collected to verify the allegations. The analysis therefore gave the indication of the mismanagement. Several weaknesses in the management team, the audit department and prevalent corruption in the corporation were identified as the causes for the lack of integrity. After in depth research and investigations conducted in the funds offices and management a conclusive facility analysis report was put down. This report proposed viable recommendation which if implemented would bring transparency and accountability in the corporation. The recommended changes in the audit wing, senior management overhaul and a scrutiny into the procurement and payments approval procedures of the company were received with reluctance. Further investigations were therefore proposed to be able to pin down the individuals responsible for the malfunction and misappropriation of funds.
a. Background

Following the emergence of the problems that were encountered at the companys head office regarding the squandered moneys, human rights bodies and transparency and integrity check associations sort to be provided with a report on the same. There were wrangles that arose between the relevant minister of public health and the management board then sitting for the corporation. Media had also fallen their hands on the matter and was found to air contradictory statements on the matter. A facility analysis report was the most preferred evidence since it would have credible information. During the investigations period the concerned departments were taken through a thorough financial analysis. The same was done in various hospitals that had presented invoices to the fund for reimbursements and offsetting the patients treatment bills. The hospitals were found to charge the patients who are registered with the fund exorbitantly. NHIF was also found to be lax on confirming the truth of on the invoices presented. The records inspected showed that the malpractice in the fund started less than a year ago when more hospitals and health centers were licensed by the company to offer medical care

Last name 2 services to registered citizens. This therefore lead to an abrupt increase in the data processed per day by the funds management. Such changes need counter mechanism to enable the fund manage such large information. It was identified that there was no notable improvement on the facilities or database management resources.
b. Purpose The objectives of this report was to come up with a detailed report on the problem that NHIF was facing whereby a portion of the contributed moneys was missing from the books of accounts. The report therefore presented the information collected, analyzed it, concluded the matter and gave recommendations. This was the structure of the report as will be evident. Data collected The Board of Directors was asked to convene a meeting to discuss the problem and identify practical solutions that would be implemented with effective results expected. During the meeting the finance director sort to have the finance manager, the chief accountant and the procurement accountant present the transactions log that had taken place in a period of 18 months prior to the meeting. The registrar was also asked to provide information regarding all the eligible health care facilities that had qualified and consequently had them registered. These facilities were entrusted to provide medical care, avail prescribed drugs and other specified form of treatment to registered members at the expense of the fund. The following data was presented in volumes but for purposes of the report the absolute summary was put into consideration. Table 1 PROVINCE NAIROBI CENTRAL COASTAL WESTERN NORTH EASTERN EASTERN RIFT VALLEY NYANZA NO. OF NEW HEALTH CENTERS 37 24 19 15 7 17 26 9

Table 1: showing the number of health centers absorbed into NHIF program The table above indicated the list and number of hospitals, health centers and clinics that NHIF has licensed to offer medical services to its members. The table indicated an large imbalance whereby there was unjustifiable registration of such facilities. The provinces that received the highest number of such facilities had already such hospital well distributed in the area within. A province like north eastern which is the biggest province in Kenya was deemed to be discriminated in registering such centers in the region.

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Table 2. Gross Income (Ksh) Less than 5,999 6,000 - 7,999 8,000 - 11,999 12,000 - 14,999 15,000 - 19,999 20,000 - 24,999 25,000 - 29,999 30,000 - 49,999 50,000 - 99,999 Over 100,000 Self Employed

Monthly Contribution (Ksh) 150 300 400 500 600 750 850 1000 1500 2000 500

No. of people per category 150000 200000 165000 250000 400000 650000 600000 470000 570000 420000 90000 4055000

Total (Kshs) 22,500,000.00 60,000,000.00 66,000,000.00 125,000,000.00 240,000,000.00 487,500,000.00 510,000,000.00 470,000,000.00 855,000,000.00 840,000,000.00 45,000,000.00 3,748,000,000.00

