Auditor General flags SHA’s Ownership and Procurement Flaws

The government’s ambitious Ksh 104.8 billion Social Health Authority (SHA) project has come under intense scrutiny from Auditor General Nancy Gathungu. She exposes serious concerns about the project’s ownership structure, procurement process, and financial sustainability, raising alarms over its long-term viability and potential risks to public funds.

No Government Ownership

One of the most striking findings in the report is that, despite the massive public investment, the government does not actually own or control the SHA system. Instead, the infrastructure, software, and intellectual property rights remain in the hands of the private consortium contracted to implement it.

This arrangement, according to the Auditor General,  significantly limits the government’s oversight and authority over a crucial healthcare system funded by taxpayer money. Without ownership, Kenya risks being locked into long-term dependence on private entities, which could complicate policy implementation and system modifications.

Flawed Procurement Process Violates Constitutional Standards

Adding to the controversy, the report highlights that the contract was awarded through a Specially Permitted Procurement Procedure, bypassing the standard competitive bidding process. This move directly contradicts Article 227(1) of the Kenyan Constitution, which mandates fair, transparent, and cost-effective procurement practices.

Additionally, the SHA project was not included in Kenya’s procurement plan or the medium-term budgetary expenditure framework. This omission violates Section 53(7) of the Public Procurement and Asset Disposal Act of 2015, raising further concerns about due diligence in managing public funds.

Unverified Revenue Projections 

The financing model for the SHA system anticipates generating Ksh 111 billion over a decade, relying on member contributions, healthcare facility claims, and track-and-trace service charges. However, the Auditor General’s report notes that these projections lack a supporting baseline survey, leaving critical questions about the model’s feasibility unanswered.

A particularly contentious aspect is the decision to deduct 5% from health facility claims, which effectively increases healthcare costs for citizens. The report warns that such deductions could translate into additional charges for patients, making healthcare access more expensive over time.

Transparency Concerns Over Revenue Management

Further compounding transparency concerns, the contract stipulates that SHA revenues must be transferred to an escrow account either daily or weekly. However, the agreement does not disclose who the signatories of this account are, creating accountability gaps and potential risks of mismanagement.

Restrictions on Government Innovation and Legal Jurisdiction Issues

Another contentious clause in the contract prohibits the government and public health agencies from developing a competing system. This restriction curtails Kenya’s ability to innovate or adopt alternative healthcare management solutions in the future, potentially stifling technological progress in the sector.

Moreover, any disputes arising under the contract are set to be resolved by the London Court of International Arbitration, effectively sidelining Kenya’s local legal mechanisms. This raises concerns about sovereignty and the government’s ability to navigate legal challenges on its own terms.

Management Failures and Noncompliance with Employment Laws

Beyond procurement and financial concerns, the Auditor General’s report also flags critical management issues within the SHA. The review found that 386 employees were receiving less than a third of their basic salary as net pay, contravening Section 19(3) of the Employment Act, 2007.

Additionally, the report reveals that only 2.3% of SHA employees are persons with disabilities—far below the 5% inclusion threshold required by public service policies. This failure to meet diversity and inclusion targets further highlights governance shortcomings in the project’s execution.

The findings from the Auditor General’s report paint a worrying picture of a high-stakes healthcare initiative marred by ownership disputes, questionable procurement practices, and financial uncertainties.

The Social Health Authority (SHA) is a newly established entity in Kenya designed to oversee the implementation of the country’s universal health coverage (UHC) framework. It replaces the National Health Insurance Fund (NHIF) and is mandated to manage contributions, claims, and overall healthcare financing under the government’s social health insurance model.

About Social Health Authority (SHA) 

SHA was introduced as part of broader healthcare reforms aimed at improving access to affordable and quality medical services for all Kenyans. The system is expected to streamline health insurance administration, ensure sustainable funding, and enhance service delivery across public and private healthcare providers.

However, the project has faced criticism over its procurement process, financial model, and governance structure, as highlighted in the Auditor General’s recent report. Concerns around ownership, transparency, and increased costs for citizens continue to fuel public debate on the effectiveness and long-term viability of SHA.