Table 2 showing the total monthly collection made NHIF It was found the Nairobi had received the largest number, yet it is the smallest in area of all the other provinces. Another fact is that of the 37 centers, 26 were privately owned. Each registered individual is supposed to provide his or her monthly earnings so that a certain amount is deducted to cater for the bills should one fall sick. The fund has three means of collecting the monthly subscription fee from its clients, either by directly deducting the salary from the bank, or the member can send his contribution through mobile money transfer or deposit the money at the funds bank account using his membership number. This gives the fund a large data to deal with every month. This was one of the causes of money loss since the larger the data was the higher the chances of errors arising. Constraints The research was faced with various barriers; the main was the unwillingness of the corporations senior staff to cooperate. This lead to some questions not answered. Some respondents also did not take the matter with seriousness and therefore ended up providing irrelevant information about the problem facing the companys finance department. The lack of accessible centralized data by the company was also a major challenge. This forced the research team to move from one office to another to seek a minor clarification. Analysis The total payments submitted to the NHIF by the members were found to exceed the total expenditures incurred by the insurance fund in every month. There was therefore extra money in the insurance funds account. The problem arose in the manner which the money was remitted to the clinics, hospitals and health centers. The information meant to give a clear audit of the money could not be easily traced. At this point the new clinics were investigated to ascertain the average number of patients they have been attending to prior to attaining the license from NHIF. The number was more by double. On further investigation it was found that the clinics were owned by some of the senior managers and directors at NHIF. This was the main cause of money laundering in the corporation.

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The analysis showed that the insurance fund directors were using their own clinics to siphon money from the fund leading to the realization as to why some of the documentations that showed the approval of payments to such clinics were not accessible. The information system at the NHIF was therefore deemed inefficient in fast tracking the cash received and cash spent so as to balance the books of accounts. Further the management has not addressed the problem with urgency. It has failed and hence the finance department needs to be restructured. Out of the 4 million people registered to benefit from the fund, 0nly 13% indicated satisfaction from the services the insurance fund offered. This was found to be a very low figure considering that the fund was dealing in a vital subject of health The information revealed on the financial crisis facing the fund also gave an insight as to why most patients have been opting to seek treatment from private hospitals. This is because the management does not keep up to date records of its members. The result of this has been to turn down some genuine members seeking the intervention of the fund to foot their hospital bills Findings The following were the findings of the analysis: The NHIF data management system was outdated and was not in any way able to be accountable and it has lead to lose of funds due to the inability to maintain clean records and statements. That more than Kshs. 30 million was inappropriately allocated to health centers that did not deserve it A number of the beneficially clinics were owned by the NHIF directors and used fraudulent means to steal from the company. The problem in the company was cited to be emanating from the management. It was therefore necessary to observe the recommendation that this report was to propose. Corruption was also a cause mismanagement of funds Conclusion The problem of financial misallocation was fully identified in the National Health Insurance Fund. The cause of the losses has made the fund to undergo a thorough Facility analysis to track the loopholes. After a thorough check into the financial audit the books were found not to balance as it was expected to do. The information system and database management of the fund were also found to be faulty. The system could not consolidate the information it ought to collect and organize. With such a system the fund could not track all its received and spent money. The database also lacks credibility in term of updating members profile causing a list of complaints from members whose bills could not be processed in time or were even rejected. The analysis has shown that there are weaknesses that had arisen from corruption among some management officers and directors. The corrupt deals could not be detected by the system. The audit reports presented to the board was a clear indication that if the situation was left unattended then the fund would run into a deeper financial crisis that would have made it incapable to meet its basic requirements. Recommendations From the information gathered and the analysis done, several recommendations were arrived at. These included: The analysis recommended immediate upgrade of the information system. Once all the information is deemed up to date, all the members were to be contacted to confirm their information log, either by electronic mail or in writing.

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The immediate disbandment or the then sitting board of directors was recommended. This would give the relevant bodies to conduct thorough investigations into the money problems experienced by the fund without interference. It was suggested that only the directors found clean of any allegation would be reinstated to continue running the fund. The accounting departments to be reshuffled to have the more competent accountants handle the large financial information and computations within the department. More analysis was also recommended to ensure that the failure in performance by NHIF was addressed in details.

Cited works http://www.nhif.or.ke/healthinsurance/ Michael, P. The Assurance versus Consulting Debate: How Far Should Internal Audit Go? Ministry Of Public Health and Sanitation, (2010).Republic Of Kenya ,Health Information System Policy